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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1999
Commission file number 333-26497
TRAVELCENTERS OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3856519
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24601 Center Ridge Road, Suite 200
Westlake, OH 44145-5634
(Address of principal executive offices, including zip code)
(440) 808-9100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of March 15, 2000, there were outstanding 881,059 shares of Common Stock, par
value $0.01 per share. The outstanding shares of Common Stock of the registrant
were issued in transactions not involving a public offering. As a result, there
is no public market for the registrant's Common Stock.
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INDEX
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PART I
Item 1. Business......................................................................................2
Item 2. Properties...................................................................................10
Item 3. Legal Proceedings............................................................................11
Item 4. Submission of Matters to a Vote of Security Holders..........................................12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................12
Item 6. Selected Financial Data......................................................................13
Item 7. Management's Discussion and Analysis.........................................................15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................25
Item 8. Financial Statements and Supplementary Data..................................................26
Item 9. Changes in and Disagreements With Accountants................................................61
PART III
Item 10. Directors and Executive Officers of the Registrant...........................................62
Item 11. Executive Compensation.......................................................................62
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................62
Item 13. Certain Relationships and Related Transactions...............................................62
PART I
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................63
SIGNATURES .............................................................................................65
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PART I
ITEM 1. BUSINESS
BUSINESS OVERVIEW
TravelCenters of America, Inc. (the "Company") owns, operates and
franchises more full-service travel centers in the United States than any of its
competitors, with 158 network sites located in 40 states nationwide, including
118 Company operated locations (the "Network"). The Company's travel centers are
full service facilities offering a broad range of fuel and nonfuel products,
services and amenities to trucking fleets, professional truck drivers and other
motorists. In addition to diesel fuel and gasoline, the travel centers provide
truck maintenance and repair services and products, full service and quick serve
restaurant ("QSR") dining, travel and convenience stores, telecommunications
services and various hospitality and rest-related amenities. This broad range of
products and services distinguishes the travel centers from traditional
truckstops, which focus on the sale of diesel fuel, and provides diverse revenue
sources for the Company. In addition, the Company is the only industry
participant with a centralized procurement, warehousing and distribution system.
The Company owns 147 of the sites in its Network and the other eleven sites are
owned by independent franchisees.
The Company's broad range of products and services, together with its
comprehensive geographic coverage, has enabled the Company to become a leading
supplier of diesel fuel to many of the largest long-haul trucking fleets in the
United States. Management believes the Company's position as a leading supplier
of diesel fuel to major trucking fleets positions it to continue to increase its
sales of higher margin nonfuel products and services to fleets and their drivers
as well as to independent drivers.
The travel centers feature a variety of well recognized national brands
which attract professional truck drivers, motorists and other customers who
often satisfy both fuel and nonfuel needs at the same stop. The Company's
nationally recognized QSR and motel brands include Burger King, Popeye's
Chicken, Dunkin' Donuts, Pizza Hut, Sbarro, Subway, Taco Bell, DayStop, HoJo
Inn, Rodeway and Travelodge. The Company also offers such well recognized
gasoline brands as Amoco, Arco, BP, Chevron, Conoco, Exxon, Mobil, Shell and
Unocal 76. This portfolio of brands strongly appeals to what market research
indicates are customers' priorities of quality, convenience and consistency of
product offerings, as well as cleanliness and safety.
HISTORY AND ORGANIZATION
The Company was formed in 1992 by an institutional investor group (the
"Investor Group") led by The Clipper Group, L.P. ("Clipper"), as well as certain
then prospective franchisees and individuals who at the time were members of the
Company's management. The Company was originally incorporated as National
Auto/Truckstops Holdings Corporation but changed its name in March 1997. The
Company is a holding company whose sole assets consist of the stock of its four
direct wholly-owned subsidiaries: TA Operating Corporation, d/b/a TravelCenters
of America ("TA"), National Auto/Truckstops, Inc. ("National"), TA Franchise
Systems, Inc. ("TAFSI") and TA Licensing, Inc. ("TA Licensing"). TA has one
wholly-owned subsidiary, TA Travel, L.L.C. ("TA Travel"). Prior to March 1997,
the Company had two wholly-owned subsidiaries, National and TA Holdings
Corporation ("TA Holdings"). TA Holdings was the parent of TA, which itself was
the parent of TAFSI. In March 1997, a restructuring was completed whereby the
current structure was effected and TA Holdings was merged into the Company. TA
Travel was organized in October 1997. TA Licensing was acquired in June 1999.
The Company's operations are conducted through three distinct types of
travel centers: sites owned or leased by the Company and operated by the Company
("Company-operated Sites"), sites owned or leased by the Company and leased to
independent lessee-franchisees ("Operators") of the Company who operate the
sites ("Leased Sites") and sites owned or leased and operated by independent
franchisees ("Franchisee-Owners") of the Company ("Franchisee-Owner Sites").
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In April 1993, the Company acquired (the "National Acquisition") the
truckstop network assets (the "National Network") of a subsidiary of Unocal
Corporation (together with its subsidiaries "Unocal") in a series of asset
purchase transactions. The National Network included a total of 139 facilities,
of which 95 were Leased Sites, 42 were Franchisee-Owner Sites, and two sites
were Company-operated Sites. As part of the National Acquisition, Unocal agreed
to indemnify the Company against certain environmental liabilities occurring
prior to 1993 (the "Unocal Environmental Agreement," see
"-Regulation-Environmental Regulation"), entered into a noncompetition agreement
for a ten-year period terminating on April 13, 2003, granted the Company a
license to use certain Unocal trademarks, and granted the Company a royalty-free
license to use the ACCESS on-line information retrieval and credit card system.
The National Network, which operates under the licensed "Unocal 76" and related
trademarks, has been providing quality products and services for over 35 years
and until 1997 had been the largest chain of full service travel centers or
truckstops, based on number of locations in the United States. Pure Oil Company
("Pure") founded the National Network and Unocal acquired the National Network
in connection with Unocal's merger with Pure in 1965.
In December 1993, the Company acquired (the "TA Acquisition") the
truckstop network assets (the "TA Network") of certain subsidiaries of The
British Petroleum Company p.l.c. (together with its subsidiaries "BP"). The TA
Network included 38 Company-operated Sites and six Franchisee-Owner Sites. As
part of the TA Acquisition, BP agreed to indemnify the Company against certain
environmental liabilities with respect to which claims are made prior to
December 11, 2004 or December 11, 1996 (the relevant date depending upon the
nature of the underlying claim) ( the "BP Environmental Agreement," see
"-Regulation-Environmental Regulation"), entered into a noncompetition agreement
for a seven-year period commencing on December 10, 1993 and granted the Company
the right, title and interest in and to certain copyrights, trademarks, service
marks and other intellectual property, including, "Truckstops of America," "TA"
and "Country Pride." The TA Network, which now operates under the Company-owned
"TravelCenters of America" and "TA" trademarks, has been providing quality
products and services to the trucking industry and to nonprofessional travelers
for over 30 years, and is now the largest chain of full service travel centers
or truckstops, based on number of locations in the United States. BP, through
its subsidiary formerly known as The Standard Oil Company of Ohio ("Sohio"),
acquired TA from Ryder System, Inc. ("Ryder") in 1984. Ryder founded the TA
Network in 1973.
In December 1998, the Company acquired (the "Burns Acquisition")
substantially all of the truckstop network assets (the "Burns Network") of Burns
Bros., Inc. and certain of its affiliates (collectively "Burns"). Specifically,
the Company acquired from Burns the land, buildings, equipment and inventories
at 17 of the 19 sites comprising the Travel Stops division of Burns (the two
remaining sites were closed by Burns); the equipment and inventory used in
Burns' fuel wholesaling and transportation businesses and certain accounts
receivable related to the acquired assets. The 17 acquired sites are located in
9 western and north western states.
Effective June 1, 1999, the Company entered into a merger agreement
pursuant to which the Company acquired (the "TPOA Acquisition") 100% of the
stock of Travel Ports of America, Inc. ("TPOA"). TPOA operated a network (the
"TPOA Network") of 16 travel centers in seven states, primarily in the
northeastern U.S. Upon consummation of the merger, TPOA's subsidiary, Travel
Ports Systems Inc. (now known as TA Licensing), became a direct subsidiary of
the Company by way of a dividend to the Company and TPOA was merged into TA.
In July 1999, the Company signed an agreement with Freightliner
Corporation ("Freightliner") to become an authorized provider of express
service, minor repair work and a specified menu of warranty repairs to
Freightliner's customers (the "ServicePoint Program"). Under the agreement, the
Company's truck repair facilities are being added to Freightliner's 24-hour
customer assistance center database to be a major referral point for emergency
and roadside repairs and also have access to Freightliner's parts distribution,
service and technical information systems. Freightliner, a DaimlerChrysler
Company, is the leading heavy truck manufacturer in North America. Freightliner
also acquired a minority ownership interest in the Company.
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COMBINATION PLAN AND CAPITAL PROGRAM
Historically, under the Company's ownership, each of the TA and
National Networks (the "Existing Networks") was separately managed and financed.
However, in January 1997 the Company's Board of Directors approved a management
proposal (the "Combination Plan") to integrate the Existing Networks into a
single network (the "Network") to be operated under the TA trademark under the
leadership of a single management team.
From 1997 through 1999 the Company, pursuant to the Combination Plan,
significantly reshaped the composition of the Existing Networks as follows:
- 32 Leased Sites were converted to Company-operated Sites, five
during 1998 and 27 during 1997,
- 27 Franchisee-Owner Sites were terminated, all during 1997,
- 22 Company-Owned Sites were sold, five during 1999, two during
1998 and 15 during 1997,
- All National Network Company-operated Sites were converted to
TA Network Company-operated Sites during 1997,
- Operators of 30 National Network Leased Sites terminated their
franchise agreements with National and signed franchise
agreements with TAFSI, one in 1999 and 29 in 1997.
Consequently, and giving effect to the Burns Acquisition and the TPOA
Acquisition, as of December 31, 1999, the Company's Network was comprised of 158
sites, of which only one continued to operate under a National franchise
agreement.
In 1997, the Company initiated a capital program to upgrade, rebrand
and reimage the Network's travel centers and to build new travel centers (the
"Capital Program"). Under this Capital Program, as revised as a result of the
Burns Acquisition and the TPOA Acquisition, the Company intends to invest
approximately $340 million in the Network's sites by the end of 2001, with $237
million having been spent by the end of 1999. The Operators and
Franchisee-Owners will also be investing additional amounts for reimaging and
other projects at the sites they operate.
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The following table summarizes the changes in the composition of the Network
since the Combination Plan and Capital Program were implemented.
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COMPANY- FRANCHISEE-
OPERATED LEASED OWNER TOTAL
SITES SITES SITES SITES
-------------- -------------- -------------- --------------
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Number of sites at December 31, 1996 58 77 35 170
1997 Activity:
-New sites - - 1 1
-Conversions of Leased Sites to
Company-operated Sites 27 (27) - -
-Sales of sites - (15) - (15)
-Terminations of Franchisee-
Owner Sites - - (27) (27)
------ ------ ------ -----
Number of sites at December 31, 1997 85 35 9 129
1998 Activity:
-New sites - - 1 1
-Conversions of Leased Sites to
Company-operated Sites 5 (5) - -
-Sales of sites (2) - - (2)
-Burns Acquisition 17 - - 17
------ ------ ------ ----
Number of sites at December 31, 1998 105 30 10 145
------ ------ ------ -----
1999 Activity:
-New sites 2 - 1 3
-Sales of sites (4) (1) - (5)
-TPOA Acquisition 16 - - 16
------ ------ ------ ----
Number of sites at December 31, 1999 119 29 11 159
Closed sites (held for development) (1) - - (1)
Closed sites (held for sale) (2) - - (2)
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Number of operating sites at
December 31, 1999 116 29 11 156
New sites under development 2 - - 2
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Total sites at December 31, 1999 118 29 11 158
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REFINANCINGS
To facilitate the Combination Plan and Capital Program, in March 1997
the Company refinanced the existing indebtedness of TA and National with new
borrowings by the Company (the "1997 Refinancing"). The Company issued $125
million aggregate principal amount of 10 1/4% Senior Subordinated Notes due
2007, entered into a Credit Agreement through which it obtained an $80 million
senior secured term loan facility (the "Term Loan") and a $40 million revolving
credit facility, redeemed all of the then outstanding Subordinated Notes of TA
and National, respectively, and a portion of the Senior Notes of TA (the "TA Old
Senior Notes"), and, pursuant to a Senior Secured Note Exchange Agreement,
exchanged $85.5 million aggregate principal amount of Senior Secured Notes
($35.5 million of Series I Senior Secured Notes and $50 million of Series II
Senior Secured Notes) of the Company for the Senior Notes of National and the
unredeemed TA Old Senior Notes.
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In order to complete the Burns Acquisition and facilitate future
Network growth and development, including the TPOA Acquisition, in December 1998
the Company increased the Term Loan by $150 million (the "1998 Refinancing"). Of
the total amount borrowed, $50 million was utilized to retire the Company's
Series II Senior Secured Notes and $42 million was utilized during 1999 to
partially fund the TPOA Acquisition and to fund other planned capital
expenditures. See "Liquidity and Capital Resources" in Item 7 for further
discussion of the 1998 Refinancing.
SUPPLY
The Company purchases fuel from various suppliers at rates that
fluctuate with market prices and reset daily, and resells fuel to certain
franchisees and to the public at prices that the Company establishes daily. By
contracting for only a portion of its monthly diesel fuel requirements and by
establishing supply relationships with an average of four or five alternate
suppliers per location, the Company has been able effectively to create
competition for the Company's business among the Company's various diesel fuel
suppliers on a daily basis. This flexibility has improved the Company's
purchasing position and helped it partially to offset the decline in retail
diesel fuel margins. Other than pipeline tenders, fuel purchases made by the
Company are delivered directly from suppliers' terminals to the travel centers.
The Company operates a small fleet of tankers to haul fuel to certain of its own
sites and to deliver supply to a select number of wholesale customers, but
contracts with common carriers for the majority of its fuel hauling needs. The
Company does not keep substantial quantities of fuel in inventory and is
therefore susceptible to price increases and interruptions in supply. In the
western United States the Company utilizes pipeline tenders and leased terminal
space to mitigate the risk of supply disruptions, while in the eastern United
States the Company owns and operates its own product terminal for this purpose.
The Company currently engages in only minimal hedging in connection with its
fuel purchases.
CENTRALIZED PURCHASING AND DISTRIBUTION
The TA Network maintains a dedicated distribution and warehouse center
(the "Distribution Center"). The Distribution Center is the only dedicated
purchasing, warehousing and distribution center in the travel center and
truckstop industry. The Distribution Center is located in Nashville, Tennessee
and has approximately 85,000 square feet of storage space.
COMPETITION
The travel center and truckstop industry is highly competitive and
fragmented. Based on industry data, the Company believes that there are
approximately 2,500 travel centers and truckstops nationwide, of which only
approximately 830 are sites within the 10 chains that operate 25 or more sites
and are therefore capable of providing at least regional coverage to trucking
fleet customers. In the United States, there are generally two types of
facilities designed to service the trucking industry: pumper-only truckstops,
which provide fuel, typically at discounted prices, with limited additional
services, and full service travel centers, such as those in the Company's
networks, which offer a broad range of products and services to fleet and
independent truck drivers and nontruck traffic, including fuel products, fast
food and casual dining restaurants; truck maintenance and repair products and
services; other driver amenities; and secure parking areas. Of the 2,500 sites
across the nation, only approximately 500 are considered full-service
facilities. Fuel and nonfuel products and services can be obtained by long-haul
truck drivers from a wide variety of sources other than the Company, including
regional full service travel center and pumper-only truckstop chains,
independently owned and operated truckstops, some large service stations and
fleet-operated fueling terminals.
The Company believes that it experiences substantial competition from
pumper-only truckstop chains and that such competition is based principally on
diesel fuel prices. In the pumper-only truckstop segment, the largest networks
(based on number of facilities and gallons of diesel fuel sold) are Marathon
Ashland Petroleum LLC, selling primarily under the Speedway and SuperAmerica
brandnames, and Pilot Corporation. Additional substantial competition is
experienced from major full service networks and independent chains and is based
principally on diesel fuel prices, nonfuel product and service offerings and
customer service. In the full service travel center
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segment, the largest networks (other than the Company) are operated by Flying J
Inc. ("Flying J") and Petro Stopping Centers, L.P.; however, only some of Flying
J's sites offer full service. The Company's vehicle products and truck
maintenance and repair service operations compete with regional full service
travel center and truckstop chains, full service independently owned and
operated truckstops, fleet maintenance terminals, independent garages, truck
dealerships and auto parts service centers. The Company's travel centers compete
with a variety of establishments located within walking distance of its sites,
including full service restaurants, QSRs and electronics, drug, health and
beauty aid and travel and convenience stores.
A significant portion of all intercity diesel fuel consumption by
fleets and companies with their own trucking capability occurs through
self-fueling at both dedicated terminals and at fuel depots strategically
located across the country. Such terminals often provide facilities for truck
maintenance and repair. The Company's pricing decisions for diesel fuel and
repair services cannot be made without considering the existence of these
operations and their capacity for expansion. However, the Company believes that
a trucking industry trend has been to reduce the use of such terminals and to
outsource fuel and repair services in order to maximize the benefits of
competitive fuel pricing, superior driver amenities and reduced environmental
compliance expenditures.
RELATIONSHIPS WITH THE OPERATORS AND FRANCHISEE-OWNERS
Pursuant to the Combination Plan, the Company offered a new TAFSI
franchise agreement (the "Network Franchise Agreement") and a new lease
agreement (the "Network Lease Agreement" or "Network Lease" and, together with
the Network Franchise Agreement, the "Network Agreements") to certain of
National's then existing Operators, and in connection therewith, upon such
franchisee's acceptance of such offer, terminated the then existing National
lease (the "National Lease Agreement") and National franchise agreement (the
"National Franchise Agreement," and, together with the National Lease Agreement,
the "National Agreements") at those locations. During 1997, 29 former National
Operators signed Network Agreements with the Company. During 1999, one of the
two remaining National Operators signed a Network Franchise Agreement with the
Company. Existing TA Franchisee-Owners will be allowed to continue their
franchises under the Network Franchise Agreement upon expiration of their
existing TA franchise agreements (the "Existing TA Franchise Agreements"), which
have an average remaining term of approximately seven years.
TA Licensing licenses its trademarks to the Company, TA and TAFSI. The
Company enters into its franchise agreements with Operators and
Franchisee-Owners of travel centers in the TA Network through TAFSI, and TAFSI
collects franchise fees and royalties under such agreements. TAFSI's assets
consist primarily of the rights under the Existing TA Franchise Agreements, the
Network Franchise Agreements and its trademark licenses from TA Licensing. TAFSI
has no significant tangible assets. The National Franchise Agreement is between
National and the respective Operator.
REGULATION
Franchise Regulation. The relationship between National and the
National Network Operator is governed by the Petroleum Marketing Practices Act
(the "PMPA"), 15 U.S.C. Section 2801 et.seq. The relationship between TAFSI and
the TA Network Operators and Franchisee-Owners is not governed by the PMPA
because TAFSI does not license its franchisees to sell fuel under a refiner's
brand. Among other things, the PMPA limits the circumstances under which
franchisors such as National may terminate or fail to renew a franchise
agreement, and it imposes notification and other requirements in those cases
where termination or nonrenewal is permissible.
National and TAFSI are also subject to state franchise laws, some of
which require National and TAFSI to register with the state before it may offer
a franchise, require National and TAFSI to deliver specified disclosure
documentation to potential franchisees, and impose special regulations upon
petroleum franchises. Some state franchise laws also impose restrictions on
National's and TAFSI's ability to terminate or not to renew its respective
franchises, and impose other limitations on the terms of the franchise
relationship or the conduct of the franchisor.
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The PMPA, which applies to the National Network Operator, preempts state laws
with respect to termination or nonrenewal unless such laws are consistent with
the PMPA. Finally, a number of states include, within the scope of their
petroleum franchising statutes, prohibitions against price discrimination and
other allegedly anticompetitive conduct. These provisions supplement applicable
antitrust laws at the federal and state levels.
The Company is subject to regulation under the Federal Trade Commission
("FTC") rule entitled "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures," and the FTC requires that
franchisors make extensive disclosure to prospective franchisees but does not
require registration.
The Company cannot predict the effect of any future federal, state, or
local legislation or regulation on its franchising operations.
Environmental Regulation. The Company's operations and properties are
subject to extensive regulation pursuant to federal, state and local laws,
regulations and ordinances ("Environmental Laws") that (i) govern activities and
operations that may have adverse environmental effects, such as discharges to
air, soil and water, as well as handling, storage and disposal practices for
petroleum products and other hazardous and toxic substances ("Hazardous
Substances") or (ii) impose liability and damages for the costs of cleaning up
sites affected by, and for damages resulting from, past spills and disposal or
other releases of Hazardous Substances.
The Company owns and uses underground storage tanks ("USTs") and
aboveground storage tanks ("ASTs") at Company-operated Sites and Leased Sites to
store petroleum products and waste. These tanks must comply with requirements of
Environmental Laws regarding tank construction, integrity testing, leak
detection and monitoring, overfill and spill control, release reporting,
financial assurance and corrective action in case of a release from a UST or AST
into the environment. At certain locations, the Company also is subject to
Environmental Laws relating to vapor recovery and discharges to water. The
Company has made necessary upgrades to USTs to comply with federal regulations
that took effect on December 22, 1998, and believes that all of its travel
centers, including those acquired in the Burns Acquisition and the TPOA
Acquisition, are in material compliance with applicable requirements of
Environmental Laws.
The Company has received notices of alleged violations of Environmental
Laws, or is aware of the need to undertake corrective actions to comply with
Environmental Laws, at Company-owned travel centers in a number of
jurisdictions. The Company does not expect that any financial penalties
associated with these alleged violations, instances of noncompliance, or
compliance costs incurred in connections therewith, will be material to the
Company's results of operations or financial condition. The Company is
conducting investigatory and/or remedial actions with respect to releases and/or
spills of Hazardous Substances that have occurred subsequent to the National
Acquisition and the TA Acquisition. While the Company cannot precisely estimate
the ultimate costs it will incur in connection with the investigation and
remediation of these properties, based on its current knowledge, the Company
does not expect that the costs to be incurred at these properties, individually
or in the aggregate, will be material to the Company's results of operations or
financial condition. While the aforementioned matters are, to the best knowledge
of the Company, the only proceedings for which the Company is currently exposed
to potential liability (particularly given the Unocal and BP indemnities
discussed below), there can be no assurance that additional contamination does
not exist at these or additional network properties, or that material liability
will not be imposed in the future. If additional environmental problems arise or
are discovered, or if additional environmental requirements are imposed by
government agencies, increased environmental compliance or remediation
expenditures may be required, which could have a material adverse effect on the
Company.
In connection with the National Acquisition, Phase I environmental
assessments of the then 97 Company-owned National Network properties were
conducted. Pursuant to the Unocal Environmental Agreement, Phase II
environmental assessments of all such National properties were completed by
Unocal by December 31, 1998. The Unocal Environmental Agreement provides that
Unocal is responsible for all costs incurred for remediation of environmental
contamination (the remediation must achieve compliance with the Environmental
Laws in effect on the date the remedial action is completed) and for otherwise
bringing the properties into compliance with
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Environmental Laws (as in effect at the date of the National Acquisition) with
respect to environmental contamination or non-compliance identified in the Phase
I or Phase II environmental assessments, which environmental contamination or
non-compliance existed on or prior to the date of the National Acquisition.
Under the terms of the Unocal Environmental Agreement, Unocal also must
indemnify the Company against any other environmental liabilities that arise out
of conditions at, or ownership or operations of, the National Network prior to
the date of the National Acquisition. Pursuant to the Unocal Environmental
Agreement, Unocal is obligated to indemnify the Company for claims made before
April 14, 2004. Except as described above, Unocal does not have any
responsibility for any environmental liabilities arising out of the ownership or
operations of the National Network after the date of the National Acquisition.
There can be no assurance that, if additional environmental claims or
liabilities were to arise under the Unocal Environmental Agreement, Unocal would
not dispute the Company's claims for indemnification thereunder.
Prior to the TA Acquisition, all of the then 38 TA locations were
subject to Phase I and Phase II environmental assessments, undertaken at BP's
expense. The BP Environmental Agreement provides that, with respect to
environmental contamination or non-compliance with Environmental Laws identified
in the Phase I or Phase II environmental assessments, BP is responsible for all
costs incurred for remediation of such environmental contamination (the
remediation must achieve compliance with the Environmental Laws in effect on the
date the remedial action is completed) and for otherwise bringing the properties
into compliance with Environmental Laws (as in effect at the date of the TA
Acquisition). The BP Environmental Agreement further provides that BP must
indemnify the Company against any other environmental liabilities that arise out
of conditions at, or ownership or operations of, the TA locations prior to the
date of the TA Acquisition. With respect to liabilities relating to the
investigation and remediation of environmental contamination, BP is obligated to
indemnify the Company for liabilities with respect to which claims are made
before December 11, 2004. With respect to liabilities otherwise relating to
non-compliance with Environmental Laws (for example, equipment), BP is obligated
to indemnify the Company for liabilities with respect to which claims were made
before December 11, 1996. Except as described above, BP does not have any
responsibility for any environmental liabilities arising out of the ownership or
operations of the TA Network after the date of the TA Acquisition. There can be
no assurance that, if additional environmental claims or liabilities were to
arise under the BP Environmental Agreement, BP would not dispute the Company's
claims for indemnification thereunder.
In connection with the Burns Acquisition, all of the 17 sites acquired
were subject to Phase I environmental assessments. Based on the results of those
assessments, nine of the sites were subject to Phase II environmental
assessments. The purchase price paid to Burns was adjusted based on the findings
of the Phase I and Phase II environmental assessments. Under the asset purchase
agreement with Burns (the "Burns Agreement"), the Company released Burns from
any environmental liabilities that may have existed as of the Burns Acquisition
date, other than certain non-waived environmental claims as specified in the
Burns Agreement.
In connection with the TPOA Acquisition, all of the 16 sites acquired
were subject to Phase I environmental assessments. Based on the results of those
assessments, five of the sites were subject to Phase II environmental
assessments. The results of these assessments were taken into account in
recognizing the related environmental contingency accrual for purchase
accounting purposes.
Other Regulation. The Company, the Operators and the Franchisee-Owners
are required to comply with federal, state and local government regulations
applicable to service station and lubrication operations and consumer food
services businesses generally, including those relating to the preparation and
sale of food, minimum wage requirements, overtime, working, health, fire, safety
and sanitation conditions, mandated health insurance coverage and citizenship
requirements, as well as regulations relating to zoning, construction, business
licensing and employment. The Company believes that it is in material compliance
with the provisions applicable to it and has no knowledge of material violations
of these provisions by its Operators and Franchisee-Owners.
9
<PAGE> 11
EMPLOYEES
As of December 31, 1999, the Company employed approximately 11,000
people on a full- or part-time basis. Of this total, approximately 10,630 are
employees at the Company-operated Sites and in fuel transportation,
approximately 300 perform managerial, operational or support services at the
headquarters or elsewhere and approximately 70 employees staff the Distribution
Center. All of the Company's employees are non-union.
ITEM 2. PROPERTIES
The Company's principal executive offices are leased and are located at
24601 Center Ridge Road, Suite 200, Westlake, Ohio 44145-5634. The Distribution
Center is a leased 85,000 square foot facility located at 1450 Gould Boulevard,
LaVergne, Tennessee 37086-3535.
Of the 158 Network locations as of December 31, 1999, 118 are
Company-operated Sites, 29 are Leased Sites and the remaining 11 sites are not
owned by the Company. In addition to these operating travel center locations,
the Company has two closed travel center facilities being held for sale and one
closed site being held for future development. Of these total 147 owned sites,
the land and improvements at nine are leased, the improvements but not the
land at four are leased, three are subject to ground leases of the entire site
and seven are subject to ground leases of portions of such sites. The Company
considers its facilities suitable and adequate for the purposes for which they
are used.
Each of the Company's travel centers is a full service facility located
on or near an interstate highway and identified with TA, Unocal 76, Burns Bros.
Travel Stops or Travel Port signage. As part of the Combination Plan and Capital
Program, substantially all National Network, Burns Network and TPOA Network
travel centers that have been added to the Network have been rebranded under the
TA trademark or will be so rebranded during 2000. All fuel and nonfuel products
and services are generally available 24 hours per day and 365 days per year at
all Network locations.
Property. The layouts of the Company-owned travel centers vary from
site to site. Generally, the Company-owned facilities are located on properties
averaging 22 acres, of which an average of approximately 19 acres are developed.
The majority of the developed acres contain the main building, housing one or
more restaurants, a travel and convenience store and driver amenities, a truck
maintenance and repair shop, separate truck and car fuel islands, separate truck
and car paved parking and, in some cases, motels. The remaining developed acres
contain landscaping and access roads.
Fuel Islands. Company sites have diesel fuel islands that accommodate
ten pumps on average, most of which are dual fill pumps that can fill each of a
typical truck's two tanks simultaneously. In addition, travel centers generally
have a gasoline island which can accommodate four to eight automobiles
simultaneously. Certain locations also have one and sometimes two additional
convenience stores located at the fuel islands.
Truck Maintenance and Repair Shop. Other than at the Burns Network and
TPOA Network sites, virtually all of the Company's travel centers have truck
maintenance and repair shops which operate 24 hours per day and 365 days per
year. Currently, only five Burns Network sites and 11 TPOA Network sites include
truck maintenance and repair shops. The typical travel center repair shop has
between two and four service bays, a parts storage room and fully trained
mechanics on duty at all times. These shops offer extensive maintenance and
emergency repair and road services, from basic services such as oil changes and
tire repair to specialty services such as diagnostics and repair of air
conditioning, air brake and electrical systems.
In July 1999, TA entered into an operating agreement with Freightliner
to brand the TA truck repair shops as Freightliner ServicePoint facilities. As
ServicePoint facilities, the TA shops are authorized to perform a limited menu
of warranty repairs on trucks purchased from Freightliner and are being added to
Freightliner's 24-hour customer assistance center database to be a major
supplier of emergency and roadside repairs. TA shop employees
10
<PAGE> 12
also have access to Freightliner's parts distribution, service and technical
information systems. This program is being implemented in a phased approach over
several months and is expected to be fully implemented by the end of 2000. As
part of the implementation at a TA site, the TA shop employees are trained at
Freightliner's training center, the necessary Freightliner systems software and
hardware are installed and the ServicePoint signage is installed. At December
31, 1999, there were 37 TA sites operating in the ServicePoint program.
Main Building. The main building at each travel center contains a full
service restaurant and, in many instances, one or more QSRs; a travel and
convenience store; a fuel desk; driver amenity areas, including a lounge,
television room, private showers and laundry; and ATM machines, as well as
office space and training rooms for the employees of the travel center.
Full Service and Fast Food Restaurants. Substantially all Company
travel centers have full service restaurants that offer seating for an average
of approximately 140 customers. The Network has associated its full service
restaurants with the Company-owned "Country Pride," "Buckhorn Family
Restaurants" and "Mrs. B's" brand names. The Company has also promoted the
installation of nationally branded fast food restaurants, such as Burger King,
Popeye's Chicken, Dunkin' Donuts, Pizza Hut, Sbarro, Subway and Taco Bell at its
travel centers. The Company generally attempts to locate QSR offerings within
the main travel center building (as opposed to constructing stand-alone
buildings). As of December 31, 1999, 89 of the 147 Company-owned travel centers
offered at least one branded QSR.
Travel and Convenience Store. Each travel center has a travel and
convenience store that caters to truck drivers, motorists, recreational vehicle
and bus customers. The travel and convenience stores sell food and snack items,
beverages, non-prescription drug and beauty aids, batteries, automobile
accessories, music and audio products. In addition to complete convenience store
offerings, the travel and convenience stores also sell items specifically
designed for the truck driver's on-the-road lifestyle, including laundry
supplies and clothing as well as truck accessories. The typical Company-owned
store averages approximately 1,700 square feet.
Motels. Twenty-one of TA's travel centers currently have Company-owned
motels, with an average capacity of 35 rooms. Fifteen of these motels are
operated under franchise grants from nationally branded motel chains, including
DayStop, HoJo Inn, Super 8, Rodeway and Travelodge. The remaining six motels are
TA branded motels.
Additional Services. Most TA travel centers provide professional
drivers with access to specialized business services, including an information
center where drivers can send and receive faxes, overnight mail and other
communications, and a banking desk where drivers can cash checks and receive
funds transfers from fleet operators. Most sites have installed telephone rooms
with 20 to 25 pay telephones with AT&T long distance service. To meet the
personal needs of truck drivers, the typical travel center has designated "truck
driver only" areas, including a television room with a VCR and comfortable
seating for drivers, a barber shop, a laundry area with washers and dryers, 6 to
12 private showers and dressing rooms. Certain travel centers located in
Louisiana, Nevada and Oregon also feature gaming operations. All travel centers
have truck scales.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of its business. Management believes the
Company is not now involved in any litigation, individually, or in the
aggregate, which could have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.
11
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market information. The outstanding shares of Common Stock of
the registrant were issued in transactions not involving a
public offering. As a result, there is no public market for
the registrant's Common Stock.
(b) Holders. As of March 15, 2000, the outstanding shares of
Common Stock were held of record by 52 stockholders, of which
26 stockholders have their shares included in a voting trust
(see Item 13-"Certain Relationships and Related
Transactions").
(c) Dividends. The registrant's senior indebtedness prohibits,
except in very limited circumstances, the payment of cash
dividends on, and sets limits on redemptions and repurchases
of, the registrant's Common Stock. In addition, the indenture
to which the registrant is a party prohibits, prior to April
1, 2007, the payment of cash dividends on, and sets limits on
redemptions and repurchases of, the registrant's Common Stock.
The registrant has not paid any cash dividends to holders of
Common Stock and does not expect to declare or pay cash
dividends to holders of Common Stock in the foreseeable
future.
12
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for
the Company. Such data presents the Company's investment in TA as net assets of
subsidiary held for disposition until September 30, 1996. Such data should be
read in conjunction with "Management's Discussion and Analysis" and the audited
financial statements of the Company included elsewhere in this Report. The
results of operations and other financial and operating data of the 17 sites
acquired in the Burns Acquisition and the 16 sites acquired in the TPOA
Acquisition are included in the Company's consolidated financial statements
beginning on December 4, 1998 and June 1, 1999, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996(1) 1995(1)
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2):
Revenues:
Fuel .............................. $ 955,105 $ 554,735 $ 708,637 $ 550,212 $ 376,148
Nonfuel ........................... 479,059 347,531 293,843 99,991 27,948
Rent and royalties 20,460 21,544 36,848 46,055 51,801
----------- ----------- ----------- ----------- -----------
Total revenues ................ $ 1,454,624 $ 923,810 $ 1,039,328 $ 696,258 $ 455,897
Gross profit (excluding depreciation) . $ 403,544 $ 296,661 $ 266,244 $ 127,564 $ 79,074
Income from operations ................ $ 38,375 $ 19,093 $ 22,345 $ 24,118 $ 29,884
Extraordinary loss .................... $ -- $ (3,905) $ (5,554) -- $ --
Net income (loss) ..................... $ 99 $ (8,082) $ (5,763) $ 5,533 $ 9,926
Income (loss) before
extraordinary item per common
share:
Basic ......................... $ (12.96) $ (21.12) $ (7.56) $ (0.81) $ 3.04
Diluted ....................... $ (12.96) $ (21.12) $ (7.56) $ (0.81) $ 0.57
BALANCE SHEET DATA (END OF PERIOD):
Total assets .......................... $ 659,862 $ 610,061 $ 507,792 425,889 $ 297,231
Total debt (net of unamortized
discount).. $ 405,970 $ 392,459 $ 290,125 $ 224,435 $ 139,991
Mandatorily redeemable preferred
stock(3) ........................... $ 79,739 $ 69,974 $ 61,404 $ 53,885 $ 47,286
Working capital ....................... $ 35,232 $ 99,568 $ 86,103 $ 23,766 $ 9,872
OTHER FINANCIAL AND OPERATING DATA:
Total diesel fuel sold (in thousands of
gallons) .............................. 1,370,017 973,812 975,495 713,754 641,901
Capital expenditures, excluding
acquisitions of network assets ..... $ 87,401 $ 65,704 $ 60,818 $ 20,545 $ 19,930
EBITDA(4) ............................. $ 97,976 $ 68,708 $ 63,553 $ 60,940 $ 63,198
Cash flows (used in) provided by:
Operating activities ............... $ 44,712 $ 48,521 $ 41,670 $ 27,620 $ 19,436
Investing activities ............... $ (136,016) $ (125,505) $ (37,987) $ (22,254) $ (17,601)
Financing activities ............... $ 20,144 $ 94,428 $ 44,294 $ 15,222 $ (14,141)
Ratio of EBITDA to interest expense,
net(5) ............................. 2.63 2.71 2.78 2.82 2.95
NUMBER OF SITES (END OF PERIOD)(6):
Company-operated Sites ................ 118 103 83 58 46
Leased Sites .......................... 29 30 35 77 89
Franchisee-Owner Sites ................ 11 10 9 35 38
----------- ----------- ----------- ----------- -----------
Total Sites ................... 158 143 127 170 173
=========== =========== =========== =========== ===========
</TABLE>
13
<PAGE> 15
Notes to Selected Financial Data
(1) For the period from January 1, 1994 to September 30, 1996, the Company's
investment in TA was presented as net assets of subsidiary held for
disposition and TA's results of operations were excluded from the
Company's consolidated results of operations until December 31, 1994 and
subsequently included therein as a single amount in the Company's
consolidated income statement through September 30, 1996. Effective
September 30, 1996, the decision was made to retain TA and, subsequently,
the Company chose to pursue the Combination Plan. Accordingly, at such
time TA was no longer carried as net assets of subsidiary held for
disposition. At that date, the carrying value of the Company's investment
in TA of $44.6 million was allocated to the identifiable assets and
liabilities and was based on the estimated current fair values at that
date. In addition, the results of operations and cash flows of TA are
included in the consolidated results of operations and cash flows of the
Company from October 1, 1996.
(2) The Company completed the Burns Acquisition effective December 4, 1998 and
the TPOA Acquisition effective June 1, 1999. The results of operations and
cash flows from the sites acquired in the Burns Acquisition and the TPOA
Acquisition are included beginning on those dates.
(3) "Mandatorily redeemable preferred stock" is comprised of two series of
convertible preferred stock which accumulate dividends semi-annually at a
compound annual rate of 13.5%. Both series are mandatorily redeemable in
2008 and are held by certain members of the Investor Group.
(4) "EBITDA" is defined herein as income from operations plus the sum of (a)
depreciation, amortization and other noncash charges, (b) transition
expense, and (c) gains and losses on sales of property and equipment, and
is presented because it is commonly used by certain investors and analysts
to analyze and compare operating performance, and to determine a company's
ability to service and incur debt. EBITDA should not be considered in
isolation from, or a substitute for, net income, cash flows from operating
activities or other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of profitability or liquidity. The EBITDA amounts herein present
the Company's results as though TA had not been accounted for as a
subsidiary held for disposition and had, instead, been fully consolidated
(see Note 1 above).
(5) The ratio of EBITDA to interest expense, net set forth is different than
the Consolidated Coverage Ratio (as defined in the indenture related to
the Company's 10 1/4% Senior Subordinated Notes due 2007). The
Consolidated Coverage Ratios for the years ended December 31, 1999, 1998
and 1997 were 2.56, 2.21 and 2.08, respectively.
(6) The number of sites data shown for all years reflects the total number of
Company sites, regardless of the brand names under which they are
operating.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the audited
financial statements.
OVERVIEW
The Company is a holding company which, through its wholly-owned
subsidiaries, owns, operates and franchises more full-service travel centers in
the United States than any of its competitors with 158 network sites nationwide,
including 147 Company-owned locations. The Company was formed in December 1992
to facilitate the National Acquisition in April 1993. In December 1993, the
Company acquired the TA Network. In December 1998, the Company acquired the
Burns Network and in June 1999 the Company acquired the TPOA Network.
Historically, under the Company's ownership, National operated principally as a
fuel wholesaler and franchisor, with relatively few Company-operated sites. As a
result, its revenues consisted primarily of wholesale diesel fuel sales to
Operators and Franchisee-Owners, rent from Operators of Leased Sites and nonfuel
franchise royalty payments. In contrast, TA operated principally as an
owner-operator of travel centers, as did Burns and TPOA. Consequently, while
TA derived the majority of its revenues from retail diesel fuel sales, the
majority of its gross profit has been derived from, and its principal
strategic focus has been, the sale of higher margin nonfuel products and
services.
COMBINATION PLAN
There are three primary elements to the Combination Plan that was
adopted in January 1997 and has been executed by the Company from 1997 through
1999: (1) integrating the management of the TA and National Networks, (2)
converting the Existing Network sites to one Network, and (3) rationalizing and
further developing the Company's Network. As a result of implementing the
Combination Plan, and integrating the Burns Network and TPOA Network sites, for
the years ended December 31, 1999, 1998 and 1997, the Company incurred
approximately $4.0 million, $3.6 million and $15.2 million, respectively, of
expense, included in transition expense in the Company's consolidated financial
statements. These expenses relate to, among other things, (i) employee
separations, (ii) the costs to convert National Network, Burns Network and TPOA
Network travel centers to Network travel centers, (iii) the costs to dispose of
travel centers or terminate lease or franchise agreements, and (iv) the costs of
integrating the management and operations of the various networks into the
Network, including relocation, travel, training, and legal expenses. Transition
expenses are expected to aggregate approximately $23.5 million, with the
remainder of the expenses to be incurred in 2000.
Integrating Management of the Existing Networks
As part of the Combination Plan, the Company's headquarters was moved
from the National headquarters in Nashville, TN to the TA headquarters in
Westlake, OH and management of the Existing Networks was centralized under the
TA management team. Offers of employment in Westlake were made to several
National corporate-level employees, but most opted to remain in Nashville and,
accordingly, most of National's corporate-level employees were terminated. In
January 1997, certain of National's executive officers resigned and related
severance costs of $0.8 million were recognized. In May 1997, management
finalized its plans regarding employee terminations and, accordingly, the
related costs of $1.8 million were recognized. Termination benefits of
approximately $2.0 million and $0.6 million were paid to the 111 terminated
National employees in the years ended December 31, 1997 and 1998, respectively.
All such payments were made by March 31, 1998.
15
<PAGE> 17
Rationalizing and Developing the Network
At the time the Combination Plan was approved, there were 122 sites
operating in the National Network (19 Company-operated Sites, 76 Leased Sites
and 27 Franchisee-Owner Sites) and 48 sites operating in the TA Network (40
Company-operated Sites and eight Franchisee-Owner Sites). As a result of their
history as competitors, there were markets in which each of the Existing
Networks had a site. Certain markets can support such coverage, but others
cannot, so the Company reviewed its networks in order to rationalize the total
number of sites and reduce oversaturation in certain markets. As a result, the
Company identified up to 23 National Network Company-owned sites to be sold and
a minimum of 23 National Network Franchisee-Owner Sites to be terminated.
During 1997, 15 National Network Leased Sites were sold to the
operators of those sites for a net gain on sale of $11.9 million and all 27 of
the National Network Franchisee-Owner Sites were terminated. In 1998, two
Company-operated Sites were sold for a net gain on sale of $0.7 million. In
1999, five Company-owned sites (including three sites obtained in the Burns
Acquisition or TPOA Acquisition) were sold for a net gain on sale of $1.5
million. At December 31, 1999, two closed sites were being held for sale. The
net carrying value of these two sites at December 31, 1999 is $1.5 million and
the Company expects them to be sold for a gain.
In addition to the sites held for sale, the Company may sell other
operating sites. As the Company acquires additional sites, such as in the Burns
Acquisition and TPOA Acquisition, new market overlaps are created, thus
providing the opportunity to sell sites if buyers offering sufficient amounts
can be identified. Further, the Company's agreements with its franchisees
provide the franchisees with limited protected territories in which the Company
may not operate TA branded facilities. In such cases, sales of sites within
those territories may become necessary or economically attractive.
In addition to the site sales and terminations, the Combination Plan,
as well as the Company's strategic plan, contemplates further development and
expansion of the Network into key markets where the Network is not adequately
represented, which involves constructing or acquiring new sites as well as
improving existing sites. Pursuant to the Capital Program, as adjusted for the
Burns Acquisition and the TPOA Acquisition, a significant amount of the capital
expenditures planned for 1999 through 2001 are for improvements at existing
sites such as reimaging, rebranding, constructing new QSRs, expanding the travel
stores and convenience stores, expanding existing and constructing additional
shop bays, and rebranding and upgrading the gasoline islands. Further, the
Company expects to continue developing its Network through the construction of
sites in new markets and the rebuilding of older sites.
To continue the Company's growth and amplify its national brand
identity, in 1995 the Company embarked on a project to design a prototype travel
center. The Company conducted extensive market research in order to design a
travel center that would appeal to the needs of the Company's core fleet
customer base and better position itself to capture more "four wheel" consumer
traffic, and developed a prototype travel center design (the "Prototype"). In
addition to the Prototype, the Company has designed a smaller format
("Protolite") to better match facility offering to market size in smaller
markets. The Prototype or Protolite designs will be used for all new travel
centers constructed. The Prototype design concepts are also being utilized in
all of the Company's site re-imaging projects. The first three newly constructed
Prototype travel centers opened for business in May, October and December of
1999, and the first Protolite travel center opened in December 1999. At December
31, 1999, there were two additional Prototype travel centers under construction
that are expected to open in the first half of 2000. During 2000 and 2001, the
Company intends to begin construction of at least five additional Prototype or
Protolite travel centers. Excluding land, the average costs of a Prototype
travel center and a Protolite travel center are approximately $8.0 million and
$5.0 million, respectively. To date, the completed and planned new or rebuilt
sites are being funded through a combination of capital expenditures and
build-to-suit operating leases.
16
<PAGE> 18
Converting the Existing Networks into One Network
As described above, there were 122 sites in the National Network at the
outset of the Combination Plan and a key component of the Combination Plan is to
integrate the Existing Networks into one. This task was partially completed by
the sales of 17 Leased Sites and the termination of 27 Franchisee-Owner sites
during 1997 and 1998. A second step was the conversion of all National Network
Company-operated Sites to TA Network Sites. This conversion involved significant
costs for activities such as hiring and training employees at the sites,
installing TA's store, shop and accounting systems and programs, implementing TA
management, marketing, operations, safety and training programs, relocating site
management employees and rebranding the sites as TA sites. The remaining step
was conversion of the Leased Sites, which has been accomplished in two ways:
acquiring the leasehold interests of the Operators at 32 Leased Sites (five in
1998 and 27 in 1997) and negotiating Network Agreements with the Operators at 30
Leased Sites (one in each of 1999 and 1998 and 28 in 1997), one of which was
sold to the operator during 1999. One Operator of a Leased Site who had signed
the Network Agreements sold his leasehold interest to the Company during 1998.
As a result of the above, at December 31, 1999, there remained only one site
operating under the National Agreements.
The process of converting Leased Sites from the National Agreements to
the Network Agreements included rebranding of the travel centers, installation
of TA's store and shop programs, training of the franchisees in TA's operating
procedures and revisions to the franchise and lease agreements that reduced the
fixed rent payable by the Operators but increased the royalties to be paid by
the Operators (calculated as a percentage of nonfuel revenues and a rate per
gallon of fuel sold). Converting to the Network Agreements has resulted in
reduced revenue in the short term, but the Company believes that, in the long
term, total revenue will be increased as a result of the increased royalty rates
and increased franchisee fuel sales volume and nonfuel revenues.
NETWORK COMPOSITION
The change in the number of sites within the Company's network is the
most significant factor driving the changes from the prior year in the Company's
results of operations. During the second and third quarters of 1998, the Company
converted five Leased Sites to Company-operated Sites and sold one closed site.
In December 1998, the Company acquired 17 Company-operated Sites in the Burns
Acquisition. In June 1999, the Company acquired 16 Company-operated Sites in the
TPOA Acquisition. Also during 1999, the Company sold three Company-operated
Sites, sold one Leased Site to the Operator who signed a franchise agreement to
brand the site as a Franchisee-owner Site, sold one closed site, closed two
Company-operated Sites now held for sale, and opened two newly-constructed
Company-operated Sites.
The following table sets forth the number and type of ownership and
management of the travel centers operating in the Company's networks.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Company-owned and operated sites(1) 118 103
Company-owned and leased sites 29 30
-------- --------
Total Company-owned sites 147 133
Franchisee-owner sites 11 10
-------- --------
Total 158 143
======== ========
</TABLE>
(1) Excludes three closed sites at December 31, 1999 and two closed sites at
December 31, 1998.
17
<PAGE> 19
RESULTS OF OPERATIONS
The results of operations of the 17 sites acquired in the Burns
Acquisition and the 16 sites acquired in the TPOA Acquisition are included in
the following beginning December 4, 1998, and June 1, 1999, respectively, the
dates of the Burns Acquisition and TPOA Acquisition, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------------------------ ---------------
<S> <C> <C> <C>
Revenues:
Fuel....................................................... $ 955.1 $ 554.7 $ 708.6
Nonfuel.................................................... 479.1 347.5 293.8
Rent and royalties......................................... 20.5 21.5 36.8
-------- -------- --------
Total revenues............................................. 1,454.6 923.8 1,039.3
Cost of revenues (excluding depreciation)....................... 1,051.1 627.1 773.1
-------- -------- --------
Gross profit (excluding depreciation)........................... 403.5 296.7 266.2
Operating expenses.............................................. 267.1 193.7 167.1
Selling, general and administrative expenses.................... 38.5 34.3 35.6
Transition expense.............................................. 4.0 3.6 15.2
Depreciation and amortization................................... 53.2 44.7 35.8
(Gain) on sales of property and equipment....................... (2.6) (1.2) (11.2)
Stock compensation expense...................................... 5.0 2.5 1.4
-------- -------- --------
Income from operations.......................................... 38.4 19.1 22.3
Interest expense, net........................................... (37.2) (25.4) (22.9)
-------- -------- --------
Income (loss) before income taxes and extraordinary item........ 1.2 (6.3) (0.6)
Provision (benefit) for income taxes............................ 1.1 (2.1) (0.3)
-------- -------- --------
Income (loss) before extraordinary item......................... 0.1 (4.2) (0.3)
Extraordinary item (net of taxes)............................... - (3.9) (5.5)
-------- -------- --------
Net income (loss)............................................... $ 0.1 $ (8.1) $ (5.8)
======== ======== ========
EBITDA(1)....................................................... $ 98.0 $ 68.7 $ 63.6
======== ======== ========
</TABLE>
(1) "EBITDA" is defined as set forth in Note 4 to Selected Financial Data in
Item 6.
1999 COMPARED TO 1998
Revenues
The Company's consolidated revenues for 1999 were $1,454.6 million,
which represents an increase over the prior year of $530.8 million, or 57.5%.
This increase results from large increases in fuel and nonfuel revenues and a
small decrease in rent and royalty revenue.
Fuel revenue for 1999 increased by $400.4 million, or 72.2%, from 1998.
The increase is attributable to increases in diesel and gasoline sales volumes
as well as an increase in average pump prices. Diesel and gasoline sales volumes
increased 40.7% and 53.9%, respectively, between years, due in large part to the
increased number of Network sites, but also due to increased sales volumes over
1998 on a same-site basis of 11.4% for diesel fuel and 8.9% for gasoline. For
the year ended December 31, 1999, the Company sold 1,370.0 million gallons of
diesel and 84.5 million gallons of gasoline. Average fuel sales prices for 1999
increased 21.8% over 1998. The increase in average retail prices corresponds
with the decreasing crude oil prices experienced throughout 1998 and the
increasing crude oil prices beginning in March 1999.
18
<PAGE> 20
Nonfuel revenue in 1999 of $479.1 million reflects an increase of
$131.6 million, or 37.9%, from 1998. The increase primarily results from the
increased number of Company-operated Sites in the Network. Further, on a
same-site basis, nonfuel revenue increased 8.8% in 1999 versus 1998, reflecting
the effects of the significant capital investments the Company has made in the
Network pursuant to the Capital Program.
Rent and royalty revenue for 1999 reflects a $1.0 million, or 4.7%,
decrease from the prior year. This decrease is attributable to the rent and
royalty revenue lost as a result of the five conversions of Leased Sites to
Company-operated Sites during 1998 and the sale of one Leased Site in 1999,
somewhat offset by a same-site rent increase of 0.8% and a same-site increase of
5.7% in royalty revenue as a result of improved franchisee sales levels.
Gross Profit
The Company's gross profit for 1999 was $403.5 million, compared to
$296.7 million for 1998, an increase of $106.8 million, or 36.0%. The increase
in the Company's gross profit was primarily due to increases in nonfuel
revenues, fuel margins and royalty revenue, partially offset by decreased rent
revenue, as discussed above.
Operating and Selling, General and Administrative Expenses
Operating expenses include the direct expenses of Company-operated
Sites and the ownership and franchising-related costs of Leased Sites. Selling,
general and administrative expenses ("SG&A") include corporate overhead and
administrative costs.
The Company's operating expenses for 1999 increased by $73.4 million,
or 37.9%, versus the prior year. This increase reflects the increased
number of Company-operated Sites and the increased level of nonfuel revenues on
a same-site basis. On a same-site basis, operating expenses as a percentage of
nonfuel revenues for 1999 were 54.0%, an improvement from the 54.7% for 1998.
The Company's SG&A increased over 1998 by $4.2 million, or 12.2%, to
$38.5 million in 1999. The increased SG&A primarily reflects increased staffing
and other expenses (such as travel, insurance and advertising) to support the
Company's growth from the Burns Acquisition and the TPOA Acquisition.
Transition Expense
Transition expense for 1999 increased from $3.6 million in 1998 to $4.0
million in 1999. The 1999 costs were incurred in substantially completing the
integration of the National Network, Burns Network and TPOA Network sites into
the Company's Network. The 1998 costs were incurred to continue the combination
of National and TA, as well as expenses incurred in beginning the integration of
the Burns Network into the Network. The Company anticipates less than $1.0
million of such costs to be incurred in 2000, primarily related to integrating
and converting the TPOA Network sites.
Depreciation and Amortization
Depreciation and amortization of $53.2 million for 1999 increased $8.5
million from 1998. The increase in depreciation and amortization is primarily
attributable to the increased level of property and equipment and intangible
assets resulting from the Burns Acquisition and the TPOA Acquisition as well as
the significant capital additions made in 1999 and 1998. In addition, an
impairment reserve of $0.6 million recorded in 1997 with respect to certain
sites being held for sale was completely reversed in 1998 due to increases in
the estimated sales prices of the respective sites. These increases are offset
by a one-time depreciation charge recognized in 1998.
19
<PAGE> 21
During the first quarter of 1998, the estimated useful lives of certain
machinery, equipment, furniture and fixtures were revised downward from 10 years
to five years. The effect of this change in estimate resulted in a $9.5 million
charge to depreciation expense and reductions in income before extraordinary
items, net income and earnings per share of $9.5 million, $5.7 million and $9.08
per share, respectively. This change resulted in these assets becoming fully
depreciated at March 31, 1998.
Income From Operations
Income from operations was $38.4 million for 1999, compared to $19.1
million for 1998, an increase of $19.3 million or 101.0%. In addition to the
increased size of the Network and the other contributing factors discussed
above, the increase is affected by a $1.4 million increase in gains on sales of
property and equipment and a $2.5 million increase in stock compensation
expense.
EBITDA (defined as income from operations plus the sum of (a)
depreciation, amortization and other non-cash charges, (b) transition expense
and (c) gains and losses from sales of property and equipment) for the Company
for 1999 was $98.0 million, compared to $68.7 million for 1998. The increased
EBITDA reflects the significant increase in gross margin offset by increases in
operating expenses and SG&A, all of which is largely derived from the increase
in the size of the Network but also from an increase in same-site EBITDA of
$8.4 million or 12.0%.
Interest Expense, net
Interest expense for 1999 was $37.2 million, $11.8 million higher than
for 1998. This is a result of increased levels of indebtedness and interest
rates after completing the 1998 Refinancing, increased debt from completing the
TPOA Acquisition (both as discussed in Liquidity and Capital Resources below),
and a general increase in interest rates throughout the credit markets.
Income taxes
The Company's effective income tax rate for 1999 was 91.6%, which
differs from the federal statutory rate due primarily to state income taxes and
nondeductible expenses, partially offset by the benefit of certain tax credits.
1998 COMPARED TO 1997
Revenues
The Company's consolidated revenues for 1998 were $923.8 million, which
represents a decrease from the prior year of $115.5 million, or 11.1%.
Fuel revenue for 1998 reflects a decrease from 1997 of $153.9, or
21.7%. The decrease resulted from an approximately 21.9% decrease in average
retail prices and a decrease of 1.7 million gallons sold (0.2%). The decrease in
average retail prices primarily results from decreased crude oil prices and also
from competitive pressures. The slight volume decrease is the net of increases
in volumes at sites in operation in both 1997 and 1998 of 10.3%, offset by
reductions for sites sold in 1997.
Nonfuel revenue in 1998 increased 18.3% from 1997 primarily as a result
of an increased number of Company-operated Sites offering nonfuel products and
services. There were 27 Leased Sites converted to Company-operated Sites
throughout 1997, resulting in a full year of operations for these sites in 1998.
An additional five Leased Sites were converted to Company-operated Sites during
1998. Further, on a same-site basis, nonfuel revenue increased 5.8% in 1998
versus 1997.
20
<PAGE> 22
Rent and royalty revenue for 1998 decreased $15.3 million as a result
of (i) conversions of Leased Sites to Company-operated Sites, (ii) sales of
Leased Sites and (iii) the rent reductions that became effective when former
National franchisees signed Network Agreements with the Company. These changes
occurred primarily throughout 1997, and the decreases in 1998 reflect the full
year effects of these changes. The new franchise and lease agreements provide
for reduced fixed rents but increased franchise royalty rates to be applied to
nonfuel revenues generated by the franchisees' operations. On a same-site basis,
rent revenue for 1998 reflects a decrease of $1.8 million, or 11.6%, from 1997,
while royalty revenue for 1998 reflects an increase of $2.2 million, or 55.3%,
over 1997.
Gross Profit
The Company's gross profit for 1998 was $296.7 million, compared to
$266.2 million for 1997, an increase of $30.5 million, or 11.5%. The increase in
the Company's gross profit was primarily due to increases in nonfuel revenues,
diesel fuel margins, and royalty revenue, partially offset by decreased rent
revenue as discussed above.
Operating and Selling, General and Administrative Expenses
Operating expenses include the direct expenses of Company-operated
Sites and selling, general and administrative expenses ("SG&A") include
corporate overhead and administrative costs.
The Company's operating expenses increased by $27.4 million, or 16.3%,
to $195.8 million for 1998, as compared to 1997. The increase reflects a full
year of operations for the 27 Leased Sites that were converted to
Company-operated Sites during 1997, as well as increases from the five Leased
Sites converted to Company-operated Sites during 1998. In addition, the growth
in nonfuel revenue requires an increase in operating expenses, particularly
labor, to support the revenue growth.
The Company's SG&A decreased 3.7% from $35.6 million in 1997 to $34.3
million in 1998 as a result of continued synergy savings as a result of the
Combination Plan.
Transition Expense
Transition expense for 1998 decreased from $15.2 million in 1997 to
$3.6 million in 1998. The 1998 costs were incurred in continuing to effect the
combination of National and TA, as well as expenses incurred in beginning the
combination of the Burns Network into the Network. The decrease from 1997
reflects the relative level of effort in 1998 versus 1997 on transition
activities at the former National Network sites.
Depreciation and Amortization
Depreciation and amortization of $44.7 million for 1998 increased $8.9
million from 1997. During the first quarter of 1998, the useful lives of certain
machinery, equipment and furniture were revised downward from 10 years to five
years to conform National's estimated useful lives to those of TA. The effect of
this change in estimate resulted in reductions in income before extraordinary
items, net income and earnings per share of $9.5 million, $5.7 million and $9.08
per share, respectively. In addition, an impairment charge of $0.6 million
recorded in the 1997 fourth quarter with respect to certain sites being held for
sale was completely reversed in the 1998 second quarter. This reversal was based
on increases in the estimated sales prices of the respective sites. In 1997,
impairment charges related to goodwill and certain sites being held for sale of
approximately $7.5 million were included in depreciation and amortization.
Exclusive of the above amounts, depreciation and amortization increased
approximately $8.1 million between years, primarily due to the significant level
of capital expenditures in 1998 and 1997.
21
<PAGE> 23
Income From Operations
Income from operations for the Company was $19.1 million for 1998 as
compared to $22.3 million in 1997, which is a decrease of $3.2 million, or
14.3%. The decrease is attributable to the increase in depreciation and
amortization and operating expenses and the decrease in gains on sales or
property and equipment and rent and royalty revenues, partially offset by
increased nonfuel sales margins, increased diesel margins and headquarters
synergies. EBITDA for the Company for 1998 was $68.7 million, compared to $63.6
million for 1997. The increased EBITDA for 1998 is largely derived from
increased gross profit as a result of a greater number of Company-operated Sites
and increased diesel margins, partially offset by the increased operating
expenses incurred by the increased revenue levels and reductions in rent and
royalty revenues.
Interest Expense, net
Interest expense for 1998 was $25.4 million, $2.5 million higher than
1997. This is a result of the increased net debt balance after completing the
1998 Refinancing and a full year of interest expense on the increased net debt
balance from the 1997 Refinancing (both as discussed in Liquidity and Capital
Resources below).
Other Items
The extraordinary loss of $3.9 million results from the 1998
Refinancing and represents the write-offs of the then remaining unamortized
balance of deferred financing costs related to the extinguished indebtedness
($5.9 million) and approximately $15.8 thousand of break funding fees paid to
holders of redeemed senior notes. The reported amount of the extraordinary loss
is net of the applicable income tax benefit of $2.0 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of working capital
needs, payments of principal and interest on outstanding indebtedness and
capital expenditures, including expenditures for acquisitions, expansion and
environmental upgrades and compliance.
Net cash provided by operating activities totaled $44.7 million in
1999, $48.5 million in 1998, and $41.7 million in 1997. The decrease in net cash
flows from operating activities for 1999 versus 1998 primarily results from a
$29.3 million increase in EBITDA that is more than offset by an $11.8 million
increase in interest expense and a $22.3 million increase in working capital
requirements. The increase in net cash flows provided by operating activities in
1998 versus 1997 is primarily attributable to increased EBITDA partially offset
by growth in working capital requirements primarily resulting from the increased
number of Company-operated sites and increased interest expense as a result of
the 1998 Refinancing.
Net cash used in investing activities for 1999 was $136.0 million
versus $125.5 million in 1998 and $38.0 million in 1997. The cash used in
investing activities in 1999 includes $87.4 million for capital expenditures
pursuant to the Capital Program and $57.8 million for the TPOA Acquisition.
These outlays are partially offset by $9.1 million of cash proceeds from sales
of property and equipment, which primarily consist of the sales of five travel
center sites during 1999. The amount of net cash used in investing activities in
1998 reflects $65.7 million of capital expenditures in accordance with the
Capital Program and consistent with 1997, as well as $6.4 million for the
conversions of five leased sites to Company-operated Sites and approximately
$56.8 million for the Burns Acquisition. These uses of cash are partially offset
by $3.4 million of proceeds from sales of property and equipment comprised
primarily of the sales of two Company-operated sites and condemnation proceeds
related to a third Company-operated Site. The amount for 1997 reflects $75.9
million of expenditures related to capital additions and conversions of Leased
Sites to Company-operated Sites, as contemplated by the Capital Program,
partially offset by $38.0 million of proceeds from sales of property and
equipment primarily relating to the sales of 15 Leased Sites to the respective
Operators.
22
<PAGE> 24
Net cash flows provided by financing activities were $20.1 million in
1999, $94.4 million in 1998 and $44.3 million in 1997. The cash provided during
1999 was the result of a $6.7 million capital investment and net borrowings of
$15.0 million under the Company's revolving credit facility. The Company made
$1.6 million of scheduled debt repayments during 1999. The increased cash flows
from investing activities in 1998 versus 1997 reflects the 1998 Refinancing. The
financing activities cash flows in 1997 primarily related to the 1997
Refinancing.
In order to provide for its growth, the Company, among other things,
has completed refinancings in each of 1998 and 1997. In the 1997 Refinancing,
completed on March 27, 1997, the Company repaid or exchanged all of its
previously existing indebtedness and issued $125 million principal amount of
Senior Subordinated Notes, $85.5 million principal amount of Senior Secured
Notes ($35.5 million of fixed-rate Series I and $50.0 million of floating-rate
Series II), and an $80 million term loan facility which was fully borrowed. The
Company also has a $40.0 million revolving credit facility. In the 1998
Refinancing, completed on December 3, 1998, the Company increased the term loan
facility, and its borrowings under the facility, by $150.0 million. The proceeds
of the borrowing were used to redeem the Series II Senior Secured Notes ($50.0
million), fund the Burns Acquisition (approximately $56.8 million), and prefund
$42.0 million of planned capital expenditures and business acquisitions, with
the remainder used for costs of the 1998 Refinancing and accrued interest. The
$42.0 million for prefunded capital expenditures and business acquisitions was
required to be maintained in a cash collateral account and to be used only for
such expenditures. Provisions of the debt agreements required the Company to use
$30.0 million of the cash collateral account balance for a business acquisition,
or to repay the $30.0 million in the event the Company did not enter a
definitive purchase agreement prior to March 31, 1999, and complete the
acquisition by December 31, 1999. The Company utilized the $30.0 million to
partially fund the TPOA Acquisition. The Senior Notes have no amortization
requirements until 2001, the Senior Subordinated Notes are due in 2007 and the
Term Loan facility has annual amortization requirements of $1.4 million until
2003, when the annual amortization requirements increase significantly. The
interest rate on the Term Loan was increased by a percentage point to LIBOR plus
3.75%. At December 31, 1999, the Company had available $23.5 million of its $40
million revolving credit facility.
The Company expects to invest approximately $340 million in the Network
between 1997 and the end of 2001 (with $237 million of this amount having been
spent by the end of 1999) in connection with the Capital Program to upgrade,
rebrand, reimage and increase the number of travel centers. Approximately $50
million of the capital expenditures intended to be made represents normal
ongoing maintenance and related capital expenditures. The Company has budgeted
additional expenditures in order to add new sites, rebrand and reimage sites,
add additional nonfuel offerings (such as QSR offerings) at existing sites, make
required environmental improvements, and purchase, install and upgrade its
information systems. The capital expenditures budget for 2000 is approximately
$65 million.
The Company anticipates that it will be able to fund its 2000 working
capital requirements and capital expenditures primarily from funds generated
from operations, funds generated from asset sales, and, to the extent
necessary, from borrowings under the revolving facility. The Company's
long-term liquidity requirements, including capital expenditures, are expected
to be financed by a combination of internally generated funds, borrowings and
other sources of external financing as needed.
FREIGHTLINER RELATIONSHIP
In July 1999, the Company signed an agreement with Freightliner to
enter into the ServicePoint Program. Under the agreement, the Company's truck
repair facilities are being added to Freightliner's 24-hour customer assistance
center database to be a major referral point for emergency and roadside repairs
and also have access to Freightliner's parts distribution, service and technical
information systems. The Company believes the ServicePoint Program, which will
be implemented at substantially all of the Company's truck repair shops by the
end of 2000, will generate an increase in nonfuel revenues in 2000 but will have
a larger effect in 2001 and thereafter.
23
<PAGE> 25
ENVIRONMENTAL MATTERS
The Company owns and operates USTs and ASTs at Company-operated Sites
and Leased Sites which must comply with certain statutory and regulatory
requirements that went into effect on December 22, 1998. The Company believes it
is in material compliance with those requirements. During 1999, approximately
$2.6 million of environmental-related expenditures were incurred with respect to
remediation, maintenance, compliance, monitoring and capital items. In addition,
the Company has estimated the current ranges of estimated remediation costs at
currently active sites and what it believes will be its ultimate share for such
costs after required indemnification and remediation is performed by Unocal and
BP under the respective Environmental Agreements and has a reserve for such
matters of $7.1 million as of December 31, 1999. While it is not possible to
quantify with certainty the environmental exposure, in the opinion of
management, the potential liability, beyond that considered in the reserve, for
all environmental proceedings, based on information known to date and
environmental laws currently enacted, will not have a material adverse effect on
the financial condition, results of operations or liquidity of the Company.
YEAR 2000 READINESS DISCLOSURE
The Company did not experience any significant malfunctions or errors
in its operating or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of the Year 2000 issue.
However, it is possible that the full impact of the date change, which was of
concern due to computer programs that use two digits instead of four digits to
define years, has not been fully recognized. For example, the Company could
still be negatively impacted if its customers, its suppliers or the third party
billing companies that service the trucking industry are adversely affected by
the Year 2000 or similar issues. The Company currently is not aware of any
significant year 2000 or similar problems that have arisen or are likely to
arise for its customers, its suppliers or the third party billing companies. The
incremental costs to the Company of the modifications to, and replacement of,
software or hardware as a result of the Year 2000 issue was not material to the
Company's financial position or results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), which requires entities to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Changes in the fair values are required to be recognized in
income when they occur, except for derivatives that qualify as hedges. For the
Company, adoption of this standard, as subsequently amended, is required for the
first quarter of 2001. At this time, the Company has not completed its analysis
of the effect on its financial statements of adopting FAS 133. However, as the
Company utilizes derivatives on a limited basis and only as hedges of either
commodity price risk or interest rate risk, the effect of FAS 133 on the
Company's statement of income is not expected to be material.
FORWARD-LOOKING STATEMENTS
The Company is making this statement in order to satisfy the "safe
harbor" provision contained in the Private Securities Litigation Reform Act of
1995. The statements contained in this report that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Moreover, from time to time the Company may issue other
forward-looking statements. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and business environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The following factors are among those
that could cause actual results to differ materially from the forward-looking
statements: competition from other travel center and truckstop operators,
including additional or improved services or facilities of competitors; the
economic condition of the trucking industry, which in turn is dependent on
general
24
<PAGE> 26
economic factors; diesel and gasoline fuel pricing; availability of fuel supply;
and difficulties that may be encountered by the Company or its franchisees in
implementing the Combination Plan, integrating the Burns Network and TPOA
Network sites into the Network, and implementing the ServicePoint Program. The
forward-looking statements should be considered in light of these factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to commodity price risk and interest rate risk.
The Company's fuel purchase contracts provide for purchase prices based on
average market prices for diesel and gasoline, exposing the Company to commodity
price risk. The Company mitigates this risk exposure in a few ways, but
primarily by maintaining only a few days of inventory on hand and selling a
large portion of its fuel volume under "cost plus" pricing formulae, which
minimize the effect on the Company's margins of sudden sharp changes in
commodity market prices. The Company manages the price exposure related to sales
volumes not covered by cost plus arrangements through the use, on a limited
basis, of derivative instruments designated by management as hedges of
anticipated purchases. The total volume covered by open derivative contracts at
any point in time during 1999 and at December 31,1999 was immaterial. The
interest rate risk faced by the Company results from the highly-leveraged
position of the Company and its level of variable rate indebtedness, the rates
for which are based on short-term lending rates, primarily the London Interbank
Offered Rate. The Company uses interest rate swap agreements to reduce its
exposure to market risks from changes in interest rates by fixing interest rates
on variable rate debt and reducing certain exposures to interest rate
fluctuation. Amounts currently due to or from interest rate swap counterparties
are recorded in interest expense in the period in which they accrue. At December
31, 1999, the Company was involved in interest rate swap agreements with a
notional principal amount of $160,250,000. Notional amounts do not quantify risk
or represent assets or liabilities of the Company, but are used in the
determination of cash settlements under the agreements. The Company is exposed
to credit losses from counterparty nonperformance, but does not anticipate any
loses from its agreements, all of which are with a major financial institution.
The following table summarizes information about the Company's
financial instruments that are subject to changes in interest rates:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------
FIXED RATE VARIABLE RATE
INDEBTEDNESS INDEBTEDNESS
------------------------------- ------------------------------
WEIGHTED WEIGHTED
PAYMENT AVERAGE PAYMENT AVERAGE
AMOUNT INTEREST RATE AMOUNT INTEREST RATE
--------------- --------------- ------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year Ended December 31:
2000................................... $ 46 9.99% $ 1,446 9.875%
2001................................... 17,803 10.02% 1,446
2002................................... 17,809 10.15% 1,446
2003................................... 66 10.28% 65,448
2004................................... 74 10.28% 138,665
Thereafter.................................. 127,730 10.35% 33,991
----------- -----------
Total....................................... $ 163,528 10.19% $ 242,442
=========== ===========
Fair value.................................. $ 156,786 $ 242,442
=========== ===========
</TABLE>
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements and Supplementary Data: PAGE
----
<S> <C>
Financial Statements:
Report of Independent Accountants................................................................. 27
Consolidated Balance Sheet at December 31, 1999 and 1998.......................................... 28
Consolidated Statement of Income and Retained Earnings (Deficit) for the three years ended 29
December 31, 1999...............................................................................
Consolidated Statement of Cash Flows for the three years ended December 31, 1999.................. 30
Notes to the Consolidated Financial Statements.................................................... 31
Supplementary Data:
Quarterly financial data - unaudited............................................................... 61
</TABLE>
26
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
TravelCenters of America, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of TravelCenters of America, Inc. and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Cleveland, Ohio
March 10, 2000
27
<PAGE> 29
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 18,040 $ 89,200
Accounts receivable (less allowance for doubtful accounts of $2,894 for 1999 and
$3,907 for 1998)............................................................... 66,439 61,012
Inventories....................................................................... 59,043 42,952
Deferred income taxes............................................................. 4,533 2,269
Other current assets.............................................................. 16,441 12,619
----------- -----------
Total current assets......................................................... 164,496 208,052
Notes receivable, net................................................................ 1,383 1,239
Property and equipment, net.......................................................... 454,093 361,803
Intangible assets.................................................................... 28,792 21,141
Deferred financing costs............................................................. 8,411 9,284
Deferred income taxes................................................................ 1,879 5,114
Other assets......................................................................... 808 3,428
----------- -----------
Total assets................................................................. $ 659,862 $ 610,061
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................................. $ 1,601 $ 1,594
Accounts payable.................................................................. 60,920 46,652
Other accrued liabilities......................................................... 66,743 62,428
----------- -----------
Total current liabilities.................................................... 129,264 110,674
Commitments and contingencies (Note 18)
Long-term debt (net of unamortized discount)......................................... 404,369 390,865
Deferred income taxes................................................................ 1,639 937
Other long-term liabilities.......................................................... 16,615 9,162
----------- -----------
551,887 511,638
Mandatorily redeemable senior convertible participating preferred stock.............. 79,739 69,974
Other preferred stock, common stock and other stockholders' equity................... 53,000 43,547
Retained (deficit)................................................................... (24,764) (15,098)
----------- -----------
28,236 28,449
----------- -----------
Total liabilities and stockholders' equity................................... $ 659,862 $ 610,061
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 30
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Fuel................................................................... $ 955,105 $ 554,735 $ 708,637
Nonfuel................................................................ 479,059 347,531 293,843
Rent and royalties..................................................... 20,460 21,544 36,848
---------- ---------- ----------
Total revenues..................................................... 1,454,624 923,810 1,039,328
Cost of revenues (excluding depreciation)................................. 1,051,080 627,149 773,084
---------- ---------- ----------
Gross profit (excluding depreciation)..................................... 403,544 296,661 266,244
Operating expenses........................................................ 267,107 193,697 167,072
Selling, general and administrative expenses.............................. 38,461 34,256 35,619
Transition expense........................................................ 3,952 3,648 15,212
Depreciation and amortization expense..................................... 53,202 44,662 35,840
(Gain) loss on sales of property and equipment............................ (2,615) (1,195) (11,244)
Stock compensation expense................................................ 5,062 2,500 1,400
---------- ---------- ----------
Income from operations.................................................... 38,375 19,093 22,345
Interest (expense), net................................................... (37,194) (25,371) (22,898)
---------- ---------- ----------
Income (loss) before income taxes and extraordinary item.................. 1,181 (6,278) (553)
Provision (benefit) for income taxes...................................... 1,082 (2,101) (344)
---------- ---------- ----------
Income (loss) before extraordinary item................................... 99 (4,177) (209)
Extraordinary loss, less applicable income tax benefits of $2,012 in 1998
and $3,608 in 1997 (Note 12)........................................... - (3,905) (5,554)
---------- ---------- ----------
Net income (loss)......................................................... 99 (8,082) (5,763)
Less: preferred dividends.............................................. (9,765) (8,570) (7,520)
Retained earnings (deficit) - beginning of the year....................... (15,098) 1,554 14,837
---------- ---------- ----------
Retained earnings (deficit) - end of the year............................. $ (24,764) $ (15,098) $ 1,554
========== ========== ==========
Loss per common share (basic and diluted):
Loss before extraordinary item $ (12.96) $ (21.12) $ (7.56)
Extraordinary loss - (6.47) (5.44)
--------- --------- ---------
Net income (loss) $ (12.96) $ (27.59) $ (13.00)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 31
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
--------------- --------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ 99 $ (8,082) $ (5,763)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Extraordinary loss................................................. - 3,905 5,554
Depreciation and amortization...................................... 53,202 44,662 35,840
Deferred income tax provision...................................... (3,151) (7,691) (4,330)
Provision for doubtful accounts.................................... 1,339 1,355 1,688
Provision for stock compensation................................... 5,062 2,500 1,400
(Gain) on sales of property and equipment.......................... (2,615) (1,195) (11,244)
Changes in assets and liabilities, adjusted for the effects of
business acquisitions:
Accounts receivable.............................................. (1,428) 12,034 (20,773)
Inventories...................................................... (9,933) (4,028) 1,422
Other current assets............................................. (400) (2,954) 448
Accounts payable................................................. 7,367 (2,030) 8,327
Other current liabilities........................................ (7,780) 10,572 29,957
Other, net......................................................... 2,950 (527) (856)
----------- ----------- -----------
Net cash provided by operating activities.......................... 44,712 48,521 41,670
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................................................. (57,762) (63,215) (15,127)
Proceeds from sales of property and equipment......................... 9,147 3,414 37,958
Capital expenditures.................................................. (87,401) (65,704) (60,818)
----------- ----------- -----------
Net cash used in investing activities.............................. (136,016) (125,505) (37,987)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings............................................. 75,500 - 3,750
Revolving loan repayments............................................. (60,500) - (17,750)
Long-term debt borrowings............................................. - 229,250 205,000
Long-term debt repayments............................................. (1,594) (129,987) (126,675)
Proceeds from issuance of stock....................................... 6,738 - 329
Repurchase of common stock............................................ - (475) (7,456)
Debt issuance costs................................................... - (4,360) (12,904)
----------- ----------- -----------
Net cash provided by financing activities.......................... 20,144 94,428 44,294
----------- ----------- -----------
Net increase (decrease) in cash.................................. (71,160) 17,444 47,977
Cash at the beginning of the year........................................ 89,200 71,756 23,779
----------- ----------- -----------
Cash at the end of the year.............................................. $ 18,040 $ 89,200 $ 71,756
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE> 32
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
The Company is a nationwide marketer of truck and auto fuel and related
products and services through 158 full-service travel centers in 40 states,
primarily operating under the "TravelCenters of America" or "TA" trademarks. Of
the network locations at December 31, 1999, the Company owns or leases 147
locations, 29 of which are leased to independent lessee-franchisees
("Operators") of the Company ("Leased Sites"), and 118 of which are operated by
the Company ("Company-operated Sites"). Eleven locations are owned or leased and
operated by independent franchisees ("Franchisee-Owners") of the Company
("Franchisee-Owner Sites"). The Company purchases and resells diesel fuel,
gasoline and other travel center products and services to consumers, commercial
fleets, operators and independent franchisees; provides fleet credit card and
customer information services through its proprietary ACCESS billing system;
conducts centralized purchasing programs; creates promotional programs; and, as
a franchisor, assists the Operators and Franchisee-Owners in providing service
to commercial fleets and the motoring public.
The Company was incorporated on December 2, 1992 as National/Auto
Truckstops Holdings Corporation. The Company's name was changed to TravelCenters
of America, Inc. in March 1997. In April 1993, the Company acquired (the
"National Acquisition") the truckstop network assets (the "National Network") of
a subsidiary of Unocal Corporation (together with its subsidiaries "Unocal") and
in December 1993 acquired (the "TA Acquisition") the truckstop network assets
(the "TA Network") of certain subsidiaries of The British Petroleum Company
p.l.c. (together with its subsidiaries "BP"). In December 1998 the Company
acquired (the "Burns Acquisition") the truckstop network assets (the "Burns
Network") of Burns Bros., Inc., and certain of its affiliates (collectively
"Burns"). In June 1999 the Company acquired (the "TPOA Acquisition") Travel
Ports of America, Inc. ("TPOA"), which operated a network of truck stops (the
"TPOA Network"). See Note 3 for disclosure regarding the Burns Acquisition and
the TPOA Acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
TravelCenters of America, Inc. and its wholly owned subsidiaries, TA Operating
Corporation ("TA"), TA Franchise Systems Inc. ("TAFSI"), National
Auto/Truckstops, Inc. ("National"), and TA Licensing, Inc., ("TA Licensing,"
formerly known as Travel Port Systems, Inc.) and TA Travel, L.L.C., a wholly
owned subsidiary of TA. Intercompany accounts and transactions have been
eliminated.
REVENUE RECOGNITION
Sales revenues and related costs are recognized at the time of delivery
of motor fuel to customers at either the terminal or the customer's facility for
wholesale fuel sales and at the time of final sale to consumers at the
Company-operated Sites for retail fuel and nonfuel sales.
31
<PAGE> 33
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Franchise and royalty revenues are recognized at the point such
revenues are earned, typically when collectible and when the Company has
fulfilled substantially all of its obligations under the related agreements.
INVENTORIES
Inventories are stated at cost, which approximates market value, cost
being determined on the first in, first out basis for petroleum products and
principally as the weighted average costs for nonfuel merchandise.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on
a straight-line basis over the following estimated useful lives of the assets:
<TABLE>
<CAPTION>
<S> <C>
Buildings and site improvements............................................ 15 years
Pumps and underground storage tanks........................................ 5-10 years
Machinery and equipment.................................................... 3-10 years
Furniture and fixtures..................................................... 5-10 years
</TABLE>
Repair and maintenance costs are charged to expense as incurred, while
major renewals and betterments are capitalized. The cost and related accumulated
depreciation of property and equipment sold, replaced or otherwise disposed are
removed from the accounts. Any resulting gains or losses are recognized in
operations.
DEFERRED FINANCING COSTS AND INTANGIBLE ASSETS
Deferred financing costs were recorded in conjunction with issuing
long-term debt and are being amortized on a basis approximating the interest
method over the lives of the related debt instruments, ranging from five to ten
years (see Note 12). The intangible assets are being amortized on a
straight-line basis over their estimated lives, principally the terms of the
related contractual agreements giving rise to them (see Note 9).
INTERNAL-USE SOFTWARE COSTS
During the application development stage of an internal-use computer
software project, the Company capitalizes (i) the external direct costs of
materials and services consumed in developing or obtaining the internal-use
computer software, (ii) to the extent of time spent directly on the project,
payroll costs of employees directly associated with and who devote time to the
project, and (iii) related interest costs incurred. Internal and external costs
incurred in the preliminary project stage and post-implementation stage, such as
for exploring alternative technologies, vendor selection and maintenance, are
expensed as incurred, as are all training costs. The costs of significant
upgrades and enhancements that result in additional functionality are accounted
for in the same manner as similar costs for new software projects. The costs of
all other upgrades and enhancements are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No.
(SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," impairment charges are recognized when the
carrying values of long-lived assets to be held and used in the business exceed
the estimated undiscounted future cash flows of those assets, and when the
carrying values of long-lived assets to be disposed of exceed the estimated fair
value less cost to sell for those assets. Such impairment charges are recognized
in the period during which the circumstances surrounding an asset to be held and
used have changed such that the carrying value is no longer recoverable, or
during which a commitment to a plan to dispose of the asset is made. Such tests
32
<PAGE> 34
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
are performed at the individual travel center level. In addition, intangible
assets are subjected to further evaluation in accordance with Accounting
Principles Board Opinion 17, "Intangible Assets," and impairment charges are
recognized when events and circumstances indicate the carrying value of the
intangible asset exceeds the future benefit of the asset. Impairment charges are
included in depreciation and amortization in the income statement.
CLASSIFICATION OF COSTS AND EXPENSES
Cost of revenues represents the costs of fuels and other products sold,
including freight. Operating expenses consist primarily of labor, maintenance,
supplies, utilities, warehousing, purchasing and occupancy costs. Transition
expenses represent the nonrecurring costs incurred by the Company in integrating
the TA Network, the National Network, the Burns Network and the TPOA Network
into a single network under one management. See Note 4 for a discussion of the
Combination Plan under which the majority of these costs have been incurred.
Costs of advertising are expensed as incurred.
ENVIRONMENTAL REMEDIATION
The Company provides for remediation costs and penalties when the
responsibility to remediate is probable and the amount of associated costs is
reasonably determinable. Generally, the timing of remediation accruals coincides
with completion of a feasibility study or the commitment to a formal plan of
action. If recoveries of remediation costs from third parties are probable, a
receivable is recorded. Accruals are not recorded for the costs of remediation
activities undertaken on behalf of the Company by Unocal and BP, at Unocal's and
BP's sole expense (see Note 18).
INCOME TAXES
Deferred income tax assets and liabilities are established to reflect
the future tax consequences of differences between the tax bases and financial
statement bases of assets and liabilities.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company grants credit to its customers and may require letters of
credit or other collateral.
DERIVATIVE INSTRUMENTS
On a limited basis, the Company engages in commodity risk management
activities within the normal course of its business as an end-user of derivative
instruments. These commodity-based instruments are used to manage exposure to
price fluctuations related to the anticipated purchase of diesel fuel and
gasoline. Changes in market value of derivative instruments are deferred and are
subsequently recognized in income in the same period as the underlying
transaction. Recorded deferred gains or losses are reflected within other
current assets or other current liabilities. At December 31, 1999 the amount of
open derivative contracts and the related fair market value and deferred gains
and losses were immaterial. At December 31, 1998 there were no open derivative
contracts.
The Company uses interest rate swap agreements to reduce its exposure
to market risks from changes in interest rates by fixing interest rates on
variable rate debt and reducing certain exposures to interest rate fluctuation.
Amounts currently due to or from interest rate swap counterparties are recorded
in interest expense in the period in
33
<PAGE> 35
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
which they accrue. At December 31, 1999, the Company was involved in interest
rate swap agreements with a notional principal amount of $160,250,000. Notional
amounts do not quantify risk or represent assets or liabilities of the Company,
but are used in the determination of cash settlements under the agreements. The
Company is exposed to credit losses from counterparty nonperformance, but does
not anticipate any loses from its agreements, all of which are with a major
financial institution.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which estimation is
practicable:
Cash and short-term investments, accounts receivable and accounts
payable: The fair values of financial instruments classified as current assets
or liabilities approximate the carrying values due to the short-term maturity of
the instruments.
Long-term debt: The fair value of the Company's fixed-rate indebtedness
that is publicly traded is estimated based on the quoted price for those notes.
The fair value of the Company's fixed-rate indebtedness that is not publicly
traded is estimated based on the current borrowing rates available to the
Company for financings with similar terms and maturities. The fair values of the
Company's variable-rate indebtedness approximates the carrying value of that
indebtedness. (See Note 12.)
Interest Rate Swap Agreements: The fair value of the interest rate swap
agreements is based on bank-quoted market prices.
RECLASSIFICATIONS
Certain reclassifications of prior years' data have been made to
conform with the current year presentation.
3. ACQUISITIONS
All business acquisitions have been accounted for under the purchase
method. The results of operations of the acquired businesses are included in the
consolidated financial statements from the respective dates of the acquisitions.
TPOA Acquisition. Effective June 1, 1999, the Company consummated the
TPOA Acquisition by acquiring 100 percent of the common stock of TPOA at a price
of $4.30 per share. Under the terms of the related merger agreement and certain
ancillary agreements, the Company paid cash of approximately $27,760,000 for all
of TPOA's outstanding common shares and common stock equivalents except
approximately 653,000 common shares that were exchanged for 85,000 shares of the
Company's common stock. In addition, the Company paid cash of approximately
$31,007,000 to retire all of TPOA's indebtedness outstanding as of the merger
date. TPOA operated a network of 16 travel centers in seven states, primarily in
the northeastern U.S., and a single fuel terminal in Pennsylvania. Upon
consummation of the acquisition, TPOA was merged into TA.
The total cost of the acquisition was $86,003,000. This was comprised
of cash paid to purchase the TPOA stock and repay the TPOA debt of $58,767,000,
the value of the 85,000 shares of the Company's common stock issued in exchange
for TPOA shares of $2,808,000, liabilities assumed of $22,124,000 and direct
costs of the acquisition of $2,304,000. The cost was allocated to the assets and
liabilities acquired on the basis of their estimated fair values at the
acquisition date, including $27,585,000 of assets other than the property and
equipment acquired. The excess of purchase price over the estimated fair values
of the net assets acquired, in the amount of $9,907,000, has been recorded as
goodwill and is being amortized on a straight-line basis over 15 years. The cash
portion of the
34
<PAGE> 36
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TPOA Acquisition was initially funded with $30,000,000 of the restricted cash
provided by the 1998 Refinancing (see Note 12), $25,000,000 of borrowings under
the Company's revolving credit facility and other available cash.
Burns Acquisition. On December 3, 1998, the Company completed the Burns
Acquisition, whereby the Company acquired from Burns the land, buildings,
equipment and inventories at 17 of the 19 sites comprising the Travel Stops
division of Burns, the equipment and inventories used in Burns' fuel wholesaling
and transportation businesses and certain accounts receivable related to the
acquired assets.
The total cost of the assets acquired was $60,728,000, comprised of the
cash consideration paid to Burns of $56,240,000, liabilities assumed of
$3,920,000 and direct costs of the acquisition of $568,000. The cost was
allocated to the assets and liabilities acquired on the basis of their estimated
fair values at the acquisition date. The Burns Acquisition was funded with
borrowings under the Company's long-term bank term loan facility as part of the
1998 Refinancing.
The following unaudited pro forma information presents the results of
operations of the Company as if the TPOA Acquisition and the Burns Acquisition
had each taken place on January 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998
----------------------- -----------------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Total revenue................................................. $ 1,511,083 $ 1,205,835
Gross profit.................................................. $ 428,070 $ 389,069
Income from operations........................................ $ 42,281 $ 30,259
Net income (loss)............................................. $ 1,808 $ (2,152)
Loss per common share (basic and diluted)..................... $ (10.67) $ (17.76)
</TABLE>
These pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations that actually would have resulted had the acquisitions occurred on
January 1, 1998, or that may result in the future.
4. COMBINATION PLAN AND TRANSITION EXPENSE
In January 1997, the Company adopted a plan (the "Combination Plan") to
combine the operations of the Company's two networks. There are three primary
elements to the Combination Plan that have been implemented by the Company
throughout 1998 and 1999: (1) integrating the management of the TA and National
Networks, (2) converting the Existing Network sites to one Network, and (3)
rationalizing and further developing the Company's Network. These expenses
relate to, among other things, (i) employee separations, (ii) the costs to
convert National Network travel centers to Network travel centers, (iii) the
costs to dispose of travel centers or terminate lease or franchise agreements,
and (iv) the costs of integrating the management and operations of the Existing
Networks into the Network, including relocation, travel, training, and legal
expenses. In January 1997, certain of National's executive officers resigned and
related severance costs of approximately $774,000 were recognized. In May 1997,
management finalized its plans regarding the employee terminations and,
accordingly, the related expense of approximately $1,833,000 was recognized.
The Company has also incurred transition expenses as a result of the
Burns Acquisition and the TPOA Acquisition, primarily related to converting the
acquired sites to Network travel centers. As a result of implementing the
Combination Plan and integrating the Burns Network and TPOA Network sites, for
the years ended December 31, 1999, 1998 and 1997, the Company incurred
approximately $3,952,000, $3,648,000 and $15,212,000, respectively, of expense,
included in transition expense in the Company's consolidated financial
statements.
35
<PAGE> 37
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. EARNINGS PER SHARE
The computation of basic earnings per common share is based upon the
weighted-average number of shares of common stock outstanding. A reconciliation
of the income or loss and shares used in the computation follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------------------------- ----------------
(DOLLARS AND SHARES IN THOUSANDS)
<S> <C> <C> <C>
Net income.................................................... $ 99
Less: Preferred stock dividends.............................. (9,765)
------------
Basic EPS and Diluted EPS
Income (loss) available to common stockholders........... $ (9,666) 746 $ (12.96)
============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------------------------- ----------------
(DOLLARS AND SHARES IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before extraordinary item....................... $ (4,177)
Less: Preferred stock dividends.............................. (8,570)
------------
Basic EPS and Diluted EPS
Income (loss) available to common stockholders........... $ (12,747) 604 $ (21.12)
============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------ ---------------
(DOLLARS AND SHARES IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before extraordinary item....................... $ (209)
Less: Preferred stock dividends.............................. (7,520)
----------
Basic EPS
Income (loss) available to common stockholders........... $ (7,729) 1,022 $ (7.56)
========== ========== ==========
</TABLE>
The assumed conversion of stock options, warrants and convertible
series of preferred stock would have an anti-dilutive effect on earnings per
share for 1999, 1998 and 1997. Effective January 1, 2000, 175,000 options to
purchase common stock were granted to management and non-employee directors.
36
<PAGE> 38
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
--------------- ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Nonfuel merchandise................................................. $ 51,043 $ 39,973
Petroleum products.................................................. 8,000 2,979
---------- ----------
Total inventories.............................................. $ 59,043 $ 42,952
========== ==========
</TABLE>
7. NOTES RECEIVABLE
The Company has notes receivable agreements with certain Operators and
Franchisee-Owners to finance on a long-term basis past due accounts receivable
owed by those customers and, in one case, to finance the purchase of the related
travel center site. Certain of these customers are related parties (see Note
17). The notes have terms ranging from six months to six years and principally
accrue interest at a variable rate of the prime lending rate plus 2 percent. The
Company also has notes receivable from management stockholders received as
partial consideration for purchases of common stock (see Note 15). These notes
have terms of nine years and accrue interest at fixed rates between 4.86 and 7.0
percent.
Notes receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Principal amount of notes outstanding............................... $ 5,169 $ 2,351
Less: allowance for doubtful accounts............................... 586 280
--------- ---------
4,583 2,071
Less: amounts due within one year................................... 3,200 832
--------- ---------
Notes receivable, net............................................... $ 1,383 $ 1,239
========= =========
</TABLE>
The amount due within one year is included within other current assets
on the balance sheet.
37
<PAGE> 39
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998
------------------ -------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Land .............................................................$ 61,091 $ 57,997
Buildings and improvements.................................... 316,392 221,091
Machinery, equipment and furniture............................ 192,423 113,680
Construction in progress...................................... 38,220 80,586
----------- -----------
Total cost............................................... 608,126 473,354
Less: accumulated depreciation................................ 154,033 111,551
----------- -----------
Property and equipment, net.............................. $ 454,093 $ 361,803
=========== ===========
</TABLE>
Pursuant to the Combination Plan, nine Company-operated Sites were
being held for sale as of December 31, 1997. Based on the Company's estimated
sales proceeds and costs of selling these sites, an impairment charge totalling
$559,000 was recognized in 1997 with respect to two of the sites. This
impairment charge is included in depreciation and amortization in the income
statement. As a result of revised estimates of probable sale proceeds, this
impairment reserve was reversed in the second quarter of 1998. During 1998, two
of these sites were sold, and condemnation proceeds were received for a portion
of a third site that was condemned by the state as part of a highway
construction project. The Company re-evaluated the remaining seven sites and
determined that it would no longer actively market for sale six of those sites.
The remaining site was sold during the fourth quarter of 1999. At December 31,
1999, the Company was holding for sale two sites that had been closed during
1999. The total carrying value of the two sites held for sale at December 31,
1999 was $1,535,000. As of December 31, 1999, the estimated net sales proceeds
of the two sites held for sale exceed the respective carrying values. During
1999, these two sites generated a loss from operations of $130,000.
During the first quarter of 1998, the estimated useful lives of certain
machinery, equipment and furniture were revised downward from 10 years to five
years in order to conform National's estimated useful lives to those of TA. The
effect of this change in estimate resulted in reductions in income before
extraordinary items, net income and earnings per share of $9.5 million, $5.7
million and $9.08, respectively. This change resulted in these assets becoming
fully depreciated at March 31, 1998.
38
<PAGE> 40
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998
------------------ ------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Noncompetition agreements.......................................... $ 26,200 $ 26,200
Leasehold interest ................................................ 1,724 1,724
Trademarks......................................................... 2,713 2,313
Goodwill........................................................... 28,310 16,631
------------ ------------
Total cost.................................................... 58,947 46,868
Less: accumulated amortization.................................... 30,155 25,727
------------ ------------
Intangible assets, net........................................ $ 28,792 $ 21,141
============ ============
</TABLE>
As part of the National and TA Acquisitions, the Company entered into
noncompetition agreements with Unocal and BP pursuant to which Unocal and BP
each agreed to refrain from re-entering the truckstop business for periods of
ten and seven years, respectively, from the acquisition dates. The intangible
assets related to these noncompetition agreements represent the present values
of the estimated cash flows the Company would lose due to competition resulting
from re-entry of Unocal or BP into the travel center market were they not
constrained from doing so. These intangible assets are being amortized over the
ten and seven year periods.
Leasehold interest represents the value, obtained through the TA
Acquisition, of favorable lease provisions at one TA Network location, the lease
for which extended 11 1/2 years from the TA Acquisition. The leasehold interest
is being amortized over the 11 1/2 year period. Trademarks relates primarily to
the Company's purchase of the "Truckstops of America" and "Country Pride"
trademarks, service marks, trade names and commercial symbols. The trademarks
are being amortized over their estimated economic life of 15 years.
Goodwill results from acquisitions of network assets, including the
TPOA Acquisition in 1999 and the acquisitions of the businesses and operating
assets related to Leased Sites in prior years, and represents the excess of
amounts paid to the related sellers over the fair values of the tangible assets
acquired. For the years ended December 31, 1999, 1998 and 1997, the Company
recorded acquired goodwill of $11,679,000, $9,283,000, and $6,354,000,
respectively. The goodwill recognized during 1999 includes both the excess
purchase price from the TPOA Acquisition (see Note 3) and $1,772,000 of goodwill
from prior acquisitions completed by TPOA prior to the TPOA Acquisition. This
goodwill is amortized on a straight-line basis over fifteen years. During the
fourth quarter of 1997, as a result of a review of the operations of the
acquired travel centers, an impairment charge of $6,941,000 was recorded with
respect to the goodwill. This charge is included in depreciation and
amortization in the income statement.
39
<PAGE> 41
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998
------------------- ------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Taxes payable, other than income taxes................... $ 18,265 $ 14,422
Accrued wages and benefits............................... 14,967 13,366
Interest payable......................................... 5,096 4,852
Other accrued liabilities................................ 28,415 29,788
----------- -----------
Total other accrued liabilities.......................... $ 66,743 $ 62,428
=========== ===========
</TABLE>
11. REVOLVING LOAN
The Company has available a revolving loan facility of $40,000,000 (see
Note 12). The interest rate for borrowings under this revolving loan facility is
based on either an alternate base rate (ABR) plus 1.75 percent or an adjusted
London Interbank Offered Rate (LIBOR) plus 2.75 percent. Commitment fees are
calculated as 1/2 of 1 percent of the daily average unused amount of the
revolving loan commitment. At December 31, 1999, there were outstanding
borrowings under this facility of $15,000,000, including $2,000,000 of swingline
loans. There were no borrowings outstanding under the revolving loan facility at
December 31, 1998. There were $1,529,000 of available borrowings reserved for
letters of credit at both December 31, 1999 and 1998. The revolving loan
facility matures in March 2004.
12. LONG-TERM DEBT
In March 1997 the Company completed a refinancing (the "1997
Refinancing"), whereby it refinanced the existing indebtedness of TA and
National with new borrowings by the Company. The Company issued $125,000,000
aggregate principal amount of 10 1/4% Senior Subordinated Notes due 2007,
entered into a Credit Agreement through which it obtained an $80,000,000 senior
secured term loan facility (the "Term Loan") and a $40,000,000 revolving credit
facility, redeemed all of the outstanding Subordinated Notes of TA and National,
respectively, and a portion of the Senior Notes of TA (the "TA Old Senior
Notes"), and, pursuant to a Senior Secured Note Exchange Agreement, exchanged
$85,500,000 aggregate principal amount of Senior Secured Notes ($35,500,000 of
Series I Senior Secured Notes and $50,000,000 of Series II Senior Secured Notes)
of the Company for the Senior Notes of National and the unredeemed TA Old Senior
Notes.
In December 1998 the Company refinanced its indebtedness (the "1998
Refinancing") by increasing the Term Loan by $150,000,000. Of the total amount
borrowed, $50,000,000 was utilized to retire the Company's Series II Senior
Secured Notes and $42,000,000 was specified to prefund planned capital
expenditures and business acquisitions and required to be placed in a cash
collateral account until used for such expenditures. Provisions of the debt
agreements required the Company to use $30,000,000 of the cash collateral
account balance for a business acquisition, or to use the $30,000,000 to repay
indebtedness in the event that an acquisition was not completed by December 31,
1999. The Company utilized the $30,000,000 to partially fund the TPOA
Acquisition (see Note 3).
40
<PAGE> 42
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
INTEREST MATURITY 1999 1998
------------ ------------ -------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Term Loan (a)............................... (b) 2005 $ 227,442 $ 228,889
Revolving Credit Facility (a)............... (c) 2004 15,000 -
Series I Senior Secured Notes (d)........... 8.94% 2002 35,500 35,500
Senior Subordinated Notes (e)............... 10.25% 2007 125,000 125,000
Note payable (f)............................ 5.0% 2018 4,771 4,919
---------- ----------
Total............................... 407,713 394,308
Less: amounts due within one year........... 1,601 1,594
Less: unamortized discount.................. 1,743 1,849
---------- ----------
Total............................... $ 404,369 $ 390,865
-========== ==========
</TABLE>
(a) On March 21, 1997, in connection with the 1997 Refinancing, the Company
entered into a Credit Agreement with a group of lenders. On November 24,
1998, in connection with the 1998 Refinancing, the Company amended its
Credit Agreement. The Credit Agreement consists of three components: Term
Loans of a maximum $230,000,000 (increased from $80,000,000 in the 1998
Refinancing), swingline loans not to exceed $5,000,000, and revolving loans
(see Note 11) not to exceed $40,000,000 (including any swingline loans
outstanding and letters of credit issued). Payments of principal, interest
and commitment fees related to the Credit Agreement are scheduled quarterly
in installments of principal ranging from $362,000 to $34,000,000, with the
first payment under the amended agreement due on December 31, 1998, and the
last quarterly payment due on March 27, 2005. Optional prepayments are
allowed under the Credit Agreement and, in addition, annual prepayments of
principal may be required based, among other things, on excess cash flows
generated by the Company.
(b) Interest accrues at variable rates based on either an ABR or an adjusted
LIBOR. The rate at which interest accrues is calculated as either the ABR
rate plus 2.75 percent or the LIBOR rate plus 3.75 percent. Management has
the option to select which rate is to be applied at the beginning of each
loan period, the term of which varies from one month to six months for
LIBOR borrowings. The interest rate was set on December 3, 1999 at 9.875
percent for six months. The average effective interest rate for 1999 was
9.16 percent.
(c) Interest accrues at variable rates based on either an ABR or an adjusted
LIBOR. The rate at which interest accrues is calculated as either the ABR
rate plus 1.75 percent or the LIBOR rate plus 2.75 percent. Management has
the option to select which rate is to be applied at the beginning of each
loan period, the term of which varies from one month to six months for
LIBOR borrowings. The interest rate was set on December 2, 1999 at 9.25
percent for one month for a $13,000,000 LIBOR borrowing and on December
29,1999 at 10.25 percent for a $2,000,000 swingline facility ABR borrowing.
The average effective interest rate for 1999 was 8.2 percent.
(d) On March 21, 1997, in connection with the 1997 Refinancing, the Company
issued $35,500,000 of Series I Senior Secured Notes. Interest payments on
these notes are due semiannually on June 30 and December 31. Optional
prepayments are allowed under the note purchase agreement, and required
payments are due on June 30, 2001, December 31, 2001, June 30, 2002 and
December 31, 2002 in the amount of $8,875,000 each, such amounts to be
reduced by certain other prepayments. In the event of certain prepayments,
the Company may be subject to the make-whole provision of the note
agreement, which requires payment of a prepayment premium to the holders of
the Series I Senior Secured Notes. In addition, annual prepayments of
principal may be required based, among other things, on excess cash flows
generated by the Company.
41
<PAGE> 43
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(e) On March 27, 1997, in connection with the 1997 Refinancing, the Company
issued $125,000,000 of Senior Subordinated Notes. Interest payments on
these notes are due semiannually on April 1 and October 1. Optional
prepayments are allowed under certain circumstances under the note purchase
agreement, any such payments reducing the required payment of $125,000,000
due April 1, 2007.
(f) On September 1, 1998, in connection with the purchase of the operating
assets of a Leased Site, the Company issued a note payable to the former
Operator of the site for $4,919,000. The note bears interest at 5% and
requires quarterly payments of principal and interest of $98,000 thru
October 1, 2018. The note was recorded net of a discount of $1,875,000.
This note is secured by a mortgage interest in the related travel center.
Debt Extinguishments and Issuance Costs. Upon the early extinguishment
of the Company's prior indebtedness as a result of the 1997 Refinancing, the
Company recognized an extraordinary loss, net of applicable income taxes, of
$5,554,000. This extraordinary loss consisted of the write-off of the remaining
unamortized balances of deferred financing costs and debt discount related to
the prior indebtedness of $7,847,000 and $1,315,000, respectively. Approximately
$12,904,000 of financing costs associated with the new indebtedness issued as
part of the 1997 Refinancing were capitalized. As part of the 1998 Refinancing,
the Company retired the Series II Senior Secured Notes and substantially
modified the Credit Agreement, resulting in the early extinguishment of the
outstanding balances of both the Series II Senior Secured Notes and the term
loan facilities of the Credit Agreement. Accordingly, the deferred financing
costs related to these borrowings were written off as an extraordinary loss, net
of applicable income taxes, of $3,905,000. Approximately $4,360,000 of financing
costs related to the Credit Agreement modification were incurred as part of the
1998 Refinancing.
Pledged Assets. The borrowings under the Credit Agreement and Senior
Secured Note Exchange Agreement are secured by mortgages on substantially all of
the Company's property and equipment in the manner described in the Master
Collateral and Intercreditor Agreement negotiated between the lending banks
under the Credit Agreement and the Senior Secured Note holders. In the event of
a change in control (as defined in the relevant instruments) of the Company, the
total amount outstanding under the debt agreements described above may be
declared immediately due and payable.
Debt Covenants. Under the terms of the Credit Agreement and the Senior
Secured Note Exchange Agreement, the Company is required to maintain certain
affirmative and negative covenants, including minimum interest coverage, minimum
consolidated net worth, minimum current ratio, maximum leverage ratio and
maximum amounts of capital expenditures. The Company was in compliance with the
covenants throughout 1999 and at December 31, 1999.
Under the terms of the Indenture for the Senior Subordinated Notes due
2007, the Company is required to maintain certain affirmative and negative
covenants that, among other things, provide for a minimum coverage ratio. The
Company was in compliance with the covenants throughout 1999 and at December 31,
1999.
Future Payments. Scheduled payments of long-term debt in the next five
years are $1,601,000 in 2000; $19,359,000 in 2001; $19,367,000 in 2002;
$65,628,000 in 2003 and $138,854,000 in 2004.
Fair Value. Based on the borrowing rates currently available to the
Company for bank loans and other indebtedness with similar terms and average
maturities and the year-end quoted market price of the Senior Subordinated
Notes, the fair value of long-term debt at December 31, 1999 and 1998
approximated the recorded value. Based on bank-quoted market prices, the fair
value of the interest rate swap agreement the Company has in place as of
December 31, 1999 was a liability of $3,000,000. There were no such agreements
in place at December 31, 1998. These derivative instruments have no carrying
value.
42
<PAGE> 44
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. LEASE COMMITMENTS
The Company has entered into lease agreements covering certain of its
travel center locations, warehouse and office space, computer and office
equipment and vehicles. Most long-term leases include renewal options and, in
certain cases, purchase options. Future minimum lease payments required under
operating leases that have remaining noncancelable lease terms in excess of one
year, as of December 31, 1999, were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS OF DOLLARS)
------------ -------------------------
<S> <C>
2000................................................................... $ 10,297
2001................................................................... 9,752
2002................................................................... 8,920
2003................................................................... 7,497
2004................................................................... 6,503
Thereafter............................................................. 40,433
-----------
$ 83,402
</TABLE>
Total rental expenses on all operating leases were approximately
$9,576,000, $6,743,000, and $5,658,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
14. MANDATORILY REDEEMABLE SENIOR CONVERTIBLE PARTICIPATING PREFERRED STOCK
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
--------------- ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Series I-3,000,000 shares authorized, $0.01 par value;
2,680,656 shares issued and outstanding, shown at
redemption value.............................................. $ 59,129 $ 51,888
Series II-1,000,000 shares authorized, $0.01 par value;
934,344 shares issued and outstanding, shown at
redemption value.............................................. 20,610 18,086
---------- ----------
Total....................................................... $ 79,739 $ 69,974
========== ==========
</TABLE>
Voting Rights. Holders of Series I Mandatorily Redeemable Senior
Convertible Preferred Stock are entitled to vote on all matters, other than the
election of directors (see Note 15-Common Stock-Voting Rights below), submitted
to a vote of the Company's stockholders. Series II Mandatorily Redeemable Senior
Convertible Preferred Stock is non-voting.
Dividends. Dividends accumulate on the original $10.00 per share
purchase price at a rate of 13.5 percent per annum, compounded semi-annually,
and are not paid currently but accumulate and increase the liquidation
preference. Such dividends accrue whether or not declared by the Board of
Directors. Accrued dividends totaled $43,589,000 and $33,824,000 at December 31,
1999 and 1998, respectively. Holders also participate pro rata, on a share for
share basis, with the outstanding Convertible Preferred Stock and Common Stock,
in dividends and distributions, other than liquidating distributions.
43
<PAGE> 45
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Conversion. The conversion rights of the holders are the same as those
for holders of the Series I and Series II Convertible Preferred Stock,
respectively, (see Note 15-Convertible Preferred Stock-Conversion below) except,
if the Company consummates an underwritten public offering of Common Stock
pursuant to which the net offering price per share is equal to or greater than
the Trigger Price (defined as an amount equal to $10.00 plus interest at a rate
of 13.5 percent per annum, compounded semi-annually, from the closing date of
the TA Acquisition to the date of such public offering) and the net proceeds
raised in the offering are at least $50 million, the Company will have the right
to require that each share of Series I Mandatorily Redeemable Senior Convertible
Participating Preferred Stock be converted into one share of Series I
Convertible Preferred Stock and that each share of Series II Mandatorily
Redeemable Senior Convertible Participating Preferred Stock be converted into
one share of Series II Convertible Preferred Stock.
Liquidation Preference. Upon liquidation, holders are entitled to
receive the Senior Liquidation Preference, defined as $10.00 plus the amount of
all accrued and unpaid dividends to the liquidation date, before any payment is
made to holders of Convertible Preferred Stock or Common Stock. Any remaining
amounts available for distribution to the Company's equity holders will be
distributed in the following order of priority:
(i) holders of Convertible Preferred Stock shall be entitled to receive
$10.00 for each outstanding share,
(ii) holders of Common Stock shall be entitled to receive $10.00 for
each outstanding share of Common Stock,
(iii) holders of Convertible Preferred Stock and Common Stock shall be
entitled to receive an amount such that, including such amounts distributed in
(i) and (ii) above, they have each received an amount equal to the Senior
Liquidation Preference,
(iv) holders of Mandatorily Redeemable Senior Convertible Participating
Preferred Stock, Convertible Preferred Stock and Common Stock shall be entitled
to receive amounts such that the amount distributed in respect of each
outstanding share of Mandatorily Redeemable Senior Convertible Participating
Preferred Stock pursuant to this clause shall equal 50 percent of the amount
distributed in respect of each outstanding share of Convertible Preferred Stock
and Common Stock pursuant to this clause.
Optional Redemption. If the Company proposes to declare and pay any
dividends or other distributions in respect of Convertible Preferred Stock or
Common Stock, the Company shall first offer to utilize such proceeds to redeem
shares of the Mandatorily Redeemable Senior Convertible Participating Preferred
Stock at a redemption price per share equal to the Senior Liquidation
Preference. Any portion not used to redeem shares of Mandatorily Redeemable
Senior Convertible Participating Preferred Stock may be utilized by the Company
to pay dividends pari passu to the holders of outstanding shares of Mandatorily
Redeemable Senior Convertible Participating Preferred Stock, Convertible
Preferred Stock and Common Stock.
Call Option. The Company may, at its option and at any time, call for
redemption all (but not less than all) of the outstanding shares at a price per
share equal to the Senior Liquidation Preference. The holders will be provided
an opportunity to convert such shares into shares of Common Stock prior to the
redemption.
Mandatory Redemption. The Company shall redeem all of the then
outstanding shares on December 10, 2008, at a redemption price per share equal
to the Senior Liquidation Preference.
44
<PAGE> 46
15. OTHER PREFERRED STOCK, COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
-------------- --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Convertible Preferred Stock:
Series I-3,000,000 shares authorized, $0.01 par value;
2,594,876 shares outstanding............................... $ 26 $ 26
Series II-1,500,000 shares authorized, $0.01 par value;
1,237,374 shares outstanding............................... 12 12
Common Stock - 30,000,000 shares authorized, $0.01
Par value; 881,059 and 599,877 shares outstanding at
December 31, 1999 and 1998, respectively................... 17 14
Additional paid-in capital 62,003 52,382
Treasury stock-at cost; 827,700 and 817,700 shares at
December 31, 1999 and 1998, respectively................... (9,058) (8,887)
------- -------
Total................................................. $ 53,000 $ 43,547
======== ========
</TABLE>
In April 1993, to partially fund the National Acquisition, the Company
issued 1,167,750 shares of Common Stock, and 3,832,250 shares of Convertible
Preferred Stock, which consists of 2,594,876 shares of Series I Convertible
Preferred Stock and 1,237,374 shares of Series II Convertible Preferred Stock.
In December 1993, to partially fund the TA Acquisition, the Company issued
165,520 shares of Common Stock and 3,615,000 shares of Mandatorily Redeemable
Senior Convertible Participating Preferred Stock, which consists of 2,680,656
shares of Series I Mandatorily Redeemable Senior Convertible Participating
Preferred Stock and 934,344 shares of Series II Mandatorily Redeemable Senior
Convertible Participating Preferred Stock (see Note 14).
During the years ended December 31, 1999, 1998 and 1997 the Company
issued 6,182; 3,864 and 35,339, respectively, shares of Common Stock to certain
members of management for cash and notes receivable (see Note 17) aggregating
$154,000, $77,000 and $655,000, respectively.
In June 1999, the Company issued 85,000 shares of Common Stock valued
at $2,808,000 in exchange for common shares of TPOA as part of the TPOA
Acquisition (see Note 3). In July 1999, the Company issued 200,000 shares of
Common Stock to Freightliner for cash consideration of $6,660,000 and also
issued to Freightliner an option to purchase an additional 100,000 shares at the
same price per share.
CONVERTIBLE PREFERRED STOCK
Voting Rights. Each share of Series I Convertible Preferred Stock
entitles the holder to one vote on all matters submitted to a vote of the
Company's stockholders. Series II Convertible Preferred Stock is non-voting.
Dividends. See Common Stock-Dividends below.
Conversion. Each share of Series I Convertible Preferred Stock is
convertible into a share of Common Stock at any time at the option of the
holder.
Each share of Series II Convertible Preferred Stock is convertible at
any time at the option of the holder into such number of shares of Common Stock
that in the aggregate do not exceed the lesser of (i) one share of Common Stock
for each share of Series II Convertible Preferred Stock converted or (ii) the
number that equals 25 percent of the outstanding shares of Common Stock
immediately following such conversion (a total of 293,686 at
45
<PAGE> 47
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 for all Series II preferred shares). Following the conversion
of at least 75 percent of the outstanding Convertible Preferred Stock into
Common Stock, the Company is entitled to convert each remaining share of
Convertible Preferred Stock into a share of Common Stock.
Liquidation Preference. See Note 14 - Liquidation Preference above.
COMMON STOCK
Voting Rights. Each share of Common Stock entitles the holder to one
vote on all matters submitted to a vote of the Company's stockholders.
Dividends. Holders of Common Stock are entitled to receive dividends
if, and when, declared by the Board of Directors of the Company. The Company is
precluded from paying dividends or making distributions to the holders of any of
its equity securities while any shares of Convertible Preferred Stock or
Mandatorily Redeemable Senior Convertible Participating Preferred Stock are
outstanding except for dividends and distributions of capital stock of the
Company; unless (i) in any fiscal year the dividends and distributions do not
exceed 50 percent of the Company's net income for the prior fiscal year and (ii)
if immediately after payment of such dividends or the making of any such
distributions, the value of the Company's stockholder equity would exceed the
value of the aggregate liquidation preference of the outstanding shares of
Convertible Preferred Stock and Mandatorily Redeemable Senior Convertible
Participating Preferred Stock by at least one dollar.
Liquidation Preference. See Note 14 - Liquidation Preference above.
Warrants. In April 1993 the Company issued warrants with an exercise
price of $0.01 per share which are exercisable for 128,206 shares of Common
Stock.
Repurchase Rights. Certain members of the Company's senior management
have purchased shares of the Company's Common Stock pursuant to individual
management subscription agreements. The Company has the right to repurchase, and
the employees have the right to require the Company to repurchase, at formula
prices, the Common Stock upon termination of employment. The formula prices are
based on the consolidated operating results and indebtedness of the Company. At
December 31, 1999, 1998 and 1997, the formula prices were $33.30, $25.00 and
$23.25 per share, respectively. Compensation expense recognized with regard to
these shares during the years ended December 31, 1999, 1998 and 1997 was
$96,000, $62,000 and $54,000, respectively.
TREASURY STOCK
From time to time the Company has acquired shares of its Common Stock
from former members of management and Operator Stockholders. For the years ended
December 31, 1999, 1998 and 1997, the Company purchased 10,000; 37,500 and
692,000 treasury shares, respectively. These shares were recorded at their
acquisition costs of $170,000, $475,000 and $7,456,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
STOCK AWARD AND OPTION PLANS
1997 Stock Plan. During 1997, the Board of Directors approved the
adoption of the 1997 Stock Incentive Plan (the "1997 Stock Plan"). The principal
terms and conditions of the 1997 Stock Plan are as follows: a maximum of 750,000
shares of Common Stock (subject to adjustment) may be issued pursuant to options
and stock appreciation rights granted to officers, non-employee directors and
key employees of the Company designated by the Compensation Committee; the
option exercise price for each option granted will be the stated market value of
the stock on the respective grant date, such stated market value to be
determined annually based on a formula, specified in the 1997 Stock Plan, that
is, based on the consolidated operating results and indebtedness of the Company;
the
46
<PAGE> 48
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
options will vest on the December 31 of the year of grant upon the attainment of
performance targets (outstanding options and options with respect to shares
reserved for future awards will vest upon a "change of control" or "initial
public offering" of the Company (as such terms are defined in the 1997 Stock
Plan)), and remain exercisable for limited periods following termination of
employment; shares of Common Stock acquired upon exercise of options are subject
to call and put options upon termination of employment; if a change of control
occurs within six months after termination of the employment of a former
employee for "good reason," death, "disability" or termination other than for
"cause" (as defined), an adjustment will be made to the amount paid upon
exercise of any call options or put options (but, in the case of put options,
only to the extent the proceeds received by the former employee upon exercise of
the put option are used to repay indebtedness to the Company) so that the former
employee will be able to receive any amounts in excess of the call or put price
payable in the change of control transaction.
1993 Stock Plan. The 1993 Stock Incentive Plan (the "1993 Stock Plan")
was approved by the Board of Directors and was effective as of December 10,
1993. The 1993 Stock Plan provided for the granting of stock options and other
stock-based awards to employees and directors of the Company. Stock awards
granted under the 1993 Stock Plan could be in the form of (i) stock options,
(ii) stock appreciation rights related to an option ("SAR"), and (iii) unrelated
SAR's. Stock options granted under the 1993 Stock Plan allow the purchase of
Common Stock (formerly Class B Common Stock) at prices generally not less than
fair market value at the time of the grant as determined by the Compensation
Committee of the Board of Directors. The total number of shares of Common Stock
with respect to which awards could be granted was 572,000. Common stock obtained
as a result of the exercise of the options is subject to call and put rights at
formula prices upon termination of employment. The formula prices are based on
the consolidated operating results and indebtedness of the Company. A portion of
the options vested at the end of each year in the five year period ending
December 31, 1997, based on attainment of certain specified financial objectives
at the end of each year, but no more quickly than ratably from the date of grant
through December 31, 1996. Vested options must be exercised within 10 years of
the date of grant. All unvested options under the 1993 Plan at December 31, 1996
were cancelled upon the adoption of the 1997 Stock Plan.
The purchase prices at December 31, 1999, 1998 and 1997 used to
determine compensation expense related to options granted under the Company's
stock plans were $33.30, $25.00 and $23.25, respectively. Based on these prices
and the number of vested options in each year, compensation expense recognized
in relation to these options for the years ended December 31, 1999, 1998 and
1997 were $4,966,000, $2,438,000 and $1,346,000, respectively.
The following table reflects the status and activity of options under
the 1997 Stock Plan and the 1993 Stock Plan:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Options outstanding beginning of year.......... 538,529 376,779 531,181
Granted........................................ 238,751 161,750 161,750
Canceled....................................... - - (316,152)
----------- ----------- -----------
Options outstanding, end of year............... 777,280 538,529 376,779
=========== =========== ===========
Options exercisable, end of year............... 777,280 538,529 376,779
Options available for grant, end of year....... 187,749 426,500 588,250
</TABLE>
The weighted-average exercise price was $25.00 and $23.25 for those
options granted during 1999 and 1998, respectively, and $21.35 and $19.74 for
all outstanding options as of December 31, 1999 and 1998, respectively. The
weighted-average exercise price of the options cancelled in 1997 and all
outstanding options as of December 31, 1996, was $19.04 The weighted-average
remaining contractual life of all options outstanding at December 31, 1999 was
6.9 years.
47
<PAGE> 49
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
EXERCISE OPTIONS OPTIONS
PRICE OUTSTANDING EXERCISABLE
-------- ------------------ -----------------
<S> <C> <C>
$10.00........................................................ 67,988 67,988
$17.49........................................................ 71,757 71,757
$20.00........................................................ 161,750 161,750
$22.50........................................................ 75,284 75,284
$23.25........................................................ 161,750 161,750
$25.00........................................................ 238,751 238,751
----------- ----------
777,280 777,280
=========== ==========
</TABLE>
16. INCOME TAXES
The (benefit) provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------------------------ ---------------
<S> <C> <C> <C>
Current:
Federal........................................... $ 3,335 $ 4,089 $ 3,524
State............................................. 898 1,501 462
---------- ---------- ----------
4,233 5,590 3,986
---------- ---------- ----------
Deferred:
Federal........................................... (3,047) (6,565) (3,880)
State............................................. (104) (1,126) (450)
---------- ---------- ----------
(3,151) (7,691) (4,330)
---------- ---------- ----------
Total........................................ $ 1,082 $ (2,101) $ (344)
========== ========== ==========
</TABLE>
The difference between taxes calculated at the U. S. federal statutory
tax rate of 35 percent and the Company's total income tax provision is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------------------------ ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
U.S. federal statutory rate applied to income before $ 413 $ (2,198) $ (194)
taxes and extraordinary items.....................
State income taxes, net of federal income tax benefit 518 243 8
Non-deductible meals and entertainment............... 336 129 65
Non-deductible amortization.......................... 140 - -
Benefit of tax credits............................... (377) (320) (227)
Other - net.......................................... 52 45 4
--------- --------- ---------
Total........................................ $ 1,082 $ (2,101) $ (344)
========= ========= =========
</TABLE>
48
<PAGE> 50
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For 1998, income tax benefits of $2,012,000 allocated to the
extraordinary loss of $5,917,000 differ from the amount calculated at the
federal statutory rate of 35 percent by $59,000. This difference is due to
graduated tax rates. For 1997, income tax benefits of $3,608,000 allocated to
the extraordinary loss of $9,162,000 differ from the amount calculated at the
federal statutory rate of 35 percent by $401,000. This difference is the result
of state tax benefits, net of the federal effect and graduated tax rates.
Deferred income tax assets and liabilities resulted from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
--------------- ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable............................................. $ 1,459 $ 1,199
Inventory....................................................... 566 299
Intangible assets............................................... 11,421 11,511
Deferred revenues............................................... 1,806 887
Minimum tax credit.............................................. 7,494 5,472
General business credits (expiring 2009-2012)................... 2,140 1,561
Other accrued liabilities....................................... 8,297 4,039
---------- ----------
Total deferred tax assets.................................. 33,183 24,968
---------- ----------
Deferred tax liabilities:
Property and equipment.......................................... (28,410) (18,522)
---------- ----------
Total deferred tax liabilities............................. (28,410) (18,522)
---------- ----------
Net deferred tax assets (liabilities)...................... $ 4,773 $ 6,446
========== ==========
</TABLE>
The tax returns of the Company for 1996 through 1999 are subject to
examination by the Internal Revenue Service and state tax authorities. The
Company believes it has made adequate provision for income taxes and interest
that may become payable for years not yet examined.
17. RELATED PARTY TRANSACTIONS
The Company leases one of its travel centers from a realty company
owned by two individuals, one of whom is a stockholder and director of the
Company. This lease relationship commenced during 1999 and total rent expense
related to this lease for the year ended December 31, 1999 was $263,000.
During 1999 and 1998 certain shareholders of the Company were paid fees
aggregating $650,000 as consideration for their financial advisory services
provided in completing the Burns Acquisition, the 1998 Refinancing and the TPOA
Acquisition.
Certain members of the Company's senior management have purchased
common stock of the Company pursuant to management subscription agreements (see
Note 15 - Repurchase Rights). As a result of such purchases, the Company has
notes and related interest receivable from the management stockholders totaling
$1,062,000 and $967,000 at December 31, 1999 and 1998, respectively.
49
<PAGE> 51
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive
regulation pursuant to federal, state and local laws, regulations and ordinances
("Environmental Laws") that (i) govern activities and operations that may have
adverse environmental effects, such as discharges to air, soil and water, as
well as handling, storage and disposal practices for petroleum products and
other hazardous and toxic substances ("Hazardous Substances") or (ii) impose
liability and damages for the costs of cleaning up sites affected by, and for
damages resulting from, past spills and disposal or other releases of Hazardous
Substances.
The Company owns and uses underground storage tanks ("USTs") and
aboveground storage tanks ("ASTs") at Company-operated Sites and Leased Sites to
store petroleum products and waste. These tanks must comply with requirements of
Environmental Laws regarding tank construction, integrity testing, leak
detection and monitoring, overfill and spill control, release reporting,
financial assurance and corrective action in case of a release from a UST or AST
into the environment. At certain locations, the Company also is subject to
Environmental Laws relating to vapor recovery and discharges to water. The
Company believes that all of its travel centers are in material compliance with
applicable requirements of Environmental Laws. While the costs of compliance for
these matters have not had a material adverse impact on the Company, it is
impossible to predict accurately the ultimate effect these changing laws and
regulations may have on the Company in the future. The Company incurred capital
expenditures, maintenance, remediation and other environmental related costs of
approximately $2,635,000, $6,721,000 and $8,867,000 in 1999, 1998 and 1997,
respectively.
The Company has received notices of alleged violations of Environmental
Laws, or is aware of the need to undertake corrective actions to comply with
Environmental Laws, at Company-owned travel centers in a number of
jurisdictions. The Company does not expect that any financial penalties
associated with these alleged violations, instances of noncompliance, or
compliance costs incurred in connection therewith, will be material to the
Company's results of operation or financial condition. The Company is conducting
investigatory and/or remedial actions with respect to releases and/or spills of
Hazardous Substances. While the Company cannot precisely estimate the ultimate
costs it will incur in connection with the investigation and remediation of
these matters, based on its current knowledge, the Company does not expect that
the costs to be incurred for these matters, individually or in the aggregate,
will be material to the Company's results of operation or financial condition.
While the aforementioned matters are, to the best knowledge of the Company, the
only proceedings for which the Company is currently exposed to potential
liability (particularly given the Unocal and BP indemnities discussed below),
there can be no assurance that additional contamination does not exist at these
or additional Network properties, or that material liability will not be imposed
in the future. If additional environmental problems arise or are discovered, or
if additional environmental requirements are imposed by government agencies,
increased environmental compliance or remediation expenditures may be required,
which could have a material adverse effect on the Company.
The Company has estimated the current ranges of remediation costs at
currently active sites and what it believes will be its ultimate share for such
costs after required indemnification and remediation is performed by Unocal and
BP under the environmental agreements and has a reserve of $7,125,000, for such
matters. While it is not possible to quantify with certainty the environmental
exposure, in the opinion of management, the potential liability, beyond that
considered in the reserve, for all environmental proceedings, based on
information known to date, will not have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
Pursuant to an environmental agreement entered into with Unocal at the
time of the National Acquisition (the "Unocal Environmental Agreement"), Unocal
is responsible for all costs incurred for remediation of environmental
contamination (the remediation must achieve compliance with the Environmental
Laws in effect on
50
<PAGE> 52
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the date the remedial action is completed) and for otherwise
bringing the properties into compliance with Environmental Laws (as in effect at
the date of the National Acquisition) with respect to environmental
contamination or non-compliance identified in the Phase I or Phase II
environmental assessments conducted at each of the sites acquired from Unocal,
which environmental contamination or non-compliance existed on or prior to the
date of the National Acquisition. Under the terms of the Unocal Environmental
Agreement, Unocal also must indemnify the Company against any other
environmental liabilities that arise out of conditions at, or ownership or
operations of, the National Network prior to the date of the National
Acquisition. Pursuant to the Unocal Environmental Agreement, Unocal is obligated
to indemnify the Company for claims made before April 14, 2004. Except as
described above, Unocal does not have any responsibility for any environmental
liabilities arising out of the ownership or operations of the National Network
after the date of the National Acquisition. There can be no assurance that, if
additional environmental claims or liabilities were to arise under the Unocal
Environmental Agreement, Unocal would not dispute the Company's claims for
indemnification thereunder.
An environmental agreement entered into with BP at the time of the TA
Acquisition (the "BP Environmental Agreement") provides that, with respect to
environmental contamination or non-compliance with Environmental Laws identified
in the Phase I or Phase II environmental assessments conducted at each of the
sites acquired from BP, BP is responsible for all costs incurred for remediation
of such environmental contamination (the remediation must achieve compliance
with the Environmental Laws in effect on the date the remedial action is
completed) and for otherwise bringing the properties into compliance with
Environmental Laws (as in effect at the date of the TA Acquisition). The BP
Environmental Agreement further provides that BP must indemnify the Company
against any other environmental liabilities that arise out of conditions at, or
ownership or operations of, the TA locations prior to the date of the TA
Acquisition. With respect to liabilities relating to the investigation and
remediation of environmental contamination, BP is obligated to indemnify the
Company for liabilities with respect to which claims are made before December
11, 2004. With respect to liabilities otherwise relating to non-compliance with
Environmental Laws (for example, equipment), BP is obligated to indemnify the
Company for liabilities with respect to which claims were made before December
11, 1996. Except as described above, BP does not have any responsibility for any
environmental liabilities arising out of the ownership or operations of the TA
Network after the date of the TA Acquisition. There can be no assurance that, if
additional environmental claims or liabilities were to arise under the BP
Environmental Agreement, BP would not dispute the Company's claims for
indemnification thereunder.
PENDING LITIGATION
The Company is involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of its business. The Company is not involved
in any litigation, individually, or in the aggregate, which could have a
material adverse effect on the Company's business, financial condition, results
of operations or cash flows.
19. OPERATING LEASE COMMITMENTS
Thirty of the travel centers owned by the Company as of December 31,
1999, are leased to Operators under operating lease arrangements. Of these
Leased Sites, 22 are leased to Operator Stockholders (see Note 17). The lease
agreements offered to related parties are the same as those offered to unrelated
parties. These cancelable lease arrangements generally are for terms of five
years. Rent revenue from such operating lease arrangements totaled $13,023,000,
$14,271,000 and $29,433,000 for 1999, 1998 and 1997, respectively.
51
<PAGE> 53
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. OTHER INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating and Selling, general and administrative expenses
include the following:
Repairs and maintenance expenses........................... $ 11,008 $ 9,223 $ 8,528
Advertising expenses....................................... $ 10,106 $ 8,722 $ 9,141
Taxes other than payroll and income taxes.................. $ 5,817 $ 5,585 $ 5,099
Interest expense, net consists of the following:
Interest expense........................................... $ (38,944) $ (28,285) $ (26,418)
Interest income............................................ 1,750 2,914 3,520
---------- ---------- ----------
$ (37,194) $ (25,371) $ (22,898)
========== ========== ==========
</TABLE>
21. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
--------------- --------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................... $ 36,951 $ 27,804 $ 24,611
Income taxes (net of refunds).............................. $ 3,386 $ (1,224) $ 3,445
Inventory, property and equipment, and treasury
stock received in liquidation of trade
accounts and notes receivable $ 170 $ 1,068 $ 5,023
Note received from sale of property and equipment $ 2,650 $ - $ -
</TABLE>
In 1999, the Company issued $2,808,000 of Common Stock as part of the
consideration for the TPOA Acquisition. During 1998, the Company issued a note
payable for $3,044,000 (net of a discount of $1,875,000) in exchange for
property and goodwill acquired (see Note 12). Pursuant to the 1997 Refinancing,
the Company extinguished $85,500,000 of Senior Secured Notes through the
issuance of Series I Senior Secured Notes and Series II Senior Secured Notes of
an aggregate equal face amount (see Note 12).
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth the condensed consolidating balance
sheet schedules of the Company as of December 31, 1999 and 1998 and condensed
consolidating statement of income and retained earnings (deficit) schedules and
condensed consolidating statement of cash flows schedules of the Company for the
years ended December 31, 1999, 1998 and 1997. In the following schedules,
"Parent Company" refers to the unconsolidated balances of TravelCenters of
America, Inc., "Guarantor Subsidiaries" refers to the combined unconsolidated
balances of TA, National and TA Licensing, and "Nonguarantor Subsidiary" refers
to the balances of TAFSI. "Eliminations" represent the adjustments necessary to
(a) eliminate intercompany transactions and (b) eliminate the Company's
investments in its subsidiaries.
The Guarantor Subsidiaries, (TA, National and TA Licensing), are
wholly-owned subsidiaries of the Company and have fully and unconditionally,
jointly and severally, guaranteed the Company's indebtedness. In the 10-K
filing, the Company has not presented separate financial statements and other
disclosures concerning the Guarantor Subsidiaries because management has
determined such information is not material to investors.
52
<PAGE> 54
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------------------------ ------------------------------ ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash.................................. $ - $ 18,040 $ - $ - $ 18,040
Accounts receivable, net.............. - 66,331 1,095 (987) 66,439
Inventories........................... - 59,043 - - 59,043
Deferred income taxes................. - 4,533 - - 4,533
Other current assets.................. 278 16,239 - (76) 16,441
---------- ---------- ---------- ----------- ----------
Total current assets............. 278 164,186 1,095 (1,063) 164,496
Notes receivable, net.................... 1,062 2,099 - (1,778) 1,383
Property and equipment, net.............. - 454,093 - - 454,093
Intangible assets........................ - 28,792 - - 28,792
Deferred financing costs................. 8,411 - - - 8,411
Deferred income taxes.................... 880 999 - - 1,879
Other assets........................... - 4,508 - (3,700) 808
Investment in subsidiaries............... 341,821 - - (341,821) -
---------- ---------- ---------- ----------- ----------
Total assets..................... $ 352,452 $ 654,677 $ 1,095 $ (348,362) $ 659,862
========== ========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.. $ 1,446 $ 155 $ - $ - $ 1,601
Accounts payable...................... - 60,660 260 - 60,920
Other accrued liabilities............. 6,592 61,106 108 (1,063) 66,743
---------- ---------- ---------- ----------- ----------
Total current liabilities........ 8,038 121,921 368 (1,063) 129,264
Long-term debt (net of unamortized
discount)............................. 401,495 4,652 - (1,778) 404,369
Deferred income taxes.................... - 1,639 - - 1,639
Intercompany advances.................... (166,311) 172,966 (6,655) - -
Other liabilities........................ - 240,019 - (223,404) 16,615
---------- ---------- ---------- ----------- ----------
Total liabilities................ 243,222 541,197 (6,287) (226,245) 551,887
Mandatorily redeemable senior convertible
participating preferred stock......... 79,739 - - - 79,739
Other preferred stock, common stock and
other stockholders' equity............ 54,255 88,539 - (89,794) 53,000
Retained earnings (deficit).............. (24,764) 24,941 7,382 (32,323) (24,764)
---------- ---------- ---------- ----------- ----------
29,491 113,480 7,382 (122,117) 28,236
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity.......... $ 352,452 $ 654,677 $ 1,095 $ (348,362) $ 659,862
========== ========== ========== =========== ==========
</TABLE>
53
<PAGE> 55
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash.................................. $ 59,665 $ 29,535 $ - $ - $ 89,200
Accounts receivable, net.............. - 60,176 836 - 61,012
Inventories........................... - 42,952 - - 42,952
Deferred income taxes................. - 2,269 - - 2,269
Other current assets.................. 98,323 29,210 7,860 (122,774) 12,619
---------- ---------- ---------- ----------- ----------
Total current assets............. 157,988 164,142 8,696 (122,774) 208,052
Notes receivable, net.................... 967 272 - - 1,239
Property and equipment, net.............. - 361,803 - - 361,803
Intangible assets........................ - 21,141 - - 21,141
Deferred financing costs................. 9,284 - - - 9,284
Deferred income taxes.................... 879 4,235 - - 5,114
Other assets........................... 730 6,398 - (3,700) 3,428
Investment in subsidiaries............... 338,205 - - (338,205) -
---------- ---------- ---------- ----------- ----------
Total assets..................... $ 508,053 $ 557,991 $ 8,696 $ (464,679) $ 610,061
========== ========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.. $ 1,446 $ 148 $ - $ - $ 1,594
Accounts payable...................... - 46,645 7 - 46,652
Other accrued liabilities............. 18,988 163,285 2,916 (122,761) 62,428
---------- ---------- ---------- ----------- ----------
Total current liabilities........ 20,434 210,078 2,923 (122,761) 110,674
Long-term debt (net of unamortized
discount)............................. 387,942 2,923 - - 390,865
Deferred income taxes.................... - 937 - - 937
Other liabilities........................ - 232,566 - (223,404) 9,162
---------- ---------- ---------- ----------- ----------
Total liabilities................ 408,376 446,504 2,923 (346,165) 511,638
Mandatorily redeemable senior convertible
participating preferred stock......... 69,974 - - - 69,974
Other preferred stock, common stock and
other stockholders' equity............ 44,801 84,880 - (86,134) 43,547
Retained earnings........................ (15,098) 26,607 5,773 (32,380) (15,098)
---------- ---------- ---------- ----------- ----------
29,703 111,487 5,773 (118,514) 28,449
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity.......... $ 508,053 $ 557,991 $ 8,696 $ (464,679) $ 610,061
========== ========== ========== =========== ==========
</TABLE>
54
<PAGE> 56
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
SCHEDULES:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------
PARENT GUARANTOR ONGUARANTOR
COMPANY SUBSIDIARIES NSUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- ---------------- -------------- -----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 955,105 $ - $ - $ 955,105
Nonfuel................................ - 477,786 1,476 (203) 479,059
Rent and royalties..................... - 33,775 7,326 (20,641) 20,460
---------- ----------- ---------- ---------- ------------
Total revenues......................... - 1,466,666 8,802 (20,844) 1,454,624
Cost of revenues (excluding depreciation). - 1,051,080 - - 1,051,080
---------- --------- ---------- ---------- ------------
Gross profit (excluding depreciation)..... - 415,586 8,802 (20,844) 403,544
Operating expenses........................ - 287,267 481 (20,641) 267,107
Selling, general and
administrative expenses............... 806 32,099 5,759 (203) 38,461
Transition expense........................ - 3,952 - - 3,952
Depreciation and amortization expense..... 1,349 51,853 - - 53,202
(Gain) loss on sale of property and
equipment.............................. - (2,615) - - (2,615)
Stock compensation expense................ - 5,062 - - 5,062
---------- ----------- ---------- ---------- ------------
Income (loss) from operations............. (2,155) 37,968 2,562 - 38,375
Interest expense, net..................... - (37,191) (3) - (37,194)
Equity income (loss)...................... 1,318 - - (1,318) -
---------- ----------- ---------- ---------- ------------
(Loss) income before income taxes......... (837) 777 2,559 (1,318) 1,181
(Benefit) provision for income taxes...... (936) 1,068 950 - 1,082
---------- ----------- ---------- ---------- ------------
Net (loss) income......................... 99 (291) 1,609 (1,318) 99
Less: preferred dividends................. (9,765) - - - (9,765)
Less: intercompany dividends.............. - (1,375) - 1,375 -
Retained earnings (deficit) - beginning of
the year............................... (15,098) 26,607 5,773 (32,380) (15,098)
---------- ----------- ---------- ---------- ------------
Retained earnings' (deficit)-end of the
year $ (24,764) $ 24,941 $ 7,382 $ (32,323) $ (24,764)
========== =========== ========== ========== ============
</TABLE>
55
<PAGE> 57
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 554,735 $ - $ - $ 554,735
Nonfuel................................ - 346,504 1,257 (230) 347,531
Rent and royalties..................... - 32,949 6,875 (18,280) 21,544
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 934,188 8,132 (18,510) 923,810
Cost of revenues (excluding depreciation). - 627,149 - - 627,149
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 307,039 8,132 (18,510) 296,661
Operating expenses........................ 160 210,476 1,571 (18,510) 193,697
Selling, general and
administrative expense................ 829 32,556 871 - 34,256
Transition expense........................ - 3,648 - - 3,648
Depreciation and amortization expense..... 1,482 43,180 - - 44,662
(Gain) loss on sale of property and
equipment.............................. - (1,195) - - (1,195)
Stock compensation expense................ - 2,500 - - 2,500
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (2,471) 15,874 5,690 - 19,093
Interest expense, net..................... - (25,368) (3) - (25,371)
Equity income (loss)...................... (2,155) - - 2,155 -
---------- ---------- ---------- ---------- ----------
(Loss) income before income taxes and
extraordinary items.................. (4,626) (9,494) 5,687 2,155 (6,278)
(Benefit) provision for income taxes...... (449) (3,774) 2,122 - (2,101)
---------- ---------- ---------- ---------- ----------
(Loss) income before extraordinary item (4,177) (5,720) 3,565 2,155 (4,177)
Extraordinary loss (less applicable income
tax benefit)........................... (3,905) - - - (3,905)
---------- ---------- ---------- ---------- ----------
Net (loss) income......................... (8,082) (5,720) 3,565 2,155 (8,082)
Less: preferred dividends................. (8,570) - - - (8,570)
Retained earnings (deficit) - beginning of
the year............................... 1,554 32,327 2,208 (34,535) 1,554
---------- ---------- ---------- ---------- ----------
Retained earnings (deficit) - end of the
year $ (15,098) $ 26,607 $ 5,773 $ (32,380) $ (15,098)
========== ========== ========== ========== ==========
</TABLE>
56
<PAGE> 58
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel..................................... $ - $ 715,852 $ - $ (7,215) $ 708,637
Nonfuel.................................. - 293,874 7 (38) 293,843
Rent and royalties....................... - 41,656 3,414 (8,222) 36,848
---------- ---------- ---------- ---------- ----------
Total revenues........................... - 1,051,382 3,421 (15,475) 1,039,328
Cost of revenues (excluding depreciation)... - 780,299 - (7,215) 773,084
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation) - 271,083 3,421 (8,260) 266,244
Operating expenses.......................... - 175,088 244 (8,260) 167,072
Selling, general and administrative expenses 814 33,934 871 - 35,619
Transition expense.......................... - 14,961 251 - 15,212
Depreciation and amortization expense....... 1,119 34,721 - - 35,840
(Gain) loss on sales of property and
equipment................................ - (11,244) - - (11,244)
Stock compensation expense.................. - 1,400 - - 1,400
---------- ---------- ---------- ---------- ----------
Income of subsidiary held for disposition... (1,933) 22,223 2,055 - 22,345
(2,629) (20,269) - - (22,898)
Income from operations...................... (5,153) - - 5,153 -
---------- ---------- ---------- ---------- ----------
(Expense), net.............................. (9,715) 1,954 2,055 5,153 (553)
Equity income (loss)........................ (3,952) 509 802 2,297 (344)
---------- ---------- ---------- ---------- ----------
Income before provision for income taxes
and extraordinary items.................. (5,763) 1,445 1,253 2,856 (209)
(Benefit) Provision for income taxes........ - (5,554) - - (5,554)
---------- ---------- ---------- ---------- ----------
Net (loss) income........................... (5,763) (4,109) 1,253 2,856 (5,763)
Less: preferred dividends................... (7,520) - - - (7,520)
Retained earnings (deficit) - beginning of
the year................................. 14,837 36,436 955 (37,391) 14,837
---------- ---------- ---------- ---------- ----------
Retained earnings (deficit) - end of the
year..................................... $ 1,554 $ 32,327 $ 2,208 $ (34,535) $ 1,554
========== ========== ========== ========== ==========
</TABLE>
57
<PAGE> 59
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SCHEDULES:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (USED IN) PROVIDED BY
OPERATING ACTIVITIES: $ 6,780 $ 37,932 $ - $ - $ 44,712
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................. - (57,762) - - (57,762)
Proceeds from sales of property and
equipment.......................... - 9,147 - - 9,147
Capital expenditures.................. - (87,401) - - (87,401)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities - (136,016) - - (136,016)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings............. 75,500 - - - 75,500
Revolving loan repayments............. (60,500) - - - (60,500)
Long-term debt repayments............. (1,446) (148) - - (1,594)
Proceeds from issuance of common
stock............................ 6,738 - - - 6,738
Intercompany advances............... (86,737) 86,737 - - -
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by
financing activities............. (66,445) 86,589 - - 20,144
---------- ---------- ---------- ---------- ----------
Net increase/(decrease) in cash.. (59,665) (11,495) - - (71,160)
Cash at the beginning of the year........ 59,665 29,535 - - 89,200
---------- ---------- ---------- ---------- ----------
Cash at the end of the year.............. $ - $ 18,040 $ - $ - $ 18,040
========== ========== ========== ========== ==========
</TABLE>
58
<PAGE> 60
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (USED IN) PROVIDED BY
OPERATING ACTIVITIES: $ (2,396) $ 50,917 $ - $ - $ 48,521
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................. - (63,215) - - (63,215)
Proceeds from sales of property and
equipment.......................... - 3,414 - - 3,414
Capital expenditures.................. - (65,704) - - (65,704)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities....................... - (125,505) - - (125,505)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings............. 229,250 - - - 229,250
Long-term debt repayments............. (129,987) - - - (129,987)
Repurchase of common stock.......... (475) - - - (475)
Debt issuance costs................. (4,360) - - - (4,360)
Intercompany advances............... (91,959) 91,959 - - -
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by
financing activities............. 2,469 91,959 - - 94,428
---------- ---------- ---------- ---------- ----------
Net increase in cash............. 73 17,371 - - 17,444
Cash at the beginning of the year........ 59,592 12,164 - - 71,756
---------- ---------- ---------- ---------- ----------
Cash at the end of the year.............. $ 59,665 $ 29,535 $ - $ - $ 89,200
========== ========== ========== ========== ==========
</TABLE>
59
<PAGE> 61
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- ------------- ------------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (USED IN) PROVIDED BY
OPERATING ACTIVITIES: $ 13,898 $ 27,772 $ - $ - $ 41,670
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................. - (15,127) - - (15,127)
Proceeds from sales of property and
equipment.......................... - 37,958 - - 37,958
Capital expenditures.................. - (60,818) - - (60,818)
---------- ----------- ---------- ---------- ----------
Net cash used in investing
activities....................... - (37,987) - - (37,987)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings............. - 3,750 - - 3,750
Revolving loan repayments............. - (17,750) - - (17,750)
Long-term debt borrowings............. 205,000 - - - 205,000
Long-term debt repayments............. (375) (126,300) - - (126,675)
Proceeds from issuance of stock..... 329 - - - 329
Repurchase of common stock.......... (7,456) - - - (7,456)
Debt issuance costs................. (12,904) - - - (12,904)
Intercompany advances............... (138,900) 138,900 - - -
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by
financing activities............. 45,694 (1,400) - - 44,294
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash.. 59,592 (11,615) - - 47,977
Cash at the beginning of the year........ - 23,779 - - 23,779
---------- ---------- ---------- ---------- ----------
Cash at the end of the year.............. $ 59,592 $ 12,164 $ - $ - $ 71,756
========== ========== ========== ========== ==========
</TABLE>
60
<PAGE> 62
QUARTERLY FINANCIAL DATA - UNAUDITED
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(a)
------------- ------------- ------------ -------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1999 Data:
Total Revenue $ 268,228 $ 342,371 $ 421,874 $ 422,151
Gross Profit $ 86,551 $ 100,804 $ 112,152 $ 104,037
Net income (loss) $ (1,677) $ 1,790 $ 106 $ (120)
Income (loss) per common share
(basic and diluted) $ (6.73) $ (0.91) $ (2.75) $ (2.57)
1998 Data:
Total Revenue $ 213,324 $ 229,537 $ 238,335 $ 242,614
Gross Profit $ 66,174 $ 72,164 $ 78,975 $ 79,348
Income (loss) before extraordinary item $ (7,283) $ 678 $ 2,387 $ 41
Net income (loss) $ (7,283) $ 678 $ 2,387 $ (3,864)
Earnings per common share:
Income (loss) before extraordinary item:
Basic $ (14.97) $ (2.34) $ 0.29 $ (3.63)
Diluted $ (14.97) $ (2.34) $ 0.05 $ (3.63)
Net income (loss):
Basic $ (14.97) $ (2.34) $ 0.29 $ (10.16)
Diluted $ (14.97) $ (2.34) $ 0.05 $ (10.16)
</TABLE>
(a) In the fourth quarter of 1998, the Company recognized an extraordinary
loss, net of the applicable income tax benefit of $2,012,000, of $3,905,000
with respect to the early extinguishment of indebtedness.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
61
<PAGE> 63
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and executive officers of the
Company required by this item is incorporated by reference to the material
appearing under the heading "Directors and Officers of the Registrant" in
Exhibit 99.1 to this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation required by this item is
incorporated by reference to the material appearing under the heading "Executive
Compensation" in Exhibit 99.1 to this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management of the Company required by this item is incorporated by reference
to the material appearing under the heading "Security Ownership of Certain
Beneficial Owners and Management" in Exhibit 99.1 to this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
required by this item is incorporated by reference to the material appearing
under the heading "Certain Relationships and Related Transactions" in Exhibit
99.1 to this Report.
62
<PAGE> 64
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Documents filed as part of this report:
1. Financial Statements
Financial statements filed as part of this report are listed in the
Index to Consolidated Financial Statements and Supplementary Data on
page 26.
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, not material
or the required information is shown in the financial statements listed
above.
3. Exhibits
Reference is made to the Exhibit Index set forth at page i of this
report.
B. Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1999.
63
<PAGE> 65
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy statement has been furnished to the
registrant's security holders. The registrant shall furnish to the Commission
for its information, at the time copies of such material are furnished to its
security holders, four copies of every proxy statement, form of proxy or other
proxy soliciting material sent to more than ten of the registrant's security
holders with respect to the registrant's annual meeting. The foregoing material
shall not be deemed to be "filed" with the Commission or otherwise subject to
the liabilities of Section 18 of the Act, except to the extent that the
registrant specifically incorporates it in this Form 10-K by reference.
64
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C>
TRAVELCENTERS OF AMERICA, INC.
March 30, 2000 By: /s/ James W. George
-------------------------------------------- --------------------
(Date) Name: James W. George
Title: Senior Vice President,
Chief Financial Officer and Secretary
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Edwin P. Kuhn President, Chief Executive Officer and March 30, 2000
------------------------------ Director (Principal Executive Officer)
Edwin P. Kuhn
/s/ James W. George Senior Vice President, Chief Financial March 30, 2000
------------------------------ Officer and Secretary (Principal
James W. George Financial Officer and Principal
Accounting Officer)
/s/ Margaret M. Eisen Director March 30, 2000
------------------------------
Margaret M. Eisen
/s/ Robert B. Calhoun, Jr. Chairman of the Board of Directors and March 30, 2000
------------------------------ Director
Robert B. Calhoun, Jr.
/s/ Eugene P. Lynch Director March 30, 2000
------------------------------
Eugene P. Lynch
/s/ Louis J. Mischianti Director March 30, 2000
------------------------------
Louis J. Mischianti
/s/ Rolf H. Towe Director March 30, 2000
------------------------------
Rolf H. Towe
/s/ Harrison T. Bubb Director March 30, 2000
------------------------------
Harrison T. Bubb
/s/ E. Philip Saunders Director March 30, 2000
------------------------------
E. Philip Saunders
/s/ James L. Hebe Director March 30, 2000
------------------------------
James L. Hebe
</TABLE>
65
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- --------- ------------------------------------------------------------------------------------------ ----------
<S> <C> <C>
2.1 Asset Purchase Agreement, dated October 17, 1998, between TA and Burns Bros. Inc................. (f)
2.2 Amendment to Asset Purchase Agreement, dated December 3, 1998, between TA and Burns
Bros. Inc........................................................................................ (f)
2.3 Agreement and Plan of Merger by and among the Company, TP Acquisition, Inc. and TPOA,
dated as of February 26, 1999.................................................................... (e)
2.4 Share Exchange Agreement by and among the Company and E. Philip Saunders, dated as of
February 26, 1999................................................................................ (e)
2.5 Voting Agreement, dated as of February 26, 1999, among the Company, TP Acquisition,
Inc. and E. Philip Saunders and John M. Holohan.................................................. (e)
3.1 Restated Certificate of Incorporation of the Company............................................. (a)
3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Company............. (d)
3.3 Restated Certificate of Incorporation of National Auto/Truckstops, Inc........................... (b)
3.4 Restated Certificate of Incorporation of TA Operating Corporation................................ (b)
3.5 Second Amended and Restated By-laws of the Company............................................... (b)
3.6 Amended and Restated By-laws of National Auto/Truckstops, Inc.................................... (b)
3.7 Amended and Restated By-laws of TA Operating Corporation......................................... (b)
4.1 Indenture, dated March 27, 1997, among the Company, TA, National and Fleet National
Bank as Trustee.................................................................................. (a)
4.2 Exchange and Registration Rights Agreement, dated March 27, 1997, among the Company,
the TA Subsidiary, the National Subsidiary and Chase Securities, Inc............................. (a)
4.3 Form of Face of Initial Security (included in Exhibit 4.1 as Exhibit A).......................... (a)
4.4 Form of Face of Exchange Security (included in Exhibit 4.1 as Exhibit B)......................... (a)
4.5 Supplemental Indenture, dated March 1, 1998, among the Company, TA, National, TA Travel
and State Street Bank and Trust Company as Trustee............................................... (b)
4.6 Investment and Option Agreement dated July 21, 1999 between the Company and
Freightliner Corporation......................................................................... (g)
4.7 Supplemental Indenture, dated as of January 12, 2000, among Travel Port Systems, Inc.
(now known as LA Licensing), the Company and State Street Bank and Trust Company as
Trustee..........................................................................................
9.1 Voting Trust Agreement, dated April 14, 1993, among the Company, the Voting Trustee and
the Operator Stockholders named therein.......................................................... (a)
</TABLE>
i
<PAGE> 68
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- --------- ------------------------------------------------------------------------------------------ ----------
<S> <C> <C>
9.2 Amendment No. 1 to Voting Trust Agreement, dated November 29, 1993, among the Company,
the Voting Trustee and the Operator Stockholders................................................. (a)
9.3 Amendment No. 2 to Voting Trust Agreement, dated March 6, 1997, among the Company, the
Voting Trustee and the Operator Stockholders..................................................... (a)
10.1 Amended and Restated Registration Agreement among the Company, National I, National II,
National III, Clipper Truckstops, L.P., Clipper/Merchant, Olympus, Barclays Bank,
Barclays, Mellon Bank, N.A. as Trustee for First Plaza, UBS, Phoenix Insurance Company
and Travelers dated as of December 10, 1993...................................................... (a)
10.2* 1993 Stock Incentive Plan of the Company......................................................... (a)
10.3* Form of the Company's 1993 Stock Incentive Plan--Nonqualified Stock Option
Agreement--National Awards....................................................................... (a)
10.4* Form of the Company's 1993 Stock Incentive Plan--Nonqualified Stock Option Agreement--TA
Awards .......................................................................................... (a)
10.5 Credit Agreement, dated as of March 21, 1997, as amended and restated as of
November 24, 1998, among the Company, the Chase Manhattan Bank as agent, fronting bank
and swingline lender and the Lenders party thereto............................................... (f)
10.6 Senior Note Exchange Agreement as of March 21, 1997, among the Company, TA, National
and the Noteholders listed on Schedule 1 thereto................................................. (a)
10.7 Amendment and Waiver Agreement dated as of March 1, 1998, amending the Senior Note
Exchange Agreement, dated March 21, 1997......................................................... (b)
10.8 Supplemental Agreement, dated as of November 24, 1998, amending the Senior Secured Note
Exchange Agreement dated as of March 21, 1997 (as amended)....................................... (f)
10.9 Stockholders' Agreement, dated as of March 6, 1996, among the Company, the voting trust
certificate holders named therein, the Voting Trustee, the management stockholders of
the Company named therein, the additional stockholders named therein, Clipper, National
I, National II, National III and Clipper/Merchant............................................... (a)
10.10* Form of Executive Employment Agreement........................................................... (b)
10.11* Schedule of Executive Employment Agreements omitted pursuant to Instruction 2 to Item
601 of Regulation S-K............................................................................ (b)
10.12* 1997 Stock Incentive Plan of the Company......................................................... (c)
10.13* Form of Company's 1997 Stock Incentive Plan - Nonqualified Stock Option Agreement................ (b)
10.14* Form of Management Subscription Agreement........................................................ (b)
10.15* Schedule of Management Subscription Agreements omitted pursuant to Instruction 2 to
Item 601 of Regulation S-K....................................................................... (f)
10.16* Form of Note..................................................................................... (f)
</TABLE>
ii
<PAGE> 69
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- --------- ------------------------------------------------------------------------------------------ ----------
<S> <C> <C>
10.17* Schedule of Notes omitted pursuant to Instruction 2 to Item 601 of Regulation S-K................ (f)
10.18 Operating Agreement of Freightliner Corporation and the Company, dated July 21, 1999............. (g)
10.19 Agreement for Lease, dated as of September 9, 1999, among TA, National and TCA Network
Funding, LP...................................................................................... (g)
10.20 Lease Agreement, dated as of September 9, 1999, among TA, National and TCA Network
Funding, LP...................................................................................... (g)
10.21 Institutional Stockholders' Agreement, dated as of July 21, 1999, among the Company and
the stockholders named therein, Clipper, National, National III, Clipper/Merchant,
Olympus, Olympus II and Freightliner.............................................................
21 List of Subsidiaries of the Company..............................................................
27.1 Financial Data Schedule..........................................................................
99.1 Information Required by Part III of Form 10-K....................................................
</TABLE>
(a) Incorporated herein by reference to exhibits filed with the Company's
Registration Statement on Form S-4 (File No. 333-26497) effective July
17, 1997.
(b) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
(c) Incorporated herein by reference to an exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(d) Incorporated herein by reference to an exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(e) Incorporated herein by reference to exhibits filed with the Company's
Schedule 13D dated as of February 26, 1999.
(f) Incorporated herein by reference to exhibits filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
(g) Incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
* Executive compensation plans.
<PAGE> 1
EXHIBIT 4.7
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental
Indenture"), dated as of January 12, 2000, among
TRAVEL PORT SYSTEMS, INC. (the "New Subsidiary
Guarantor"), a subsidiary of TravelCenters of
America, Inc. (or its successor), a Delaware
corporation (the "Company"), THE COMPANY, on behalf
of itself and the Subsidiary Guarantors (the
"Existing Subsidiary Guarantors") under the Indenture
referred to below, and STATE STREET BANK AND TRUST
COMPANY, as successor to FLEET NATIONAL BANK, a
national banking association, as successor trustee
under the indenture referred to below (the
"Trustee").
W I T N E S S E T H :
WHEREAS the Company has heretofore executed and delivered to
the Trustee an Indenture (the "Indenture"), dated as of March 27, 1997,
providing for the issuance of an aggregate principal amount of $125,000,000 of
10-1/4% Senior Subordinated Notes due 2007 (the "Securities");
WHEREAS Section 4.11 of the Indenture provides that under
certain circumstances the Company is required to cause the New Subsidiary
Guarantor to execute and deliver to the Trustee a supplemental indenture
pursuant to which the New Subsidiary Guarantor shall unconditionally guarantee
all of the Company's obligations under the Securities pursuant to a Subsidiary
Guaranty on the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the
Trustee, the Company and Existing Subsidiary Guarantors are authorized to
execute and deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the New Subsidiary Guarantor, the Company, the Existing Subsidiary Guarantors
and the Trustee mutually covenant and agree for the equal and ratable benefit of
the holders of the Securities as follows:
<PAGE> 2
1. DEFINITIONS. (a) Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplement, except as otherwise herein
expressly provided or unless the context otherwise requires: (i) the terms and
expressions used herein shall have the same meanings as corresponding terms and
expressions used in the Indenture; and (ii) the words "herein," "hereof" and
"hereby" and other words of similar import used in this Supplement refer to this
Supplement as a whole and not to any particular section hereof.
2. AGREEMENT TO GUARANTEE. The New Subsidiary Guarantor hereby agrees,
jointly and severally with all other Subsidiary Guarantors, to Guarantee the
Company's obligations under the Securities on the term and subject to the
conditions set forth in Article 11 of the Indenture and to be bound by all other
applicable provisions of the Indenture.
3. RATIFICATION OF INDENTURE; SUPPLEMENTAL INDENTURES PART OF
INDENTURE. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby.
4. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
5. TRUSTEE MAKES NO REPRESENTATION. The Trustee makes no representation
as to the validity or sufficiency of this Supplemental Indenture.
6. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
7. EFFECT AND HEADINGS. The Section headings herein are for convenience
only and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the date first above written.
TRAVEL PORT SYSTEMS, INC.
by
/s/ Andrew T. Panaccione
---------------------------
Name: Andrew T. Panaccione
Title: Secretary
<PAGE> 3
TRAVELCENTERS OF AMERICA, INC.
on behalf of itself and the Existing
Subsidiary Guarantors,
by
/s/ James W. George
--------------------
Name: James W. George
Title: Senior V.P. & C.F.O.
STATE STREET BANK AND TRUST COMPANY,
as successor to FLEET NATIONAL BANK
as successor Trustee,
by
/s/ Susan C. Merker
--------------------
Name: Susan C. Merker
Title: Vice President
<PAGE> 1
EXHIBIT 10.21
INSTITUTIONAL STOCKHOLDERS'
AGREEMENT
This Institutional Stockholders' Agreement, dated as of July 21, 1999
(the "Agreement") is entered into among TravelCenters of America, Inc., a
Delaware corporation (the "Company"), Clipper Capital Associates, L.P., a
Delaware limited partnership ("Clipper"), National Partners, L.P., a Delaware
limited partnership ("National"), National Partners III, L.P., a Delaware
limited partnership ("National III"), Clipper/Merchant I, L.P., a Delaware
limited partnership ("Clipper/Merchant") Olympus Private Placement Fund, L.P., a
Delaware limited partnership ("Olympus"), Olympus Growth Fund II, L.P., a
Delaware limited partnership ("Olympus II") and Freightliner Corporation, a
Delaware corporation ("Freightliner"). Clipper National, National III,
Clipper/Merchant, Olympus, and Olympus II are sometimes referred to individually
as an "Investor" and collectively, as the "Investors." The Investors and
Freightliner are sometimes collectively referred to herein as the
"Stockholders." Capitalized terms used herein, but not defined in context, are
defined in Section 11 hereof.
Each of Clipper, National, National III, Clipper/Merchant, Olympus,
Olympus II and Freightliner is the record and beneficial owner of the number of
shares of Common Stock, Senior Preferred Stock and/or Junior Preferred Stock
(collectively, the "Stockholder Shares") appearing opposite its name on SCHEDULE
I hereto. The Company and the Stockholders desire to grant certain rights and to
impose certain restrictions relating to the ownership of the Stockholder Shares
and provide for other matters.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement,
intending to be legally bound, hereby agree to the following terms and
conditions:
1. BOARD OF DIRECTORS.
(a) Each Stockholder shall vote all of its Stockholder Shares, (to the
extent such shares are entitled to vote in respect of the applicable matter) and
any other voting securities of the Company over which such Stockholder has
voting control, and shall take all other necessary or desirable actions within
its control (whether in its capacity as a stockholder or otherwise, and
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions within
its control (including, without limitation, calling special board and
stockholder meetings), so that:
(i) the authorized number of directors on the Board shall
consist at all times of not less than nine (9) directors; PROVIDED,
HOWEVER, that the Board may be expanded, with such additional
directorships filled by the Executive Committee of the Board, which
committee shall be composed of the Chief Executive Officer of the
Company and one (1) or more of the directors nominated by Clipper
pursuant to Section l(a)(ii)(A) below or National III pursuant to
Section l(a)(ii)(B) below (it being understood that if there is no
<PAGE> 2
2
Executive Committee then additional directorships shall be filled by
nominees determined by a majority vote of the directors nominated by
Clipper pursuant to Section l(a)(ii)(A) below and National III pursuant
to Section l(a)(ii)(B) below), but in no event shall the Board consist
of more than eleven (11) directors;
(ii) the Stockholders shall vote the Stockholder Shares such
that following nominees shall be elected to fill the nine (9)
directorships to be filled pursuant to this Agreement:
(A) three (3) nominees selected by Clipper;
(B) one (1) nominee selected by National III (or,
after National III ceases to own any voting securities of the
Company, by Clipper);
(C) one (1) nominee selected by National (or, after
completion of liquidation of National, by First Plaza) (the
"GMIMCO Nominee");
(D) one (1) nominee selected mutually by National
(or, after completion of liquidation of National, by First
Plaza) and Clipper who shall not be an officer, director,
employee, partner or shareholder of Clipper, National or their
respective Investor Affiliates unless otherwise agreed to by
both National (or, after completion of liquidation of
National, by First Plaza) and Clipper in their respective sole
discretion;
(E) the Chief Executive Officer of Freightliner or
another nominee of Freightliner reasonably acceptable to the
Company (the "Freightliner Nominee"); PROVIDED, THAT, in the
event that the Freightliner Nominee is unable to participate
in any meeting of the Board (or the meetings of any Sub Board
or other board described in Section 1(a)(iv) below), he shall
be permitted to designate a non-voting observer to participate
in such meeting with the understanding that such observer
shall not be permitted to vote on any action before the Board,
Sub Board or other board described in Section 1(a)(iv) below,
as the case may be, and whose presence shall not be taken into
account for determining whether a quorum thereof exists;
(F) the Chief Executive Officer of the Company; and
(G) E. Philip Saunders ("Saunders").
(iii) unless the Board determines otherwise, the composition
of the board of directors of each of the Company's subsidiaries (a "Sub
Board") shall be identical to the composition of the Board;
(iv) the Freightliner Nominee shall be elected to serve as a
member of the board of directors of (A) the Company's wholly owned
subsidiary, TA Operating Corporation, a Delaware corporation ("TA
Operating"), and (B) any current or future
<PAGE> 3
3
subsidiary of the Company or TA Operating which operates any "FE
Location" (as such term is defined in the Operating Agreement);
(v) any nominee referred to in Section 1(a)(ii) above shall be
removable (with or without cause) upon the written request of the party
entitled to select the nominee pursuant to Section 1(a)(ii) above, and,
except as otherwise provided by applicable law under no other
circumstances;
(vi) in the event that any nominee listed in Section 1(a)(ii)
above for any reason ceases to serve as a member of the Board during
his or her term of office, the resulting vacancy on the Board shall be
filled by the party entitled to designate the nominee pursuant to
subparagraph (a)(ii) above and the Stockholders shall take such action
as is necessary or desirable in accordance with this Section 1 in order
to assure that such successor director shall become a member of the
Board; and
(vii) the obligation of the Stockholders to vote the
Stockholder Shares in favor of the nominees described in subparagraph
(ii) above shall cease at the following times:
(A) in the case of any nominee selected by Clipper,
at such time as Clipper together with its Investor Affiliates
ceases to own any Investor Shares;
(B) in the case of the Freightliner Nominee, at such
time as Freightliner and Freightliner Affiliates cease to own
in the aggregate at least 200,000 Freightliner Shares (or such
equivalent number as shall result from a Change in
Capitalization);
(C) in the case of the nominee selected mutually by
National and Clipper, at such time either National, First
Plaza or Clipper ceases to own any shares; and
(D) in the case of Saunders, at such time as he
ceases to be entitled to serve as a member of the Board
pursuant to the terms and conditions of the Share Exchange
Agreement.
(b) The Company shall pay each director in connection with attending
the meetings of the Board, any Sub Board and any committee thereof as provided
by resolution of the Board. The Company shall use commercially reasonable
efforts to maintain in full force and effect the directors and officers
indemnity insurance policy as in effect as of the date hereof or such other
policy as shall be approved by resolution of the Board.
(c) If any party fails to nominate a representative to fill a
directorship pursuant to the terms of this Section 1, the election of a person
to fill such directorship shall be accomplished in accordance with the Company's
bylaws and applicable law.
<PAGE> 4
4
2. TRANSFER OF SHARES.
(a) RESTRICTIONS ON TRANSFER. Freightliner agrees that, except in a
transaction or transactions permitted by this Section 2 or by Section
6.1(c)(ii), it shall not, either directly or indirectly, transfer, sell, assign,
mortgage, pledge, hypothecate, create a security interest in or lien upon,
encumber, give, place in trust, or otherwise voluntarily or involuntarily
dispose of (collectively "transfer") any of the Freightliner Shares (or any
additional Shares received by Freightliner as a result of a Change in
Capitalization). In addition, in the event that the Company effects a Public
Offering of any shares of its capital stock and, in connection therewith, the
managing underwriter advises the Company that certain stockholders, including
Freightliner, must agree not to effect any public sale or distribution of shares
of the Company during a period not to exceed 180 days after the commencement of
the Public Offering, Freightliner agrees to execute and deliver such agreement;
PROVIDED, that, the managing underwriter requires Clipper and Olympus to execute
and deliver an equally applicable agreement.
(b) PERMITTED TRANSFERS. Freightliner or any Freightliner Affiliate
owning Freightliner Shares shall have the right to transfer directly or
indirectly, any shares held by it (i) to any Freightliner Affiliate or to
Freightliner, (ii) to Barclays, Phoenix, Travelers, UBS, any Investor or any
Management Stockholder, (iii) to any other Stockholder of the Company, or (iv)
pursuant to Section 4 or Section 6 herein. Each of the transferees contemplated
by clauses (i), (ii) and (iii) above are referred to as "Permitted Transferees."
(c) CONDITION TO PERMITTED TRANSFER. As a condition to any transfer
permitted pursuant to this Section 2, each transferee that is not a party hereto
shall, prior to such transfer, agree in writing to be bound by all of the
provisions of (i) this Agreement applicable to the transferor and no such
transferee shall be permitted to make any transfer other than in accordance with
the terms of this Agreement, or (ii) in any case in which such transferee is not
a Freightliner Affiliate, such other agreement containing substantially similar
restrictions to those described in Sections 2, 3, 4, 9, 12 and 13 herein, as the
Company reasonably deems necessary and appropriate, including but not limited
to, the Supplemental Stockholders' Agreement or the Global Stockholders'
Agreement. Except as otherwise provided herein, each such transferee of shares
shall be entitled to the rights and privileges provided hereunder applicable to
the transferee of such shares, including the right to transfer such shares under
certain conditions, and shall be subject to all of the obligations and
limitations with respect to such shares.
3. PARTICIPATION RIGHTS.
(a) In the event that any Stockholder or Stockholders (either
individually or as part of a group of holders of Shares) (for the purposes of
this Section 3(a), the "Selling Stockholders") shall propose to sell, assign,
transfer or otherwise dispose of (for the purposes of this Section 3(a), a
"Transfer") to any proposed purchaser (for the purposes of this Section 3(a),
the "Proposed Purchaser') shares of capital stock of the Company comprising at
least a majority of the voting power of all Shares (determined on a Diluted
Basis) (for the purposes of this Section 3(a), the shares proposed to be so
transferred by such Selling Stockholders being referred to as the "Offered
Shares"), the Selling Stockholders shall provide each other Stockholder (for the
purposes of this Section 3(a) and collectively, the "Remaining Stockholders")
with not less than twenty (20) days' prior written notice of such proposed
Transfer (for the purposes of this
<PAGE> 5
5
Section 3(a), the "Notice"), which Notice shall include the material terms and
conditions of such proposed Transfer. Within ten (10) days following the
delivery of the Notice to the Remaining Stockholders, each of the Remaining
Stockholders shall notify the Selling Stockholders if it elects to participate
in such proposed Transfer. Any failure by a Remaining Stockholder to give such
notice will bar such Remaining Stockholder from participating in the Transfer
pursuant to this Section 3. Each of the Remaining Stockholders that has given
such a notice shall have the right to sell, and shall have the right to require
the Selling Stockholders to include in the proposed Transfer at the same price
and on the same terms and conditions as those upon which the Selling
Stockholders propose to transfer the Offered Shares, the number of shares
hereinafter provided, and the number of Offered Shares that may be sold by the
Selling Stockholders shall be correspondingly reduced. The electing Remaining
Stockholders and the Selling Stockholders shall each be entitled to sell such
number of the Offered Shares or their equivalent in shares of Common Stock
(determined on a Diluted Basis) determined by multiplying the number of Offered
Shares stated in Common Stock equivalents by the percentage for each such
Stockholder as determined by dividing the number of shares of Common Stock on a
Diluted Basis held by the relevant Stockholder by the total number of shares of
Common Stock on a Diluted Basis owned by all such Stockholders and then using
the resulting number of shares of Common Stock on a Diluted Basis so determined
for such Stockholder to determine the number of Shares held by the Stockholder
equivalent to such shares and entitled to be included in the Offered Shares. Any
such Remaining Stockholder that desires to participate in such Transfer shall
use reasonable efforts to facilitate such Transfer. In addition, it is expressly
understood that if the Selling Stockholders and the Proposed Purchaser decide
not to consummate the Transfer, no obligation to any Remaining Stockholder shall
continue with respect to such Transfer.
(b) The provisions of Section 3(a) above shall not apply to any
Transfer (each defined term in this Section 3(b) used as defined with respect to
Section 3(a)) of Offered Shares (i) by either Investor to any of its Investor
Affiliates or by Freightliner to any Freightliner Affiliate; (ii) pursuant to
Section 4 of the Supplemental Stockholders' Agreement; (iii) pursuant to Section
4 of the Global Stockholders' Agreement; (iv) made pursuant to a Public
Offering; or (v) by Freightliner pursuant to exercise of either the Put Right by
Freightliner (including any sale under Section 6.1(c)(ii)) or the Call Right by
the Company; PROVIDED, that, in the case of any Transfer pursuant to clause (i)
above, each such transferee agrees in a writing delivered to each of the other
Stockholders to be bound by the terms and conditions of this Section 3 to the
same extent as a Stockholder hereunder, whereupon such transferee shall
automatically become a party to this Agreement and shall be entitled to the
benefits accorded to an Investor under this Section 3.
4. DRAG-ALONG RIGHT.
(a) SALE OF STOCK. In connection with the consummation of any
Disposition structured as a sale of shares of capital stock representing not
less than a majority of the voting power of all Shares, each Stockholder agrees
to sell to the purchaser or the purchasers in such Disposition all shares of the
Company held by such Stockholder on the same terms applicable in such
Disposition of Shares of the class or classes owned by such Stockholder.
(b) MERGER OR SALE OF ASSETS. In connection with the consummation of
any Disposition structured as a merger or consolidation of the Company or a sale
of all or
<PAGE> 6
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substantially all of the assets of the Company and/or its subsidiaries, the
Stockholders will vote all of their shares of the Company in favor of such
merger or consolidation or sale (if such merger or consolidation or sale has
been approved by the Board and by the resolution of holders of a majority of the
total voting power of all Shares) at any meeting held for such purpose and waive
any dissenters rights, appraisal rights or similar rights in connection with
such merger or consolidation or sale.
5. RIGHTS OF FIRST REFUSAL.
Freightliner shall have a right of first refusal in the event of any
proposed transaction involving the Company and a Freightliner Competitor (an
"Offeror") that would result in a Change of Control. In any such case, the
Company shall deliver to Freightliner a written notice (the "Third Party Offer
Notice") indicating the purchase price, the identity of the Offeror and other
material terms on which the Company proposes to effect the Change of Control
transaction with the Offeror. Freightliner shall notify the Company in writing
within thirty (30) days following its receipt of the Third Party Offer Notice if
Freightliner is interested in negotiating and consummating a Change of Control
transaction with the Company and describing Freightliner's proposed purchase
price and other material terms (the "Freightliner Response"). If Freightliner
(a) fails to timely deliver a Freightliner Response within the thirty (30) day
period described above, (b) proposes a purchase price or terms less favorable to
the Company than the terms reflected in the Third Party Offer Notice, or (c)
delivers a Freightliner Response but the Company and Freightliner fail, after
good faith negotiations, to enter into a definitive agreement with respect
thereto within thirty (30) days following the Company's receipt of the
Freightliner Response, then the Company may (i) commence negotiations with
respect to such Change of Control transaction with the Offeror, and (ii)
consummate such Change of Control with the Offeror, provided the purchase price
paid by the Offeror is equal to or greater than the price set forth in the
Freightliner Response, the other terms and conditions of such transaction are no
less favorable to the Company in the aggregate than the terms and conditions
contained in the Third Party Offer Notice, and such transaction is consummated
within two hundred forty (240) days after the Third Party Offer Notice. After
expiration of such two hundred forty (240) day period, the Company shall again
comply with the notice requirements of this Section 5. Freightliner hereby
acknowledges and agrees that the rights described in this Section 5 are personal
to Freightliner and any Freightliner Affiliates holding Freightliner Shares and
cannot be transferred or assigned by Freightliner or any Freightliner Affiliate
in any manner.
6. PUT AND CALL RIGHTS.
6.1 Put Right.
(a) Subject to the terms of this Section 6.1, from and after the
earliest to occur of (i) the termination and/or expiration of the Operating
Agreement (pursuant to its terms), or (ii) the fifteenth (15th) day prior to
Change of Control transaction, Freightliner (including, for purposes of this
Section 6.1, any Freightliner Affiliate which has obtained any Freightliner
Shares in accordance with Section 2 hereof, any such Freightliner Affiliate
being hereinafter collectively referred to with Freightliner as "Freightliner")
shall have the right to sell to the Company (the
<PAGE> 7
7
"Put Right") and the Company shall be obligated to purchase from Freightliner,
all but not less than all, of the Freightliner Shares (including any additional
Shares received by Freightliner as a result of any Change in Capitalization)
that Freightliner then owns at the time it elects to exercise the Put Right (the
"Put Shares") at the Exercise Price (determined on a share by share basis for
each Freightliner Share); PROVIDED, HOWEVER, that the Exercise Price shall be
equitably adjusted up or down, as applicable, in the event of any Change in
Capitalization. The Put Right shall be exercisable by Freightliner giving an
irrevocable written notice (the "Put Notice") of exercise to Company. Upon the
exercise of the Put Right by Freightliner, any unexercised options granted to
Freightliner to purchase shares of Common Stock of the Company pursuant to the
terms of the Investment Agreement will be terminated and will not be taken into
account for purposes of determining the aggregate number of Put Shares.
(b) The Put Right shall apply only to Freightliner Shares held by
Freightliner or a Freightliner Affiliate and shall terminate on the earliest to
occur of: (i) a Public Offering, (ii) a Change of Control, (iii) thirty (30)
days following the termination or expiration of the Operating Agreement, or (iv)
any transfer of Freightliner Shares following which no Freightliner Shares are
held by Freightliner or a Freightliner Affiliate.
(c) Under no circumstances shall the Company be obligated to purchase
the Put Shares pursuant to the Put Right if such purchase would violate the
provisions of the General Corporation Law of Delaware (or any successor
statutory provision) (the "DGCL") or would constitute or require the breach of
any provision of any contract to which the Company is currently a party (a
"Prohibitive Contract"), including any amendment to, or replacement of, any
existing contract listed on SCHEDULE II entered into by the Company after the
date hereof containing terms not more restrictive than those terms relating to
or affecting the Company's ability to redeem shares of its capital stock
contained in the contract being amended or replaced (a "Permitted
Amendment/Replacement Contract"). In the event the Company enters into a
Permitted Amendment/Replacement Contract, it shall use commercially reasonable
efforts to exclude the Put Right from any prohibition on the redemption of
shares of capital stock of the Company and to structure in a manner that will
permit the purchase of the Put Shares any financial covenants or other
restrictions or limitations that might otherwise restrict the Company's ability
to purchase the Put Shares. The Company acknowledges that the Put Right is
important to Freightliner and represents and warrants to Freightliner that all
contracts that contain express restrictions or limitations on the Company's
ability to purchase the Put Shares pursuant to the Put Right, whether in the
form of express prohibitions, financial covenants or other restrictions or
limitations are listed on SCHEDULE II attached hereto. In any case in which
under the DGCL or a Prohibitive Contract the Company cannot purchase the Put
Shares:
(i) the Company shall use commercially reasonable efforts, in
a manner consistent with the efforts and obligations described below in
Section 6.1(c)(ii), to obtain an exception to any restrictions or
limitations on the Company's ability to purchase its own shares and to
take such actions as may permit the Put Right to be exercised in full,
including, in the case of any Prohibitive Contract, seeking an
amendment to, or a waiver of, the applicable restriction(s) from the
appropriate third parties; PROVIDED, HOWEVER, that the Company shall
not in any event be obligated to use commercially reasonable efforts to
obtain an amendment to, or waiver from that certain Indenture dated as
of March 27, 1997, relating to the Company's 10.25% Senior Subordinated
Notes due April 1, 2007
<PAGE> 8
8
and any Permitted Amendment/Replacement Contract therefor, and the
Company shall not be obligated to obtain any other amendment or waiver
in connection with which the Company would have to pay its lenders or
other parties from which any such consent is required any significant
fee or other amount in excess of ordinary course reimbursement of
expenses or other routine consent or amendment costs.
(ii) In the event that the Company has not, within thirty (30)
days after receipt of the Put Notice delivered by Freightliner,
notified Freightliner either (1) that the Company has obtained all
necessary waivers and amendments described above or, in any case in
which the DGCL precludes the purchase, has taken all necessary action
to eliminate such restriction, or (2) as to the identity of a third
party purchaser that, as the assignee of the Company, will purchase the
Put Shares pursuant to and in accordance with the terms and conditions
of the Put (in which case the purchase shall promptly proceed in
accordance with the terms and conditions of this Section 6.1 except
that the purchase shall be made by the third party purchaser), then,
notwithstanding the provisions of Section 2(a), Freightliner shall have
the right to transfer the Put Shares to any third party (a "Third
Party") after complying with the following right of first refusal to
the Permitted Transferees:
(A) Freightliner shall first deliver to the Company
and the Permitted Transferee (other than a Freightliner
Affiliate) (collectively, the "Potential Buyers") (in the
manner prescribed by Section 20) written notice (a "Notice of
Offer"), which notice shall specify (x) the number of Put
Shares Freightliner proposes to transfer to the Third Party,
(y) the proposed cash purchase price per share to be paid to
purchase the Put Shares (the "Offer Price"), and (z) all other
material terms and conditions.
(B) The Notice of Offer shall constitute an
irrevocable offer by Freightliner to sell to the Potential
Buyers all of the Put Shares at the Offer Price.
(C) The Potential Buyers may elect to purchase all
(but not less than all) of the Put Shares at the Offer Price
and on the terms specified in the Notice of Offer by
delivering written notice of such election (an "Acceptance
Notice") as soon as practical but in any event within thirty
(30) days after receipt of the Notice of Offer. If more than
one Proposed Buyer elects to purchase all of the Put Shares,
the Put Shares shall be allocated among the electing Potential
Buyers pro rata according to the number of shares of Common
Stock owned by such Potential Buyers (determined on a Diluted
Basis). If one or more of the Potential Buyers has elected to
purchase the Put Shares as set forth above, the transfer of
the Put Shares shall be consummated as soon as practical after
delivery of the Acceptance Notice but in any event within
sixty (60) days following the delivery of the Acceptance
Notice.
(D) If within the time period provided for under
Section 6.1(c)(ii)(C), the Potential Buyers do not elect to
purchase all of
<PAGE> 9
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the Put Shares described in the Notice of Offer, Freightliner
may, for a period of sixty (60) days after the expiration of
the 30-day period following the delivery of the Notice of
Offer, consummate the transfer of the Put Shares with a Third
Party at a price per share not less than the Offer Price and
on other terms no more favorable to the Third Party than those
described in the Notice of Offer. Any Put Shares not
transferred within such 60-day period shall thereafter
continue to be subject to all of the provisions of this
Agreement.
As a condition to any transfer permitted pursuant to this Section 6.1(c), each
transferee that is not a party hereto shall, prior to such transfer, agree in
writing to be bound by all of the provisions of (i) this Agreement applicable to
the transferor and no such transferee shall be permitted to make any transfer
other than in accordance with the terms of this Agreement, or (ii) such other
agreement containing substantially similar restrictions to those described in
Sections 2, 3, 4, 9, 12 and 13 herein, as the Company reasonably deems necessary
and appropriate, including but not limited to, the Supplemental Stockholders'
Agreement or the Global Stockholders' Agreement. Except as otherwise provided
herein, each such transferee of shares shall be entitled to the rights and
privileges provided hereunder applicable to the transferee of such shares,
including the right to transfer such shares under certain conditions, and shall
be subject to all of the obligations and limitations with respect to such
shares.
(d) From the date of the Company's receipt of the Put Notice,
Freightliner's exercise of the Put Right shall constitute and remain a valid and
binding offer to sell all Put Shares then owned by Freightliner on the terms
hereof and shall not be subject to revocation, except that, during any period
Section 6.1(c)(ii) is applicable, the Company shall not be entitled to purchase
any Put Shares pursuant to the Put unless Freightliner shall have consented
thereto in writing.
(e) If the Company is not precluded by the DGCL or contract from
purchasing the Put Shares, then, within thirty (30) days after the Company's
receipt of the Put Notice, a closing shall occur for the consummation of such
purchase, at a location determined by the Company. At such closing, Freightliner
shall deliver to the Company all of the certificates representing the Put
Shares, duly endorsed for transfer and accompanied by all stock transfer taxes
and such shares shall be free and clear of liens, encumbrances, claims, charges
or rights of others and Freightliner shall so represent and warrant, and further
represent and warrant that it is the beneficial owner of such shares. The
Company shall deliver at the closing, the payment due to Freightliner in full,
by certified check or wire transfer of funds.
6.2 CALL RIGHT.
(a) Subject to the terms of this Section 6.2, following the termination
and/or expiration of the Operating Agreement (pursuant to its terms), the
Company or any assignee to whom the Company transfers such right, shall have the
right to purchase (the "Call Right") and Freightliner and/or any Freightliner
Affiliate (for purposes of this Section 6.2, hereinafter referred to
collectively with Freightliner as "Freightliner"), upon exercise of the Call
Right, shall be obligated to sell all, but not less than all, of the
Freightliner Shares (including any additional Shares received by Freightliner as
a result of a Change in Capitalization) that Freightliner or any
<PAGE> 10
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Freightliner Affiliate then owns at the time the Company elects to exercise the
Call Right (the "Call Shares") at the Call Exercise Price (determined on a share
by share basis for each Freightliner Share); PROVIDED, HOWEVER, that the Call
Exercise Price shall be equitably adjusted up or down, as applicable, in the
event of any Change in Capitalization. The Call Right shall be exercisable by
the Company giving an irrevocable written notice (the "Call Notice") of exercise
to Freightliner. Upon the exercise of the Call Right by the Company, any
unexercised options granted to Freightliner to purchase shares of Common Stock
of the Company pursuant to the terms of the Investment Agreement will be
terminated and will not be taken into account for purposes of determining the
aggregate number of Call Shares.
(b) The Call Right shall apply only to Freightliner Shares held by
Freightliner or a Freightliner Affiliate and shall terminate on the earliest to
occur of: (i) a Public Offering, (ii) a Change of Control, (iii) thirty (30)
days following the termination or expiration of the Operating Agreement or (iv)
any transfer of Freightliner Shares following which no Freightliner Shares are
held by Freightliner or a Freightliner Affiliate.
(c) Within thirty (30) days after delivery of the Call Notice, a
closing shall occur for the consummation of such purchase, at a location
determined by the Company. At such closing, Freightliner shall deliver to the
Company all of the certificates representing the Call Shares, duly endorsed for
transfer and accompanied by all stock transfer taxes and such shares shall be
free and clear of liens, encumbrances, claims, charges or rights of others and
Freightliner shall so represent and warrant, and further represent and warrant
that it is the beneficial owner of such shares. The Company shall deliver at the
closing, the payment due to Freightliner in full, by certified check or wire
transfer of funds.
7. CONFLICTING AGREEMENTS.
(a) Each Stockholder represents that it has not granted and is not a
party to any proxy, voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement, and no holder of Shares
shall grant any proxy or become party to any voting trust or other agreement
which is inconsistent with or conflicts with the provisions of Section 1 of this
Agreement.
(b) Notwithstanding the foregoing, each of the Investors hereby
confirms that it is a party to the Global Stockholders' Agreement and/or the
Supplemental Stockholders' Agreement and nothing contained in this Agreement is
meant to amend or modify the Global Stockholders' Agreement and/or the
Supplemental Stockholders' Agreement.
8. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATIONS. So long as Freightliner or any
Freightliner Affiliate holds at least 50,000 Freightliner Shares (or such
equivalent number as shall result from a Change in Capitalization), whenever the
Company proposes to register any of its securities under the Securities Act and
the registration form to be used may be used for the registration of the
Freightliner Shares (a "Piggyback Registration"), the Company will give prompt
written notice to Freightliner of its intention to effect such a registration
and will include in such registration all the Freightliner Shares with respect
to which the Company has received written requests for
<PAGE> 11
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inclusion therein within 15 days after the receipt of the Company's notice. At
any time that the Company proposes to register any of its securities as
contemplated by this Section 8(a), and a registration form which will allow a
Piggyback Registration is available for use by the Company in such registration,
the Company shall use such form for such registration.
(b) EXPENSES. All expenses incident to the registration of the
Freightliner Shares pursuant to this Section 8, including without limitation all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and for all independent certified
public accountants and underwriters (excluding discounts and commission), will
be paid by the Company in all Piggyback Registrations and the S-3 registration
referred to below. In addition, to the extent that the Freightliner Shares are
included in a Piggyback Registration, Freightliner shall be entitled to be
represented at the Company's expense by the counsel chosen pursuant to Section
5(b) of Restated Registration Rights Agreement (as defined herein).
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Freightliner Shares
requested to be included in such registration, any Class B Common Stock into
which the Senior Preferred Stock of the Company is convertible which the holders
thereof have requested to be included therein, and any other Registrable
Securities (as such term is defined in the Amended and Restated Registration
Agreement (the "Restated Registration Rights Agreement"), dated as of December
10, 1993, among the Company, National, National Partners II, L.P., National III,
Clipper, Clipper/Merchant, Olympus, Barclays, First Plaza, UBS, Phoenix and
Travelers) requested to be included in such registration, each in accordance
with the priorities set forth in Section 2(c)(ii)-(iii) of the Restated
Registration Rights Agreement, treating Freightliner as a "Stockholder" (as such
term is defined therein), thereunder, and (iii) third, other securities
requested to be included in such registration, in each case, to the extent in
the opinion of the underwriters such shares can be sold in an orderly manner
within the price range of such offering.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company will include
in such registration (i) first, the Freightliner Shares requested to be included
in such registration, any Class B Common Stock (as defined in the Restated
Registration Rights Agreement) into which the Senior Preferred Stock of the
Company is convertible which the holders thereof have requested to be included
therein, and any other Registrable Securities, each in accordance with the
priorities set forth in Section 2(d)(i) and Section 2(d)(ii) of the Restated
Registration Rights Agreement, treating Freightliner as a "Stockholder"
thereunder, and (ii) second, other securities requested to be included in such
registration, in each case, to the extent in the opinion of the underwriters
such shares can be sold in an orderly manner within the price
<PAGE> 12
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range of such offering. Notwithstanding the foregoing, Freightliner shall not be
entitled to participate in any underwritten secondary registration initiated
pursuant to the provisions of Section 1 of the Restated Registration Rights
Agreement without the prior written consent of the holders of at least a
majority of the Registrable Securities included in such registration.
(e) OTHER REGISTRATIONS. If the Company has previously filed a
registration statement with respect to the Freightliner Shares pursuant to
Section 8(a), and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of Freightliner, until a period of at least six months has elapsed
from the effective date of such previous registration.
(f) S-3 REGISTRATIONS. If Freightliner requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of all or some of the Freightliner Shares, and the Company is a
registrant with a class of equity securities registered under Section 12 of the
Exchange Act and is entitled to use Form S-3 to register the Freightliner Shares
for such an offering, the Company shall use its commercially reasonable efforts
to cause such Freightliner Shares to be registered for the offering on such
form. The Company agrees to keep such registration effective until all of the
Freightliner Shares covered by such registration statement are eligible to be
sold in a three month period pursuant to Rule 144.
(g) HOLDBACK AGREEMENTS. Freightliner agrees not to effect any public
sale or distribution (including sales pursuant to Rule 144) of equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 180-day
period beginning on the effective date of any underwritten Piggyback
Registration in which the Freightliner Shares are included (except as part of
such underwritten registration), unless the underwriters managing the registered
public offering otherwise agree.
(h) REGISTRATION PROCEDURES. Subject to any other applicable provision
of this Agreement, whenever Freightliner has requested that any Freightliner
Shares be registered pursuant to Section 8(a) or 8(f) of this Agreement, the
Company will use its best efforts to effect the registration and the sale of
such Freightliner Shares in accordance with the intended method of disposition
thereof and pursuant thereto, the Company will as expeditiously as possible:
(i) prepare and file with the SEC a registration statement with
respect to such Freightliner Shares and use its best efforts
to cause such registration statement to become effective;
(ii) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective for a period of not less than
six months and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered
by such registration statement during such period in
accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
<PAGE> 13
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(iii) furnish such number of prospectus and other documents incident
thereto as Freightliner from time to time may reasonably
request;
(iv) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the
qualification of any of the Freightliner Shares for sale in
any jurisdiction, as soon as reasonably practicable;
(v) use its reasonable best efforts to register or qualify such
Freightliner Shares for offer and sale under the securities or
blue sky laws of such jurisdictions in which the seller
reasonably requests and in which the Company currently is
registered to do business;
(vi) cause all Freightliner Shares to be listed on each securities
exchange, or the NASDAQ Stock Market, as the case may be, on
which similar securities issued by the Company are then
listed;
(vii) with respect to Piggyback Registrations, enter into such
customary agreements (including underwriting agreements in
customary form) in order to expedite or facilitate the
disposition of such Freightliner Shares, in each case to the
extent permitted under the Company's Amended and Restated
Certificate of Incorporation, By-laws and this Agreement; and
(viii) notify Freightliner, at any time a prospectus covered by such
registration statement is required to be delivered under the
Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
In addition, the Company agrees to indemnify Freightliner, to the extent
permitted by law, against all losses, claims, damages, liabilities and expenses,
if any, caused by any untrue statement of a material fact contained in such
registration statement, prospectus or any amendment thereof or any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except as the same may be caused by or are contained in
any information furnished to the Company by Freightliner.
(i) CONDITIONS TO REGISTRATION. The Company's obligations under this
Section 8 to register the Freightliner Shares are subject to the following
conditions:
(i) Freightliner must provide the Company all information, and
take all action, the Company reasonably requests with
reasonable advance notice, to enable it to comply with any
applicable law or regulation or to prepare the registration
statement that will cover the Freightliner Shares that will be
included in the registration statement;
(ii) all sales of the Freightliner Shares will be made in a manner
contemplated by the SEC's general instructions for use of the
applicable registration statement form;
<PAGE> 14
14
(iii) if during the effectiveness of the registration statement for
the registration, the Company notifies Freightliner of the
occurrence of any intervening event that, in the opinion of
the Company's legal counsel, causes the prospectus included in
the registration statement not to comply with the Securities
Act, Freightliner promptly after the receipt of the Company's
notice, shall cease making any offers, sales, or other
dispositions of the Freightliner Shares included in the
registration until Freightliner receives from the Company
copies of a new, amended, or supplemented prospectus complying
with the Securities Act (which the Company agrees to provide
as promptly as practicable after delivery of the Company's
notice); and
(iv) the inclusion of the Freightliner Shares in the registration
must not violate any provisions of the Securities Act or the
Exchange Act, or any rules or regulations promulgated under
the Securities Act or the Exchange Act.
(j) Freightliner may not participate in any registration hereunder
which is underwritten unless Freightliner (i) agrees to sell the Freightliner
Shares on the basis provided in any underwriting arrangements approved by the
Company, or, in the case of a registration initiated pursuant to the Restated
Registration Rights Agreement, the person or persons entitled thereunder to
approve such arrangements, and (ii) completes and executes all questionnaires,
powers of attorney, indemnities (including indemnification provisions contained
in the underwriting agreement indemnifying the Company and the underwriters
against certain liabilities, including liabilities under the Securities Act,
subject to such limitations as are appropriate to reflect the parties'
respective interests in the underwriting), underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
9. LEGEND.
Each certificate evidencing shares owned by the Stockholders shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented by this certificate are subject to
an Institutional Stockholders' Agreement dated as of July 21,
1999 among the issuer of such securities (the "Company") and
certain of the Company's stockholders. A copy of such
Institutional Stockholders' Agreement will be furnished
without charge by the Company to the holder hereof upon
written request."
The Company and each of the Investors shall use reasonable efforts to re-legend
the certificates evidencing its Shares issued prior to the execution of this
Agreement with the legend set forth in this Section 9. The legend set forth
above shall be removed upon termination of this Agreement.
10. FINANCIAL INFORMATION.
For as long as Freightliner owns at least 200,000 Freightliner Shares
(or such equivalent number as shall result from a Change in Capitalization), the
Company shall deliver to the Freightliner Nominee copies of the following
documentation:
<PAGE> 15
15
(a) any and all information generally provided to members of the Board;
(b) any material distributed to members of the Executive Committee at
the same time such material is provided to the GMIMCO Nominee;
(c) within 60 days after the end of each quarterly accounting period in
each fiscal year, unaudited consolidated statements of income and cash flows for
the Company for such quarterly period and for the period from the beginning of
the fiscal year to the end of such quarterly period, and unaudited consolidated
balance sheets of the Company for such quarterly period;
(d) within 105 days after the end of each fiscal year, audited
consolidated statements of income and cash flows of the Company for such fiscal
and audited consolidated balance sheets of the Company as of the end of such
fiscal year, setting forth in each case comparisons to the Company's preceding
fiscal year;
(e) as soon as practically available, copies of the budget and
operating plans of the Company for the next succeeding fiscal year; and
(f) within 15 days after transmission thereof, copies of all regular,
special or periodic reports which the Company files with the Securities and
Exchange Commission and copies of all press releases and other statements made
available generally by the Company to the public concerning material
developments in the Company's business.
11. DEFINITIONS.
"AFFILIATE" of a person or entity means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
under common control with, the person specified.
"BARCLAYS" means Barclays, U.S.A., Inc., a Delaware corporation and
Barclays Bank PLC.
"BOARD" shall mean the board of directors of the Company.
"CALL EXERCISE PRICE" shall mean the greater of (i) the Exercise Price,
or (ii) the price per share at which the Company has either purchased or sold
shares of Common Stock or shares of Preferred Stock convertible into shares of
Common Stock in connection with the most recently consummated arm-length
transaction (if any) prior to the exercise of the Call Right, taking into
account for such purpose an appropriate dollar reduction in per share amount to
reflect the differential attributable to preferential rights in any case in
which Preferred Stock of the Company is the subject of the measuring
transaction. In any instance in which clause (ii) is potentially applicable,
Freightliner shall in good faith propose a methodology for deriving an
appropriate per share value for the Freightliner Shares and such proposal shall
be subject to the approval of the Company, which shall not be unreasonably
withheld.
"CERTIFICATE OF INCORPORATION" means the Company's Restated Certificate
of Incorporation dated as of March 6, 1997, as amended from time to time.
<PAGE> 16
16
"CHANGE IN CAPITALIZATION" means any dividend consisting of capital
stock of the Company or change in capital stock of the Company by reason of any
stock split, reverse stock split, recapitalization, reclassification,
combination, exchange of shares or similar change, in each case occurring after
the date of the Agreement.
"CHANGE OF CONTROL" means, in each case prior to any Public Offering,
(i) regardless of the form of transaction, any disposition, to an unrelated
third party, in a single transaction or in a series of related transactions, of
ownership or operating control of all or substantially all of the assets of the
Company that (A) relate to the FE Locations and (B) are reasonably necessary to
the continued operation and control by the Company or its subsidiaries of the FE
Locations, (ii) any merger or consolidation of the Company with or into another
unrelated entity in a transaction pursuant to which the stockholders of the
Company retain and/or receive equity securities which, in the aggregate,
constitute less than a majority of the combined voting power of the surviving
entity, or (iii) any sale or issuance to an unrelated third party, in a single
transaction or in a series of related transactions, of a number of shares of
capital stock of the Company (or securities convertible, exchangeable or
exercisable for shares of capital stock of the Company) constituting a majority
of the total voting power of the Company.
"COMMON STOCK" means the Company's common stock, par value $.01 per
share.
"DILUTED BASIS" means, with respect to the calculation of the number of
shares of Common Stock, (i) all shares of Common Stock issued and outstanding at
the time of the determination, (ii) all shares of Common Stock issuable upon the
conversion of shares of Preferred Stock (issued and outstanding at the time of
determination) into shares of Common Stock, and (iii) all shares of Common Stock
issuable upon the exercise, conversion or exchange of any security of the
Company (issued and outstanding at the time of determination) which by its
terms, is or may be exercisable, convertible or exchangeable for or into shares
of Common Stock.
"DISPOSITION" means, a Change of Control transaction, provided,
however, that a transaction shall not be deemed a "Disposition" unless it is
effected on the same terms and conditions for each holder of capital stock of
the Company (including, without limitation, that each outstanding share of
capital stock of the Company is entitled to the same amount and form of
consideration per share, subject to "appropriate adjustment in the event of any
split, reclassification, subdivision or combination of the outstanding shares of
any of the Common Stock, the Convertible Preferred Stock, Series I or the
Convertible Preferred Stock, Series II of the Company" (as such phrase is
defined in the Certificate of Incorporation) but subject to any preference in
favor of holders of any preferred stock), provided, however, that in determining
whether a transaction provides the same consideration to holders of Shares of
different classes of stock, provisions which provide that holders of Convertible
Preferred Stock, Series II are not entitled to receive voting securities or
capital stock of any entity to the extent that doing so would result in a
violation of any applicable federal banking law or regulation, and such holders
instead shall, to the extent necessary to avoid a violation of any applicable
federal banking law or regulation, receive securities or capital stock
conferring rights that are as nearly identical to (but no more favorable than)
those received by such other holders of the Company's capital stock as would not
violate any applicable federal banking law or regulation (which may, if
permitted by law or regulation, be a convertible security) may be disregarded.
The Company is entitled to rely
<PAGE> 17
17
conclusively upon the written statement of the holder of the Convertible
Preferred Stock, Series II as to the status of any voting securities or capital
stock to be received and the nature of any limitation on amount or the rights
associated with such securities or capital stock necessary to comply with
federal banking laws and regulations.
"ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, together with the regulations thereunder, as the same may
be amended from time to time.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
"EXERCISE PRICE" means, for each Freightliner Share, the price paid by
Freightliner to the Company to acquire said share from the Company pursuant to
the terms of the Investment Agreement.
"FIRST PLAZA" means Mellon Bank, N.A. as Trustee (or any successor
trustee) for First Plaza Group Trust.
"FREIGHTLINER AFFILIATE" means with regard to Freightliner, any other
person controlling, controlled by or under common control with Freightliner.
"FREIGHTLINER COMPETITOR" means any manufacturer of Class 8 trucks and
any Affiliate or successor thereto and shall include each of the companies
listed in the following clauses (i) through (xix) for so long as such company is
a manufacturer of Class 8 trucks: (i) Volvo, (ii) Navistar, (iii) Paccar, (iv)
Ford, (v) Renault-Mack, (vi) Bering, (vii) Western Star, (viii) Scania, (ix)
Isuzu, (x) Hino, (xi) Iveco, (xii) Volkswagen, (xiii) Fiat, (xiv) MAN, (xv)
Toyota, (xvi) Mitsubishi, (xvii) Nissan, (xviii) Hyundai, or (xix) Oshkosh;
PROVIDED, that, each of the companies listed in clauses (i) through (vii) only
will be included as a "Freightliner Competitor" whether or not such company is
manufacturing Class 8 trucks at the time in question; PROVIDED, FURTHER, that
the term "Freightliner Competitor" shall not include General Motors Corporation,
its successors or affiliates (collectively, "GMC"), other than in the case of
any combination of GMC with any of the companies listed in clauses (i) through
(vii) above.
"FREIGHTLINER SHARES" means (i) the shares of Common Stock of the
Company acquired pursuant to the terms of the Investment Agreement, and (ii) any
other shares of Common Stock purchased or otherwise acquired by Freightliner
pursuant to the exercise of the options described in the Investment Agreement.
"GLOBAL STOCKHOLDERS' AGREEMENT" means the Amended and Restated
Stockholders' Agreement by and among the Company, National, Clipper, National
II, National III, Clipper/Merchant and certain other stockholders of the Company
dated as of March 6, 1997, as amended.
"INVESTMENT AGREEMENT" means that certain Investment and Option
Agreement by and between the Company and Freightliner dated the date hereof.
<PAGE> 18
18
"INVESTOR AFFILIATE" means, with regard to any Investor, (i) any other
person, entity or investment fund controlling, controlled by or under common
control with such Investor, (ii) any general or limited partner of an Investor
which is a partnership, (iii) any manager or member of an Investor which is a
limited liability company, (iv) any person owning or controlling more than 10%
of the outstanding voting securities or limited partnership interests of such
Investor, (v) any person directly or indirectly controlled by any two (2) or
more of the Investors and their Affiliates as a group, (vi) any officer,
director, partner, trustee, beneficiary or employee of any person referred to in
clause (i), (ii), (iii), (iv) or (v) above, (vii) any employee of such Investor,
any consultant thereof who devotes a substantial amount of his or her business
time and effort to the affairs of such Investor, any partner thereof, any direct
or indirect partner thereof, or any person directly or indirectly controlled by,
or under common control with, any general partner thereof, (viii) any parent,
spouse, ex-spouse or child (or any trust for the benefit of any parent, spouse,
ex-spouse or child) of any of the foregoing, and (ix) in the case of any
Investor which is a trust established under an employee benefit plan subject to
ERISA, any trust (under a plan having the same sponsor as such plan) that is a
successor to the assets of such trust or any other trust established directly or
indirectly under such plan or any other such plan having the same sponsor.
"INVESTOR SHARES" means (i) any Senior Preferred purchased or otherwise
acquired by any Investor, (ii) any Preferred Stock or Senior Preferred purchased
or otherwise acquired by any Investor, (iii) any Common Stock purchased or
otherwise acquired by any Investor, (iv) any Underlying Common Stock and any
equity securities issued directly or indirectly with respect to the securities
referred to in clauses (i) - (iii) above by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization and (v) any other shares of any class or
series of capital stock of the Company held by any Investor.
"JUNIOR PREFERRED STOCK" means, collectively, the Company's Convertible
Preferred Stock, Series I, par value $.01 per share and Convertible Preferred
Stock, Series II, par value $.01 per share.
"MANAGEMENT STOCKHOLDER" means any Stockholder who is an employee of
the Company and who has acquired shares of capital stock of the Company through
subscription agreement, stock option plan or any other means.
"OPERATING AGREEMENT" means that certain Operating Agreement among TA
Operating, TA Franchise Systems, Inc. and Freightliner dated the date hereof.
"PHOENIX" means Phoenix Insurance Company, a Connecticut corporation.
"PUBLIC OFFERING" means an offering of stock of the Company registered
under the Securities Act, or any successor act that results in a trading market
for shares on NASDAQ Stock Market or a national exchange.
"PREFERRED STOCK" means, collectively, the Company's Junior Preferred
Stock and Senior Preferred Stock.
"SEC" means the Securities and Exchange Commission.
<PAGE> 19
19
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SENIOR PREFERRED STOCK" means, collectively, the Company's Senior
Convertible Participating Preferred Stock, Series I, par value $.01 per share
and Senior Convertible Participating Preferred Stock, Series II, par value $.01
per share.
"SHARE EXCHANGE AGREEMENT" means that certain Share Exchange Agreement
dated February 26, 1999, by and between Saunders and the Company.
"SHARES" means, collectively, shares of Common Stock, Preferred Stock
or Senior Preferred Stock.
"SUPPLEMENTAL STOCKHOLDERS' AGREEMENT" means the Supplemental
Stockholders' Agreement dated as of December 10, 1993 by and among the Company
and the Stockholders of the Company set forth therein.
"TRAVELERS" means Travelers Indemnity Company, a Connecticut
corporation.
"UBS" means UBS Capital, LLC, a Delaware limited liability company, as
successor in interest to UBS Capital Corporation.
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or issuable
upon conversion of the Senior Preferred, (ii) the Common Stock issued or
issuable upon conversion of the Preferred Stock and (iii) any Common Stock
issued or issuable with respect to the securities referred to in clauses (i) and
(ii) above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, exchange, merger, consolidation or
other reorganization.
12. TRANSFEREES OF SHARES: TRANSFERS IN VIOLATION OF AGREEMENT.
(a) Prior to transferring (in any manner) any shares of the Company to
any permitted transferee, any party hereto so transferring shall cause the
prospective transferee to comply with Section 2(c) or 6.1(c), whichever is
applicable.
(b) Any sale, assignment, transfer or other disposition (for the
purposes of this Section 12, a "Transfer") or attempted Transfer of any shares
of the Company in violation of the provisions of Section 12(a) of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such shares of the Company as the owner of
such shares for any purpose.
13. AMENDMENT AND WAIVER.
Except as otherwise provided herein, no modification, amendment or
waiver of any provision of this Agreement shall be effective against any party
hereto unless such modification, amendment or waiver is approved in writing by
each party hereto (so long as such Stockholder owns any shares of the Company).
The failure of any party to enforce any of the provisions of this Agreement
shall in no way be construed as a waiver of such provisions and shall not affect
<PAGE> 20
20
the right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
14. TERMINATION.
This Agreement shall terminate upon the consummation of a Public
Offering or a Change of Control transaction; PROVIDED, THAT, notwithstanding any
such termination, the provisions of Section 8 (Registration Rights) shall
nevertheless continue in full force and effect for so long as Freightliner
and/or any Freightliner Affiliate owns at least 50,000 Freightliner Shares.
15. SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
16. ENTIRE AGREEMENT.
Except as otherwise expressly set forth herein or as contained, this
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
17. SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the Stockholders
and any subsequent holders of Shares owed by the Stockholders.
18. COUNTERPARTS.
This Agreement may be executed in separate counterparts each of which
shall be an original and all of which taken together shall constitute one and
the same agreement.
19. REMEDIES.
The parties hereto shall be entitled to enforce their rights under this
Agreement specifically to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in their
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
of the parties hereto may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief (without
<PAGE> 21
21
posting a bond or other security) in order to enforce or prevent any violation
of the provisions of this Agreement.
20. NOTICES.
Any notice provided for in this Agreement shall be in writing and shall
be personally delivered, mailed first class mail (postage prepaid), sent by
reputable overnight courier service (charges prepaid) or telecopied (with a hard
copy to follow) to the Company at the address or telecopy number set forth below
and to any other recipient at the address or telecopy number indicated on
SCHEDULE III attached hereto, or at such address or telecopy number or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been given
hereunder when delivered personally, when telecopied (with hard copy to follow),
three days after deposit in the U.S. mail and one day after deposit with a
reputable overnight courier service. The Company's address and telecopy number
is:
TravelCenters of America, Inc.
24601 Center Ridge Road
Suite 300
Westlake, OH 44145-5634
Attn: Chief Executive Officer
Telecopy No.: (216) 808-3301
With a copy to:
Calfee, Halter & Griswold LLP
800 Superior Avenue
1400 McDonald Investment Center
Cleveland, Ohio 44114
Attn: Philip M. Dawson, Esq.
Telecopy No.: 216-241-0816
With an additional copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attn: Carl L. Reisner, Esq.
Telecopy No.: 212-373-2085
21. GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of the
State of Delaware without giving effect to conflicts of laws principles.
<PAGE> 22
22
22. DESCRIPTIVE HEADINGS.
The descriptive headings of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
23. NO STRICT CONSTRUCTION.
The language used in this Agreement will be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
contra proferentem will be applied against any party.
[Signature Page Follows]
<PAGE> 23
23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TRAVELCENTERS OF AMERICA, INC.
By: /s/ Edwin P. Kuhn
----------------------------------------
Name: Edwin P. Kuhn
Title: President & CEO
FREIGHTLINER CORPORATION
By: /s/ James L. Hebe
----------------------------------------
Name: James L. Hebe
Title: President
[Signature Page Follows]
<PAGE> 24
24
CLIPPER CAPITAL ASSOCIATES, L.P.
By: CLIPPER CAPITAL ASSOCIATES, INC.
its General Partner
By: /s/ Eugene P. Lynch
----------------------------------
Name: Eugene P. Lynch
Title: Treasurer & Secretary
NATIONAL PARTNERS, L.P.
By: CLIPPER CAPITAL ASSOCIATES, L.P.
its General Partner
By: CLIPPER CAPITAL ASSOCIATES, INC.
its General Partner
By: /s/ Eugene P. Lynch
------------------------
Name: Eugene P. Lynch
Title: Treasurer & Secretary
NATIONAL PARTNERS III, L.P.
By: CLIPPER CAPITAL ASSOCIATES, L.P.
its General Partner
By: CLIPPER CAPITAL ASSOCIATES, INC.
its General Partner
By: /s/ Eugene P. Lynch
------------------------
Name: Eugene P. Lynch
Title: Treasurer & Secretary
CLIPPER/MERCHANT I, L.P.
By: CLIPPER CAPITAL ASSOCIATES, L.P.
its General Partner
By: CLIPPER CAPITAL ASSOCIATES, INC.
its General Partner
By: /s/ Eugene P. Lynch
------------------------
Name: Eugene P. Lynch
Title: Treasurer & Secretary
<PAGE> 25
25
OLYMPUS PRIVATE PLACEMENT FUND, L.P.
By: OGP PARTNERS, L.P.
its General Partner
By: /s/ Robert S. Morris
--------------------------------
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P.
its General Partner
By: LJM, L.L.C.
By: /s/ Louis J. Mischianti
----------------------------
Louis J. Mischianti
its Member
<PAGE> 26
<TABLE>
<CAPTION>
SCHEDULE I
NAMES # OF SHARES OF # OF SHARES OF JUNIOR # OF SHARES OF SENIOR
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
<S> <C> <C> <C>
Clipper
-0- 127,243 37,474
National
-0- 2,065,405 1,818,182
National III
-0- 280,304 -0-
Clipper/Merchant
-0- 1,237,374 934,344
Olympus
-0- -0- 200,000
Olympus II
-0- 29,412 -0-
Freightliner
200,000 -0- -0-
</TABLE>
<PAGE> 27
SCHEDULE II
EXISTING PROHIBITIVE CONTRACTS
1. Credit Agreement, dated as of March 21, 1997, as amended and restated as of
November 24, 1998, among TravelCenters of America, Inc., the financial
institutions party thereto, as lenders, and The Chase Manhattan Bank. (SEE,
Section 7.06).
2. Senior Secured Note Exchange Agreements, dated as of March 21, 1997, as
supplemented as of November 24, 1998, TravelCenters of America, Inc. and the
Tranche A Exchange Note Purchasers named therein. (SEE, Section 7.6).
3. Indenture, dated as of March 27, 1997, relating to the TravelCenters of
America 10.25% Senior Subordinated Notes due April 1, 2007. (SEE, Section 4.04).
<PAGE> 28
SCHEDULE III
NOTICE SCHEDULE
CLIPPER CAPITAL ASSOCIATES, L.P.
650 Madison Avenue, Floor 9
New York, NY 10022
Attn: Rolf H. Towe
Telecopy No.: (212) 940-6055
NATIONAL PARTNERS, L.P.
650 Madison Avenue, Floor 9
New York, NY 10022
Attn: Rolf H. Towe
Telecopy No.: (212) 940-6055
NATIONAL PARTNERS III, L.P.
650 Madison Avenue, Floor 9
New York, NY 10022
Attn: Rolf H. Towe
Telecopy No.: (212) 940-6055
CLIPPER/MERCHANT I, L.P.
650 Madison Avenue, Floor 9
New York, NY 10022
Attn: Rolf H. Towe
Telecopy No.: (212) 940-6055
OLYMPUS PRIVATE PLACEMENT FUND, L.P.
Metro Center
One Station Plaza
Stamford, CT 06902
Attn: Robert Morris
Telecopy No.: (203) 353-5910
<PAGE> 29
OLYMPUS GROWTH FUND II, L.P.
Metro Center
One Station Plaza
Stamford, CT 06902
Attn: Louis J. Mischianti
Telecopy No.: (203) 353-5910
FREIGHTLINER CORPORATION
4747 North Channel Avenue
Portland, OR 97217
Attn: James Hubler
Telecopy No.: (503) 735-5999
or
P.O. Box 3849
Portland, OR 97208
With a copy to:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204-1268
Attn: Margaret B. Kushner, Esq.
Telecopy No.: (503) 220-2480
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation Doing Business As
------------------------------------------ ---------------- ------------------------------------
<S> <C> <C>
TA Operating Corporation Delaware TravelCenters of America
National Auto/Truckstops, Inc. Delaware -
TA Franchise Systems, Inc. Delaware -
TA Travel, L.L.C. (a) Delaware -
TA Licensing, Inc. Delaware -
</TABLE>
(a) Wholly-owned by TA Operating Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,040
<SECURITIES> 0
<RECEIVABLES> 69,333
<ALLOWANCES> 2,894
<INVENTORY> 59,043
<CURRENT-ASSETS> 164,496
<PP&E> 454,093
<DEPRECIATION> 0
<TOTAL-ASSETS> 659,862
<CURRENT-LIABILITIES> 129,264
<BONDS> 404,369
79,739
38
<COMMON> 17
<OTHER-SE> 28,181
<TOTAL-LIABILITY-AND-EQUITY> 659,862
<SALES> 1,434,164
<TOTAL-REVENUES> 1,454,624
<CGS> 1,051,080
<TOTAL-COSTS> 1,051,080
<OTHER-EXPENSES> 365,169
<LOSS-PROVISION> 1,339
<INTEREST-EXPENSE> 37,194
<INCOME-PRETAX> 1,181
<INCOME-TAX> 1,082
<INCOME-CONTINUING> 99
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99
<EPS-BASIC> (12.96)
<EPS-DILUTED> (12.96)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
INFORMATION REQUIRED BY PART III OF FORM 10-K
---------------------------------------------
DIRECTORS AND OFFICERS OF THE REGISTRANT
The executive officers and members of the Board of Directors of the Company
and their ages, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Edwin P. Kuhn........................ 57 President, Chief Executive Officer and Director
James W. George...................... 48 Senior Vice President, Chief Financial Officer and Secretary
Timothy L. Doane..................... 42 Senior Vice President
Michael H. Hinderliter............... 51 Senior Vice President
Steven C. Lee........................ 36 Vice President and General Counsel
Margaret M. Eisen.................... 46 Director
Robert B. Calhoun, Jr................ 57 Chairman of the Board of Directors and Director
Eugene P. Lynch...................... 38 Director
Louis J. Mischianti.................. 40 Director
Rolf H. Towe......................... 61 Director
Harrison T. Bubb..................... 60 Director
E. Philip Saunders................... 62 Director
James L. Hebe........................ 51 Director
</TABLE>
Officers of the Company are appointed by the Board of Directors and
serve at its discretion. The term of office for each Director expires when such
Director's successor is elected and qualified.
Edwin P. Kuhn was named President, Chief Executive Officer and Director
of the Company and its subsidiaries in January 1997. Mr. Kuhn has served as
President and Chief Executive Officer of TA since the closing of the TA
Acquisition in December 1993. Mr. Kuhn served as the General Manager (the most
senior position and effective President) of TA under BP's ownership from April
1992 to December 1993. Prior to joining TA, Mr. Kuhn spent 25 years with Sohio
and BP in a series of retail site operating positions, most recently as the
Retail Marketing Regional Manager for all BP retail facilities in the states of
Ohio, Pennsylvania and Kentucky.
James W. George was named Senior Vice President, Chief Financial
Officer and Secretary of the Company and its subsidiaries in January 1997. Mr.
George has served as a Vice President and Chief Financial Officer of TA since
the closing of the TA Acquisition in December 1993. From August 1990 to December
1993, Mr. George served as the Controller (the most senior financial position)
of TA under BP's ownership. Prior to joining TA, Mr. George spent ten years with
Sohio and BP in a series of accounting and finance positions.
Timothy L. Doane was named Senior Vice President, Market Development of
the Company and its subsidiaries in January 1997. Mr. Doane has served as a Vice
President, Market Development of TA since 1995. Prior to joining TA, Mr. Doane
spent 15 years with Sohio and BP in a series of positions including Director of
Procurement (for all purchases except crude oil), Manager of BP's Procare
Automotive Service (a chain of stand-alone automobile repair garages in three
midwestern states), International Brand Manager (in the United Kingdom) and
Division Manager in retail marketing.
<PAGE> 2
Michael H. Hinderliter was named Senior Vice President, Marketing of
the Company and its subsidiaries in January 1997. Mr. Hinderliter has served as
a Vice President, Marketing of TA since the closing of the TA Acquisition in
December 1993. From August 1992 to December 1993, Mr. Hinderliter served as the
Marketing Manager of TA under BP's ownership. From 1989 to August 1992, Mr.
Hinderliter was the manager of BP Truckstops Limited, BP's truckstop network in
the United Kingdom. Prior thereto, Mr. Hinderliter spent 14 years with TA under
Ryder, Sohio and BP ownership in a series of positions which included serving as
a Fleet Sales Manager, Division Manager and location General Manager.
Steven C. Lee was named Vice President and General Counsel of the
Company and its subsidiaries in December 1997. From September 1995 to November
1997, Mr. Lee served as Assistant Vice President and Corporate Counsel of
Premier Farnell Corporation (formerly Premier Industrial Corporation). Mr. Lee
practiced law with Calfee, Halter & Griswold from 1989 to 1995.
Margaret M. Eisen has been a Director of the Company since April 1997.
Ms. Eisen has served as Managing Director, North American Equities since June
1995 at General Motors Investment Management Corporation ("GMIMC"), the
investment advisor to First Plaza Group Trust ("First Plaza"). From March 1993
to June 1995 and from March 1992 to March 1993, Ms. Eisen served as Director,
Worldwide Pension Investments and as Director, Equity Portfolio Strategy,
respectively, at Du Pont Pension Fund Investment, E. I. Du Pont de Nemours and
Company.
Robert B. Calhoun, Jr. has been a Director of the Company since April
1993 and was elected Chairman of the Board of Directors in September 1996. Mr.
Calhoun has been President of Clipper Asset Management Corporation, which is the
sole general partner of Clipper, as well as certain of its affiliates and
related entities, since 1991. Mr. Calhoun also serves as director of Avondale
Mills, Inc., David's Bridal, Inc., Interstate Bakeries Corporation and several
private companies.
Eugene P. Lynch has been a Director of the Company since April 1993.
Mr. Lynch has been employed by Clipper or its affiliates and related entities
since 1991 and has served as a Managing Director since 1993. Mr. Lynch also
serves as a director of AVTEAM, Inc., Owosso Corporation, David's Bridal, Inc.,
and several private companies.
Louis J. Mischianti has been a Director of the Company since October
1992. Mr. Mischianti has been employed by Olympus Advisory Partners, Inc., an
affiliate of Olympus Private Placement Fund, L.P. ("Olympus"), since May 1994.
Mr. Mischianti was employed by Clipper or its affiliates from 1991 to April
1994. Mr. Mischianti serves as a director of several private companies.
Rolf H. Towe has been a Director of the Company since July 1996. Mr.
Towe has served as a Senior Managing Director of Clipper and its affiliates
since 1991. Mr. Towe also serves as a director of Sterling Chemicals Holdings,
Inc. and several private companies.
Harrison T. Bubb has been a Director of the Company since March 1998.
Mr. Bubb spent over 35 years with Sohio and BP in various positions, including
Vice President - Strategic Development, Director - Retail Europe, Vice President
- - Marketing (USA) and General Manager - Retail Sales.
E. Philip Saunders was appointed as a Director of the Company on
September 22, 1999. Mr. Saunders was the founder and served as Chairman and
Chief Executive Officer of Travel Ports of America, Inc. until its merger with
the Company in June 1999. In addition, since 1981, Mr. Saunders has been
Chairman and Chief Executive Officer of Sugar Creek Stores, a chain of
convenience stores. Mr. Saunders was also Chairman and Chief Executive Officer
of W.W. Griffith Oil Co. from 1977 until it was sold to Energert!x in 1998. Mr.
Saunders also serves as a director of Hahn Automotive Warehouse, Inc.
James L. Hebe was appointed as a Director of the Company on
September 22, 1999. Mr. Hebe has been Chairman, President and Chief Executive
Officer of Freightliner Corporation since 1992. Mr. Hebe's career spans 28 years
in the transportation industry. He serves on the boards of various
transportation-related associations.
2
<PAGE> 3
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation awarded to, earned by or paid to the Chief Executive Officer and
each of the four other most highly compensated executive officers of the Company
as of December 31, 1999 (the "Named Executive Officers") for services rendered
to the Company and its subsidiaries for 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($)(1) Options (#) ($) (2)
--------------------------- ---- ---------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Edwin P. Kuhn............................... 1999 374,000 187,000 - 6,657
President, Chief Executive Officer and 1998 350,000 175,000 - 8,285
Director 1997 325,000 162,500 - 4,243
James W. George............................. 1999 242,000 121,000 - 7,219
Senior Vice President, Chief Financial 1998 225,000 112,500 - 4,364
Officer and Secretary 1997 210,000 105,000 - 4,241
Michael H. Hinderliter...................... 1999 242,000 121,000 - 5,744
Senior Vice President 1998 225,000 112,500 - 6,460
1997 210,000 105,000 - 4,953
Timothy L. Doane............................ 1999 242,000 121,000 - 6,492
Senior Vice President 1998 225,000 112,500 - 7,757
1997 210,000 105,000 - 529
Steven C. Lee............................... 1999 118,000 47,200 - 534
Vice President and General Counsel(3) 1998 110,000 44,000 - 350
1997 9,167 3,667 - -
</TABLE>
- ----------------------
(1) Represents bonus for services rendered in the indicated year.
(2) Represents life insurance premiums paid by the Company. Mr. Kuhn's
amount includes $4,363 in 1999, $3,405 in 1998 and $3,424 in 1997,
reflecting his use of a Company automobile. Mr. George's amount
includes $5,083 in 1999, $3,084 in 1998 and $3,712 in 1997 reflecting
his use of a Company automobile. Mr. Hinderliter's amount includes
$3,303 in 1999, $4,960 in 1998 and $4,953 in 1997 reflecting his use of
a Company automobile. Mr. Doane's amount includes $5,088 in 1999 and
$6,917 in 1998 reflecting his use of a Company automobile.
(3) Mr. Lee began employment with the Company in December 1997, and was
elected as Vice President and General Counsel effective December 17,
1997.
3
<PAGE> 4
Option Grants.
The following table sets forth certain information regarding stock
options granted in 1999 pursuant to the Company's 1997 Stock Incentive Plan (the
"1997 Stock Plan") to the executive officers named in the Summary Compensation
Table. One-hundred percent of the options listed below have vested based on 1999
earnings. Vested options may be exercised at any time after December 31 of the
year of grant and will remain exercisable through December 31, 2006, at which
time they will terminate.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE OF
NAME GRANTED FISCAL YEAR OPTIONS EXPIRATION DATE 5% 10%
---- ---------- -------------- --------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Edwin P. Kuhn 41,340 17.8% $25.00 December 31, 2006 $ 903,545 $ 1,779,101
James W. George 24,664 10.6% $25.00 December 31, 2006 $ 539,067 $ 1,061,436
Michael H. Hinderliter 24,664 10.6% $25.00 December 31, 2006 $ 539,067 $ 1,061,436
Timothy L. Doane 24,664 10.6% $25.00 December 31, 2006 $ 539,067 $ 1,061,436
Steven C. Lee 8,604 3.7% $25.00 December 31, 2006 $ 188,053 $ 370,280
</TABLE>
Vested options may be exercised at any time after December 31, 1999.
Options may also, at the discretion of the Company, vest and/or become
exercisable at earlier dates than otherwise provided in the event of certain
changes in control or Reorganization Events (as defined in the 1997 Stock Plan).
Vested options are exercisable for limited periods following termination of
employment of a named executive officer; non-vested options terminate upon
termination of employment. Securities obtained as a result of the exercise of
options may not be transferred except to certain family members and, upon
termination of employment or death, are subject to call and put rights that,
generally, give the Company the right, but not the obligation, for a specified
time period to purchase such securities from the named executives at a formula
price and give the named executives the right, but not the obligation, for a
specified time period to sell such securities to the Company at a second formula
price. Pursuant to either of the foregoing formulas, a purchase price per share
is derived by subtracting consolidated indebtedness (as defined in the 1997
Stock Plan) from a specified multiple of EBITDA (as defined in the 1997 Stock
Plan) and dividing the result by the sum of the number of issued and outstanding
shares of capital stock of the Company plus the number of shares of capital
stock of the Company subject to certain warrants.
1993 Stock Plan. Stock options to purchase shares of the Company's
Common Stock, par value $0.01 per share ("Common Stock") have been granted to
the Named Executive Officers prior to 1996 pursuant to the Company's 1993 Stock
Incentive Plan (the "1993 Stock Plan") as Series I, Series II and Series III
options, as follows: Mr. Kuhn, 15,860, 16,721 and 17,799 options; both of
Messrs. George and Hinderliter, 9,818, 10,364 and 11,018 options; and Mr. Doane,
7,364, 7,773, and 8,263 options, respectively. The option exercise price for
each Series I, Series II and Series III option is as follows: $10.00 per share,
$17.49 per share and $22.50 per share, respectively. Seventy-five percent of
each series of options have vested with respect to Messrs. Kuhn, George and
Hinderliter and 67% of each series of options have vested with respect to Mr.
Doane. Options are currently exercisable to the extent vested as of December 31,
1996 and remain exercisable for limited periods following termination of
employment of the Named Executive Officer. All such unvested options were
canceled in connection with the adoption of the 1997 Stock Plan. Common Stock
shares acquired upon the exercise of options may not be transferred except to
certain family members and are subject to call and put options upon termination
of employment. The call and put option pricing formula under the 1993 Stock Plan
and option agreements has been modified to the formula under the 1997 Stock
Plan. It is also expected that if a change of control occurs within six months
after termination of employment for "good reason," death, "disability" or
termination other than for "cause"
4
<PAGE> 5
(as defined), an adjustment will be made to the amount paid upon exercise of any
call options or put options (but, in the case of put options, only to the extent
the proceeds received by the former employee upon exercise of the put option are
used to repay indebtedness to the Company) so that the former employee will be
able to receive any amounts in excess of the call or put price payable in the
change of control transaction. See "Certain Transactions-Stockholders'
Agreements-Supplemental Institutional and Management Stockholders' Agreement."
The following table sets forth information concerning the value of
unexercised options as of December 31, 1999 held by the Named Executive
Officers. No options were exercised by any Named Executive Officer in 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
LAST FISCAL YEAR-END OPTION VALUES TABLE
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED VALUE UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
ON EXERCISE REALIZED AT 1999YEAR-END (#) AT 1999YEAR-END ($)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(1)(2)
---- ----------- --------- ---------------------------- -------------------------------
<S> <C> <C> <C> <C>
Edwin P. Kuhn.................... - - 141,879/ - 1,698,921/-
James W. George.................. - - 84,023/ - 1,010,855/-
Michael H. Hinderliter........... - - 84,023/ - 1,010,855/-
Timothy L. Doane................. - - 76,722/ - 888,336/-
Steven C. Lee.................... - - 14,604/ - 131,713/-
</TABLE>
- ---------------------
(1) The portion of all options granted pursuant to the 1993 Stock Plan
which were unexercisable as of December 31, 1996 were canceled in
connection with the adoption of the 1997 Stock Plan.
(2) Based on a stock price of $33.30 per share.
COMPENSATION OF DIRECTORS
In September 1996, the Company's Board of Directors unanimously agreed
to waive all Board of Directors retainers and meeting fees, although there is no
assurance such an arrangement will continue in the future. Beginning in 1997,
each non-employee director was granted, subject to being disclaimed by such
directors, 1,250 stock options each year pursuant to the 1997 Stock Plan.
Members of the Company's Board of Directors also receive reasonable
out-of-pocket expenses in connection with travel to and attendance at meetings.
EMPLOYMENT AGREEMENTS AND STOCKHOLDERS' AGREEMENTS WITH EDWIN P. KUHN, JAMES W.
GEORGE, MICHAEL H. HINDERLITER AND TIMOTHY L. DOANE
The Company has entered into an employment agreement, a stockholder's
agreement and a Supplemental Institutional and Management Stockholders'
Agreement with each of Edwin P. Kuhn, James W. George, Michael H. Hinderliter
and Timothy L. Doane (the "Executives"). The principal terms and conditions of
the Executives' employment agreements are as follows:
The Executives shall be employed by the Company from January 1, 1997
through December 31, 2000 (unless terminated earlier). The employment agreements
provide for annual base salaries, subject to approved increases, of $325,000 for
Mr. Kuhn and $210,000 for Messrs. George, Hinderliter and Doane, respectively;
annual bonuses of up to 50% of annual base salary; participation in Company
employee benefit plans; and certain fringe benefits.
If an Executive's employment is terminated prior to December 31, 2000:
(i) by his resignation other than for "good reason" (this term and each
subsequent term in quotation marks referenced in this paragraph as defined in
the employment agreements) or for "cause", he shall be entitled to only his
accrued and unpaid base salary and any vested benefits under the Company's 1993
and 1997 Stock Plans; (ii) by reason of death or "permanent disability", then in
addition to the foregoing, any annual or guaranteed bonus (whichever is
greater), pro-rated, and Company-paid continued medical coverage; and (iii) by
his resignation for good reason or by the Company for any other reason, base
salary until December 31, 2000 (or if later, for one year) subject to offset,
his guaranteed bonus, if
5
<PAGE> 6
any (or, if greater, any annual bonus, pro-rated), any vested benefits under the
Company's 1993 and 1997 Stock Plans and subsidized medical coverage; provided
that if the Executive engages in a "competitive activity," he shall instead only
be entitled to his accrued and unpaid base salary, any vested benefits under the
Company's 1993 and 1997 Stock Plans and subsidized medical coverage. If any
payments and the value of benefits are "contingent on a change of control"
within the meaning of section 280G of the Internal Revenue Code of 1986, as
amended (which could include, for example and without limitation, the
accelerated vesting of stock options upon a change of control), then the Company
may be denied an income tax deduction for all or a portion of such payments, and
the recipient thereof may be subject to a 20% excise tax in addition to income
tax otherwise imposed. The Executives' employment agreements also include
non-competition and non-solicitation covenants and confidentiality agreements.
For a description of the stockholder's agreements entered into by the
Executives, see "Certain Relationships and Related Transactions-Stockholders'
Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since April 1997, the members of the Executive Compensation Committee
of the Board of Directors have been Robert B. Calhoun, Jr., Louis J. Mischianti
and Rolf H. Towe. Messrs. Calhoun and Towe are employed by Clipper and/or its
affiliates and Mr. Mischianti is employed by an affiliate of Olympus.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has one class of Common Stock outstanding and four classes
of convertible preferred stock outstanding: Series I and Series II Convertible
Preferred Stock, par value $0.01 per share ("Series I Preferred" and "Series II
Preferred," respectively), and Series I and Series II Senior Convertible
Participating Preferred Stock, par value $0.01 per share ("Series I Senior" and
"Series II Senior," respectively).
At the option of the holder thereof, Series I Preferred and Series I
Senior may be converted to Common Stock at any time on a one for one basis.
Series II Preferred and Series II Senior also may be converted to Common Stock
on a one for one basis; however, the total number of shares that may be
converted at any one time is limited to a percentage determined by reference to
a formula reflecting the number of outstanding shares of Common Stock at the
time of conversion. Pursuant to this formula, as of December 31, 1999,
Clipper/Merchant I, L.P. ("Clipper/Merchant"), which holds of record all
outstanding shares of Series II Preferred and Series II Senior, could have
elected to convert a combined total of 293,686 shares of Series II Preferred and
Series II Senior (out of a total of 2,171,718 shares) to an equal number of
shares of Common Stock.
6
<PAGE> 7
The following table sets forth the number of shares of capital stock of
the Company beneficially owned, as of February 15, 2000, by each person known by
the Company to beneficially own more than 5% of any class of capital stock of
the Company (other than directors and officers, see "-Directors and Officers").
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF STATED
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS OF STOCK CLASS(1)
- ------------------------ --------- -------------- -----------
<S> <C> <C> <C>
United States Trust Company of New York....... 370,000(2) Common 42.0%
770 Broadway
New York, NY 10003
Clipper Capital Associates, L.P.(3)........... 4,622,294 Common(4) 84.0
650 Madison Avenue Series I
New York, NY 10022 2,472,952 Preferred(5) 95.3
Series II
1,237,374 Preferred(5) 100.0
1,855,656 Series I Senior(5) 69.2
Series II
934,344 Senior(5) 100.0
UBS Capital LLC............................... 500,739 Common(6) 37.7
299 Park Avenue 22,059 Series I Preferred 0.9
New York, NY 10171 425,000 Series I Senior 15.9
First Plaza Group Trust....................... 3,996,862 Common(7) 81.9
c/o The Chase Manhattan Bank Series I
4 Chase Metro Tech Center 2,096,221 Preferred(8) 80.8
Brooklyn, NY 11245 1,800,000 Series I Senior(8) 67.1
Olympus Private Placement Fund, L.P........... 523,451 Common(9) 37.3
Metro Center Series I
One Station Place 306,912 Preferred(10) 11.8
Stamford, CT 06902 200,000 Series I Senior 7.5
The Travelers Indemnity Company............... 200,000 Common(11) 18.5
One Tower Square 200,000 Series I Senior 7.5
Hartford, CT 06183
Merchant Truckstops, L.P.(12)................. 293,686 Common(13) 25.0
11 Madison Avenue Series II
New York, NY 10010 1,225,000 Preferred 99.0
Freightliner Corporation...................... 300,000 Common (14) 30.6
4747 North Channel Avenue
Portland, OR 97217
E. Philip Saunders............................ 85,000 Common 9.6
760 Brooks Ave.
Rochester, NY 14619
</TABLE>
- -----------
(1) With respect to Common Stock, reflects beneficial ownership of Common
Stock, assuming the conversion into Common Stock by the listed
stockholder of any preferred stock and the exercise by the listed
stockholder of any options or warrants to purchase Common Stock owned by
such stockholder to the extent currently convertible or exercisable
within 60 days after February 15, 2000.
(2) United States Trust Company of New York holds these shares in its
capacity as Voting Trustee under the Voting Trust Agreement. See "Certain
Relationships and Related Transactions."
(3) Clipper Capital Associates, L.P. ("CCA") directly owns 127,243 shares of
Series I Preferred and 37,474 shares of Series I Senior and is the
general partner of three limited partnerships that are the record owners
of the remainder of these shares: (i) National Partners I, L.P.
("National I"), (ii) National Partners, L.P. III, ("National III") and
(iii) Clipper/Merchant. CCA thus may be said to beneficially own all such
shares owned by these three limited partnerships. Clipper Capital
Associates, Inc. ("CCI") is the general partner of CCA, and the sole
stockholder of CCI is Robert B. Calhoun, Jr., a director of the Company.
By virtue of such relationship, CCI and Mr. Calhoun may be deemed to
beneficially own these shares. CCI and Mr. Calhoun disclaim beneficial
ownership of all such shares except to the extent of any pecuniary
interest they may have therein. See footnote 3 to the following security
ownership table.
(4) Includes shares of Common Stock that could be issued upon conversion of
all outstanding shares of preferred stock of the Company held of record
by the following: (i) CCA: 127,243 shares of Series I Preferred and
37,474 shares of Series I Senior, (ii) National I: 2,065,405 shares of
Series I Preferred and 1,818,182 shares of Series I Senior, (iii)
National III: 280,304 shares of Series I Preferred and (iv) Clipper
Merchant: 1,237,374 shares of Series II Preferred and 934,344 shares of
Series II Senior. As of February 15, 1999, a combined total of only
293,686 shares of the two Series II classes held by Clipper/Merchant were
convertible, as described above. For further discussion of National I,
National III and Clipper/Merchant see footnotes 8, 10 and 12 below.
(5) See footnote 4 above.
7
<PAGE> 8
(6) Includes 53,680 shares of Common Stock held of record, 22,059 shares of
Common Stock that could be issued upon conversion of Series I Preferred
and 425,000 shares of Common Stock that could be issued upon conversion
of Series I Senior.
(7) Includes 100,641 shares of Common Stock that could be issued upon
exercise of warrants, 2,096,221 shares of Common Stock that could be
issued upon conversion of Series I Preferred and 1,800,000 shares of
Common Stock that could be issued upon conversion of Series I Senior. For
further discussion of First Plaza's share ownership, see footnote 8
below.
(8) First Plaza directly owns 51,471 shares of Series I Preferred. In
addition, First Plaza, as limited partner of National I and under
National I's partnership agreement, may be deemed to beneficially own
2,044,750 shares of Series I Preferred and 1,800,000 shares of Series I
Senior held of record by National I.
(9) Includes 16,539 shares of Common Stock that could be issued upon exercise
of warrants, 306,912 shares of Common Stock that could be issued upon
conversion of Series I Preferred and 200,000 shares of Common Stock that
could be issued upon conversion of Series I Senior. For further
discussion of Olympus' share ownership, see footnote 10 below.
(10) Olympus directly owns 29,412 shares of Series I Preferred. In addition,
Olympus, as limited partner of National III and under National III's
partnership agreement, may be deemed to beneficially own 277,500 shares
of Series I Preferred held of record by National III. Olympus disclaims
beneficial ownership of all such shares, except to the extent of any
pecuniary interest it may have therein.
(11) Includes 200,000 shares of Common Stock that could be issued upon
conversion of Series I Senior.
(12) Merchant Truckstops, L.P. ("Merchant"), as the limited partner of
Clipper/Merchant and under Clipper/Merchant's partnership agreement, may
be deemed to beneficially own 1,225,000 shares of Series II Preferred
held of record by Clipper/Merchant. Merchant is a limited partnership of
which Merchant Truckstops, Inc. ("Merchant Inc.") is the general partner,
and Merchant Inc. is an indirect wholly-owned subsidiary of Credit Suisse
Group ("CS"). By virtue of such relationship, Merchant Truckstops and CS
may be deemed to beneficially own these shares. Merchant, Merchant Inc.
and CS disclaim beneficial ownership of all such shares, except to the
extent of any pecuniary interest they may have therein.
(13) Includes 293,686 shares of Common Stock that could be issued upon
conversion of shares of Series II Preferred that were eligible for
conversion as of February 15, 2000, as described above.
(14) Includes 100,000 shares of Common Stock that could be issued upon
exercising an option to purchase Common Stock.
8
<PAGE> 9
DIRECTORS AND OFFICERS
The following table sets forth the number of shares of capital stock of
the Company beneficially owned, as of February 15, 2000, by each of the
Company's executive officers and directors, and all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF STATED
NAME OWNERSHIP(1) CLASS OF STOCK CLASS(1)
- ---- --------- -------------- ----------
<S> <C> <C> <C>
Edwin P. Kuhn........................ 163,331 Common 15.9
6,000 Series I Preferred *
James W. George...................... 96,113 Common 10.0
500 Series I Preferred *
Michael H. Hinderliter............... 96,613 Common 10.0
1,000 Series I Preferred *
Timothy L. Doane..................... 85,450 Common 8.9
1,000 Series I Preferred *
Steven C. Lee........................ 19,468 Common 2.2
1,000 Series I Preferred *
Margaret M. Eisen.................... - - -
Robert B. Calhoun, Jr................ 4,622,294 Common(2) 84.0
2,472,952 Series I Preferred(2) 95.3
1,237,374 Series II Preferred(2) 100.0
1,855,656 Series I Senior(2) 69.2
934,344 Series II Senior(2) 100.0
Eugene P. Lynch...................... - - -
Louis J. Mischianti.................. 3,750 Common *
Rolf H. Towe......................... 11,250 Common 1.3
Harrison T. Bubb..................... 2,500 Common *
E. Philip Saunders................... 85,000 Common 9.6
James L. Hebe - - -
(All directors and officers as a
group (13 persons))............... 5,185,769 Common 87.4
2,482,452 Series I Preferred 95.7
1,237,374 Series II Preferred 100.0
1,855,656 Series I Senior 69.2
934,344 Series II Senior 100.0
</TABLE>
- -----------
(1) In the case of Common Stock, reflects beneficial ownership of Common
Stock, assuming the exercise by the listed stockholder of options to
purchase Common Stock owned by such stockholder to the extent currently
exercisable within 60 days after February 15, 2000, the exercise by the
listed stockholder of warrants and the conversion by the listed
stockholder of convertible preferred shares.
(2) CCA, National I, National II, National III and Clipper/Merchant are the
record owners of these shares. Mr. Calhoun is the sole stockholder of
CCI, which is the general partner of CCA. CCA is the general partner of
each of National I, National III and Clipper/Merchant. By virtue of
such relationships, Mr. Calhoun may be deemed to beneficially own all
of such shares. Mr. Calhoun disclaims beneficial ownership of such
shares, except to the extent of any pecuniary interest he may have
therein. See footnotes 3, 4, and 5 to the previous security ownership
table.
* The percentage of shares beneficially owned in class is less than one
percent of the class so owned.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
VOTING TRUST AGREEMENT
Voting and transfer of the shares of Common Stock beneficially owned by
Operators and Franchisee-Owners ("Certificate Holders") are governed by a voting
trust agreement dated as of April 14, 1993, as amended as of March 6, 1997,
among the Certificate Holders, United States Trust Company of New York as the
voting trustee (the "Voting Trustee") and the Company (the "Voting Trust
Agreement"). The Operators' and Franchisee-Owners' beneficial ownership interest
in such shares is evidenced by voting trust certificates (the "Voting Trust
Certificates"). In connection with any matter that may be put to a vote of the
Company's stockholders, the Voting Trustee will vote all of the shares subject
to the Voting Trust Agreement in the manner determined by a vote by the
Certificate Holders. Transfers of the Voting Trust Certificates or beneficial
interests in shares of Common Stock represented thereby are only permitted in
accordance with applicable securities laws and
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<PAGE> 10
are also subject to certain restrictions. Certain provisions of the Voting Trust
Agreement may only be amended by a vote of Certificate Holders holding a
majority of the Voting Trust Certificates and a vote of the holders of a
majority of the shares of Series I Preferred Stock (and the holders of Common
Stock issued upon conversion of Series I Preferred Stock) together with the
consent of the Company. The Voting Trust Agreement will terminate on the earlier
of (i) April 14, 2003, unless Certificate Holders beneficially owning 65% of the
shares subject to the Voting Trust Agreement elect to continue the Voting Trust
or (ii) upon the consent of the Company and the vote of the holders of Voting
Trust Certificates who beneficially own more than 75% of the shares subject to
the Voting Trust Agreement.
STOCKHOLDERS' AGREEMENTS
Global Stockholders' Agreement. The Voting Trustee, Certificate
Holders, certain members of the Investor Group (members of such group referred
to individually as an "Investor") holding preferred stock, certain members of
management (the "Management Stockholders") and the Company are parties to a
stockholders' agreement, dated as of April 14, 1993, as amended as of March 6,
1997 and March 15, 1998 (the "Global Stockholders' Agreement"). Pursuant to the
Global Stockholders' Agreement, the Management Stockholders have agreed not to
sell any shares of Common Stock except for certain family transfers, transfers
pursuant to the laws of descent and distribution, and certain other exceptions.
The Global Stockholders' Agreement provides that, in the event of any sale
(whether by merger or sale of the stock) of the Company effected on the same
terms for each holder of capital stock of the Company, a stockholder party to
the Global Stockholders' Agreement has no right to dissent and be paid the
appraised value of his or her shares and, in the event of a stock sale, is
required to sell his or her shares to any purchaser in such sale. The Global
Stockholders' Agreement will terminate on the earlier of April 14, 2003 or the
consummation of a registered public offering of the Company's stock.
Supplemental Stockholders' Agreement. The Company and certain Investors
are parties to a supplemental stockholders' agreement, dated as of December 10,
1993 (the "Supplemental Stockholders' Agreement"). The Supplemental
Stockholders' Agreement sets forth analogous provisions for the transfer of
preferred stock as the Global Stockholders' Agreement sets forth for transfer of
shares held by Management Stockholders.
1993 Institutional Stockholders' Agreement. The Company and the
Investor Group are parties to a preferred and common stockholders' agreement,
dated as of December 10, 1993 (the "1993 Institutional Stockholders' Agreement")
to establish in part the composition of the Company's Board of Directors and to
provide for certain participation rights related to the sale of stock by major
stockholders. This agreement is expected to be amended and restated to add
Management Stockholders as parties and provide for certain other changes.
The parties to the 1993 Institutional Stockholders' Agreement are
required to vote their shares to elect to the Board of Directors two nominees of
Clipper Capital Associates, L.P. ("CCA"), an affiliate of Clipper, one nominee
of National Partners III, L.P. ("National III"), two nominees of National
Partners, L.P. ("National I") and one nominee jointly chosen by National I and
CCA. After the liquidation of National I, First Plaza will assume National I's
rights and after the liquidation of National III, Olympus will assume National
III's rights, with respect to nominating directors under the agreement. Under
certain conditions, the rights of certain parties to nominate directors may
increase or decrease. The right to nominate a director ceases when any party
(together with its affiliates) sells any shares governed by the agreement unless
such shares have been registered under the Securities Act or sold pursuant to
Rule 144 under the Securities Act. The portion of the 1993 Institutional
Stockholders' Agreement pertaining to the Board of Directors terminates on
December 10, 2003 unless extended. In the event that the Company becomes
publicly held, the 1993 Institutional Stockholders' Agreement will terminate
except for that portion of the agreement pertaining to nomination of directors.
The 1993 Institutional Stockholders' Agreement provides for the right of such
stockholders to participate in certain sales of stock of the Company by other
parties. Any transferee of a party to the 1993 Institutional Stockholders'
Agreement must become party to that agreement according to its terms.
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<PAGE> 11
1999 Institutional Stockholders' Agreement. The Company, Freightliner
and certain members of the Investor Group are parties to a stockholders'
agreement, dated as of July 21, 1999 (the "1999 Institutional Stockholders'
Agreement"). The parties to the 1999 Institutional Stockholders' Agreement are
required to vote their shares to elect to the Board of Directors (1) three
nominees of CCA, an affiliate of Clipper, (2) one nominee of National III, (3)
one nominee of National I, (4) one nominee jointly chosen by National I and CCA,
(5) the Chief Executive Officer of the Company, (6) the Chief Executive Officer
of Freightliner, or another nominee of Freightliner reasonably acceptable to the
Company, for so long as Freightliner owns at least 200,000 of the shares in the
Company purchased by Freightliner pursuant to the Investment and Option
Agreement, dated July 21, 1999, between the Company and Freightliner, and (7) E.
Philip Saunders, for so long as he is entitled to serve as a member of the Board
of Directors pursuant to the Share Exchange Agreement, dated February 26, 1999,
between the Company and E. Philip Saunders. After the liquidation of National I,
First Plaza will assume National I's rights and after the liquidation of
National III, CCA will assume National III's rights, with respect to nominating
directors under the agreement.
In addition, the 1999 Institutional Stockholders' Agreement, among
other things, limits the ability of Freightliner to transfer shares in the
Company owned by Freightliner, provides participation rights for the
stockholder-parties to the agreement in the event of certain sales of stock of
the Company by other parties, requires such stockholders to participate in
certain sales of the Company, provides a right of first refusal for Freightliner
in the event of a proposed "change of control" transaction involving the Company
and a competitor of Freightliner, and provides put and call rights and
registration rights relating to the shares in the Company owned by Freightliner.
Any transferee of a party to the 1999 Institutional Stockholders' Agreement must
become party to that agreement according to its terms. The 1999 Institutional
Stockholders' Agreement will terminate upon the consummation of a registered
public offering of the Company's stock or a "change of control" transaction.
TRANSACTIONS AND RELATIONSHIPS WITH INVESTORS
The Company is party to a series of agreements (the "Clipper
Agreements") and related indemnity for financial advisory services to be
provided, on an exclusive basis, by Clipper, Clipper Capital Partners, L.P. and
assigns (including, at times, Olympus) (together, the "Clipper Entities") to the
Company and its subsidiaries. In consideration for services provided pursuant to
such agreements, the Company agreed to compensate the Clipper Entities at rates
established by the Clipper Entities consistent with those rates customarily
charged by nationally recognized investment firms. The terms of the Clipper
Agreements continue until such time as Clipper and its affiliates no longer own,
in the aggregate, 5% or more of the equity securities of the Company. During
1999, the Company paid fees of $250,000 to the Clipper Entities for their
services provided with respect to the TPOA Acquisition. Clipper and Olympus have
also been reimbursed from time to time by the Company for out of pocket
expenses, including legal fees. Louis J. Mischianti, who is employed by an
affiliate of Olympus, is a Director of the Company. Robert B. Calhoun, Jr., Rolf
H. Towe and Eugene P. Lynch, each of whom are Directors of the Company, are
employed by Clipper or its affiliates.
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<PAGE> 12
The Company leases one of its travel centers from a realty company
owned by two individuals, one of whom is E. Philip Saunders, a director of the
Company. This lease relationship commenced during 1999 in connection with the
TPOA Acquisition and total rent expense related to this lease for the year ended
December 31, 1999 was $263,000. In connection with the TPOA acquisition, the
Company agreed to use its best efforts to have Mr. Saunders appointed to the
Board of Directors. Pursuant to the Share Exchange Agreement between the Company
and Mr. Saunders, his service on the board of Directors will terminate in June
2002 (or earlier under certain circumstances).
TRANSACTIONS WITH OPERATOR STOCKHOLDERS
As of December 31, 1999, Operators controlling 22 travel centers owned
an aggregate of 276,250 shares of the Company's Common Stock, which represents
approximately 3.0% of the issued and outstanding Common Stock giving effect to
the conversion of preferred stock and the exercise of warrants and options. The
Company's transactions with these Operators are at prices and on terms that are
the same as similar transactions with non-stockholder Operators. Such Operator
stockholders have entered into the Voting Trust Agreement with the Company and
the Voting Trustee.
TRANSACTIONS WITH OFFICERS
As of December 31, 1999, the Company had issued to Edwin P. Kuhn, James
W. George, Timothy L. Doane, Michael H. Hinderliter and Steven C. Lee, 15,452;
11,590; 7,727; 11,590, and 3,864 shares of Common Stock (the "Management
Shares"), respectively, pursuant to certain management subscription agreements
(together, the "Management Subscription Agreement"). Each Management
Subscription Agreement provides for a purchase price of the Management Shares of
between $10 and $20 per share. As described below, the Company financed a
portion of the purchase price of the Management Shares.
The Management Subscription Agreement gives the Company the right, but
not the obligation, for 60 days following the employee's cessation of employment
with the Company, for any reason whatsoever, to repurchase the Management Shares
at a formula price and gives the employee the right, but not the obligation, for
an additional 60 days to sell the Management Shares to the Company at a second
formula price. Pursuant to either of the foregoing formulas, the purchase price
per share is equal to the product of (a) a specified multiple of EBITDA (as
defined in the Management Subscription Agreement) of the Company for the most
recent four consecutive full fiscal quarters less the aggregate amount of
consolidated indebtedness of the Company and (b) a fraction, the numerator of
which is equal to the number of Management Shares being repurchased by the
Company and the denominator of which equals the number of fully diluted shares
of capital stock of the Company. The credit facilities, the Senior Notes and the
Indenture limits the Company's ability to repurchase the Management Shares.
In connection with the purchase of the Management Shares, each of the
members of senior management who entered into the Management Subscription
Agreement also received financing from the Company with respect to no more than
one half of the purchase price of such manager's stock purchases. In connection
with such financing, each such manager executed a note in favor of the Company
(each, a "Management Note") and a pledge agreement (each a "Management Pledge
Agreement"). The Management Notes for the named Executives total $251,110 in
principal amount, and are payable by the following Named Executives in the
indicated principal amount as follows: Edwin P. Kuhn, $77,260; James W. George,
$57,950; Timothy L. Doane, $57,950, Michael H. Hinderliter, $57,950 and Steven
C. Lee, $38,460. With respect to the Management Notes, interest accrues at an
annual rate of 4.76% for Messrs. Kuhn, George and Hinderliter and 6.01% for
Messrs. Doane and Lee, in each case compounded semi-annually. Accrued and unpaid
interest, together with unpaid principal, if not sooner paid, is due and payable
on the earliest of (i) the date of cessation of employment of such employee,
(ii) the date such employee is no longer the owner of the particular Management
Shares and (iii) the tenth anniversary of the Management Note.
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