<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 18, 2001
REGISTRATION NO. 333-52442
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRAVELCENTERS OF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5541 36-3856519
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
24601 CENTER RIDGE ROAD, SUITE 200
WESTLAKE, OHIO 44145-5634
(440) 808-9100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN C. LEE
VICE PRESIDENT AND GENERAL COUNSEL
TRAVELCENTERS OF AMERICA, INC.
24601 CENTER RIDGE ROAD, SUITE 200
WESTLAKE, OHIO 44145-5634
(440) 808-9100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
RISE B. NORMAN, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
------
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
ADDRESS INCLUDING
ZIP CODE AND
TELEPHONE NUMBER
PRIMARY INCLUDING AREA
EXACT NAME OF STATE OR OTHER I.R.S. STANDARD CODE OF
REGISTRANT GUARANTOR JURISDICTION OF EMPLOYER INDUSTRIAL REGISTRANT GUARANTOR'S
AS SPECIFIED INCORPORATION OR IDENTIFICATION CLASSIFICATION PRINCIPAL
IN ITS CHARTER ORGANIZATION NUMBER CODE NUMBER EXECUTIVE OFFICES
-------------------- ---------------- -------------- -------------- ----------------------
<S> <C> <C> <C> <C>
TA OPERATING CORPORATION DELAWARE 34-1747077 5541 24601 CENTER RIDGE ROAD,
SUITE 200
WESTLAKE, OHIO 44145-5634
(440) 808-9100
TA TRAVEL, L.L.C. DELAWARE 31-1574239 5541 24601 CENTER RIDGE ROAD,
SUITE 200
WESTLAKE, OHIO 44145-5634
(440) 808-9100
TA LICENSING, INC. DELAWARE 52-2069876 5541 103 FOULK ROAD,
SUITE 244
WILMINGTON, DELAWARE 19803
(302) 426-1408
TRAVELCENTERS REALTY, INC. DELAWARE 31-1740743 5541 103 FOULK ROAD,
SUITE 244
WILMINGTON, DELAWARE 19803
(302) 426-1408
TRAVELCENTERS PROPERTIES, L.P. DELAWARE 34-1939098 5541 24601 CENTER RIDGE ROAD,
SUITE 200
WESTLAKE, OHIO 44145-5634
(440) 808-9100
</TABLE>
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 18, 2001
PROSPECTUS
$190,000,000
TRAVELCENTERS OF AMERICA, INC. [TRAVELCENTERS OF AMERICA,
INC. LOGO]
Offer to Exchange All Outstanding 12 3/4% Senior Subordinated Notes due 2009 for
12 3/4% Senior Subordinated Notes due 2009, which have been registered under the
Securities Act of 1933
THE EXCHANGE OFFER
- We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of exchange notes that
are freely tradeable.
- You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2001, unless extended. We do not currently intend to extend
the expiration date.
- The exchange of outstanding notes for exchange notes in the exchange
offer will not be a taxable event for U.S. federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
THE EXCHANGE NOTES
- The exchange notes are being offered in order to satisfy certain of our
obligations under the exchange and registration rights agreement entered into
in connection with the placement of the outstanding notes.
- The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the outstanding notes, except that the exchange
notes will be freely tradeable.
RESALES OF EXCHANGE NOTES
- The exchange notes may be sold in the over-the-counter market, in negotiated
transactions or through a combination of such methods.
If you are a broker-dealer and you receive exchange notes for your own account,
you must acknowledge that you will deliver a prospectus in connection with any
resale of such exchange notes. By making such acknowledgment, you will not be
deemed to admit that you are an "underwriter" under the Securities Act of 1933.
Broker-dealers may use this prospectus in connection with any resale of exchange
notes received in exchange for outstanding notes where such outstanding notes
were acquired by the broker-dealer as a result of market-making activities or
trading activities. We will make this prospectus available to any broker-dealer
for use in any such resale for a period of up to 180 days after the date of the
prospectus. A broker-dealer may not participate in the exchange offer with
respect to outstanding notes acquired other than as a result of market-making
activities or trading activities. See "Plan of Distribution."
If you are an affiliate of TravelCenters of America, Inc. or are engaged in, or
intend to engage in, or have an agreement or understanding to participate in, a
distribution of the exchange notes, you cannot rely on the applicable
interpretations of the Securities and Exchange Commission and you must comply
with the registration requirements of the Securities Act of 1933 in connection
with any resale transaction.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 15 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2001.
<PAGE> 4
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE YOU CAN FIND MORE
INFORMATION....................... ii
FORWARD-LOOKING STATEMENTS.......... ii
PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 15
USE OF PROCEEDS..................... 25
CAPITALIZATION...................... 26
PRO FORMA FINANCIAL DATA............ 27
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA.................... 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 39
INDUSTRY............................ 53
BUSINESS............................ 55
MANAGEMENT.......................... 77
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRINCIPAL STOCKHOLDERS.............. 83
DESCRIPTION OF CAPITAL STOCK........ 84
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS...................... 87
DESCRIPTION OF SENIOR CREDIT
FACILITY AND OTHER INDEBTEDNESS... 91
THE EXCHANGE OFFER.................. 94
DESCRIPTION OF THE NOTES............ 104
BOOK ENTRY; DELIVERY AND FORM....... 145
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS................ 147
PLAN OF DISTRIBUTION................ 153
LEGAL MATTERS....................... 154
EXPERTS............................. 154
INDEX TO FINANCIAL STATEMENTS....... F-1
</TABLE>
------------------
i
<PAGE> 5
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-4 under the Securities Act with respect to the
exchange notes. This prospectus, which forms a part of the registration
statement, does not contain all of the information in the registration
statement. You should refer to the registration statement for further
information. Statements contained in this prospectus about the contents of any
contract or other document are not necessarily complete, and, where a contract
or other document is an exhibit to the registration statement, each of these
statements is qualified by the provision in the exhibit to which the statement
relates.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. As a result of this offering, we will become
subject to the informational requirements of the Securities Exchange Act of
1934. Accordingly, we will file reports and other information with the SEC
unless and until we obtain an exemption from the requirement to do so. The
registration statement and other reports or information can be inspected, and
copies may be obtained, at the Public Reference Room of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates, and at the regional
public reference facilities maintained by the SEC located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Information on the
operation of the Public Reference Room of the SEC may be obtained by calling the
SEC at 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
that we have filed electronically with the SEC.
Furthermore, we agree that, even if we are not required to file periodic
reports and information with the SEC, for so long as any exchange note remains
outstanding we will furnish to you the information that would be required to be
furnished by us under Section 13 of the Securities Exchange Act of 1934.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements relate to
our future prospects, developments and business strategies. The statements
contained in this prospectus that are not statements of historical fact may
include forward-looking statements that involve a number of risks and
uncertainties. We have used the words "may," "will," "expect," "anticipate,"
"believe," "estimate," "plan," "intend" and similar expressions in this
prospectus to identify forward-looking statements. These forward-looking
statements are made based on our expectations and beliefs concerning future
events affecting us and are subject to uncertainties and factors relating to our
operations and business environment, all of which are difficult to predict and
many of which are beyond our control, that could cause our actual results to
differ materially from those matters expressed in or implied by these
forward-looking statements. The following factors are among those that could
cause our actual results to differ materially from the forward-looking
statements:
- competition from other travel center and truck stop operators, including
additional or improved services or facilities of our competitors;
- the economic condition of the trucking industry, which in turn is
dependent on general economic factors;
- increased environmental regulation;
- changes in governmental regulation of the trucking industry, including
regulations relating to diesel fuel and gasoline;
- diesel fuel and gasoline pricing;
- availability of diesel fuel supply;
- delays in completing our capital investment program to re-image, re-brand
and upgrade our travel center sites;
ii
<PAGE> 6
- difficulties that may be encountered by us or our franchisees in
implementing our truck repair and maintenance program, or ServicePoint
Program, with Freightliner LLC;
- availability of sufficient qualified personnel to staff company-operated
sites; and
- other factors described under "Risk Factors" in this prospectus.
All of our forward-looking statements should be considered in light of
these factors. We do not undertake to update our forward-looking statements or
risk factors to reflect future events or circumstances.
iii
<PAGE> 7
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all of the information that is important
to you in making a decision to exchange the outstanding notes for the exchange
notes. Unless the context otherwise requires, all references in this prospectus
to "TA," "us," "our," or "we" are to TravelCenters of America, Inc., and its
predecessors, including its subsidiaries.
TRAVELCENTERS OF AMERICA
We are the largest, and only nationwide, full-service travel center network
in the United States serving long-haul trucking fleets and their drivers,
independent truck drivers and general motorists. Our geographically diverse
network consists of 157 sites, 148 of which are owned by us, located in 40
states. Within our industry, our travel centers have the broadest range of
product and service offerings, including diesel fuel and gasoline, truck repair
and maintenance services, full-service and fast food dining, travel and
convenience stores and other driver amenities. We believe that our nationwide
network and broad range of product and service offerings make us best suited
among our competitors to serve trucking fleets in the United States.
Our network of 157 sites is composed of 122 sites owned and operated by us,
including one site currently under development, which we refer to as
company-operated sites, 26 sites owned by us and leased to independent
lessee-franchisees or operators, which we refer to as leased sites, and nine
sites owned and operated by independent franchisees, which we refer to as
franchisee-owned sites. We expect to consummate the sale of the New Lemont,
Illinois facility, one of our leased sites, by the end of the first quarter of
2001.
THE INDUSTRY
The U.S. travel center and truck stop industry consists of travel centers,
truck stops, diesel fuel outlets and similar facilities designed to meet the
needs of long-haul trucking fleets and their drivers, independent truck drivers
and general motorists. According to the National Association of Truck Stop
Operators, or "NATSO," the travel center and truck stop industry is highly
fragmented, with in excess of 3,000 travel centers and truck stops located on or
near interstate highways nationwide, of which we consider approximately 500 to
be full-service facilities. Further, only 10 chains in the United States have 25
or more travel center and truck stop locations on the interstate highways, which
we believe is the minimum number of locations needed to provide even regional
coverage to truck drivers and trucking fleets.
COMPETITIVE ADVANTAGES
We believe that our competitive advantages include the following:
- MARKET LEADER WITH STRONG BRAND NAME RECOGNITION. The considerable size
of our network, our competitive diesel fuel pricing and our streamlined
information processing capabilities allow trucking fleet managers to
concentrate their fuel purchases with us, thereby reducing fleet
operating costs. We believe that our "TravelCenters of America" and "TA"
brand names have earned a reputation for quality and consistency.
- SUPERIOR LOCATIONS. We believe that the limited availability of
well-situated locations and the increasingly restrictive zoning and
permitting regulations make it difficult for any competitor to replicate
our network, particularly given that most of our sites were constructed
20 or more years ago when real estate along the interstate highways was
more readily available.
- STRONG FLEET RELATIONSHIPS. We have established strong relationships with
trucking fleets based on the nationwide scope of our network, our
competitive diesel fuel prices, our automated fueling and payment systems
and the breadth of our non-fuel products and services. We supply diesel
fuel to 49 of the 50 largest long-haul trucking fleets in the United
States and are the principal supplier to the two largest and four of the
five largest long-haul trucking fleets.
<PAGE> 8
- BROADEST PRODUCT AND SERVICE PORTFOLIO. To complement our diesel fuel
business and diversify our revenue sources, we have developed the most
extensive product and service offerings of any travel center network. We
believe that this is an important competitive advantage given that,
according to our research, only one in three stops by truck drivers is
for fuel.
- STRATEGIC ALLIANCES. We have strategic alliances with Freightliner LLC,
the largest class 8 truck manufacturer in the United States; The
Bridgestone/Firestone Tire Sales Company, the leading original equipment
truck tire supplier in the United States; and Equilon Enterprises LLC,
the leading supplier in the United States of lubricants and oils to
over-the-road class 8 truck service providers, which we believe enhance
our market leadership position and increase our appeal to our customers.
We also have an alliance with Simons Petroleum Inc., which, through its
Pathway Network, allows trucking fleets to lock-in their diesel fuel
costs for up to two years.
- EXPERIENCED MANAGEMENT TEAM. Our senior management team has an average of
approximately 25 years of experience in the travel center and related
industries, including approximately 11 years of experience with us.
BUSINESS STRATEGY
Key elements of our on-going business strategy include:
- INCREASE FLEET TRAFFIC. We seek to increase our sites' fleet traffic and
non-fuel revenues by offering products and services designed to meet the
needs of fleet customers, including competitively priced diesel fuel,
truck repair and maintenance services and expanded non-fuel product and
service offerings. We believe that these products and services also
attract independent truck drivers.
- INCREASE MOTORIST TRAFFIC. In an effort to increase the appeal of our
travel centers to our customers, we have recently redesigned and upgraded
many of our sites. We seek to increase general motorist traffic by
re-imaging additional sites and offering more national brands, such as
for gasoline and fast food restaurants.
- INCREASE OPERATING EFFICIENCY. We have implemented several initiatives
aimed at more efficiently servicing our customers and reducing our
operating expenses by increasing the efficiency of our operations.
- ENHANCE AND EXPAND OUR NETWORK. We plan to strengthen our network by
completing our travel center re-image and upgrade program and expanding
our operations to additional geographic areas through select new site
construction, strategic acquisitions and franchising.
THE TRANSACTIONS
The offering of the outstanding notes was part of a series of transactions
involving our restructuring in which:
- we entered into a recapitalization agreement and plan of merger, as
amended, with TCA Acquisition Corporation, a newly created
corporation formed by Oak Hill Capital Partners, L.P. and its
affiliates ("Oak Hill"), under which TCA Acquisition Corporation
merged with and into us.
- Oak Hill invested $133.0 million to purchase approximately 60.5% of
our equity.
- Olympus Growth Fund III, L.P., Olympus Executive Fund, L.P., Monitor
Clipper Equity Partners, L.P., Monitor Clipper Equity Partners
(Foreign), L.P., UBS Capital Americas II, LLC, Credit Suisse First
Boston LFG Holdings 2000, L.P. and Credit Suisse First Boston
Corporation (collectively, the "Other Investors"), who are all
affiliates of certain of our former stockholders, invested $72.0
million, in the aggregate, to purchase approximately 32.7% of our
equity.
2
<PAGE> 9
- Freightliner retained its equity investment in us and exercised an
option to invest $3.3 million to purchase an additional 1.4% of our
equity, such that after the Transactions it owns 4.3% of our equity.
- members of our management team retained approximately 2.0% of our
equity and exercised options to purchase an additional 0.5% of our
equity, such that after the Transactions they own, in the aggregate,
before the impact of new options, approximately 2.5% of our equity.
- all other shares of our outstanding capital stock, including
preferred stock, and all unexercised common stock options and
warrants were redeemed or canceled in exchange for cash payments
totaling approximately $262.7 million. This amount is net of $16.2
million of expenses of the selling stockholders that we paid upon
the closing of the Transactions.
- we repaid all amounts outstanding under our Amended and Restated
Credit Agreement dated as of November 24, 1998 (the "Existing Credit
Agreement"), redeemed in full all of our existing senior secured
notes and consummated a tender offer and consent solicitation for
our 10 1/4% Senior Subordinated Notes due 2007. We paid a tender
offer and consent solicitation premium and related fees and paid a
prepayment penalty associated with our senior secured notes that
together totaled approximately $12.4 million.
- we amended and restated the Existing Credit Agreement in an amount
up to $428.0 million (the "Senior Credit Facility") under which we
borrowed $328.3 million at the closing of the Transactions.
- we issued the outstanding notes, initial warrants and contingent
warrants, which we refer to together as the units.
These events are collectively referred to as the "Transactions."
3
<PAGE> 10
The following diagram illustrates our current corporate structure before
the impact of dilution related to new options we granted to members of our
management team and the warrants issued through the sale of the units.
<TABLE>
<S> <C> <C> <C>
Oak Hill Other Investors Freightliner Management
Stockholders
60.5% 32.7% 4.3% 2.5%
TravelCenters of America, Inc.
(Issuer)
100%
TA Operating TA Franchise
Corporation Systems Inc.
(Operating Subsidiary) (Non-Guarantor)
(Guarantor)
100% 99% 100% 1%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
TA Licensing, Inc. TA Travel, LLC 1% TravelCenters 99% TravelCenters
(Guarantor) (Guarantor) Realty, Inc. Properties, L.P.
(Guarantor) (Guarantor)
</TABLE>
[OAKHILL FLOW CHART]
THE SPONSOR
Oak Hill was established by Robert M. Bass and his team of investment
professionals to make control investments in operating companies through
acquisitions, build-ups, recapitalizations, restructurings or purchases of
significant minority stakes. Oak Hill raised $1.6 billion in equity capital in
1999 through the sale of limited partnership interests to selected investors and
is managed by Oak Hill Capital Management, Inc. Mr. Bass and the principals of
Oak Hill Capital Management have personally committed $400 million to Oak Hill,
representing the largest known capital commitment by a non-institutional sponsor
to a private equity partnership. Excluding the Transactions, Oak Hill Capital
Management's principals have completed 44 control transactions since 1986,
investing or committing to invest in excess of $2.2 billion in equity capital.
4
<PAGE> 11
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On November 14, 2000, we completed the private offering of the outstanding
notes through the sale of units. Each unit consisted of $1,000 principal amount
of notes and initial warrants and contingent warrants to purchase shares of our
common stock. References to the "notes" in this prospectus are references to
both the outstanding notes and the exchange notes. This prospectus is part of a
registration statement covering the exchange of the outstanding notes for the
exchange notes. We have also filed a registration statement to register the
initial warrants and contingent warrants issued as part of the units and to
register our common stock issuable upon the exercise of the initial warrants and
contingent warrants.
We and the guarantors entered into an exchange and registration rights
agreement with the initial purchasers in the private offering in which we and
the guarantors agreed to deliver to you this prospectus as part of the exchange
offer and we agreed to complete the exchange offer within 220 days after the
date of original issuance of the outstanding notes. You are entitled to exchange
in the exchange offer your outstanding notes for exchange notes which are
identical in all material respects to the outstanding notes except:
- the exchange notes have been registered under the Securities Act,
- the exchange notes are not entitled to certain registration rights which
are applicable to the outstanding notes under the exchange and
registration rights agreement, and
- certain contingent interest rate provisions are no longer applicable.
The Exchange Offer............ We are offering to exchange up to $190,000,000
aggregate principal amount of outstanding notes
for up to $190,000,000 million aggregate
principal amount of exchange notes. Outstanding
notes may be exchanged only in integral
multiples of $1,000.
Resale........................ Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that the exchange
notes issued pursuant to the exchange offer in
exchange for outstanding notes may be offered
for resale, resold and otherwise transferred by
you (unless you are an "affiliate" of
TravelCenters of America, Inc., within the
meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that you are acquiring
the exchange notes in the ordinary course of
your business and that you have not engaged in,
do not intend to engage in, and have no
arrangement or understanding with any person to
participate in, a distribution of the exchange
notes.
Each participating broker-dealer that receives
exchange notes for its own account pursuant to
the exchange offer in exchange for outstanding
notes that were acquired as a result of
market-making or other trading activity must
acknowledge that it will deliver a prospectus
in connection with any resale of the exchange
notes. See "Plan of Distribution."
Any holder of outstanding notes who:
- is an affiliate of TravelCenters of
America, Inc.;
- does not acquire exchange notes in the
ordinary course of its business; or
- tenders in the exchange offer with the
intention to participate, or for the
purpose of participating, in a
distribution of exchange notes;
5
<PAGE> 12
cannot rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated
or similar no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the exchange
notes.
Expiration Date; Withdrawal of
Tender........................ The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2001, or
such later date and time to which we extend it
(the "expiration date"). We do not currently
intend to extend the expiration date. A tender
of outstanding notes pursuant to the exchange
offer may be withdrawn at any time prior to the
expiration date. Any outstanding notes not
accepted for exchange for any reason will be
returned without expense to the tendering
holder promptly after the expiration or
termination of the exchange offer.
Certain Conditions to the
Exchange Offer................ The exchange offer is subject to customary
conditions, which we may waive. Please read the
section captioned "The Exchange
Offer -- Certain Conditions to the Exchange
Offer" of this prospectus for more information
regarding the conditions to the exchange offer.
Procedures for Tendering
Outstanding Notes............. If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a facsimile of the
letter of transmittal according to the
instructions contained in this prospectus and
the letter of transmittal. You must also mail
or otherwise deliver the letter of transmittal,
or a facsimile of the letter of transmittal,
together with the outstanding notes and any
other required documents, to the exchange agent
at the address set forth on the cover page of
the letter of transmittal. If you hold
outstanding notes through The Depository Trust
Company, or DTC, and wish to participate in the
exchange offer, you must comply with the
Automated Tender Offer Program procedures of
DTC, by which you will agree to be bound by the
letter of transmittal. By signing, or agreeing
to be bound by the letter of transmittal, you
will represent to us that, among other things:
- any exchange notes that you receive will
be acquired in the ordinary course of
your business;
- you have no arrangement or understanding
with any person or entity to participate
in a distribution of the exchange notes;
- if you are a broker-dealer that will
receive exchange notes for your own
account in exchange for outstanding
notes that were acquired as a result of
market-making activities, that you will
deliver a prospectus, as required by
law, in connection with any resale of
such exchange notes; and
- you are not an "affiliate," as defined
in Rule 405 of the Securities Act, of
TravelCenters of America, Inc. or, if
you are an affiliate, you will comply
with any applicable registration and
prospectus delivery requirements of the
Securities Act.
6
<PAGE> 13
Special Procedures for
Beneficial Owners............. If you are a beneficial owner of outstanding
notes which are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee, and you wish to tender such
outstanding notes in the exchange offer, you
should contact such registered holder promptly
and instruct such registered holder to tender
on your behalf. If you wish to tender on your
own behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your outstanding notes, either make
appropriate arrangements to register ownership
of the outstanding notes in your name or obtain
a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may
not be able to be completed prior to the
expiration date.
Guaranteed Delivery
Procedures.................... If you wish to tender your outstanding notes
and your outstanding notes are not immediately
available or you cannot deliver your
outstanding notes, the letter of transmittal or
any other documents required by the letter of
transmittal or comply with the applicable
procedures under DTC's Automated Tender Offer
Program prior to the expiration date, you must
tender your outstanding notes according to the
guaranteed delivery procedures set forth in
this prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures."
Effect on Holders of
Outstanding Notes............. As a result of the making of, and upon
acceptance for exchange of all validly tendered
outstanding notes pursuant to the terms of the
exchange offer, we will have fulfilled a
covenant contained in the registration rights
agreement and, accordingly, there will be no
increase in the interest rate on the
outstanding notes under the circumstances
described in the registration rights agreement.
If you are a holder of outstanding notes and
you do not tender your outstanding notes in the
exchange offer, you will continue to hold such
outstanding notes and you will be entitled to
all the rights and limitations applicable to
the outstanding notes in the indenture, except
for any rights under the registration rights
agreement that by their terms terminate upon
the consummation of the exchange offer.
To the extent that outstanding notes are
tendered and accepted in the exchange offer,
the trading market for outstanding notes could
be adversely affected.
Consequences of Failure to
Exchange...................... All untendered outstanding notes will continue
to be subject to the restrictions on transfer
provided for in the outstanding notes and in
the indenture. In general, the outstanding
notes may not be offered or sold, unless
registered under the Securities Act, except
pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. Other
than in connection with the exchange offer, the
issuer does not currently anticipate that it
will register the outstanding notes under the
Securities Act.
Certain Income Tax
Considerations................ The exchange of outstanding notes for exchange
notes in the exchange offer will not be a
taxable event for United States federal
7
<PAGE> 14
income tax purposes. See "Certain United States
Federal Income Tax Considerations."
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of exchange notes pursuant to the
exchange offer.
Exchange Agent................ State Street Bank and Trust Company is the
exchange agent for the exchange offer. The
address and telephone number of the exchange
agent are set forth in the section captioned
"The Exchange Offer -- Exchange Agent" of this
prospectus.
8
<PAGE> 15
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer........................ TravelCenters of America, Inc.
NOTES:
Notes Offered................. $190,000,000 aggregate principal amount of
12 3/4% Senior Subordinated Notes Due May 1,
2009.
Interest Payment Dates........ May 1 and November 1 of each year, commencing
May 1, 2001.
Yield......................... 13 1/2% per annum (computed on a semi-annual
bond equivalent basis).
Maturity...................... May 1, 2009.
Ranking....................... The notes are unsecured obligations and have
the same right of payment as all our existing
and future senior subordinated unsecured
indebtedness. The notes are subordinated to all
our existing and future senior indebtedness. As
of September 30, 2000, after giving effect to
the Transactions, we would have had $333.0
million ($331.3 million net of unamortized debt
discount) of senior indebtedness.
Original Issue Discount....... The notes were considered to be issued with
original issue discount for United States
federal income tax purposes. As a result, you
generally will be required to include original
issue discount in your gross income for United
States federal income tax purposes as it
accrues, in advance of the receipt of cash
attributable to such income. See "Certain
United States Federal Income Tax
Considerations."
Guarantees.................... Our obligations under the notes are fully and
unconditionally guaranteed on a senior
subordinated basis by each of our existing and
subsequently acquired or organized domestic
subsidiaries, other than TA Franchise Systems
Inc., on the terms provided in the indenture
governing the notes, subject to certain
exceptions. TA Franchise Systems Inc. is not
guaranteeing the notes, and as a result, you
will not have any claims against TA Franchise
Systems through the guarantees. In 1999, the
revenues of TA Franchise Systems constituted
approximately 0.6% of our consolidated
revenues; the operating income of TA Franchise
Systems constituted approximately 6.7% of our
consolidated operating income; and the total
assets of TA Franchise Systems constituted
approximately 0.2% of our consolidated total
assets. The liabilities of TA Franchise Systems
were $0.4 million and $0.6 million,
respectively, as of December 31, 1999 and
September 30, 2000.
Optional Redemption........... Prior to November 1, 2005, we can redeem the
notes only upon a change of control and, on or
after November 1, 2005, we can redeem some or
all of the notes, in each case, at the
redemption prices indicated under the heading
"Description of the Notes -- Optional
Redemption."
Change of Control............. If there is a change of control, we must give
holders of the notes the opportunity to sell to
us their notes at a purchase price of 101% of
their principal amount, plus accrued and unpaid
interest, unless:
9
<PAGE> 16
- we have previously provided to the trustee
under the indenture governing the notes an
irrevocable notice of redemption to redeem
all outstanding notes at a time when
redemption is permitted under the indenture;
or
- we have exercised our option to redeem the
notes at a redemption price equal to 100% of
the principal amount of the notes plus the
Applicable Premium (as defined in the
indenture). See "Description of the
Notes -- Change of Control" and "Description
of the Notes -- Optional Redemption."
Restrictive Covenants......... The indenture governing the notes contains
covenants that limit our ability and the
ability of our restricted subsidiaries to:
- incur additional indebtedness and issue
preferred stock;
- pay dividends or distributions on, or redeem
or repurchase, our capital stock;
- make investments;
- engage in transactions with affiliates;
- transfer or sell assets;
- create restrictions on the payment of
dividends or other amounts to us;
- consolidate, merge or transfer all or
substantially all of our assets; and
- sell stock of our subsidiaries.
These covenants are subject to important
exceptions and qualifications, which are
described under "Description of the Notes --
Certain Covenants."
Absence of a Public Market for
the Exchange Notes............ The exchange notes generally will be freely
transferable but will also be new securities
for which there will not initially be a market.
Accordingly, we cannot assure you whether a
market for the exchange notes will develop or
as to the liquidity of any market. We do not
intend to apply for a listing of the exchange
notes on any securities exchange or automated
dealer quotation system. The initial purchasers
in the private offering of the outstanding
notes have advised us that they currently
intend to make a market in the exchange notes.
However, they are not obligated to do so, and
any market making with respect to the exchange
notes may be discontinued without notice.
RISK FACTORS
You should carefully consider the information under the caption "Risk
Factors" and all other information in this prospectus before tendering your
outstanding notes.
------------------------
Our executive offices are located at TravelCenters of America, Inc., 24601
Center Ridge Road, Suite 200, Westlake, Ohio 44145-5634. Our telephone number is
(440) 808-9100. We were incorporated in Delaware on December 1, 1992.
10
<PAGE> 17
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
You should read our summary unaudited pro forma financial data set forth
below in conjunction with our consolidated financial statements and unaudited
pro forma consolidated financial data included elsewhere in this prospectus. The
pro forma financial data have been derived from the unaudited pro forma
consolidated financial data and the related notes included elsewhere in this
prospectus. The summary unaudited pro forma financial data is for informational
purposes only. It does not purport to represent our financial position or the
results of our operations that would have actually been obtained had the
Transactions in fact occurred as of the assumed dates or for the periods
presented, nor does it purport to be indicative of, or a projection of, our
results of operations or financial position for any future period or date. The
pro forma adjustments, as described in the notes to the Unaudited Pro Forma
Financial Data included elsewhere in this prospectus, are based on available
information and upon certain assumptions which we believe are reasonable. See
"Pro Forma Financial Data," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements and the related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1999(1) 1999(1) 2000
------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Fuel.................................................... $1,011,541 $ 710,256 $1,056,444
Non-fuel................................................ 518,003 390,676 421,077
Rent and royalties...................................... 19,346 14,824 14,005
---------- ---------- ----------
Total revenues...................................... 1,548,890 1,115,756 1,491,526
Cost of revenues (excluding depreciation)................. 1,110,492 784,873 1,151,127
---------- ---------- ----------
Gross profit (excluding depreciation)................... 438,398 330,883 340,399
Operating expenses........................................ 290,555 220,672 232,660
Selling, general and administrative expenses.............. 40,093 30,932 28,867
Transition expense(2)..................................... 3,952 3,025 972
Depreciation and amortization expense..................... 57,699 40,970 50,032
(Gain) loss on sales of property and equipment............ (2,480) (681) (194)
Stock compensation expense................................ 5,062 2,700 1,350
---------- ---------- ----------
Income from operations.................................. 43,517 33,265 26,712
Interest (expense), net................................... (56,287) (42,028) (42,843)
---------- ---------- ----------
Income (loss) before income taxes......................... (12,770) (8,763) (16,131)
Provision (benefit) for income taxes...................... (4,498) (2,917) (6,190)
---------- ---------- ----------
Net income (loss)....................................... $ (8,272) $ (5,846) $ (9,941)
========== ========== ==========
BALANCE SHEET DATA (END OF PERIOD):
Cash...................................................... $ --
Working capital(3)........................................ 32,615
Property and equipment, net............................... 454,313
Total assets.............................................. 713,043
Long-term debt (net of unamortized discount).............. 507,501
Total nonredeemable stockholders' equity(4)............... 41,286
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(5)................................................. $ 107,750 $ 79,279 $ 78,872
Capital expenditures:
Maintenance............................................. $ 23,763 $ 19,672 $ 13,080
Growth.................................................. 52,845 39,127 21,063
Other................................................... 12,948 11,015 6,422
---------- ---------- ----------
Total capital expenditures.......................... $ 89,556 $ 69,814 $ 40,565
========== ========== ==========
Total diesel fuel sold (thousands of gallons)............. 1,448,125 1,088,975 1,020,323
</TABLE>
See Notes to Summary Unaudited Pro Forma Financial Data
11
<PAGE> 18
NOTES TO SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(1) Reflects the operating results of the 16 sites we acquired on June 3,
1999 as part of our acquisition of Travel Ports as though we had owned
those sites for the entire period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Creation
of our Network."
(2) "Transition expense" represents non-recurring costs and certain
development costs associated with, among other things, (a) the
integration of the BP, Unocal, Burns Bros. and Travel Ports networks
into our current network, (b) the disposal of travel centers or
termination of lease or franchise agreements and (c) the integration of
the management and operations of our networks into a single network,
including relocation, travel, training and legal expenses. We expect to
incur additional, non-recurring transition expenses of less than $0.1
million through the end of 2000 in connection with the continued
combination of our networks. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Creation of our
Network."
(3) "Working capital" consists of current assets minus current liabilities.
(4) "Total nonredeemable stockholders' equity" consists of common stock,
additional paid-in capital and retained earnings (deficit).
(5) "EBITDA", as used here, is based on the definition for EBITDA set forth
in the Indenture, dated as of November 14, 2000, between us and State
Street Bank and Trust Company, as trustee, under which the outstanding
notes were issued, and consists of net income plus the sum of (a)
income taxes, (b) interest expense, net, (c) depreciation, amortization
and other noncash charges, (d) transition expense and (e) gains and
losses on sales of property and equipment. We have included certain
information concerning EBITDA because management believes that EBITDA
is generally accepted as providing useful information regarding a
company's ability to service and/or incur debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows
or other consolidated income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity. While EBITDA is frequently used
as a measure of operations and ability to meet debt service
requirements, it is not necessarily comparable to similarly titled
captions of other companies due to differences in methods of
calculation.
Our management believes that the following additional adjustment is
relevant to evaluating our future operating performance. The following
additional adjustment eliminates the impact of non-recurring costs
associated with the opening for business of newly constructed travel
centers. "Adjusted EBITDA" represents EBITDA, adjusted as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ----------------------------------------
DECEMBER 31, 1999 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
----------------- ------------------ ------------------
<S> <C> <C> <C>
EBITDA........................ $107,750 $79,279 $78,872
Adjustment:
New site start-up costs..... 1,037 304 730
-------- ------- -------
Adjusted EBITDA............... $108,787 $79,583 $79,602
======== ======= =======
</TABLE>
The adjustment for new site start-up costs reflects the elimination of
actual expenses we incurred before and upon starting operations at six
newly-constructed travel centers. These expenses primarily consist of (1)
labor costs incurred in the weeks prior to the site opening for business
during which the site work force is being hired and trained and (2) costs
of training the new site employees, which include labor costs of hourly
employees on loan from established sites for training purposes and travel
costs of these hourly employees and salaried employees from established
sites and our headquarters staff that are involved in training and other
start-up activities. All of the expenses classified as new site start-up
costs are considered to be non-recurring costs. One of the new travel
centers was opened in each of May 1999, October 1999, April 2000 and
August 2000 and two of the new travel centers were opened in December
1999.
12
<PAGE> 19
SUMMARY HISTORICAL FINANCIAL DATA
You should read our summary historical financial data set forth below in
conjunction with our consolidated financial statements included elsewhere in
this prospectus. The summary historical financial data as of and for the fiscal
years ended December 31, 1997, 1998 and 1999 were derived from our audited
consolidated financial statements. The summary historical financial data as of
and for the nine months ended September 30, 1999 and September 30, 2000 were
derived from our unaudited interim consolidated financial statements. Our
unaudited interim consolidated financial statements reflect, in our opinion, all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position and results of operations for the
unaudited periods. The results of operations for the interim periods are not
necessarily indicative of operating results for the full year. See "Selected
Historical Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the historical
consolidated financial statements and the related notes included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1997 1998(1) 1999(2) 1999(2) 2000
---------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SITE COUNT)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Fuel............................... $ 708,637 $554,735 $ 955,105 $ 660,841 $1,052,849
Non-fuel........................... 293,843 347,531 479,059 355,428 418,692
Rent and royalties................. 36,848 21,544 20,460 15,620 14,197
---------- -------- ---------- ---------- ----------
Total revenues................ 1,039,328 923,810 1,454,624 1,031,889 1,485,738
Cost of revenues (excluding
depreciation)...................... 773,084 627,149 1,051,080 732,966 1,147,142
---------- -------- ---------- ---------- ----------
Gross profit (excluding
depreciation).................... 266,244 296,661 403,544 298,923 338,596
Operating expenses.................... 167,072 193,697 267,107 198,814 232,301
Selling, general and administrative
expenses........................... 35,619 34,256 38,461 29,300 28,867
Transition expense(3)................. 15,212 3,648 3,952 3,025 972
Depreciation and amortization
expense............................ 35,840 44,662 53,202 36,902 48,113
(Gain) loss on sales of property and
equipment.......................... (11,244) (1,195) (2,615) (567) (194)
Stock compensation expense............ 1,400 2,500 5,062 2,700 1,350
---------- -------- ---------- ---------- ----------
Income from operations............. 22,345 19,093 38,375 28,749 27,187
Interest (expense), net............... (22,898) (25,371) (37,194) (27,404) (32,162)
---------- -------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary items................ (553) (6,278) 1,181 1,345 (4,975)
Provision (benefit) for income
taxes.............................. (344) (2,101) 1,082 1,126 (1,728)
---------- -------- ---------- ---------- ----------
Income (loss) before extraordinary
item............................... (209) (4,177) 99 219 (3,247)
Extraordinary loss.................... (5,554) (3,905) -- -- --
---------- -------- ---------- ---------- ----------
Net income (loss).................. $ (5,763) $ (8,082) $ 99 $ 219 $ (3,247)
========== ======== ========== ========== ==========
BALANCE SHEET DATA (END OF PERIOD):
Cash.................................. $ 71,756 $ 89,200 $ 18,040 $ 31,737 $ 28,382
Working capital(4).................... 86,103 97,378 35,232 49,463 37,258
Property and equipment, net........... 286,472 361,803 454,093 448,903 454,313
Total assets.......................... 507,792 610,061 659,862 653,751 701,977
Long-term debt (net of unamortized
discount).......................... 289,625 390,865 404,369 414,749 415,012
Mandatorily redeemable preferred
stock(5)........................... 61,404 69,974 79,739 77,218 87,994
Total nonredeemable stockholders'
equity(6).......................... 45,499 28,449 28,236 30,723 15,776
</TABLE>
13
<PAGE> 20
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1997 1998(1) 1999(2) 1999(2) 2000
---------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SITE COUNT)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(7)............................. $ 63,553 $ 68,708 $ 97,976 $ 70,809 $ 77,428
Net cash provided by operating
activities......................... 41,670 48,521 44,712 29,980 49,675
Net cash used in investing
activities......................... (37,987) (125,505) (136,016) (117,987) (48,513)
Net cash provided by financing
activities......................... 44,294 94,428 20,144 30,544 9,180
Capital expenditures:
Maintenance........................ $ 26,601 $ 26,022 $ 22,177 $ 18,348 $ 13,067
Growth............................. 15,159 29,965 52,276 38,558 21,063
Other.............................. 19,058 9,717 12,948 9,920 5,873
---------- -------- ---------- ---------- ----------
Total capital expenditures.... $ 60,818 $ 65,704 $ 87,401 $ 66,826 $ 40,003
========== ======== ========== ========== ==========
Total diesel fuel sold (thousands of
gallons)........................... 975,495 973,812 1,370,017 1,016,697 1,017,522
SITE COUNT (END OF PERIOD):
Company-owned and operated sites...... 86 105 118 122 122
Company-owned and leased sites........ 35 30 29 29 28
Franchisee-owned sites................ 9 10 11 11 9
---------- -------- ---------- ---------- ----------
Total travel centers.......... 130 145 158 162 159
========== ======== ========== ========== ==========
</TABLE>
---------------
(1) We acquired 17 company-operated sites from Burns Bros. on December 3, 1998.
(2) We acquired 16 company-operated sites through our acquisition of Travel
Ports on June 3, 1999.
(3) "Transition expense" represents non-recurring costs and certain development
costs associated with, among other things, (a) the conversion of the BP,
Unocal, Burns Bros. and Travel Ports networks into our current network, (b)
the disposal of travel centers or termination of lease or franchise
agreements and (c) the integration of the management and operations of our
networks into a single network, including relocation, travel, training and
legal expenses. We expect to incur additional, non-recurring transition
expenses of less than $0.1 million through the end of 2000 in connection
with the continued combination of our networks. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Creation of
our Network."
(4) "Working capital" consists of current assets minus current liabilities.
(5) "Mandatorily redeemable preferred stock" consists of two series of
convertible preferred stock that was redeemed in connection with the
Transactions.
(6) "Total nonredeemable stockholders' equity" consists of common stock, other
preferred stock, additional paid-in capital, treasury stock and retained
earnings (deficit).
(7) "EBITDA", as used here, is based on the definition for EBITDA set forth in
the Indenture, dated as of November 14, 2000, between us and State Street
Bank and Trust Company, as trustee, under which the outstanding notes were
issued, and consists of net income plus the sum of (a) income taxes, (b)
interest expense, net, (c) depreciation, amortization and other noncash
charges, (d) transition expense and (e) gains and losses on sales of
property and equipment. We have included certain information concerning
EBITDA because management believes that EBITDA is generally accepted as
providing useful information regarding a company's ability to service and/or
incur debt. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows, or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. While EBITDA is
frequently used as a measure of operations and ability to meet debt service
requirements, it is not necessarily comparable to similarly titled captions
of other companies due to differences in methods of calculation.
14
<PAGE> 21
RISK FACTORS
Before you participate in the exchange offer, you should carefully consider
these risk factors, as well as the other information contained in this
prospectus before you decide to participate in the exchange offer.
RISKS RELATING TO THE EXCHANGE OFFER
IF YOU CHOOSE NOT TO EXCHANGE YOUR OUTSTANDING NOTES, THE PRESENT TRANSFER
RESTRICTIONS WILL REMAIN IN FORCE AND THE MARKET PRICE OF YOUR OUTSTANDING NOTES
COULD DECLINE.
If you do not exchange your outstanding notes for exchange notes under the
exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding notes as set forth in the offering circular
distributed in connection with the private offering of the outstanding notes. In
general, the outstanding notes may not be offered or sold unless they are
registered or exempt from registration under the Securities Act and applicable
state securities laws. Except as required by the exchange and registration
rights agreement, we do not intend to register resales of the outstanding notes
under the Securities Act. You should refer to "Prospectus Summary -- Summary of
Terms of the Exchange Offer" and "The Exchange Offer" for information about how
to tender your outstanding notes.
The tender of outstanding notes under the exchange offer will reduce the
principal amount of the outstanding notes outstanding, which may have an adverse
effect upon, and increase the volatility of, the market price of the outstanding
notes due to a reduction in liquidity.
RISKS RELATING TO THE NOTES
OUR SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS COULD IMPEDE OUR
OPERATIONS AND FLEXIBILITY.
As a result of the Transactions, we incurred a substantial amount of debt.
Assuming that the Transactions had taken place on September 30, 2000, we would
have had as of that date total debt of $523.0 million ($507.7 million net of
unamortized debt discount) and stockholders' equity of $41.3 million. We also
would have had additional availability under our revolving credit facility of
$99.7 million. After giving pro forma effect to the Transactions, our interest
expense for the year ended December 31, 1999 and the nine months ended September
30, 2000 would have been $56.3 million and $42.8 million, respectively. After
giving pro forma effect to the Transactions, our earnings were not sufficient to
cover fixed charges by $12.8 million and $16.6 million for the year ended
December 31, 1999 and the nine months ended September 30, 2000, respectively. On
a historical basis, our earnings were not sufficient to cover fixed charges by
$5.5 million for the nine months ended September 30, 2000.
Our high level of debt could have important consequences for you, including
the following:
- we may have difficulty borrowing money in the future for
acquisitions or other purposes;
- we will need to use a large portion of the money we earn to pay
principal and interest on our Senior Credit Facility, the notes and
other debt, which will reduce the amount of money we have to finance
our operations and other business activities;
- debt under the Senior Credit Facility is and will be secured and
will mature prior to the notes;
- we may have a much higher level of debt than some of our
competitors, which may put us at a competitive disadvantage; and
- our debt level makes us more vulnerable to economic downturns and
adverse developments in our business.
We expect to obtain the money to pay our expenses and to pay the principal
and interest on the notes, the Senior Credit Facility and other debt from our
operations. Our ability to meet our expenses and debt obligations will depend on
our future performance, which will be affected by financial, business, economic
and other factors. We will not be able to control many of these factors, such as
economic conditions, governmental regulation and the availability of fuel
supplies. We cannot be certain that our earnings will be sufficient to
15
<PAGE> 22
allow us to pay the principal and interest on our debt, including the notes, and
meet our other obligations. If we do not have enough money, we may be required
to refinance all or part of our existing debt, including the notes, sell assets,
borrow more money or raise equity. We cannot assure you that we will be able to
refinance our debt, sell assets, borrow more money or raise equity on terms
acceptable to us, if at all.
DESPITE CURRENT LEVELS OF INDEBTEDNESS, WE AND OUR SUBSIDIARIES WILL BE ABLE TO
INCUR SUBSTANTIALLY MORE DEBT.
We and our subsidiaries will be able to incur substantial additional
indebtedness in the future. Although the indenture governing the notes contains
restrictions on the incurrence of additional indebtedness, these restrictions
are subject to a number of qualifications and exceptions, and under certain
circumstances, indebtedness incurred in compliance with these restrictions could
be substantial. Our Senior Credit Facility provides for additional indebtedness
of up to $99.7 million, and all of that indebtedness would be senior to the
notes. To the extent new debt is added to our and our subsidiaries' current debt
levels, the substantial risks described above would increase. See
"Capitalization," "Selected Historical Consolidated Financial Data,"
"Description of the Notes" and "Description of Senior Credit Facility and Other
Indebtedness."
THE NOTES ARE AND ANY SUBSIDIARY GUARANTEES ARE CONTRACTUALLY JUNIOR IN RIGHT OF
PAYMENT TO OUR SENIOR DEBT.
The notes are contractually junior in right of payment to all of our senior
indebtedness and any subsidiary guarantees are contractually junior in right of
payment to all senior indebtedness of the subsidiary guarantors. As of September
30, 2000, on a pro forma basis after giving effect to the Transactions, we,
excluding our subsidiaries, would have had approximately $328.3 million of
senior indebtedness, consisting entirely of indebtedness under the Senior Credit
Facility, and the subsidiary guarantors would have had approximately $333.0
million of senior indebtedness, consisting principally of their guarantees of
the indebtedness under the Senior Credit Facility. The indenture permits us and
our subsidiaries to borrow certain additional debt, which may be senior
indebtedness.
We may not pay principal, premium, if any, interest or other amounts on the
notes in the event of a payment default in respect of certain senior
indebtedness, including debt under the Senior Credit Facility, unless the
indebtedness has been paid in full or the default has been cured or waived. In
addition, if certain other defaults regarding our senior indebtedness occur, we
may not be permitted to pay any amount regarding the notes or any subsidiary
guarantees for a designated period of time. If we or any of the subsidiary
guarantors are declared bankrupt or insolvent, or if there is a payment default
under, or an acceleration of, any senior indebtedness, we are required to pay
the lenders under the Senior Credit Facility and any other creditors who are
holders of senior indebtedness in full before we apply any of our assets to pay
you. Accordingly, we may not have enough assets remaining after payments to
holders of the senior indebtedness to pay you.
Further, the Senior Credit Facility prohibits, and our future senior
indebtedness may, prohibit us from repurchasing any notes prior to maturity,
even though the indenture requires us to offer to repurchase notes in some
circumstances. If we consummate restricted asset sales or if a change of control
occurs when we are prohibited from repurchasing notes, we could ask our lenders
under the Senior Credit Facility or other future senior indebtedness for
permission to repurchase the notes or we could attempt to refinance the
borrowings that contain these prohibitions. If we do not obtain a consent to
repurchase the notes or are unable to refinance the borrowings, we would be
unable to repurchase the notes. Our failure to repurchase tendered notes at a
time when repurchase is required by the indenture would constitute an event of
default under the indenture, which, in turn, would constitute a default under
the Senior Credit Facility and may constitute an event of default under our
future indebtedness. In these circumstances, the subordination provisions in the
indenture would restrict payments to you. See "Description of Senior Credit
Facility and Other Indebtedness," "Description of the Notes -- Ranking,"
"Description of the Notes -- Change of Control" and "Description of the Notes --
Certain Covenants."
THE SUBSIDIARY GUARANTEES MAY NOT BE ENFORCEABLE, AND THERE MAY BE LIMITATIONS
ON OUR ABILITY TO RECEIVE DISTRIBUTIONS FROM THE SUBSIDIARY GUARANTORS.
We conduct all our operations through our subsidiaries. We are dependent
upon dividends or other intercompany transfers of funds from our subsidiaries to
meet our debt service and other obligations. Generally, creditors of a
subsidiary will have a claim to the assets and earnings of that subsidiary that
is
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<PAGE> 23
superior to the claims of creditors of its parent company, except to the extent
the claims of the parent's creditors are guaranteed by the subsidiary. Although
the subsidiary guarantees provide the holders of the notes with a direct claim
against the assets of the subsidiary guarantors, enforcement of the subsidiary
guarantees may be subject to legal challenge in a bankruptcy or a reorganization
case or a lawsuit by or on behalf of creditors of the subsidiary guarantor and
would be subject to certain defenses available to guarantors generally. If the
subsidiary guarantees are not enforceable, the notes would be effectively junior
in ranking to all liabilities of the subsidiary guarantors, including trade
payables of the subsidiary guarantors. As of September 30, 2000, on a pro forma
basis, our subsidiary guarantors had total liabilities, excluding liabilities
owed to us and guarantees of our indebtedness, of $167.7 million.
Although the indenture limits the ability of our subsidiaries to incur
indebtedness and issue preferred stock, there are certain significant
qualifications and exceptions. See "Description of the Notes -- Certain
Covenants -- Limitation on Indebtedness."
In addition, the ability of our subsidiaries to pay dividends and make
other payments to us may be restricted by, among other things, applicable
corporate and other laws and regulations and agreements of the subsidiaries.
Although the indenture limits the ability of the subsidiaries to enter into
consensual restrictions on their ability to pay dividends and make other
payments, the limitations are subject to a number of significant qualifications
and exceptions. See "Description of the Notes -- Certain Covenants -- Limitation
on Restrictions on Distributions from Restricted Subsidiaries."
THE NOTES ARE NOT GUARANTEED BY ALL OF OUR SUBSIDIARIES.
The notes are not guaranteed by one of our subsidiaries, TA Franchise
Systems. As a result, if we default on our obligations under the notes, you will
not have any claims against TA Franchise Systems through the guarantees. In
1999, the revenues of TA Franchise Systems constituted approximately 0.6% of our
consolidated revenues; the operating income of TA Franchise Systems constituted
approximately 6.7% of our consolidated operating income; and the total assets of
TA Franchise Systems constituted approximately 0.2% of our consolidated total
assets. The liabilities of TA Franchise Systems were $0.4 million and $0.6
million, respectively, as of December 31, 1999 and September 30, 2000.
OUR ASSETS ARE PLEDGED TO SECURE PAYMENT OF THE SENIOR CREDIT FACILITY.
In addition to being junior to all existing and future senior indebtedness,
our obligations under the notes are unsecured while our obligations under the
Senior Credit Facility are secured. We have granted the lenders under the Senior
Credit Facility security interests in substantially all of our current and
future assets and the current and future assets of our domestic subsidiaries,
including a pledge of the capital stock of our subsidiaries (which pledge, in
the case of the capital stock of foreign subsidiaries, will be limited to 65% of
their capital stock). If we default under the Senior Credit Facility, the
lenders will have a superior claim on our assets. During the period that any
default is continuing, the lenders under the Senior Credit Facility may be able
to prevent payments under the notes, either by way of their ability to "block"
payments for a designated period of time under the express terms of the
indenture or by limiting our use of cash. If we were unable to repay this
indebtedness, the lenders could foreclose on the pledged stock of our
subsidiaries to your exclusion, even if an event of default exists under the
indenture at such time.
As of September 30, 2000, on a pro forma basis after giving effect to the
Transactions, we would have had $333.0 million of secured debt outstanding,
$328.3 million of which would have been borrowings under the Senior Credit
Facility, and an additional $99.7 million would have been available for
additional borrowings under the Senior Credit Facility.
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<PAGE> 24
WE ARE SUBJECT TO RESTRICTIVE DEBT COVENANTS.
The indenture contains covenants with respect to us and our subsidiaries
that restrict our ability, among other things, to:
- incur additional indebtedness and issue preferred stock;
- pay dividends on our capital stock, repurchase our capital stock and
redeem indebtedness that is junior in right of payment to the notes;
- make investments;
- transfer or sell assets;
- enter into certain transactions with affiliates;
- consolidate, merge and transfer all or substantially all of our assets;
- create restrictions on distributions from our subsidiaries; and
- sell stock of our subsidiaries.
In addition, the Senior Credit Facility contains other and more restrictive
covenants and prohibits us from prepaying our other indebtedness, including the
notes, while we have indebtedness under the Senior Credit Facility outstanding.
The Senior Credit Facility also requires us to maintain specified financial
ratios. These financial ratios become more restrictive over the life of the
Senior Credit Facility. Our ability to meet those financial ratios can be
affected by events beyond our control, and we cannot assure you that we will
meet those ratios. A breach of any of these covenants, ratios or restrictions
could result in an event of default under the Senior Credit Facility. Upon the
occurrence of an event of default under the Senior Credit Facility, the lenders
could elect to declare all amounts outstanding under the Senior Credit Facility,
together with accrued interest, to be immediately due and payable. If we were
unable to repay those amounts, the lenders could proceed against the collateral
granted to them to secure the indebtedness. If the lenders under the Senior
Credit Facility accelerate the payment of the indebtedness, we cannot assure you
that our assets would be sufficient to repay in full that indebtedness and our
other indebtedness, including the notes. See "Description of Senior Credit
Facility and Other Indebtedness" and "Description of the Notes -- Certain
Covenants."
WE MAY NOT BE ABLE TO FINANCE A CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon a change of control under the indenture, we will be required to offer
to purchase all of the notes then outstanding at 101% of their principal amount,
plus accrued and unpaid interest, if any, to the date of repurchase. If a change
of control were to occur and we had not already exercised our change of control
call, we cannot assure you that we would have sufficient funds to pay the
purchase price of the outstanding notes, and we expect that we would require
third party financing to do so. We cannot assure you that we would be able to
obtain this financing on favorable terms, if at all. In addition, the Senior
Credit Facility restricts our ability to repurchase the notes, including any
offer in connection with a change of control. Our future indebtedness may also
contain restrictions or repayment requirements with respect to events or
transactions that could constitute a change of control under the indenture.
Consequently, a change of control under the indenture may result in an event of
default under the Senior Credit Facility and may cause the acceleration of other
indebtedness, if any, in which case the subordination provisions of the notes
would require payment in full of the Senior Credit Facility and any other senior
indebtedness before repurchase of the notes. See "Description of Senior Credit
Facility and Other Indebtedness" and "Description of the Notes -- Change of
Control." The inability to repay senior indebtedness, if accelerated, and to
purchase the tendered notes, would each constitute an event of default under the
indenture.
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<PAGE> 25
U.S. BANKRUPTCY OR FRAUDULENT CONVEYANCE LAW MAY INTERFERE WITH THE PAYMENT OF
THE NOTES AND THE SUBSIDIARY GUARANTEES.
Under U.S. federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the notes and any guarantees issued by the subsidiary
guarantors could be voided or subordinated to all of our other debt if, among
other things, we or any subsidiary guarantor:
- incurred the debt or guarantee with the intent of hindering, delaying or
defrauding current or future creditors; or
- received less than reasonably equivalent value or fair consideration for
incurring the debt or guarantee; and
-- were insolvent or were rendered insolvent by reason of the
incurrence;
-- were engaged, or about to engage, in a business or transaction for
which the assets remaining with it constituted unreasonably small
capital to carry on our business;
-- intended to incur, or believed that it would incur, debts beyond our
ability to pay as these debts matured; or
-- were a defendant in an action for money damages, or had a judgment
for money damages docketed against it if, in either case, after final
judgment the judgment was unsatisfied.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction that is being applied in any proceeding. Generally,
however, a debtor would be considered insolvent if, at the time the debtor
incurred the indebtedness, either:
- the sum of the debtor's debts, including contingent liabilities, is
greater than the debtor's assets at fair valuation; or
- the present fair saleable value of the debtor's assets is less than the
amount required to pay the probable liability on the debtor's total
existing debts and liabilities, including contingent liabilities, as they
become absolute and matured.
On the basis of our analysis, internal cash flow projections, estimated
values of our assets and liabilities and other factors, we believe that at the
time we initially incur indebtedness represented by the notes and the subsidiary
guarantees, we:
- will not be insolvent nor be rendered insolvent as a result of the
issuance of the notes;
- will be in possession of sufficient capital to run our business
effectively; and
- will be incurring debts within our ability to pay as they mature or
become due.
We cannot assure you, however, as to what standard a court would apply in
making these determinations or that a court passing on these questions would
reach the same conclusions.
HOLDERS OF NOTES WILL BE TAXED ON ORIGINAL ISSUE DISCOUNT.
The notes were deemed issued at a discount from their principal amount.
Consequently, holders of the notes generally will be required to include amounts
in gross income for United States federal income tax purposes in advance of
receipt of the cash payments to which this income is attributable. See "Certain
United States Federal Income Tax Considerations" for a more detailed discussion
of the United States federal income tax consequences to holders of the notes.
If a bankruptcy case is commenced by or against us under the United States
Bankruptcy Code after the issuance of the notes, the claim of a holder of the
notes may be limited to an amount equal to the sum of (1) the initial public
offering price for the notes and (2) that portion of the original issue discount
that is not deemed to constitute "unmatured interest" for purposes of the United
States Bankruptcy Code. Any original issue discount that was not amortized as of
the date of the commencement of this bankruptcy filing would constitute
"unmatured interest."
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<PAGE> 26
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES.
We do not intend to apply for a listing of the notes on a securities
exchange. There is currently no established market for the notes and we cannot
assure you as to:
- the liquidity of any market that may develop for the notes;
- the ability of holders of notes to sell their notes; and
- the price at which holders of notes will be able to sell their notes.
Although the initial purchasers of the outstanding notes have advised us
that they intend to make a market for the notes, the initial purchasers are not
obligated to do so, and may discontinue their market making at any time without
notice to the holders of the notes. In addition, market making activity may be
limited during the pendency of the exchange offer or the effectiveness of a
shelf registration statement. Accordingly, we cannot assure you as to the
development or liquidity of any market for the notes. If a market for the notes
does develop, prevailing interest rates, the markets for similar securities and
other factors could cause the notes to trade at prices lower than their initial
market values or reduce the liquidity of the notes.
RISKS RELATING TO OUR BUSINESS
WE EXPERIENCE SIGNIFICANT COMPETITION IN ALL LINES OF BUSINESS WHICH COULD
ADVERSELY AFFECT OUR OPERATING RESULTS.
The travel center and truck stop industry is highly competitive and
fragmented. We compete in a large number of markets in which our competitors
offer both fuel and non-fuel products and services. Some of our competitors
offer diesel fuel at discount prices in some cases reflecting discounts on
street prices greater than those offered by us, which has caused severe price
competition in some of our markets. From time to time, some of our competitors
may adopt pricing strategies that we and our franchisees will be unwilling to
match. Due principally to competitive conditions within the travel center and
truck stop industry, retail diesel fuel margins have declined in recent years,
both industry-wide and for us. Some of our competitors also have greater
financial resources than we do and are less financially leveraged. Trucking
fleets, which constitute a large part of our and our franchisees' business,
satisfy a significant portion of their diesel fuel needs through self-fueling at
both dedicated terminals and at fuel depots strategically located across the
country. Fleets often have their truck maintenance performed at dedicated fleet
garages. While these facilities do not compete directly with us as travel
centers or truck stops, pricing decisions for diesel fuel and repair services
cannot be made without considering their existence and capacity for expansion.
We also experience additional substantial competition from major full-service
networks and independent chains, which competition is based principally on
diesel fuel prices, non-fuel product and service offerings and customer service.
Our vehicle products and truck repair and maintenance service operations
compete with regional full-service travel center and truck stop chains,
full-service independently owned and operated truck stops, fleet maintenance
terminals, independent garages, truck dealerships and auto parts service
centers. Our travel centers also compete with a variety of establishments
located within walking distance of our sites, including full-service
restaurants, QSRs, travel and convenience stores and drug, health and
electronics stores.
THE LOSS OF ONE OR MORE FLEET ACCOUNTS OR ADVERSE CONDITIONS IN THE TRUCKING
INDUSTRY GENERALLY COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our business is dependent upon the trucking industry in general and upon
the long-haul trucking business in particular. In turn, the trucking industry is
dependent on economic factors, such as the level of domestic economic activity
and interest rates, as well as operating factors such as the availability of
fuel supply, government regulation of fuel composition, prices and taxes and
regulation of permitted daily driving time, over which we have no control and
which could contribute to a decline in truck travel. The long-haul trucking
business is also a mature industry that has grown slowly in recent years and has
been susceptible to recessionary downturns. Available data indicate that diesel
fuel consumption by the long-haul trucking industry has grown more slowly than
trucking ton-miles as the fuel efficiency of diesel trucks has continued to
increase. That trend is expected to continue as engine technology is refined and
older trucks are retired and
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<PAGE> 27
replaced with new models. Any sustained decline in operations in the long-haul
trucking industry would adversely affect us.
We derive a significant percentage of our revenues from sales of diesel
fuel and non-fuel products and services to trucking fleets. Sales to fleets
represented approximately 70% of our sites' total diesel fuel sales volume for
the nine months ended September 30, 2000. The services required by any one fleet
customer can be limited by a number of factors, including industry
consolidation, economic slowdown and decisions to outsource fewer activities.
Travel center and truck stop chains compete aggressively for fleet account
business, and any significant reduction in fleet accounts or sales to those
accounts could have a material adverse effect on us. We cannot assure you as to
the continuation of the current level of our sales to fleets.
WE ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL REGULATION THAT MAY IMPOSE SIGNIFICANT
LIABILITIES OR DAMAGES UPON US, THE RESULT OF WHICH COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.
Our operations and properties are extensively regulated through
environmental laws and regulations ("Environmental Laws") that:
- govern operations that may have adverse environmental effects, such as
discharges to air, soil and water, as well as the management of petroleum
products and other hazardous substances ("Hazardous Substances"); or
- impose liability for the costs of cleaning up sites affected by, and for
damages resulting from, disposal or other releases of Hazardous
Substances.
We own and use both underground and aboveground storage tanks at our
facilities to store petroleum products and waste. We 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
storage tank into the environment. At some locations, we also are subject to
Environmental Laws relating to vapor recovery and discharges to water.
We have received notices of alleged violations of Environmental Laws, or
are aware of the need to undertake corrective actions to comply with
Environmental Laws or remediate releases of Hazardous Substances, at
company-owned travel centers in a number of jurisdictions. We are conducting
investigatory and/or remedial actions with respect to releases of Hazardous
Substances that have occurred at certain of our properties. We cannot assure you
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 us. See "Business -- Environmental
Matters."
SINCE WE DEPEND UPON OUR OPERATORS AND INDEPENDENT FRANCHISEES FOR A PERCENTAGE
OF OUR GROSS PROFIT BUT DO NOT CONTROL THEIR SELLING AND PRICING DECISIONS, OUR
RESULTS COULD BE ADVERSELY AFFECTED BY DECISIONS OUR OPERATORS AND INDEPENDENT
FRANCHISEES MAKE WHEN THEY PRICE OR SELL THEIR OFFERINGS.
For the year ended December 31, 1999 and the nine months ended September
30, 2000, we derived 5.3% and 4.2%, respectively, of our gross profit from rent,
franchise royalties and other non-fuel purchases made by operators of the
company-owned but leased sites and the franchisee-owned sites. We currently have
26 sites owned by us and leased to operators and nine sites owned and operated
by independent franchisees. We are therefore substantially dependent on the
stable financial condition of these operators and independent franchisees, whose
financial condition is subject to economic and industry factors, as well as
other factors affecting these individual operators and independent franchisees,
that are beyond our control. We cannot increase the rent we charge operators of
the company-owned but leased sites, beyond an annual adjustment for inflation,
until renewal of the leases governing leased sites. As of September 30, 2000,
the average remaining term of the operator leases, excluding any extensions, was
approximately 1.8 years.
For the year ended December 31, 1999 and the nine months ended September
30, 2000, we derived 0.5% and 0.7%, respectively, of our gross profit from sales
of diesel fuel and gasoline to operators and independent franchisees in our
network. We currently do not sell fuel to the nine franchisee-owned sites in our
network.
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Each of the operators and independent franchisees is an independent business
person, whose selling and pricing decisions we do not control.
THE DIESEL FUEL MARKET CAN BE VOLATILE, AND HIGHER PRICES MAY NEGATIVELY IMPACT
OUR PROFIT MARGINS.
We purchase diesel fuel from various suppliers at rates that fluctuate with
market prices and reset daily, and resell diesel fuel on a wholesale and retail
basis at rates that we reset daily. Price increases have historically and during
2000 tended to lead to temporary declines in retail diesel fuel sales volumes,
which has or could have a negative impact on our revenues. Numerous factors
outside of our control may increase diesel fuel costs. For example, we
experienced rapid increases in diesel fuel costs during the latter part of 1990,
due to a combination of the effects of Iraq's invasion of Kuwait and
recessionary conditions in the United States. During the first quarter of 1999,
fires at three California oil refineries and OPEC-imposed reductions in oil
production resulted in a rapid increase in diesel fuel costs. Fuel costs have
continued to rise during 2000 due to low inventories of oil resulting from
reduced output by OPEC nations. During periods of rapid increases in diesel fuel
prices, such as those that occurred during this year, competitive pressures
often limit our ability to increase our diesel fuel sales price at the same rate
as the increase in our supply prices, resulting in a reduction in our margins.
AN INTERRUPTION OF OUR FUEL SUPPLY IS POSSIBLE AND WOULD HAVE A DISRUPTIVE
EFFECT ON OUR BUSINESS.
We keep only limited inventories of diesel fuel and gasoline and
consequently are susceptible to price increases and interruptions in supply.
Interruptions in supply may be caused by local conditions, such as a malfunction
in a particular pipeline or terminal, that could prevent our suppliers from
supplying a specific geographic location. Interruptions in supply may also be
caused by national or international conditions, limitations on sales to fuel
wholesalers imposed by the limited number of fuel suppliers and government
agency regulation. In addition, the Environmental Protection Agency has proposed
regulations to decrease the sulfur content of diesel fuel by 2006. The enactment
of these regulations could reduce the supply and/or increase the cost of diesel
fuel. A material decrease in the volume of diesel fuel or gasoline sold for an
extended period of time or instability in the prices of diesel fuel or gasoline
would have a material adverse effect on us.
AN INTERRUPTION IN THE SUPPLY OF NON-FUEL PRODUCTS OR THE LOSS OF A THIRD-PARTY
SUPPLIER OF THOSE PRODUCTS COULD NEGATIVELY IMPACT US.
We buy our non-fuel products from third-party suppliers and resell them to
our customers. If our suppliers are unable to meet their obligations under
present supply agreements, we may be forced to pay higher prices to obtain the
same products. In August 2000, Bridgestone/Firestone announced a recall of
certain Firestone automobile and light truck tires. The tire recall could
potentially have a material adverse effect on the financial condition of
Bridgestone/Firestone. Our agreement with Bridgestone/Firestone allows us to
terminate the agreement on 30 days' notice upon the occurrence of certain
events. Although there are alternate tire suppliers and we already distribute
truck tires manufactured by Kelly-Springfield Tire, a wholly-owned operation of
Goodyear Tire & Rubber Co., we cannot assure you that we will be able to enter
into agreements with those suppliers, or that any agreements will be on terms as
favorable as our current arrangement with Bridgestone/Firestone.
FAILURE OF OUR FUEL SUPPLIERS TO CONTINUE TO ESTABLISH CREDIT LINES IN OUR FAVOR
COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Each of our fuel suppliers has established credit lines in our favor to
fund our purchases. Generally, these supply agreements provide that the credit
line may be revised by the supplier in various circumstances, including if the
supplier determines that our financial condition has become impaired or
otherwise unsatisfactory. We cannot assure you that the Transactions, future
refinancings or a future downturn in operating results will not cause our
suppliers to reduce or eliminate credit lines in our favor, which could have a
material adverse effect on us.
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<PAGE> 29
DECREASED SUPPLY OR DEMAND FOR DIESEL FUEL OR GASOLINE WOULD ALSO ADVERSELY
AFFECT SALES OF OUR NON-FUEL ITEMS.
Any significant and sustained reduction in the quantities of diesel fuel or
gasoline available from our suppliers could result in reduced sales of these
fuel products at our sites. Further, sustained volatility in diesel fuel or
gasoline prices could result in reduced demand for our diesel fuel and gasoline.
A disruption in our fuel supply and/or a reduced demand for our diesel fuel or
gasoline could have a material adverse effect on the profitability of our
operations due to a decrease in truck driver or general motorist traffic and a
corresponding decrease in the revenues and profitability of other site
operations, including our restaurant operations and travel and convenience
stores. A decrease in truck driver and general motorist traffic would reduce our
gross profit due to a reduction in the sale of our higher margin non-fuel
product and service offerings.
WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER, AND ITS INTERESTS MAY CONFLICT
WITH YOUR INTERESTS.
Oak Hill owns approximately 60.5% of our outstanding common stock. They
have the power to appoint a majority of our board of directors and approve any
action requiring stockholder approval. We cannot assure you that their interests
will not conflict with yours.
FAILURE TO ATTRACT OR RETAIN KEY PERSONNEL TO MANAGE AND DEVELOP OUR BUSINESS
COULD ADVERSELY AFFECT THE OPERATION OF OUR BUSINESS.
Our future success depends to a significant extent on the efforts and
abilities of our management and a small number of operational personnel. The
loss of the services of these individuals might impede the achievement of our
operating and development objectives. We cannot assure you that we will be able
to attract or retain qualified persons on acceptable terms. The loss of key
personnel, or our inability to attract or retain additional personnel, could
have a material adverse effect on our business.
WE ARE SUBJECT TO EXTENSIVE FRANCHISE REGULATION.
Various state and federal laws govern our relationship with our
franchisees. If we fail to comply with these laws, we could be subject to
liability to franchisees and to fines or other penalties imposed by governmental
authorities. See "Business -- Franchise Regulation."
WE FACE THE RISK OF BEING UNABLE TO ACQUIRE AND DEVELOP NEW LOCATIONS OR
SUCCESSFULLY INTEGRATE ACQUISITIONS INTO OUR BUSINESS.
An important component of our strategy is to expand our network by
developing new locations and identifying, acquiring and integrating
complementary travel center or truck stop networks. However, we may be unable to
identify, acquire or profitably manage additional locations or integrate
successfully any acquired businesses without substantial expense, delay or other
operational or financial problems. While we have identified several areas for
new site development, the number of potential locations is limited and we cannot
assure you that we will be able to develop new sites or negotiate and consummate
acquisitions or that new locations can be operated profitably or integrated
successfully into our operations. We have experienced in the past and could
experience in the future difficulty in obtaining zoning variances or receiving
permits from governmental authorities in connection with the development of new
or existing travel centers. In some cases, the cost of proceeding with requests
for rezoning or permits may deter us from acquiring an otherwise attractive
location. We must compete with other travel centers and truck stops and a
variety of other businesses in obtaining desirable locations near interstate
highway exits.
In addition, our network expansion through development and acquisition of
new locations may have an adverse impact on our business, financial condition or
results of operations. If suitable opportunities arise, we anticipate that we
would finance future growth through available cash, borrowings under the Senior
Credit Facility, and/or through additional debt or equity financing. We cannot
assure you that debt or equity financing would be available to us on acceptable
terms when, and if, suitable strategic opportunities arise or that we would be
able to achieve our expansion goals.
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Any acquisition is also subject to various risks generally applicable to
the acquisition of businesses, including:
- difficulty in integrating and absorbing the business we acquire, its
employees, corporate culture, managerial systems and processes and
services;
- diversion of management's attention;
- failure to retain key personnel and employee turnover;
- customer dissatisfaction or performance problems with an acquired
business; and
- assumption of unknown liabilities.
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<PAGE> 31
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange a like principal amount of outstanding
notes, the terms of which are identical in all material respects to the exchange
notes. The outstanding notes surrendered in exchange for the exchange notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
exchange notes will not result in any change in our capitalization.
We received net proceeds of approximately $171.7 million from the sale of
the units, which included the sale of the outstanding notes, the initial
warrants and contingent warrants, (after deducting discounts, commissions and
certain expenses of the offering of the outstanding notes). The net proceeds
from the unit sale, together with cash, borrowings under the Senior Credit
Facility and the proceeds from the sale of common equity were used to:
- make cash payments totaling approximately $262.7 million to certain of
our current equity owners, whose shares and unexercised common stock
options and warrants were redeemed or canceled in connection with the
Transactions;
- pay $16.2 million for the merger transaction expenses of certain of our
current equity owners;
- repay all amounts outstanding under our Amended and Restated Credit
Agreement dated as of November 24, 1998;
- redeem in full all of our existing senior secured notes and pay a
prepayment penalty;
- pay for the tender offer and consent solicitation for our 10 1/4% Senior
Subordinated Notes due 2007, including related premiums and a prepayment
penalty; and
- pay other Transaction fees and expenses.
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<PAGE> 32
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2000
on an actual basis and on a pro forma basis after giving effect to the
Transactions as if they had been consummated on that date. You should read this
table in conjunction with "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Pro Forma Financial Data" and our consolidated financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 28,382 $ --
======== ========
Debt:
Existing Credit Facility.................................. $253,118 $ --
Revolving Credit Facility(1).............................. -- 300
Term Loan B............................................... -- 328,000
Senior Secured Notes...................................... 35,500 --
Santa Nella Note, net of unamortized debt discount(2)..... 2,994 2,994
-------- --------
Total senior debt...................................... 291,612 331,294
Existing Senior Subordinated Notes........................ 125,000 --
Units(3).................................................. -- 176,362
-------- --------
Total debt........................................ 416,612 507,656
Mandatorily redeemable preferred stock...................... 87,994 --
Total nonredeemable stockholders' equity(3)................. 15,776 41,286
-------- --------
Total capitalization......................... $520,382 $548,942
======== ========
</TABLE>
---------------
(1) We have a revolving credit facility of $100.0 million for working capital
and general corporate purposes. See "Description of Senior Credit Facility
and Other Indebtedness."
(2) As of September 30, 2000, the Santa Nella Note, which has a 5% stated
interest rate and matures in 2018, had a remaining balance outstanding of
$4.7 million and was reflected on our books net of unamortized original
issue discount of $1.7 million.
(3) The outstanding notes were issued as part of the units, which consist of
$190.0 million principal amount of 12 3/4% Senior Subordinated Notes Due May
1, 2009 and warrants to purchase 207,874 shares of our common stock and
contingent warrants to purchase an additional 69,291 shares of our common
stock. The amount reflected under "Units" reflects the gross proceeds for
the units offering of approximately $183.0 million net of $6.6 million
ascribed to the initial warrants. The $6.6 million associated with the sale
of the initial warrants is reflected as an increase to nonredeemable
stockholders' equity. We cannot assure you that the value ascribed to the
warrants will be realized.
26
<PAGE> 33
PRO FORMA FINANCIAL DATA
The following unaudited consolidated pro forma financial data have been
prepared by applying pro forma adjustments to our historical consolidated
financial statements included elsewhere in this prospectus. The pro forma
adjustments give effect to the Transactions. The pro forma adjustments also give
effect to the following events related to travel center acquisitions and
dispositions and the actual results through September 30, 2000 of an
administrative labor reduction program initiated in contemplation of the
Transactions:
- the acquisition of 16 travel centers from Travel Ports on June 3, 1999,
- the acquisition of four travel center businesses in three separate
transactions during the first quarter of 2000 (one of the businesses was
a leased site at the time of acquisition and one of the businesses was a
franchisee-owned site at the time of acquisition),
- the dispositions, by sale or closure, of five of our company-operated
sites during 1999, and
- the reduction of site administrative headcount by 122 from January 2000
through September 30, 2000, under a program to reduce site administrative
labor expense. This program was initiated in January 2000 in
contemplation of the Transactions and was substantially complete by
September 30, 2000, with the actual reduction of 122 people through
September 30, 2000.
The unaudited consolidated pro forma statements of operations for the year
ended December 31, 1999, the nine-month period ended September 30, 1999 and the
nine-month period ended September 30, 2000 give effect to the following as if
all of the following had occurred on January 1, 1999.
- the Transactions,
- the Travel Ports acquisition,
- the other travel center business acquisitions,
- the travel center dispositions, and
- the administrative labor reduction program.
The unaudited consolidated pro forma balance sheet as of September 30, 2000
gives effect to the Transactions as if the Transactions occurred on that date.
The unaudited consolidated pro forma financial data do not give effect to any
other transactions except those discussed in the accompanying notes.
The historical financial data for Travel Ports and each of the other four
travel center businesses we acquired were derived from their unaudited financial
records. These acquisitions were accounted for using the purchase method of
accounting. The total purchase costs of the acquisitions were allocated to the
assets acquired and the liabilities assumed, based on their respective estimated
fair values. The results of operations from the businesses acquired were
included in our historical results of operations from the consummation dates of
the acquisitions, which were June 3, 1999 for Travel Ports; January 6, 2000 for
one site; February 15, 2000 for two sites; and March 6, 2000 for one site. One
of the travel center businesses acquired on February 15, 2000 was a leased site
and the travel center business acquired on March 6, 2000 was a franchisee-owned
site.
The unaudited consolidated pro forma condensed financial data are for
informational purposes only. They do not purport to represent what our financial
position or the results of our operations as of or for the periods presented
would have actually been had the Transactions, the Travel Ports acquisition, the
other travel center business acquisitions, the travel center dispositions and
the labor reductions in fact occurred as of the assumed dates, nor are they
intended to be indicative of, or projections for, our results of operations or
financial position for any future period or date. The pro forma adjustments, as
described in the accompanying notes, are based on available information and upon
certain assumptions that we believe are reasonable.
You should read the unaudited consolidated pro forma financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our audited and unaudited consolidated financial
statements and related notes and the other financial information included
elsewhere in this prospectus.
27
<PAGE> 34
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER
COMPANY TRAVEL PORTS ACQUISITIONS SITE COMBINED
HISTORICAL HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) DISPOSITIONS(4) HISTORICAL
---------- ------------- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Fuel........................ $ 955,105 $30,467 $36,921 $(3,565) $ (7,387) $1,011,541
Non-fuel.................... 479,059 25,992 18,041 -- (5,089) 518,003
Rent and royalties.......... 20,460 -- -- (1,114) -- 19,346
---------- ------- ------- ------- -------- ----------
Total revenues.......... 1,454,624 56,459 54,962 (4,679) (12,476) 1,548,890
Cost of revenues (excluding
depreciation)............. 1,051,080 31,933 39,792 (3,565) (8,748) 1,110,492
---------- ------- ------- ------- -------- ----------
Gross profit (excluding
depreciation)............. 403,544 24,526 15,170 (1,114) (3,728) 438,398
Operating expenses.......... 267,107 18,000 12,386 34 (3,928) 293,599
Selling, general and
administrative expenses... 38,461 2,049 -- (417) -- 40,093
Transition expense(6)....... 3,952 678 -- (678) -- 3,952
Depreciation and
amortization expense...... 53,202 1,518 555 803 (529) 55,549
(Gain) loss on sales of
property and equipment.... (2,615) -- -- -- 135 (2,480)
Stock compensation
expense................... 5,062 -- -- -- -- 5,062
---------- ------- ------- ------- -------- ----------
Income from operations...... 38,375 2,281 2,229 (856) 594 42,623
Interest (expense), net..... (37,194) (1,057) (449) 1,506 -- (37,194)
---------- ------- ------- ------- -------- ----------
Income (loss) before income
taxes..................... 1,181 1,224 1,780 650 594 5,429
Provision (benefit) for
income taxes.............. 1,082 490 712 260 238 2,781
---------- ------- ------- ------- -------- ----------
Net income (loss)......... $ 99 $ 734 $ 1,068 $ 390 $ 356 $ 2,648
========== ======= ======= ======= ======== ==========
Loss per common share (basic
and diluted).............. $ (12.96)
Number of common shares..... 746
OTHER FINANCIAL AND
OPERATING DATA:
Total diesel fuel sold
(thousands of gallons).... 1,370,017 58,946 36,125 (6,848) (10,115) 1,448,125
<CAPTION>
ADJUSTMENTS
FOR THE
TRANSACTIONS PRO FORMA(5)
------------ ------------
<S> <C> <C>
REVENUES:
Fuel........................ $ -- $1,011,541
Non-fuel.................... -- 518,003
Rent and royalties.......... -- 19,346
-------- ----------
Total revenues.......... -- 1,548,890
Cost of revenues (excluding
depreciation)............. -- 1,110,492
-------- ----------
Gross profit (excluding
depreciation)............. -- 438,398
Operating expenses.......... (3,044)(7) 290,555
Selling, general and
administrative expenses... -- 40,093
Transition expense(6)....... -- 3,952
Depreciation and
amortization expense...... 2,150(8) 57,699
(Gain) loss on sales of
property and equipment.... -- (2,480)
Stock compensation
expense................... -- 5,062
-------- ----------
Income from operations...... 894 43,517
Interest (expense), net..... (19,093)(9) (56,287)
-------- ----------
Income (loss) before income
taxes..................... (18,199) (12,770)
Provision (benefit) for
income taxes.............. (7,280)(10) (4,498)
-------- ----------
Net income (loss)......... $(10,919) $ (8,272)
======== ==========
Loss per common share (basic
and diluted).............. $ (1.19)
Number of common shares..... 6,930
OTHER FINANCIAL AND
OPERATING DATA:
Total diesel fuel sold
(thousands of gallons).... -- 1,448,125
</TABLE>
28
<PAGE> 35
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER
COMPANY TRAVEL PORTS ACQUISITIONS SITE COMBINED
HISTORICAL HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) DISPOSITIONS(4) HISTORICAL
---------- ------------- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Fuel........................ $ 660,841 $30,467 $27,691 $(2,538) $ (6,205) $ 710,256
Non-fuel.................... 355,428 25,992 13,532 -- (4,276) 390,676
Rent and royalties.......... 15,620 -- -- (796) 14,824
---------- ------- ------- ------- -------- ----------
Total revenues.......... 1,031,889 56,459 41,223 (3,334) (10,481) 1,115,756
Cost of revenues (excluding
depreciation)............. 732,966 31,933 29,847 (2,538) (7,335) 784,873
---------- ------- ------- ------- -------- ----------
Gross profit (excluding
depreciation)............. 298,923 24,526 11,376 (796) (3,146) 330,883
Operating expenses.......... 198,814 18,000 9,289 65 (3,213) 222,955
Selling, general and
administrative expenses... 29,300 2,049 -- (417) 30,932
Transition expense(6)....... 3,025 678 -- (678) 3,025
Depreciation and
amortization expense...... 36,902 1,518 418 803 (258) 39,383
(Gain) loss on sales of
property and equipment.... (567) -- -- (114) (681)
Stock compensation
expense................... 2,700 -- -- 2,700
---------- ------- ------- ------- -------- ----------
Income from operations...... 28,749 2,281 1,669 (569) 439 32,569
Interest (expense), net..... (27,404) (1,057) (337) 1,394 -- (27,404)
---------- ------- ------- ------- -------- ----------
Income (loss) before income
taxes..................... 1,345 1,224 1,332 825 439 5,165
Provision (benefit) for
income taxes.............. 1,126 490 533 330 176 2,654
---------- ------- ------- ------- -------- ----------
Net income (loss)......... $ 219 $ 734 $ 799 $ 495 $ 263 $ 2,511
========== ======= ======= ======= ======== ==========
Loss per common share (basic
and diluted).............. $ (10.01)
Number of common shares..... 702
OTHER FINANCIAL AND
OPERATING DATA:
Total diesel fuel sold
(thousands of gallons).... 1,016,697 58,946 27,094 (5,332) (8,430) 1,088,975
<CAPTION>
ADJUSTMENTS
FOR THE
TRANSACTIONS PRO FORMA(5)
------------ ------------
<S> <C> <C>
REVENUES:
Fuel........................ $ -- $ 710,256
Non-fuel.................... -- 390,676
Rent and royalties.......... -- 14,824
-------- ----------
Total revenues.......... -- 1,115,756
Cost of revenues (excluding
depreciation)............. -- 784,873
-------- ----------
Gross profit (excluding
depreciation)............. -- 330,883
Operating expenses.......... (2,283)(7) 220,672
Selling, general and
administrative expenses... -- 30,932
Transition expense(6)....... -- 3,025
Depreciation and
amortization expense...... 1,587(8) 40,970
(Gain) loss on sales of
property and equipment.... -- (681)
Stock compensation
expense................... -- 2,700
-------- ----------
Income from operations...... 696 33,265
Interest (expense), net..... (14,624)(9) (42,028)
-------- ----------
Income (loss) before income
taxes..................... (13,928) (8,763)
Provision (benefit) for
income taxes.............. (5,571)(10) (2,917)
-------- ----------
Net income (loss)......... $ (8,357) $ (5,846)
======== ==========
Loss per common share (basic
and diluted).............. $ (0.84)
Number of common shares..... 6,930
OTHER FINANCIAL AND
OPERATING DATA:
Total diesel fuel sold
(thousands of gallons).... -- 1,088,975
</TABLE>
29
<PAGE> 36
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER
COMPANY ACQUISITIONS SITE COMBINED
HISTORICAL HISTORICAL(2) ADJUSTMENTS(3) DISPOSITIONS(4) HISTORICAL
---------- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Fuel....................................... $1,052,849 $4,258 $(663) $ -- $1,056,444
Non-fuel................................... 418,692 2,385 -- -- 421,077
Rent and royalties......................... 14,197 -- (192) 14,005
---------- ------ ----- ----- ----------
Total revenues....................... 1,485,738 6,643 (855) -- 1,491,526
Cost of revenues (excluding
depreciation)............................ 1,147,142 4,648 (663) -- 1,151,127
---------- ------ ----- ----- ----------
Gross profit (excluding depreciation)...... 338,596 1,995 (192) -- 340,399
Operating expenses......................... 232,301 1,625 (67) (135) 233,724
Selling, general and administrative
expenses................................. 28,867 -- -- 28,867
Transition expense(6)...................... 972 -- 972
Depreciation and amortization expense...... 48,113 61 -- -- 48,174
(Gain) loss on sales of property and
equipment................................ (194) -- -- (194)
Stock compensation expense................. 1,350 -- 1,350
---------- ------ ----- ----- ----------
Income from operations..................... 27,187 309 (125) 135 27,506
Interest (expense), net.................... (32,162) (56) 56 -- (32,162)
---------- ------ ----- ----- ----------
Income (loss) before income taxes.......... (4,975) 253 (69) 135 (4,656)
Provision (benefit) for income taxes....... (1,728) 101 (28) 54 (1,600)
---------- ------ ----- ----- ----------
Net income (loss)........................ $ (3,247) $ 152 $ (41) $ 81 $ (3,056)
========== ====== ===== ===== ==========
Loss per common share (basic and
diluted)................................. $ (13.37)
Number of common shares.................... 860
OTHER FINANCIAL AND OPERATING DATA:
Total diesel fuel sold (thousands of
gallons)................................. 1,017,522 3,456 (655) -- 1,020,323
<CAPTION>
ADJUSTMENTS
FOR THE
TRANSACTIONS PRO FORMA(5)
------------ ------------
<S> <C> <C>
REVENUES:
Fuel....................................... $ -- $1,056,444
Non-fuel................................... -- 421,077
Rent and royalties......................... -- 14,005
-------- ----------
Total revenues....................... -- 1,491,526
Cost of revenues (excluding
depreciation)............................ -- 1,151,127
-------- ----------
Gross profit (excluding depreciation)...... -- 340,399
Operating expenses......................... (1,064)(7) 232,660
Selling, general and administrative
expenses................................. -- 28,867
Transition expense(6)...................... -- 972
Depreciation and amortization expense...... 1,858(8) 50,032
(Gain) loss on sales of property and
equipment................................ -- (194)
Stock compensation expense................. -- 1,350
-------- ----------
Income from operations..................... (794) 26,712
Interest (expense), net.................... (10,681)(9) (42,843)
-------- ----------
Income (loss) before income taxes.......... (11,475) (16,131)
Provision (benefit) for income taxes....... (4,590)(10) (6,190)
-------- ----------
Net income (loss)........................ $ (6,885) $ (9,941)
======== ==========
Loss per common share (basic and
diluted)................................. $ (1.43)
Number of common shares.................... 6,930
OTHER FINANCIAL AND OPERATING DATA:
Total diesel fuel sold (thousands of
gallons)................................. -- 1,020,323
</TABLE>
30
<PAGE> 37
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
(IN THOUSANDS)
(1) Amounts represent the historical results of Travel Ports for the five-month
period ended May 31, 1999. The results of operations of the Travel Ports
network sites were included in our historical consolidated statement of
operations from June 3, 1999, the closing date of the Travel Ports
acquisition.
(2) Amounts represent the combined historical results of the four travel center
businesses that we acquired as company-operated sites during 2000 for the
period from January 1, 1999 through the respective dates we acquired each
of the businesses. One of these sites had been a leased site within our
network, one had been a franchisee-owned site within our network and the
remaining two sites were not previously part of our network. We acquired
the business at the leased site and the franchisee-owned site on February
15, 2000 and March 6, 2000, respectively, and acquired the businesses at
the other two sites on January 6, 2000 and February 15, 2000, respectively.
The results of operations of these acquired businesses were included in our
historical consolidated statement of operations from those dates.
(3) Amounts represent the adjustments necessary to (a) eliminate certain
elements of our historical revenues, (b) eliminate certain elements of the
historical expenses of the acquired businesses and (c) increase certain
elements of our historical expenses to give effect to the transactions
referred to in notes (1) and (2) as if they had occurred on January 1,
1999. The acquired businesses included the Travel Ports network, one travel
center that was a leased site, one travel center that was a franchisee-
owned site and two travel centers that were not previously part of our
network. Prior to these acquisitions, we received rent and fuel revenue
from the leased site and royalty revenue from each of the leased site and
the franchisee-owned site. The amount of adjustment to the provision
(benefit) for income taxes reflects the incremental income tax expense or
benefit resulting from the following adjustments at an effective statutory
tax rate of 40%.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -----------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 2000
------------ ------------- -------------
<S> <C> <C> <C>
Fuel revenue:
Eliminate our fuel sales to the leased site.......... $(3,565) $(2,538) $ (663)
======= ======= =======
Rent and royalties revenue:
Eliminate rent and royalties from franchised sites... $(1,114) $ (796) $ (192)
======= ======= =======
Cost of revenues:
Eliminate cost of fuel sales of the leased site...... $(3,565) $(2,538) $ (663)
======= ======= =======
Operating expenses:
Eliminate rent and royalty expense of the former
franchised sites.................................. $(1,114) $ (796) $ (192)
Eliminate executive salaries of the other acquired
businesses........................................ (320) (240) (48)
Eliminate mortgage expense of the franchisee-owned
site.............................................. (552) (414) (92)
Increase rent expense for new or revised leases at
certain of the acquired sites..................... 2,020 1,515 265
------- ------- -------
Total operating expense adjustments.......... $ 34 $ 65 $ (67)
======= ======= =======
Selling, general and administrative expenses:
Eliminate Travel Ports executive compensation........ $ (417) $ (417) $ --
======= ======= =======
Transition expense(6):
Eliminate expenses incurred by Travel Ports in
connection with its acquisition by us............. $ (678) $ (678) $ --
======= ======= =======
</TABLE>
31
<PAGE> 38
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -----------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 2000
------------ ------------- -------------
<S> <C> <C> <C>
Depreciation and amortization:
Depreciation related to step-up in basis of Travel
Ports property and equipment...................... $ 504 $ 504 $ --
Amortization related to intangible assets recognized
in Travel Ports acquisition....................... 299 299 --
------- ------- -------
Total depreciation and amortization
adjustments................................ $ 803 $ 803 $ --
======= ======= =======
Interest expense, net:
Eliminate historical interest expense of acquired
businesses........................................ $ 1,506 $ 1,394 $ 56
======= ======= =======
</TABLE>
(4) Amounts represent the combined historical results of five travel center
sites we closed or sold during 1999 in order to present results for the
period as though these sites had been closed or sold as of January 1, 1999.
One site was sold on each of June 17, 1999; November 18, 1999; and November
30, 1999, and one site was closed on each of October 31, 1999 and December
21, 1999.
(5) The unaudited consolidated pro forma statements of operations exclude the
following non-recurring items that are directly attributable to the
Transactions. All of the following items were recorded as expenses in our
statement of operations and retained earnings (deficit) in the fourth
quarter of 2000.
<TABLE>
<S> <C>
(a) Pay tender offer and consent solicitation premium and
fees and senior secured note prepayment penalty......... $12,352
(b) Pay expenses of selling stockholders.................... 16,150
(c) Pay other expenses related to the Transactions.......... 2,717
(d) Write-off of deferred financing costs related to repaid
indebtedness.............................................. 7,351
</TABLE>
(6) "Transition expense" represents non-recurring costs and certain development
costs associated with, among other things, (a) the integration of the BP,
Unocal, Burns Bros. and Travel Ports networks into our current network, (b)
the disposal of travel centers or termination of lease or franchise
agreements and (c) the integration of the management and operations of our
networks into a single network, including relocation, travel, training and
legal expenses. For purposes of this pro forma presentation, the expenses
incurred by Travel Ports during the five months ended May 31, 1999 in
connection with the merger of Travel Ports into us have been classified as
transition expense. These expenses primarily consisted of legal and other
consulting and advisory fees and are eliminated in determining our pro
forma statement of operations amounts as these amounts would not have been
incurred in the periods presented had we consummated the Travel Ports
acquisition on January 1, 1999.
(7) Adjustments reflect the reduction in operating expense related to site
administrative personnel reductions achieved during the nine months ended
September 30, 2000 as a result of implementing a headcount reduction
program in connection with the Transactions. From January 1, 2000 through
September 30, 2000, we eliminated 122 site bookkeeping positions and
employees. The adjustment amounts represent the labor expense we incurred
in each period that would have been avoided had the actual headcount
reductions we had achieved through September 30, 2000 been achieved as of
January 1, 1999. These labor reductions, which were made possible by
efficiencies derived from new computer systems that we have installed, are
related to site bookkeepers and not customer service personnel or other
revenue-generating positions.
(8) Adjustments reflect (1) amortization of the deferred financing costs
incurred in connection with the amending and restating of the Senior Credit
Facility and the sale of the outstanding notes, (2) amortization of debt
discount related to the issuance of the outstanding notes and (3) the
elimination of our historical amortization expense related to the deferred
financing costs associated with our Amended and
32
<PAGE> 39
Restated Credit Agreement dated November 24, 1998, our 10 1/4% Senior
Subordinated Notes due 2007 and our existing senior secured notes, each of
which was repaid as part of the Transactions.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, ----------------------------------------
1999 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------ ------------------ ------------------
<S> <C> <C> <C>
Amortization of new deferred financing
costs(a)............................... $$2,546 $1,885 $2,123
Amortization of new debt discount(a)..... 953 707 805
Elimination of historical deferred
financing cost amortization............ (1,349) (1,005) (1,070)
------ ------ ------
Net adjustments to amortization
expense................................ $2,150 $1,587 $1,858
====== ====== ======
</TABLE>
(a) Adjustment reflects the amortization of deferred financing costs and
debt discount using the effective interest method over the terms of
each of the outstanding notes and the Senior Credit Facility.
(9) Adjustments reflect (1) interest expense associated with borrowings under
the Senior Credit Facility and the notes included as part of the units that
were offered and (2) the elimination of our historical interest expense
related to our Amended and Restated Credit Agreement dated as of November
24, 1998, our 10 1/4% Senior Subordinated Notes due 2007 and our existing
senior secured notes.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, ----------------------------------------
1999 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------ ------------------ ------------------
<S> <C> <C> <C>
Senior Credit Facility(a)................ $(32,599) $(24,449) $(24,388)
Senior Subordinated Notes(b)............. (24,225) (18,168) (18,168)
Elimination of historical interest
expense................................ 37,731 27,993 31,875
-------- -------- --------
Net adjustments to interest expense,
net(c)................................. $(19,093) $(14,624) $(10,681)
======== ======== ========
</TABLE>
(a) At an assumed rate of 9.93% (three-month London Interbank Offered Rate
("LIBOR"), as of September 30, 2000, of 6.68% plus a 3.25% spread for
term loan B borrowings and a 2.75% spread for revolving credit facility
borrowings). Reflects borrowings of $328,300, of which $300 represents
borrowings under the revolving credit facility.
(b) At a rate of 12 3/4% and a face amount of notes issued of $190,000.
(c) The effect of a 1/8% increase or decrease in interest rates would
increase or decrease total interest expense by approximately $648, $487
and $486 for the year ended December 31, 1999, the nine months ended
September 30, 1999 and the nine months ended September 30, 2000,
respectively.
(10) The adjustments represent the income tax benefit at an effective statutory
tax rate of 40.0% for the effects of the adjustments described in notes (7)
through (9) above.
33
<PAGE> 40
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 28,382 $ 511,262(1) $ --
205,000(2)
3,752(3)
(423,335)(4)
(262,732)(5)
(31,110)(6)
(31,219)(7)
Accounts receivable.................................. 92,012 92,012
Inventories.......................................... 58,439 -- 58,439
Deferred income taxes................................ 3,581 -- 3,581
Other current assets................................. 18,751 15,428(7) 34,179
-------- ----------- --------
Total current assets.............................. 201,165 (12,954) 188,211
Notes receivable....................................... 1,398 -- 1,398
Property and equipment, net............................ 454,313 -- 454,313
Intangible assets...................................... 25,248 -- 25,248
Deferred financing costs............................... 7,351 31,371(6) 31,371
(7,351)(7)
Deferred income taxes.................................. 5,990 -- 5,990
Other non-current assets............................... 6,512 -- 6,512
-------- ----------- --------
Total assets...................................... $701,977 $ 11,066 $713,043
======== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt.............................. $ 1,601 $ (1,446)(4) $ 155
Accounts payable..................................... 106,285 -- 106,285
Other accrued liabilities............................ 56,021 (9,716)(4) 49,156
2,851(6)
-------- ----------- --------
Total current liabilities......................... 163,907 (8,311) 155,596
Long-term debt (net of unamortized discount)........... 415,012 511,262(1) 507,501
(6,600)(8)
(412,173)(4)
Deferred income taxes.................................. 1,492 -- 1,492
Other non-current liabilities.......................... 17,796 (10,628)(5) 7,168
-------- ----------- --------
Total liabilities................................. 598,207 73,550 671,757
Mandatorily redeemable preferred stock................. 87,994 (87,994)(5) --
Nonredeemable stockholders' equity:
Other preferred stock, common stock and other
stockholders' equity.............................. 52,042 205,000(2) 219,418
3,752(3)
(45,386)(5)
(2,590)(6)
6,600(8)
Retained earnings (deficit).......................... (36,266) (118,724)(5) (178,132)
(23,142)(7)
-------- ----------- --------
Total nonredeemable stockholders' equity.......... 15,776 25,510 41,286
-------- ----------- --------
Total liabilities, redeemable equity and
nonredeemable stockholders' equity.............. $701,977 $ 11,066 $713,043
======== =========== ========
</TABLE>
34
<PAGE> 41
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(1) Adjustment reflects the increase in our indebtedness from borrowings under
the Senior Credit Facility of $328,300, of which $300 represents borrowings
under the revolving credit facility, and proceeds from the sale of the units
of $182,962. There are no scheduled principal repayments under the Senior
Credit Facility in the first year.
(2) Adjustment reflects the proceeds received from the issuance of common stock
to Oak Hill and the Other Investors.
(3) Adjustment reflects the proceeds received from the exercise by our
management of options to purchase 37,572 shares of our common stock ($422)
and the exercise by Freightliner LLC of its option to purchase 100,000
shares of our common stock ($3,330).
(4) Adjustment reflects the decrease in our indebtedness from repaying all
amounts outstanding under our Amended and Restated Credit Agreement dated as
of November 24, 1998, including accrued interest; redeeming in full all of
our existing senior secured notes, including accrued interest; and
consummating a tender offer and consent solicitation for our 10 1/4% Senior
Subordinated Notes due 2007, including accrued interest, as follows:
<TABLE>
<S> <C>
Repay borrowings outstanding under Amended and Restated
Credit Agreement:
- Current portion......................................... $ (1,446)
- Long-term portion....................................... (251,673)
Redeem senior secured notes................................. (35,500)
Redeem 10 1/4% Senior Subordinated Notes due 2007........... (125,000)
Pay accrued interest........................................ (9,716)
---------
Total cash disbursement........................... $(423,335)
=========
</TABLE>
(5) Adjustment reflects the amounts paid to (1) redeem the shares of our capital
stock pursuant to the terms of the recapitalization agreement and plan of
merger, as amended, we entered into with TCA Acquisition Corporation, (2)
cancel all stock options that were not exercised and (3) cancel all warrants
to purchase our common stock outstanding prior to the issuance of the units.
With the exception of 473,064 shares of our common stock held by members of
our management and Freightliner LLC, including those shares obtained through
exercising options and converting convertible preferred stock into common
stock, all outstanding shares of all classes of our capital stock were
redeemed, including our common stock, Series I and Series II of our
mandatorily redeemable senior convertible participating preferred stock and
Series I and Series II of our convertible preferred stock. The amount of the
merger consideration per share was $31.75. This amount per share is subject
to adjustment as a result of a review of the closing balance sheet used to
calculate the net asset value adjustment to the merger consideration.
Unexercised stock options and warrants were canceled for a net payment of
the merger consideration per share of $31.75 less the respective exercise
price per warrant or option, which was $0.01 per share for the warrants and
which ranged from $10.00 per share to $25.00 per share for the stock
options. The total cash disbursement amount was composed as follows:
<TABLE>
<S> <C>
Redeem outstanding shares of capital stock.................. $(251,877)
Cancel unexercised stock options and warrants............... (10,855)
---------
Total cash disbursement........................... $(262,732)
=========
</TABLE>
(6) Adjustment reflects the amounts paid for various transaction fees and
expenses which were capitalized, including the initial purchasers' discount
in connection with this offering, commitment fees payable with respect to
the Senior Credit Facility and the legal, accounting and other fees and
expenses incurred in
35
<PAGE> 42
connection with the Transactions. The total amount of deferred financing
costs and stock issuance costs incurred are as follows:
<TABLE>
<S> <C>
Deferred financing costs.................................... $(31,371)
Stock issuance costs........................................ (2,590)
--------
Total capitalizable transaction fees and
expenses(a)...................................... $(33,961)
========
</TABLE>
(a) At September 30, 2000, $2,851 of these expenses would have remained
unpaid and been included in accrued liabilities.
(7) Adjustment reflects the effect of the Transactions on stockholders' equity
for (1) payment of the premium and fees associated with the tender offer and
consent solicitation for our 10 1/4% Senior Subordinated Notes due 2007 and
the senior secured note prepayment penalty, (2) payment of certain fees and
expenses of the selling stockholders, which amounts were charged to expense
in our historical statement of operations in the fourth quarter of 2000 and
in the pro forma balance sheet are treated as a reduction of the net merger
consideration paid to the selling stockholders and are not capitalized as
deferred financing costs or stock issuance costs, (3) payment of various
fees and expenses incurred in connection with the Transactions that are not
appropriate costs to be recognized as either deferred financing costs or
stock issuance costs and (4) the write-off of deferred financing costs
related to our Amended and Restated Credit Agreement dated as of November
24, 1998, our existing senior secured notes and our 10 1/4% Senior
Subordinated Notes due 2007. The income tax benefit related to items (1)
through (3) was computed using an effective statutory income tax rate of
40%.
<TABLE>
<S> <C>
Pay tender offer and consent solicitation premium and fees
and senior secured note prepayment penalty................ $(12,352)
Pay expenses of selling stockholders........................ (16,150)
Pay other expenses related to the Transactions.............. (2,717)
--------
Total cash disbursement..................................... (31,219)
Write-off of deferred financing costs related to repaid
indebtedness.............................................. (7,351)
--------
Adjustment before benefit for income taxes.................. (38,570)
Less benefit for income taxes recorded in other current
assets.................................................... 15,428
--------
Net adjustment to retained earnings (deficit)............... $(23,142)
========
</TABLE>
(8) Adjustment reflects the issuance, as part of the units offered, of 570,000
warrants to purchase, in the aggregate, 207,874 shares of our common stock
at an exercise price of $0.001 per share.
36
<PAGE> 43
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected historical consolidated
financial data for each of the last five fiscal years and the nine month periods
ended September 30, 1999 and September 30, 2000. The statement of operations and
balance sheet data set forth below with respect to fiscal years 1997, 1998 and
1999 are derived from the audited consolidated financial statements and the
related notes included elsewhere in this prospectus. The statement of operations
and balance sheet data set forth below for fiscal years 1995 and 1996 are
derived from our audited consolidated financial statements and related notes
which are not included in this prospectus. The historical unaudited consolidated
financial data for the nine months ended September 30, 1999 and 2000 have been
derived from, and should be read in conjunction with, our unaudited consolidated
financial statements and the related notes included elsewhere in this
prospectus. Our unaudited consolidated financial statements reflect, in our
opinion, all adjustments, which include only normal recurring adjustments,
necessary to present fairly the financial position and results of operations for
the unaudited periods. The results of operations for the interim periods are not
necessarily indicative of operating results for the full year. You should read
the selected financial data below in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
consolidated financial statements and related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- -----------------------
1995(1) 1996(1) 1997 1998(2) 1999(3) 1999(3) 2000
-------- -------- ---------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND SITE COUNT)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Fuel............................ $376,148 $550,212 $ 708,637 $ 554,735 $ 955,105 $ 660,841 $1,052,849
Non-fuel........................ 27,948 99,991 293,843 347,531 479,059 355,428 418,692
Rent and royalties.............. 51,801 46,055 36,848 21,544 20,460 15,620 14,197
-------- -------- ---------- --------- ---------- ---------- ----------
Total revenues................ 455,897 696,258 1,039,328 923,810 1,454,624 1,031,889 1,485,738
Cost of revenues (excluding
depreciation)................... 376,823 568,694 773,084 627,149 1,051,080 732,966 1,147,142
-------- -------- ---------- --------- ---------- ---------- ----------
Gross profit (excluding
depreciation)................... 79,074 127,564 266,244 296,661 403,544 298,923 338,596
Operating expenses................ 11,851 55,270 167,072 193,697 267,107 198,814 232,301
Selling, general and
administrative expenses......... 30,965 31,265 35,619 34,256 38,461 29,300 28,867
Transition expense(4)............. 831 2,197 15,212 3,648 3,952 3,025 972
Depreciation and amortization..... 11,379 17,838 35,840 44,662 53,202 36,902 48,113
(Gain) loss on sales of property
and equipment................... 363 1,464 (11,244) (1,195) (2,615) (567) (194)
Stock compensation expense........ -- 667 1,400 2,500 5,062 2,700 1,350
(Income) of subsidiary held for
held for disposition(1)......... (6,199) (5,255) -- -- -- -- --
-------- -------- ---------- --------- ---------- ---------- ----------
Income from operations............ 29,884 24,118 22,345 19,093 38,375 28,749 27,187
Interest (expense), net........... (13,344) (15,236) (22,898) (25,371) (37,194) (27,404) (32,162)
-------- -------- ---------- --------- ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary items......... 16,540 8,882 (553) (6,278) 1,181 1,345 (4,975)
Provision (benefit) for income
taxes........................... 6,614 3,349 (344) (2,101) 1,082 1,126 (1,728)
-------- -------- ---------- --------- ---------- ---------- ----------
Income (loss) before extraordinary
item............................ 9,926 5,533 (209) (4,177) 99 219 (3,247)
Extraordinary loss................ -- -- (5,554) (3,905) -- -- --
-------- -------- ---------- --------- ---------- ---------- ----------
Net income (loss)............... $ 9,926 $ 5,533 $ (5,763) $ (8,082) $ 99 $ 219 $ (3,247)
======== ======== ========== ========= ========== ========== ==========
Income (loss) before extraordinary
item per common share:
Basic........................... $ 3.04 $ (0.81) $ (7.56) $ (21.12) $ (12.96) $ (10.01) $ (13.37)
Diluted......................... $ 0.57 $ (0.81) $ (7.56) $ (21.12) $ (12.96) $ (10.01) $ (13.37)
BALANCE SHEET DATA (END OF
PERIOD):
Cash.............................. $ 3,191 $ 23,779 $ 71,756 $ 89,200 $ 18,040 $ 31,737 $ 28,382
Working capital(5)................ 9,872 23,766 86,103 97,378 35,232 49,463 37,258
Property and equipment, net....... 183,079 269,366 286,472 361,803 454,093 448,903 454,313
Total assets...................... 297,231 425,889 507,792 610,061 659,862 653,751 701,977
Long-term debt (net of unamortized
discount)....................... 139,991 193,185 289,625 390,865 404,369 414,749 415,012
</TABLE>
37
<PAGE> 44
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- -----------------------
1995(1) 1996(1) 1997 1998(2) 1999(3) 1999(3) 2000
-------- -------- ---------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND SITE COUNT)
<S> <C> <C> <C> <C> <C> <C> <C>
Mandatorily redeemable preferred
stock(6)........................ 47,286 53,885 61,404 69,974 79,739 77,218 87,994
Total nonredeemable stockholders'
equity(7)....................... 67,358 65,580 45,499 28,449 28,236 30,723 15,776
OTHER FINANCIAL AND OPERATING
DATA:
EBITDA(8)......................... $ 63,198 $ 60,940 $ 63,553 $ 68,708 $ 97,976 $ 70,809 $ 77,428
Net cash provided by operating
activities...................... 19,436 27,620 41,670 48,521 44,712 29,980 49,675
Net cash used in investing
activities...................... (17,601) (22,254) (37,987) (125,505) (136,016) (117,987) (48,513)
Net cash provided by (used in)
financing activities............ (14,141) 15,222 44,294 94,428 20,144 30,544 9,180
Capital expenditures.............. 19,930 20,545 60,818 65,704 87,401 66,826 40,003
Total diesel fuel sold (thousands
of gallons)..................... 641,901 713,754 975,495 973,812 1,370,017 1,016,697 1,017,522
Ratio of earnings to fixed
charges(9)...................... 1.7x 1.4x -- -- 1.0x 1.0x --
SITES (END OF PERIOD):
Company-owned and operated
sites........................... 46 59 86 105 118 122 122
Company-owned and leased sites.... 89 77 35 30 29 29 28
Franchisee-owned sites............ 38 35 9 10 11 11 9
-------- -------- ---------- --------- ---------- ---------- ----------
Total travel centers.......... 173 171 130 145 158 162 159
======== ======== ========== ========= ========== ========== ==========
</TABLE>
---------------
(1) For the period from January 1, 1995 to September 30, 1996, our investment in
the BP network was presented as net assets of a subsidiary held for
disposition, and the BP network's results of operations were included in our
consolidated results of operations as a single amount in our consolidated
income statement through September 30, 1996. Effective September 30, 1996,
the decision was made to retain the BP network and, subsequently, we chose
to pursue a plan to merge the Unocal and BP networks. Accordingly, at that
time the BP network was no longer carried as a net asset of a subsidiary
held for disposition. At that date, the carrying value of our investment in
the BP network of $44.6 million was allocated to 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 the BP network are
included in our consolidated results of operations and cash flows from
October 1, 1996.
(2) Reflects the operating results of 17 sites we acquired from Burns Bros. on
December 3, 1998.
(3) Reflects the operating results of 16 sites we acquired as part of our
acquisition of Travel Ports on June 3, 1999.
(4) "Transition expense" represents non-recurring costs and certain development
costs associated with, among other things, (a) the integration of the BP,
Unocal, Burns Bros. and Travel Ports networks into our current network, (b)
the disposal of travel centers or termination of lease or franchise
agreements and (c) the integration of the management and operations of our
networks into a single network, including relocation, travel, training and
legal expenses. We expect to incur additional, non-recurring transition
expenses of less than $0.1 million through the end of 2000 in connection
with the continued combination of our networks.
(5) "Working capital" consists of current assets minus current liabilities.
(6) "Mandatorily redeemable preferred stock" consists of two series of
convertible preferred stock that was redeemed in connection with the
Transactions.
(7) "Total nonredeemable stockholders' equity" consists of common stock, other
preferred stock, additional paid-in capital, treasury stock and retained
earnings (deficit).
(8) "EBITDA", as used here, is based on the definition for EBITDA set forth in
the Indenture, dated as of November 14, 2000, between us and State Street
Bank and Trust Company, as trustee, under which the outstanding notes were
issued, and consists of net income plus the sum of (a) income taxes, (b)
interest expense, net, (c) depreciation, amortization and other noncash
charges, (d) transition expense and (e) gains and losses on sales of
property and equipment. We have included certain information concerning
EBITDA because management believes that EBITDA is generally accepted as
providing useful information regarding a company's ability to service and/or
incur debt. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows, or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. While EBITDA is
frequently used as a measure of operations and ability to meet debt service
requirements, it is not necessarily comparable to similarly titled captions
of other companies due to differences in methods of calculation.
(9) For purposes of computing this ratio, earnings consist of income from
operations before income taxes and fixed charges. Fixed charges consist of
interest expense, amortization of debt discount and one-third of rental
expense from operating leases, which we believe is a reasonable
approximation of the interest component of our rental expense. Earnings were
not sufficient to cover fixed charges by $0.6 million, $6.3 million and $5.5
million, respectively, for the year ended December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 2000.
38
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the
consolidated financial statements and related notes included elsewhere in this
prospectus. See "Risk Factors" for trends and uncertainties known to us that
could cause reported financial information to differ materially from future
results.
OVERVIEW
We are the largest, and only nationwide, full-service travel center network
in the United States serving long-haul trucking fleets and their drivers,
independent truck drivers and general motorists. Our geographically diverse
network consists of 157 sites, 148 of which are owned by us, located in 40
states. Our management has actively balanced internal growth, driven by improved
same-site performance and new greenfield sites, with opportunistic acquisitions
of other industry participants.
One of the primary strengths of our business is the diversity of our
revenue sources. We have the broadest range of product and service offerings in
our industry, including diesel fuel and gasoline, truck repair and maintenance
services, full-service and fast food dining, travel and convenience stores and
other driver amenities. Our non-fuel products and services complement our fuel
business and provide us with an opportunity to significantly increase our
revenues and gross profit. For the year ended December 31, 1999 and the nine
months ended September 30, 2000, we sold approximately 1.4 billion gallons and
1.0 billion gallons, respectively, of diesel fuel at competitive prices, which
we believe helped attract additional higher margin non-fuel business. For the
year ended December 31, 1999 and the nine months ended September 30, 2000, we
earned gross profit on diesel fuel of 10.6% and 7.0%, respectively, and on
non-fuel revenues of 57.9% and 58.7%, respectively. Accordingly, for the nine
months ended September 30, 2000, while fuel sales constituted approximately 65%
of our total revenues, our non-fuel business generated approximately 73% of our
total gross profit. Similarly, for the year ended December 31, 1999, while fuel
sales constituted approximately 61% of our total revenues for that period, our
non-fuel business generated approximately 69% of our total gross profit.
We are a holding company which, through our wholly owned subsidiaries,
owns, operates and franchises travel centers. We currently conduct our
operations through:
- sites owned and operated by us, which we refer to as company-operated
sites;
- sites owned by us and leased to independent lessee-franchisees or
operators, which we refer to as leased sites; and
- sites owned and operated by independent franchisees, which we refer to as
franchisee-owned sites.
Since December 31, 1996, the changes in the number of sites within our
network and in their method of operation (company-operated, leased or
franchisee-owned) are the most significant factors influencing the
39
<PAGE> 46
changes in our results of operations. The following table summarizes the changes
in the composition of our network from December 31, 1996 through September 30,
2000:
<TABLE>
<CAPTION>
COMPANY-
OPERATED LEASED FRANCHISEE-
SITES SITES OWNED SITES TOTAL SITES
-------- ------ ----------- -----------
<S> <C> <C> <C> <C>
NUMBER OF SITES AT DECEMBER 31, 1996.............. 59(1) 77 35 171
1997 Activity:
New sites....................................... - - 1 1
Conversions of leased sites to company-operated
sites........................................ 27 (27) - -
Sales of sites.................................. - (15) - (15)
Terminations of franchisee-owned sites.......... - - (27) (27)
---- --- ---- ---
NUMBER OF SITES AT DECEMBER 31, 1997.............. 86 35 9 130
1998 Activity:
New sites....................................... - - 1 1
Conversions of leased sites to company-operated
sites........................................ 5 (5) - -
Sales of sites.................................. (2) - - (2)
Closed site (held for development).............. (1) - - (1)
Burns Bros. acquisition......................... 17 - - 17
---- --- ---- ---
NUMBER OF SITES AT DECEMBER 31, 1998.............. 105 30 10 145
1999 Activity:
New sites....................................... 3 - 1 4
Sales of sites.................................. (4) (1) - (5)
Travel Ports acquisition........................ 16 - - 16
Closed sites (held for sale).................... (2) - - (2)
---- --- ---- ---
NUMBER OF SITES AT DECEMBER 31, 1999.............. 118 29 11 158
2000 Activity:
New sites....................................... 2 - - 2
Conversion of franchisee-owned site to company-
operated site................................ 1 - (1) -
Conversion of leased sites to company-operated
sites........................................ 1 (1) - -
Termination of franchisee-owned site............ - - (1) (1)
---- --- ---- ---
NUMBER OF SITES AT SEPTEMBER 30, 2000(2).......... 122 28 9 159
==== === ==== ===
</TABLE>
---------------
(1) Includes one company-operated site held for development.
(2) In December 2000, two company-operated sites were sold and eliminated from
our network. We expect to consummate the sale of the New Lemont, Illinois
facility, one of our leased sites, by the end of the first quarter of 2001.
CREATION OF OUR NETWORK
We were formed in December 1992 to facilitate the acquisition of the truck
stop network assets of a subsidiary of Unocal Corporation in April 1993, which
assets we refer to as the "Unocal network." The Unocal network included a total
of 139 facilities, of which 95 were leased sites, 42 were franchisee-owned sites
and two were company-operated sites. Historically, under our ownership, the
Unocal network 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 independent
franchisees, rent from operators of leased sites and non-fuel franchise royalty
payments. In December 1993, we acquired the truck stop network assets of certain
subsidiaries of The British Petroleum Company p.l.c. ("BP"), which assets we
refer to as the "BP network." The BP network included 38 company-operated sites
and six franchisee-owned sites. In contrast to the Unocal network, the BP
network operated principally as an owner-operator of travel centers and derived
the majority of its gross profit from the sale of higher margin non-fuel
products and services.
40
<PAGE> 47
In January 1997, we instituted a plan to combine the Unocal network and the
BP network, which had been previously managed and financed separately, into a
single network to be operated under the "TravelCenters of America" and "TA"
brand names under the leadership of a single management team. Prior to combining
the Unocal and BP networks, the Unocal network was operated through National
Auto/ Truckstops, Inc. ("National"), and the BP network was operated through TA
Operating Corporation, each of National and TA Operating Corporation being a
wholly owned subsidiary of us. As part of the Transactions, National merged with
and into TA Operating Corporation. At the time that we approved the plan to
combine our networks, there were 122 sites in the Unocal network and 49 sites
operating in the BP network.
In December 1998, we acquired substantially all of the travel center and
truck stop network assets of Burns Bros., Inc. and its affiliates. These assets
included the land, buildings, equipment and inventories at 17 travel center
sites, located in nine western and northwestern states.
In June 1999, we acquired the travel center and truck stop network assets
of Travel Ports of America, Inc. through the acquisition of 100% of the stock of
Travel Ports. The Travel Ports network consisted of 16 travel centers in seven
states, primarily in the northeastern region of the United States.
Since 1996, we have constructed or acquired five sites, added two
franchisee-owned sites to our network, converted 35 leased sites and one
franchisee-owned site to company-operated sites, converted one leased site to a
franchisee-owned site and closed one site that is currently held for
development.
Due to historical competition between the Unocal and BP networks, there
were certain markets in which each of these networks had an existing site at the
time we instituted our plan to combine these two networks. Likewise, there was
competition in certain markets between our network and the networks of Burns
Bros. and Travel Ports. As a result, since January 1997, we have terminated 28
franchisee-owned sites, sold 24 sites and closed two additional sites that are
currently being held for sale.
OUR CAPITAL INVESTMENT PROGRAM
In 1997, we initiated a capital investment program to maintain, re-brand,
re-image, upgrade and expand our network of travel centers and to build new
sites. Under this program, we invested approximately $280.9 million through
September 30, 2000, of which approximately $145.5 million represented one-time
investments. These investments have been directed into the eight following
categories:
<TABLE>
<CAPTION>
CAPITAL INVESTED FROM
CATEGORY JANUARY 1, 1997 TO SEPTEMBER 30, 2000
-------- -------------------------------------
(IN MILLIONS)
<S> <C>
Maintenance capital expenditures............. $ 46.9
One-time environmental costs................. 8.7
Information system upgrades and
replacement................................ 32.3
Acquisition and conversion of franchise
sites...................................... 31.8
Re-branding and transition capital
expenditures............................... 42.8
Site re-images............................... 62.2
Other site upgrades.......................... 43.3
New site construction........................ 12.9
------
Total................................... $280.9
======
</TABLE>
Maintenance Capital Expenditures. Maintenance capital expenditures are
aimed at preserving the base level of operations at our sites and corporate
headquarters. Included in this category are items such as new roofs, heating,
ventilation and air conditioning systems, parking lot paving, new service trucks
and kitchen equipment. We estimate that we will have annual on-going maintenance
capital expenditures of $30,000 to $50,000 for each company-owned travel center
location. In addition, we expect to spend a total of approximately $1.0 million
per year for environmental capital items and $8.0 million to $10.0 million per
year for various site discretionary projects (such as new satellite fueling
pumps and shower upgrades), information systems upgrades and enhancements and
other corporate headquarters projects.
41
<PAGE> 48
One-time Environmental Costs. We spent approximately $8.7 million to
complete the installation of equipment necessary to comply with underground
storage tank regulations that went into effect in December 1998. The
environmental upgrades included installing, among other items, double-walled
fiberglass underground storage tanks, overfill and spill prevention and
detection equipment, automatic tank gauging systems and cathodic protection
systems for underground storage tanks. We do not know of any similar
environmental mandates and, as a result, expenditures for our on-going
environmental-related projects are included under maintenance capital
expenditures described above.
Information System Upgrades and Replacement. We invested approximately
$32.3 million in information system projects including: information systems
software and hardware, such as a new financial and fuel accounting system;
upgraded human resource and payroll systems; enhancements to our online credit
card authorization and information retrieval system, which we refer to as
"ACCESS"; and updated point-of-sales systems in our travel and convenience
stores, full-service and fast food restaurants and truck repair and maintenance
shops. As a result, we have upgraded or replaced substantially all of our
information systems and believe that we now have state-of-the-art information
technology systems. Our on-going system maintenance and upgrade costs are
included under maintenance capital expenditures above.
Acquisition and Conversion of Franchise Sites. In an effort to maximize
control over the quality and consistency of our network, we acquired the
businesses at 34 sites that had been operated by franchisees, including 33 sites
that we had leased to their respective operators. These sites, excluding the two
sites acquired in 2000 and the two sites we had sold or closed subsequent to
their acquisition, contributed to us a combined EBITDA of $28.9 million for 1999
as compared to $18.8 million in their final full year as leased sites.
Re-branding and Transition Capital Expenditures. Historically, under our
ownership, the BP and Unocal networks were separately managed and branded.
Through our capital investment program, we have completed the re-branding of
substantially all of the BP and Unocal networks under the "TravelCenters of
America" and "TA" brand names and have similarly re-branded the networks we
acquired from Burns Bros. and Travel Ports. Through September 30, 2000, we
invested $42.8 million related to this program. Our re-branding efforts include
changing the signage and color schemes at the sites and along the highway to
create uniform branding throughout our network. As part of this transition to a
single, nationwide network, we have made several one-time investments to
complete deferred maintenance capital projects and systems integration projects.
We expect to invest less than $1.5 million to complete any remaining re-branding
projects by the end of 2001.
Site Re-images. Site re-images refers to the process of transforming a
truck stop into a travel center based on the concepts and themes of our
prototype and protolite designs, in order to increase our appeal to trucking
fleets and their drivers, independent truck drivers and general motorists. The
full re-image projects typically include, among other things, expanding the
travel and convenience store by approximately 1,000 square feet, adding a fast
food court with two to three quick service restaurants, or QSRs, upgrading
showers and restrooms, applying the prototype design to the exterior of the
building, expanding the video game room, updating the full-service restaurant
and upgrading the lighting in the parking areas. Through September 30, 2000, we
completed full re-image projects at 24 of our sites at an average investment of
$1.8 million per site. We believe that these full re-image projects have been
successful to date in increasing the volume of both trucking and general
motorist traffic at our travel centers. At the 20 sites at which we had
completed a full re-image project by December 31, 1999, aggregate diesel fuel
sales volume, aggregate gasoline sales volume and aggregate non-fuel revenues
increased by an average of 48%, 41% and 38%, respectively, during the six-month
period immediately following the completion of the re-image project as compared
to the six-month period immediately preceding the initiation of our site
re-image program in 1998. For the six sites that we acquired subsequent to the
initiation of our site re-image program, the comparison period used was the
first six months in which we operated each site. On an annualized basis, per
site EBITDA increased by an average of $482,000, at these sites. At 23 of our
sites, we have completed smaller scale re-image projects, which include some
features of the full re-image projects, but do not include a material expansion
of the square footage of the building or as comprehensive an enhancement of our
product offering as full re-image projects. In addition, by the end of 2002, we
intend to invest an additional $32.1 million to complete full re-image projects
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at 18 of our sites and to invest an additional $3.8 million to complete smaller
scale re-image projects at 29 of our sites.
Other Site Upgrades. Through September 30, 2000, in addition to the site
re-image projects, we invested $43.3 million to upgrade and expand the product
offerings of our network sites. An upgrade typically includes adding one or more
of the following: QSRs, additional diesel fuel and gasoline pumps and canopies
and new truck repair and maintenance shops. We believe that these site upgrades
increase our appeal to truck drivers and general motorists and help us capture
additional higher margin non-fuel revenues.
New Site Construction. We have designed a "prototype" facility and a
smaller "protolite" facility to standardize our travel centers and expand our
brand name into new geographic markets while also increasing our appeal to
general motorists. The prototype and protolite designs combine an improved and
efficient facility layout, nationally branded QSRs and expanded product and
service offerings with what we believe is the most advanced fueling, billing and
repair and maintenance technology in our industry. We have constructed five new
prototype facilities, one each in Commerce City, Colorado (near Denver);
Cartersville, Georgia (near Atlanta); Amarillo, Texas; Monroe, Michigan (near
Detroit); and San Antonio, Texas. These sites opened for business in May,
October and December 1999 and April and August 2000, respectively. We also
constructed a new protolite facility in Florence, Kentucky, which opened for
business in December 1999. Because of our strong relationships with large
trucking fleets, we are able to quickly direct truck traffic to new sites,
hastening the payback of development costs. Each of these newly constructed
prototype and protolite facilities has had positive cash flow, excluding
financing costs, within three months of commencing operations. With the
exception of the Florence site, each of these sites was constructed under
build-to-suit operating leases with our only capital investment being for
signage and certain equipment. We estimate that on an on-going basis the average
cost of a prototype and protolite facility is $8.0 million and $5.0 million,
respectively, excluding the cost of land.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September
30, 1999
Revenues
Our consolidated revenues for the nine-month period ended September 30,
2000 were $1,485.7 million, which represents an increase from the same period in
the prior year of $453.8 million, or 44.0%.
Fuel revenue for the nine-month period ended September 30, 2000 increased
by $392.0 million, or 59.3%, over the same period in 1999. The increase was
attributable to changes in diesel fuel sales volume, increases in gasoline sales
volumes and increases in average sales prices. Average diesel fuel and gasoline
sales prices for the first nine months of 2000 increased by 58.3% and 41.3%,
respectively, as compared to the same period in 1999. The increase in average
sales prices was attributable to increasing crude oil prices and refined
products prices through the first nine months of 2000. Diesel fuel sales volumes
for the nine-month period ended September 30, 2000 increased by 0.1%, as
compared to the same period in 1999, while gasoline sales volumes for the
nine-month period ended September 30, 2000 increased by 20.8%, as compared to
the same period in 1999. The slight increase in diesel fuel volumes for the
nine-month period was due to added volume from the increased number of sites,
partially offset by a decrease in same-site volumes for the period of 10.3%. The
gasoline volume increase was due to the added volume from the increased number
of sites, combined with a same-site increase of 6.8% in gasoline volumes in the
first nine months of 2000 compared to the first nine months of 1999. The
decrease in same-site diesel fuel sales volume was primarily attributable to
softer demand for diesel fuel on the U.S. interstate highway system, primarily
from smaller trucking fleets and independent truck drivers, as a result of both
the sharp rise in and the volatility of diesel fuel prices experienced through
the first nine months of 2000. The sharp rise in diesel fuel prices was driven
by crude oil price increases and reduced domestic refined product inventories.
For the nine months ended September 30, 2000, we sold 1,017.5 million gallons of
diesel fuel and 75.4 million gallons of gasoline, as compared to 1,016.7 million
gallons of diesel fuel and 62.4 million gallons of gasoline during the same
period in 1999.
Non-fuel revenues for the nine-month period ended September 30, 2000 of
$418.7 million reflected an increase of $63.3 million, or 17.8%, from the same
period in 1999. The increase was primarily attributable to
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the increased number of company-operated sites in the network. Further, on a
same-site basis, non-fuel revenue increased 3.9% for the nine months ended
September 30, 2000 versus the same period in 1999. This same-site increase
reflects increased customer traffic resulting, in part, from the significant
capital improvements that we have made in the network under our capital
investment program to re-image, re-brand and upgrade our travel centers,
partially offset by reduced non-fuel sales volume resulting from the depressing
effect of the significant increases in fuel prices on both the disposable income
of certain of our customers and the volume of truck traffic on the highways.
Rent and royalty revenues for the nine-month period ended September 30,
2000 reflected a decrease of $1.4 million, or 9.0%, from the same period in
1999. The decrease was attributable to the rent and royalty revenue lost as a
result of the conversion of one leased site to a franchisee-owned site during
the third quarter of 1999, the conversions of one leased site and one
franchisee-owned site to company-operated sites during the first quarter of 2000
and the elimination of one franchisee-owned site in the third quarter of 2000.
These decreases were partially offset by an increase in same-site rent and
royalty revenues of 0.4% for the nine months ended September 30, 2000 versus
1999. Same-site rent revenues increased 2.0%, and were partially offset by
same-site royalty decreases of 2.2%. The increases in same-site rent revenues
for the nine-month period ended September 30, 2000 versus the nine-month period
ended September 30, 1999 were the result of inflation adjustments made under our
rent agreements with our leased sites. The decreases in same-site royalties for
the same period were due to decreased non-fuel revenues at franchisee locations
resulting from the depressing effect of the significant increases in fuel prices
on both the disposable income of certain of our franchisees' customers and on
the volume of truck traffic on the highways.
Gross Profit
Our gross profit for the nine months ended September 30, 2000 was $338.6
million, compared to $298.9 million for the same period in 1999, an increase of
$39.7 million, or 13.3%. The increase in our gross profit was primarily due to
increases in non-fuel revenues, partially offset by decreased fuel margins and
rent revenue.
Operating and Selling, General and Administrative Expenses
Operating expenses include the direct expenses of company-operated sites
and the ownership costs of leased sites. Selling, general and administrative
expenses include corporate overhead and administrative costs.
Our operating expenses increased by $33.5 million, or 16.8%, to $232.3
million for the nine-month period ended September 30, 2000, compared to $198.8
million for the same period in 1999. This increase reflected the increased
number of company-operated sites, as well as increased non-fuel sales volume at
continuing sites. On a same-site basis, operating expenses as a percentage of
non-fuel revenues for the nine months ended September 30, 2000 were 53.3%,
compared to 54.3% for the same period in 1999.
Our selling, general and administrative expenses decreased from $29.3
million for the nine months ended September 30, 1999 to $28.9 million for the
nine months ended September 30, 2000, despite the increased number of sites in
our network.
Transition Expenses
Transition expenses are the costs incurred from combining the Unocal, BP,
Burns Bros. and Travel Ports networks. These expenses primarily include employee
severance and relocation expenses, legal expenses, site closing and franchise
termination costs, site training costs, deferred site maintenance and certain
asset write-offs. Transition expenses for the first nine months of 2000
decreased from $3.0 million during the same period in 1999 to $1.0 million. We
anticipate incurring less than $0.1 million of transition expenses in the fourth
quarter of 2000.
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Depreciation and Amortization Expense
Depreciation and amortization expense for the nine-month period ended
September 30, 2000 was $48.1 million, compared to $36.9 million, for the same
period last year. This increase resulted from a larger base of assets in 2000
due to the Travel Ports acquisition and continued capital investments under the
capital investment program.
Income from Operations
We generated income from operations of $27.2 million for the nine months
ended September 30, 2000, compared to income from operations of $28.7 million
for the same period in 1999. The decrease of 5.2% for the nine-month period was
primarily attributable to the increase in depreciation and amortization expense
and a decreased gain on sales of property and equipment, partially offset by
increased gross profit and a net decrease in other expenses. EBITDA (defined as
net income plus the sum of (a) income taxes, (b) interest expense, net, (c)
depreciation, amortization and other non-cash charges, (d) transition expense
and (e) gains or losses from sales of property and equipment) for the nine
months ended September 30, 2000 increased by $6.6 million to $77.4 million, as
compared to $70.8 million for the same period in the prior year. The increased
EBITDA was primarily the result of additional company operated sites obtained in
the Travel Ports acquisition and increased non-fuel revenues resulting from the
capital improvements we have made.
Interest Expense -- Net
Interest expense, net, for the nine-months ended September 30, 2000
increased by $4.8 million, or 17.4%, compared to the same period in 1999. This
increase resulted from increased interest rates and the increased debt balance
that resulted primarily from the Travel Ports acquisition.
Income taxes
Our effective income tax rates for the nine months ended September 30, 2000
and September 30, 1999 were 34.7% and 83.7%, respectively. These rates differed
from the federal statutory rate primarily due to state income taxes and
nondeductible expenses, partially offset by the benefit of certain tax credits.
The change between years in the effective tax rate primarily resulted from our
inability to recognize a tax benefit on our operating losses in many states.
Year ended December 31, 1999 Compared to Year ended December 31, 1998
Revenues. Our consolidated revenues for 1999 were $1,454.6 million, which
represented an increase over the prior year of $530.8 million, or 57.5%. This
increase resulted from large increases in fuel and non-fuel revenues offset
slightly by a small decrease in rent and royalty revenue.
Fuel revenue for 1999 increased by $400.4 million, or 72.2%, from 1998.
This increase was attributable to increases in diesel fuel and gasoline sales
volumes, as well as an increase in average pump prices. Diesel fuel and gasoline
sales volumes for 1999 increased 40.7% and 53.9%, respectively, from 1998, 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, we sold 1,370.0
million gallons of diesel fuel and 84.5 million gallons of gasoline. Average
fuel sales prices for 1999 increased 21.8% compared to 1998. The increase in
average retail prices corresponded with the decreasing crude oil prices
experienced throughout 1998 and the increasing crude oil prices beginning in
March 1999.
Non-fuel revenue in 1999 of $479.1 million reflected an increase of $131.6
million, or 37.9%, from 1998. This increase resulted primarily from the
increased number of company-operated sites in the network. Further, on a
same-site basis, non-fuel revenue increased 8.8% in 1999 as compared to 1998,
reflecting the increased customer traffic resulting from the significant capital
improvements we made in the network under the capital investment program.
Rent and royalty revenue for 1999 reflected a $1.0 million, or 4.7%,
decrease from the prior year. This decrease was attributable to the rent and
royalty revenue lost as a result of five conversions of leased sites into
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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 royalty
revenue increase of 5.7% as a result of improved franchisee sales levels.
Gross Profit. Our gross profit for 1999 was $403.5 million, compared to
$296.7 million for 1998, representing an increase of $106.8 million, or 36.0%.
The increase in our gross profit was primarily due to increases in non-fuel
revenues, fuel margins and royalty revenue, partially offset by a decrease in
rent revenue.
Operating and Selling, General and Administrative Expenses. Our operating
expenses for 1999 increased by $73.4 million, or 37.9%, as compared to 1998.
This increase reflected the increased number of company-operated sites and the
increased level of non-fuel revenues on a same-site basis. On a same-site basis,
operating expenses as a percentage of non-fuel revenues for 1999 were 54.0%, an
improvement from the 54.7% for 1998.
Our selling, general and administrative expenses for 1999 increased by $4.2
million from 1998 to $38.5 million, representing an increase of 12.2%. The
increased selling, general and administrative expenses primarily reflected
increased staffing and other expenses such as travel, insurance and advertising
to support our growth resulting from the Burns Bros. and Travel Ports
acquisitions.
Transition Expenses. Transition expenses 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 Unocal network, Burns Bros.
network and Travel Ports network sites into our network. The 1998 costs were
incurred to continue the combination of the Unocal and BP networks, as well as
to begin the integration of the Burns Bros. network into our network.
Depreciation and Amortization. Depreciation and amortization for 1999 was
$53.2 million, an increase of $8.5 million from 1998. The increase in
depreciation and amortization was primarily attributable to the increased level
of property and equipment and intangible assets resulting from the Burns Bros.
and Travel Ports acquisitions, 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 were offset by a one-time depreciation charge recognized in
1998.
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 to conform the Unocal network's estimated useful lives to those of
the BP network. 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 was 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 for 1999 was $98.0 million, compared to $68.7 million for 1998. The
increased EBITDA reflected the significant increase in gross profit offset by
increases in operating expenses and selling, general and administrative
expenses. This increase in gross profit was largely derived from the increase in
the size of the network. The increase in operating expenses and selling, general
and administrative expenses was also principally attributable to the increase in
the size of the network.
Interest Expense -- Net. Interest expense for 1999 was $37.2 million,
representing an increase of $11.8 million, or 46.6%, from 1998. This was a
result of increased levels of indebtedness and interest rates after completing
the refinancing and increasing our $80.0 million term loan facility to $150.0
million in 1998, increased debt from completing the Travel Ports acquisition and
a general increase in interest rates throughout credit markets in general.
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Income Taxes. Our effective income tax rate for 1999 was 91.6%, which
differed from the federal statutory rate due primarily to state income taxes and
nondeductible expenses, partially offset by the benefit of certain tax credits.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Our consolidated revenues for 1998 were $923.8 million, which
represented a decrease from the prior year of $115.5 million, or 11.1%. This
decrease resulted from decreases in fuel revenue and rent and royalty revenue
somewhat offset by an increase in non-fuel revenue.
Fuel revenue for 1998 decreased by $153.9 million, or 21.7%, from 1997.
This decrease was attributable to a decrease of approximately 21.9% in average
retail prices and a 0.2% decrease in diesel fuel sales volume. The decrease in
average retail prices resulted primarily from decreased crude oil prices and
also from competitive pressures. The volume decrease was 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.
Non-fuel revenue in 1998 of $347.5 million reflected a $53.7 million, or
18.3%, increase from 1997. This increase resulted primarily from the increased
number of company-operated sites offering non-fuel products and services. There
were 27 leased sites converted to company-operated sites during 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.
Rent and royalty revenue for 1998 reflected a $15.3 million, or 41.6%,
decrease from the prior year. This decrease was attributable to: (1) conversions
of leased sites into company-operated sites, (2) sales of leased sites and (3)
rent reductions that became effective when former Unocal network operators
signed a new franchise agreement and lease agreement with us. These changes
occurred primarily in 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
non-fuel revenues generated by the franchisees' operations. On a same-site
basis, rent and royalty revenue for 1998 increased over 1997.
Gross Profit. Our gross profit for 1998 was $296.7 million, compared to
$266.2 million for 1997, representing an increase of $30.5 million, or 11.5%.
The increase in our gross profit was primarily due to increases in non-fuel
revenues, diesel fuel margins and royalty revenue, partially offset by decreased
rent revenue.
Operating and Selling, General and Administrative Expenses. Our operating
expenses for 1998 increased by $27.4 million, or 16.3%, as compared to 1997.
This increase reflected 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 non-fuel revenue required an increase in operating
expenses, particularly labor, to support the revenue growth.
Our selling, general and administrative expenses for 1998 decreased by $1.3
million from 1997 to $34.3 million, representing a decrease of 3.7%. The
decrease in selling, general and administrative expenses was primarily due to
continued cost savings as a result of the combination of the Unocal and BP
networks.
Transition Expenses. Transition expenses 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 the Unocal and BP networks, as well as
expenses incurred in beginning the integration of the Burns Bros. network into
our network. The decrease from 1997 reflected the relative level of integration
activities in 1998 versus 1997 on transition activities at the former Unocal
network sites.
Depreciation and Amortization. Depreciation and amortization for 1998 was
$44.7 million, an increase of $8.9 million, or 24.9%, 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 the
Unocal network's estimated useful lives to those of the BP network. 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
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$9.08 per share, respectively. In addition, an impairment charge of $0.6 million
recorded in the fourth quarter of 1997 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.
Income from Operations. Income from operations was $19.1 million for 1998,
as compared to $22.3 million in 1997, a decrease of $3.2 million, or 14.3%. The
decrease was attributable to an increase in depreciation and amortization and
operating expenses and a decrease in gains on sales of property and equipment
and rent and royalty revenues, partially offset by increased non-fuel sales
margins, increased diesel fuel margins and lower selling, general and
administrative expenses. Our EBITDA for 1998 was $68.7 million, compared to
$63.6 million for 1997. The increased EBITDA for 1998 was largely derived from
increased gross profit as a result of a greater number of company-operated sites
and increased diesel fuel margins, partially offset by the increased operating
expenses and reductions in rent and royalty revenues.
Interest Expense -- Net. Interest expense for 1998 was $25.4 million,
representing an increase of $2.5 million, or 10.9%, from 1997. This was 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
refinancing of the existing indebtedness of the Unocal network and the BP
network with new borrowing by us.
Other Items. The extraordinary loss of $3.9 million resulted from the 1998
refinancing and represents the write-offs of the then remaining unamortized
balance of deferred financing costs related to the extinguished indebtedness of
$5.9 million. The reported amount of the extraordinary loss was net of the
applicable income tax benefit of $2.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity requirements are to meet our working capital and
capital expenditure needs, including expenditures for acquisitions and
expansion, and to service the payments of principal and interest on outstanding
indebtedness.
Historical
Net cash provided by operating activities totaled $49.7 million for the
nine months ended September 30, 2000, compared to $30.0 million for the same
period in the prior year. The increase was primarily the result of both
increased EBITDA for the nine months ended September 30, 2000 as compared to the
same period in 1999, and $7.3 million of cash generated from a decrease in net
working capital during the nine months ended September 30, 2000 as compared to
$14.2 million of cash invested in an increase in net working capital for the
same period in 1999. 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
resulted from a $29.3 million increase in EBITDA that was 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 was primarily attributable to increased
EBITDA partially offset by growth in working capital requirements arising 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 decreased to $48.5 million for the
nine months ended September 30, 2000, from $118.0 million for the same period in
1999. During the nine months ended September 30, 2000, we invested $9.0 million
to convert one leased site to a company-operated site, to convert one
franchisee-owned site to a company-operated site, to acquire two new
company-operated sites and to acquire a minority interest in a related business.
For the same period in 1999, we invested $57.0 million to acquire Travel Ports.
Capital expenditures for the nine months ended September 30, 2000 were $26.8
million less than for the same period in 1999. This decrease was primarily
attributable to a planned reduction in capital spending in 2000 as
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compared to 1999, primarily reflecting a reduced level of one-time investments,
such as re-branding and information systems, at the sites acquired from Burns
Bros. and Travel Ports.
Net cash used in investing activities for 1999 was $136.0 million versus
$125.5 million in 1998 and $38.0 million in 1997. Net cash used in investing
activities in 1999 included $87.4 million for capital expenditures under the
capital investment program and $57.8 million for the Travel Ports acquisition.
These outlays were partially offset by $9.1 million of cash proceeds from sales
of property and equipment, which primarily consisted of the sales of five travel
center sites during 1999. The amount of net cash used in investing activities in
1998 reflected $65.7 million of capital expenditures in accordance with our
capital investment program, as well as $6.4 million for the conversions of five
leased sites into company-operated sites and approximately $56.8 million for the
Burns Bros. acquisition. These uses of cash were 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 reflected $75.9 million of
expenditures related to capital additions and conversions of leased sites into
company-operated sites 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.
Net cash provided by financing activities was $9.2 million for the nine
months ended September 30, 2000, while net cash provided by financing activities
for the same period in 1999 was $30.5 million. For 2000, $11.4 million of cash
was provided by net borrowings under our revolving credit facility and $2.2
million was used to make debt repayments and repurchase shares of our common
stock. For the nine months ended September 30, 1999, $25.0 million of cash was
provided by borrowings under our revolving credit facility, primarily to fund
part of the purchase price of the Travel Ports acquisition. 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 our
revolving credit facility. We made $1.6 million of scheduled debt repayments
during 1999. The increased cash flows from investing activities in 1998 versus
1997 reflected the 1998 refinancing.
We expect to invest approximately $70 million in our travel center network
from September 30, 2000 through the end of 2001 in connection with our capital
investment program to maintain, re-image, re-brand, upgrade and expand our
network of travel centers. We have budgeted expenditures to add additional
sites, re-brand and re-image sites, add additional non-fuel offerings, such as
truck maintenance and repair shops and QSRs at existing sites, make required
environmental improvements, and purchase, install and upgrade our information
systems. The capital expenditures budget for the remainder of 2000 is
approximately $20 million.
After the Transactions
As a result of the Transactions, we are highly leveraged. As of September
30, 2000, on a pro forma basis after giving effect to the Transactions, we would
have had outstanding $523.0 million in aggregate indebtedness ($507.7 million
net of unamortized debt discount), with approximately $99.7 million of
additional borrowing capacity available under the Senior Credit Facility, and
total stockholders' equity of $41.3 million. After giving pro forma effect to
the Transactions, our earnings were not sufficient to cover fixed charges by
$12.8 million for the year ended December 31, 1999 and by $16.6 million for the
nine months ended September 30, 2000. As a result of the Transactions, our
liquidity requirements are significantly increased, primarily due to increased
debt service obligations. We believe that cash flow from operating activities,
together with borrowings available under the Senior Credit Facility, will be
sufficient to fund our current anticipated capital investment requirements, debt
service requirements and working capital requirements. Any material future
acquisitions, joint ventures or similar transactions will likely require
additional capital, and we cannot assure you that any capital will be available
to us on acceptable terms or at all.
The Senior Credit Facility provides senior secured financing of up to
$428.0 million, consisting of a $328.0 million term loan B facility with a
maturity of eight years and a $100.0 million revolving credit facility, of which
$99.7 million is available for working capital and capital investment purposes.
We drew the full
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<PAGE> 56
amount of the term loan B facility at the closing of the Transactions. The
revolving credit facility commitment will terminate six years from the date of
the closing of the Senior Credit Facility.
The term loan B facility and the revolving credit facility bear interest at
a rate equal to:
- in the case of the revolving credit facility, Adjusted LIBOR plus a
margin of 2.75% or, at our election, the alternate base rate plus a
margin of 1.75%; or
- in the case of the term loan B facility, Adjusted LIBOR plus a margin of
3.25% or, at our election, the alternate base rate plus a margin of
2.25%.
In addition to paying interest on outstanding principal under the Senior
Credit Facility, we are required to pay a commitment fee to the lenders under
the revolving credit facility equal to 0.50% per year of the unused commitments.
The term loan B facility amortizes each year, beginning in 2002, in
quarterly amounts in the following approximate aggregate principal amounts for
each year set forth below.
<TABLE>
<CAPTION>
TERM LOAN
YEAR B FACILITY
---- ------------
<S> <C>
2002........................................................ $ 3,280,000
2003........................................................ 3,280,000
2004........................................................ 3,280,000
2005........................................................ 3,280,000
2006........................................................ 3,280,000
2007........................................................ 80,360,000
2008........................................................ 231,240,000
------------
Total....................................................... $328,000,000
============
</TABLE>
Principal amounts outstanding under the revolving credit facility are due and
payable in full at maturity, six years from the date of the closing of the
Senior Credit Facility.
The Senior Credit Facility contains a number of covenants that, among other
things, restrict our ability to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay other indebtedness, make
certain restricted payments and dividends, create liens on assets, make
investments, loans or advances, make certain acquisitions, engage in mergers or
consolidations, engage in material businesses other than our current businesses,
make capital expenditures, enter into sale and leaseback transactions, or engage
in certain transactions with affiliates.
The notes mature in 2009. Our obligations under the notes are junior in
right of payment to all of our existing and future senior indebtedness,
including all indebtedness under the Senior Credit Facility. The indenture
restricts, among other things, our ability to incur additional indebtedness,
issue shares of disqualified stock and preferred stock, pay dividends or make
certain other restricted payments and enter into certain transactions with
affiliates, and prohibits certain restrictions on the ability of our
subsidiaries to pay dividends or make certain payments to us, and contains
certain restrictions on our ability to merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets or sell the stock of our subsidiaries.
As of September 30, 2000, $4.7 million was outstanding under a note payable
by us to a former operator of a site, which we refer to as the Santa Nella Note.
The note bears interest at an annual rate of 5%, requires quarterly principal
and interest payments of $98,000 through October 1, 2018 and is secured by the
real estate and improvements located at the site.
We are party to a $68.0 million master lease agreement under which we will
finance by mid-2002 the construction of eight travel centers on land that we
own. As of September 30, 2000, $40.3 million had been used in the construction
of five sites, four of which were completed prior to September 30, 2000 and the
fifth of which was completed in December 2000.
We anticipate that we will be able to fund our working capital requirements
and capital expenditures through 2001 primarily from funds generated from
operations and asset sales, and, to the extent necessary,
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<PAGE> 57
from borrowings under our revolving credit facility. Our 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.
Our ability to fund our capital investment requirements, interest and
principal payment obligations and working capital requirements and to comply
with all of the financial covenants under our debt agreements depends on our
future operations, performance and cash flow. These are subject to prevailing
economic conditions and to financial, business and other factors, some of which
are beyond our control.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to commodity price risk and interest rate risk. Our fuel
purchase contracts provide for purchase prices based on average market prices
for diesel fuel and gasoline, exposing us to commodity price risk. We mitigate
this risk exposure in several ways, but primarily by holding less than three
days of diesel fuel inventory at our sites and selling a large portion of our
fuel volume on the basis of a daily industry index of average fuel costs plus a
pumping fee, which minimize the effect on our margins of sudden sharp changes in
commodity market prices. We manage the price exposure related to sales volumes
not covered by the daily industry index pricing formulae 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 the year ended December 31, 1999 was immaterial. The
interest rate risk faced by us results from our highly-leveraged position and
our level of variable rate indebtedness, the rates for which are based on
short-term lending rates, primarily the London Interbank Offered Rate. We use
interest rate swap agreements to reduce our 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, we were involved in
interest rate swap agreements with a notional principal amount of approximately
$160.3 million. Notional amounts do not quantify risk or represent our assets or
liabilities, but are used in the determination of cash settlements under the
agreements. We are exposed to credit losses from counterparty nonperformance,
but do not anticipate any losses from our agreements, all of which are with a
major financial institution.
The following table summarizes historical information about our financial
instruments that are subject to changes in interest rates:
<TABLE>
<CAPTION>
FIXED RATE INDEBTEDNESS VARIABLE RATE 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>
ENVIRONMENTAL MATTERS
We own and operate underground storage tanks and aboveground storage tanks
at company-operated sites and leased sites which must comply with Environmental
Laws. We have estimated the current ranges of remediation costs at currently
active sites and what we believe will be our ultimate share for those costs and,
as of September 30, 2000, we had a reserve of $6.0 million for unindemnified
environmental matters for which we are responsible. Under the environmental
agreements entered into as part of the acquisition of the Unocal and BP
networks, Unocal and BP are required to provide indemnification for, and conduct
remediation of, certain
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<PAGE> 58
pre-closing environmental conditions. In addition, we have obtained insurance of
up to $25.0 million for known and up to $40.0 million for unknown environmental
liabilities, subject, in each case, to certain limitations. While it is not
possible to quantify with certainty our environmental exposure, we believe that
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 our financial condition, results of operations or our
liquidity.
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 us,
adoption of this standard, as subsequently amended, is required for the first
quarter of 2001. At this time, we have not completed our analysis of the effect
on our financial statements of adopting FAS 133. However, as we use derivatives
on a limited basis and only as hedges of either commodity price risk or interest
rate risk, the effect of FAS 133 on our operations is not expected to be
material.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements," which provides guidance related
to revenue recognition based on interpretations and practices promulgated by the
SEC and requires companies to report any changes in revenue recognition as a
cumulative change in accounting principle at the time of implementation. Before
modification by SAB 101B, SAB 101 was to be effective with the first quarter of
2000. In June 2000, the SEC issued SAB 101B, "Second Amendment: Revenue
Recognition in Financial Statements," which delays implementation of SAB 101
until the fourth quarter of 2000. We are currently finalizing our analysis of
the effect SAB 101 will have on our financial statements, and we do not expect
its adoption will have a significant effect on our financial statements.
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INDUSTRY
The U.S. travel center and truck stop industry consists of travel centers,
truck stops, diesel fuel outlets and similar facilities designed to meet the
needs of long-haul trucking fleets and their drivers, independent truck drivers
and general motorists. According to the National Association of Truck Stop
Operators, or "NATSO," sales at highway service facilities were $110.9 billion
during 1996, and are projected to reach $133.6 billion by the end of 2000.
Travel centers and truck stops accounted for $35.2 billion of these sales in
1996, and are projected to sell $40.7 billion in products and services during
2000.
Market Participants. According to NATSO, the travel center and truck stop
industry is large and highly fragmented with in excess of 3,000 travel centers
and truck stops located on or near interstate highways nationwide, of which we
consider approximately 500 to be full-service travel centers. Further, according
to the 1999 edition of The Trucker's Friend, a database of truck fueling
facilities, only 10 chains in the United States have 25 or more travel center
and truck stop locations on the interstate highways, which we believe is the
minimum number of locations needed to provide even regional coverage to truck
drivers and trucking fleets.
Substantial Barriers to Entry. The travel center and truck stop industry
presents significant barriers to entry for both new competitors and smaller
existing competitors wishing to expand their presence. These barriers include:
- the high capital cost of constructing a new full-service facility;
- the limited availability of suitable locations along or near interstate
highways; and
- the strategic relationships and infrastructure necessary to compete
successfully on a large-scale basis. These relationships and
infrastructure may include, among other things, fleet customer
relationships, branded strategic partner relationships, fuel supply
arrangements, supplier relationships and integrated billing and
information systems.
Facilities Servicing the Trucking Industry. Generally, two types of
facilities service the trucking industry in the United States: pumper-only truck
stops and full-service travel centers. Pumper-only truck stops derive the vast
majority of their revenues from the volume associated with discounted fuel
prices and provide few services to truck drivers other than fueling.
Full-service travel centers, such as those in our network, sell a broad range of
product and service offerings to trucking fleets and their drivers and
independent truck drivers. Product and service offerings at these full-service
travel centers may include diesel fuel and gasoline, full-service restaurants
and quick service restaurants, or QSRs, motels, truck repair and maintenance
shops, truck weigh scales, business and telecommunications services, drivers'
lounges, video game rooms, travel and convenience stores, laundry facilities,
showers, truck wash facilities and secure parking areas. Full-service travel
center sites and facilities are typically larger than pumper-only truck stops to
provide a broader selection of products and services.
Demand for Diesel Fuel. The demand for diesel fuel derives from the need to
move goods by truck. Diesel fuel consumption by combination trucks, which
include tractor and trailer combinations, has grown steadily from 1980 to 1998
at a compound annual growth rate of 2.7%. This growth can be primarily
attributed to an increase in ton-miles, or the number of tons transported
multiplied by the number of miles driven, in the trucking industry, which grew
at a compound annual growth rate of 3.5% over the same period. In terms of
ton-miles, trucking has been gaining market share relative to other modes of
freight transport (particularly rail) due to the price advantage enjoyed by
truck operators and the flexibility and speed of truck delivery as well as the
continuing importance of just-in-time delivery and other inventory minimization
initiatives. In addition, historical data has shown that the volume of diesel
fuel sold has been resistant to economic downturns, having increased in each of
the years from 1981 to 1983 and 1990 to 1992, the two most recent recessionary
periods in the United States, at compound annual growth rates of 1.1% and 3.3%,
respectively, during each of those three year periods. According to the U.S.
Department of Transportation Federal Highway Administration, total diesel fuel
consumption by combination trucks in the United States during 1998 was
approximately 21.1 billion gallons.
Increased Outsourcing of Fuel, Repair and Maintenance Services. Long-haul
trucking fleets require nationwide fueling points and are the industry's
principal consumers of the vast majority of diesel fuel sold in the United
States. We believe that recent trucking industry trends have been to reduce the
use of fleet-owned
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nationwide re-fueling terminals and to outsource fuel, repair and maintenance
services to maximize the benefits of competitive diesel fuel pricing, superior
driver amenities and reduced environmental compliance expenditures.
Trends in the Trucking Industry. Recent trends in the trucking industry
tend to favor the travel center industry, especially those travel centers that
offer a variety of non-fuel products and services in addition to basic fuel
needs.
- Deregulation of the Trucking Industry. The deregulation of the trucking
industry in 1980 removed most barriers to entry, encouraged expansion and
allowed truck drivers to set independent rates. According to The American
Trucking Association's annual statistical reports, since deregulation,
demand for services provided by long-haul trucks has grown significantly.
Deregulation has also stimulated consolidation of trucking fleets with
each other and the consolidation of independent owner operators into
trucking fleets. Fleets increasingly seek to do business with larger
travel center or truck stop chains to maximize their volumes and
available discounts and rebates and to streamline their complex billing
and data collection processes. In order to achieve these goals, a
trucking company will require its drivers to stop only at facilities
operated by a limited number of approved providers.
- Focusing on Core Competencies. In addition to seeking cost efficiencies
through consolidation, trucking companies are attempting to improve
operations by focusing on their core logistics and freight delivery
competencies, which include managing relationships with shippers and
handling the logistics of freight shipments. Increasingly, trucking fleet
companies are outsourcing the repair and maintenance of their fleets to
travel center or truck stop repair and maintenance shops. This trend
favors full-service travel centers that not only offer truck repair and
maintenance services, but also have information systems capable of
electronically recording and tracking truck repairs for fleets.
- Addressing Concerns Related to Truck Drivers. The link between driver
fatigue and trucking accidents has prompted regulators and trucking
companies to impose strict limitations on maximum hours driven per day or
per week by truck drivers. As a result, many truck drivers will stop at a
travel center or truck stop to sleep overnight, leading to increased
demand for those sites that offer a complete range of comfort amenities
such as full-service and fast food dining, showers, laundry facilities,
gamerooms and TV lounges and adequate parking areas. The increased demand
for these services provides an advantage for full-service travel centers
over pumper-only sites. In addition, fleets are increasingly assigning
two drivers to drive one truck as a team to increase fleet use and reduce
shipping times. This trend also favors full-service travel centers
providing a broader mix of non-fuel products and services because it
doubles the potential non-fuel customers each time the truck drivers
stop.
- Shortage of Qualified Drivers. As a result of tight labor markets,
quality-of-life issues for truck drivers and a general increase in
trucking activity, trucking companies are experiencing a shortage of
qualified drivers. As a result, driver turnover at some trucking
companies exceeds 100% annually, as drivers switch companies in search of
better pay and benefits or simply move on to new occupations. We estimate
the cost to a trucking fleet of recruiting and training a new driver is
approximately $3,000 to $5,000. In an effort to increase driver
satisfaction, and thereby improve driver retention, many trucking
companies provide their drivers with the option to stop at full-service
travel centers or truck stops so that these drivers may take advantage of
the broad range of products and services these travel centers offer.
Trends in Motorist Traffic. According to the U.S. Department of
Transportation, the United States is the most mobile nation in the world by most
measures, with over 2.6 trillion vehicle miles traveled by all vehicles on rural
and urban roadways in 1998. The passenger segment, which includes passenger
cars, motorcycles, buses and other 2-axle 4-tire vehicles such as vans, pickup
trucks and sport utility vehicles, represents 92.5% of this total. An
increasingly large percentage of this passenger segment traffic is traveling
U.S. interstate roadways. Interstate vehicle miles traveled by this segment have
increased at a 4.3% compound annual growth rate between 1980 and 1998 and have
also increased as a percent of total vehicle miles traveled, reaching 22.5%
during 1998.
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BUSINESS
TRAVELCENTERS OF AMERICA
We are the largest, and only nationwide, full-service travel center network
in the United States serving long-haul trucking fleets and their drivers,
independent truck drivers and general motorists. Our geographically diverse
network consists of 157 sites, 148 of which are owned by us, located in 40
states. Within our industry, our travel centers have the broadest range of
product and service offerings, including diesel fuel and gasoline, truck repair
and maintenance services, full-service and fast food dining, travel and
convenience stores and other driver amenities. We believe that our nationwide
network and broad range of product and service offerings make us best suited
among our competitors to serve trucking fleets in the United States. In an
effort to increase the appeal of our travel centers to our customers, we have
recently redesigned and upgraded many of our sites. Excluding the results of
sites that we have acquired, sold or eliminated from our network since 1996,
from 1996 to September 30, 2000, we increased our diesel fuel sales volume and
non-fuel revenues at compound annual growth rates of 10.5%, and 17.5%,
respectively, and we have increased our EBITDA at a compound annual growth rate
of 12.8%. On a pro forma basis, for the year ended December 31, 1999 and the
nine months ended September 30, 2000, we had revenues of $1.5 billion and $1.5
billion, respectively, and EBITDA of $107.8 million and $78.9 million,
respectively.
Our travel centers are strategically located at key points along the U.S.
interstate highway system, typically on 20- to 25-acre sites. Most of our
network properties were developed more than 20 years ago when prime real estate
locations along the interstate highway system were more readily available than
they are today, making a network such as ours difficult to replicate. Operating
under the widely recognized "TravelCenters of America" and "TA" brand names, our
nationwide network provides an advantage to long-haul trucking fleets by
enabling them to route their trucks within a single network from coast to coast.
We supply diesel fuel to 49 of the 50 largest long-haul trucking fleets in the
United States and are the principal supplier of diesel fuel to the two largest
and four of the five largest long-haul trucking fleets. For the nine months
ended September 30, 2000, our sites sold 70% of their total diesel fuel sales
volume to trucking fleets. We reset our diesel fuel prices daily and sell a
majority of our diesel fuel on the basis of a daily industry index of average
fuel costs plus a pumping fee and we hold less than three days of diesel fuel
inventory at our sites, which substantially mitigates our exposure to fuel price
volatility. In order to ensure that we have an adequate supply of diesel fuel at
each of our sites, we maintain supply relationships with an average of four to
five alternate suppliers per site.
One of the primary strengths of our business is the diversity of our
revenue sources and the profitability of our non-fuel product and service
offerings. In addition to diesel fuel and gasoline, our travel centers offer
higher margin non-fuel products and services, including truck repair and
maintenance, travel and convenience stores with a selection of over 4,000 items,
full-service restaurants and/or one or more of 20 different branded fast food
restaurants, which we refer to as quick service restaurants, or QSRs, and other
driver amenities. On a pro forma basis for the nine months ended September 30,
2000, our company-operated sites had total non-fuel revenues of $421.1 million
and earned a gross profit of 58.7% on those sales as compared to a gross profit
of 8.6% on sales of diesel fuel. As a result, for that period, our
company-operated travel centers generated 33% of revenues, but 77% of gross
profit, from non-fuel products and services.
COMPETITIVE ADVANTAGES
We believe that our competitive advantages include the following:
- MARKET LEADER WITH STRONG BRAND NAME RECOGNITION. We are the largest, and
only nationwide, full-service travel center network in the United States.
The considerable size of our network, our competitive diesel fuel pricing
and our streamlined information processing capabilities allow trucking
fleet managers to concentrate their fuel purchases with us, thereby
reducing fleet operating costs. In addition, we are the only travel
center network that offers truck repair and maintenance services at
almost all of our locations. Our focus on quality complements the breadth
of our network and product
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<PAGE> 62
and service offerings. We believe that our "TravelCenters of America" and
"TA" brand names have earned a reputation for quality and consistency and
that the combination of our size and the comprehensive scope of products
and services that we offer are difficult for any competitor to replicate.
- SUPERIOR LOCATIONS. A significant barrier to entry into the travel center
and truck stop industry is the limited availability of suitable land
along or near interstate highways. Most of our network properties were
developed more than 20 years ago when strategically located real estate
along the interstate highway system was more readily available than it is
today. In addition to the limited availability of well-situated
locations, we believe that our network of sites could not be easily
duplicated due to increasingly restrictive zoning and permitting
regulations and significant construction costs. We estimate the current
cost to construct a new full-service travel center similar to those
operated by us to be approximately $8.0 million to $11.0 million,
excluding the cost of land.
- STRONG FLEET RELATIONSHIPS. We sell more diesel fuel to the two largest
and four of the five largest long-haul trucking fleets than any other
travel center or truck stop network and have supply relationships with 49
of the 50 largest long-haul trucking fleets. For the nine months ended
September 30, 2000, our sites sold 70% of their diesel fuel sales volume
to trucking fleets. We have established strong relationships with fleets
based on the nationwide scope of our network, our competitive diesel fuel
prices, our automated fueling and payment systems and the breadth of our
non-fuel products and services. For example, we are the largest supplier
of truck repair and maintenance services in the travel center and truck
stop industry. Our comprehensive products and services are designed to
reduce truck downtime and enhance driver satisfaction, which we believe
helps our trucking fleet customers improve retention of their drivers.
- BROADEST PRODUCT AND SERVICE PORTFOLIO. To complement our diesel fuel
business and diversify our revenue sources, we have developed the most
extensive product and service offerings of any travel center network. We
believe that this is an important competitive advantage given that,
according to our research, only one in three stops by truck drivers is
for fuel. On a pro forma basis for the nine months ended September 30,
2000, our company-operated sites had total non-fuel revenues of $421.1
million and earned a gross profit of 58.7% on those sales as compared to
a gross profit of 8.6% on sales of diesel fuel. As a result, for that
period, our company-operated travel centers generated 33% of revenues,
but 77% of gross profit, from non-fuel products and services. In addition
to diesel fuel and one of 16 nationally recognized brands of gasoline,
our typical facility provides:
- a truck repair and maintenance shop;
- multiple food offerings, including a full-service restaurant and/or
one or more of 20 different branded QSRs;
- a travel and convenience store, with a selection of over 4,000 items,
that caters to both truck drivers and general motorists;
- truck weigh scales;
- business and telecommunications services;
- permit services;
- at some locations, a truck wash facility and/or a motel; and
- other driver amenities, including showers, laundry facilities and
video game rooms.
Our travel centers offer highway travelers a broader array of nationally
known branded products than any of our principal competitors. We believe
that offering nationally branded products allows us to leverage the brand
strength of these products to attract additional trucking and general
motorist customers to our travel centers. We offer QSRs such as Burger
King, Dunkin' Donuts, Pizza Hut, Popeye's Chicken & Biscuits, Sbarro,
Subway and Taco Bell; gasoline brands such as Amoco, ARCO, BP, Exxon,
Mobil, Shell and Unocal 76; and motels such as Days Inn, HoJo Inn and
Travelodge.
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- STRATEGIC ALLIANCES. We have strategic alliances with various companies
which we believe enhance our market leadership position and increase our
appeal to our customers, including:
- Freightliner. In July 1999, we entered into an exclusive alliance with
Freightliner LLC, the largest class 8 truck manufacturer in the United
States. This alliance establishes us as the only
manufacturer-authorized travel center network that can provide repair,
maintenance and warranty services for Freightliner trucks. Through the
Freightliner alliance, we have gained significant brand recognition in
our repair and maintenance business and access to industry-leading
training and technology, as well as lower costs for truck parts
inventory. Freightliner, a subsidiary of DaimlerChrysler AG, has an
equity interest in us and, in connection with the Transactions
increased its ownership interest in us.
- Pathway Network. We have an alliance with Simons Petroleum Inc.,
which, through its Pathway Network, allows trucking fleets to lock-in
their diesel fuel costs for up to two years. We have the exclusive
right to offer this service in the markets in which we operate. Simons
contracts with fleets to permit them to hedge diesel fuel prices, and
we facilitate the distribution of diesel fuel through our travel
centers. We receive a fixed margin per gallon on the sale of diesel
fuel to fleets participating in the Pathway Network, but we do not
assume any of the hedging risk associated with the underlying
transactions.
- Bridgestone. The Bridgestone/Firestone Tire Sales Company is the
leading original equipment truck tire supplier in the United States,
and its tires are the leading replacement tire in the travel center
and truck stop market. Through our alliance with
Bridgestone /Firestone, we have negotiated and executed a favorable
long-term supply agreement and have become Bridgestone / Firestone's
number one marketer of truck tires in our distribution channel.
- Shell/Equilon. With its "Shell ROTELLA T" brand, Equilon Enterprises
LLC is the leading supplier in the United States of lubricants and
oils to over-the-road class 8 truck service providers. Through our
alliance with Equilon, we have been granted access to all of Equilon's
supply terminals and distributor network and favorable pricing, and we
have become Equilon's leading travel center and truck stop marketer of
lubricants and oils to trucking fleets and independent truck drivers.
- EXPERIENCED MANAGEMENT TEAM. Our senior management team, led by Edwin P.
Kuhn, our President and Chief Executive Officer, has an average of
approximately 25 years of experience in the travel center and related
industries, including approximately 11 years of experience with us. Since
January 1997, our management team has successfully integrated the truck
stop networks formerly owned by Unocal Corporation and The British
Petroleum Company p.l.c. and acquired and integrated into our network the
travel center and truck stop networks formerly owned by Burns Bros. and
Travel Ports. Our senior management team is supported by other
experienced members of our management, including our regional vice
presidents, who have an average of 15 years of experience in the travel
center and related industries, and our site general managers, who have an
average of 11 years of industry experience. Our management owns 13.8% of
our outstanding common stock on a fully diluted basis.
BUSINESS STRATEGY
Key elements of our on-going business strategy include:
- INCREASE FLEET TRAFFIC. We seek to increase our sites' fleet traffic and
non-fuel revenues by offering products and services designed to meet the
needs of fleet customers, including competitively priced diesel fuel and
truck repair and maintenance services. We believe that these products and
services also attract independent truck drivers.
- Competitive Diesel Fuel Pricing. We plan to continue to increase our
diesel fuel sales volume by continuing to provide competitive pricing,
particularly to large fleets. Drivers initially attracted by
competitive diesel fuel pricing provide us with multiple opportunities
to sell our higher margin
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non-fuel products and services. In an effort to encourage multiple
fueling visits and build "TA" brand loyalty, we are automating and
enhancing our established loyal fueler program, which offers
incentives to drivers who select our travel centers for their fuel and
non-fuel needs. Drivers receive a point for each gallon of diesel fuel
purchased and can redeem their points for discounts on non-fuel
products and services at any of our travel centers.
- Truck Repair and Maintenance Services. As the only nationwide
full-service travel center network offering truck repair and
maintenance services, we enable trucking fleets to outsource these
needs, thereby allowing them to focus on their core logistics and
freight delivery competencies and minimize out-of-route miles. In
addition, our proprietary repair and maintenance shop information
system allows us to track truck repair and maintenance histories for
our fleet customers and independent truck drivers. We have implemented
a repair and maintenance outsourcing program with our largest
customer, which has resulted in a fourfold increase in our repair and
maintenance revenues from that customer. We are currently pursuing
similar arrangements with other trucking fleets. Further, we believe
that our exclusive standing among travel center operators as a
manufacturer-authorized warranty service provider for Freightliner
trucks distinguishes us from our competitors. We believe that the
combination of our industry-leading truck repair capabilities, service
quality, repair and maintenance tracking ability and nationwide
coverage, as well as our warranty program that is honored at all of
our sites, will lead truck fleet operators to continue to direct truck
drivers to our travel centers, thereby increasing customer traffic and
fuel and non-fuel revenues.
- Expand Non-fuel Product Offering. By competitively pricing our diesel
fuel to attract fleet and independent truck driver customers, we also
increase customer traffic, thereby giving us the opportunity to sell
additional higher margin non-fuel products and services. Completion of
our re-design or re-image program will allow us to broaden our
non-fuel product offerings at our sites. In addition, we expect that
as our network's non-fuel revenues grow, we will be able to gain
further purchasing leverage with our suppliers, allowing us to
increase our non-fuel gross profit.
- INCREASE MOTORIST TRAFFIC. We believe that our re-imaged and upgraded
travel centers have increased the appeal of our network to motorists. We
also believe that we are well-positioned to capture additional motorist
traffic by completing our re-image program, continuing to add nationally
branded QSRs, upgrading our network's gasoline offerings to provide the
most popular regional brands of gasoline and providing an attractive and
clean environment. On a same-site basis, non-fuel revenues and gasoline
sales volume at the sites we operate increased 3.9% and 6.8%,
respectively, for the nine months ended September 30, 2000 compared to
the nine months ended September 30, 1999, reflecting the effects of the
significant capital investments we have made in our network.
- INCREASE OPERATING EFFICIENCY. We have implemented several initiatives
aimed at reducing our operating expenses by increasing the efficiency of
our operations. Since 1997, we have replaced or upgraded almost all of
our information systems, and we believe that we now have state-of-the-art
information technology systems.
- Internal Efficiency. Because labor costs constitute about two-thirds
of our operating expenses, we have established a labor cost reduction
program which involves implementing technology to automate manual
processes, to upgrade existing software and to reduce expenses through
improved labor scheduling. We have also implemented centralized
purchasing and distribution arrangements and installed a new, fully
integrated enterprise resource planning system. Since these
initiatives were instituted, we have reduced same-site operating
expenses as a percentage of non-fuel revenues at our company-operated
sites from 56.1% in 1997 to 54.1% in 1999, representing annual savings
of $5.1 million, or 3.7% of 1999 operating expenses at those sites
that we have operated throughout the three-year period. Due to our
recently implemented enterprise resource planning system and upgraded
point-of-sale, human resource and payroll systems, through September
30, 2000, we have reduced our site administrative personnel by 122
persons since January 2000, resulting in annual savings of
approximately $3.0 million.
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- Customer Focused Efficiency. We are dedicated to providing all our
customers with state-of-the-art and technically efficient systems and
facilities. Recent examples of technological advancements that we have
implemented include new or upgraded point-of-sale systems in our
travel and convenience stores, truck repair and maintenance shops and
restaurants; Pronto Pay, which permits drivers to pay, print detailed
receipts and receive loyal fueler coupons at the diesel fuel pump; and
an automated shower reservation system. In addition to reducing our
costs, many of these technological improvements increase free time for
truck drivers, who then can take greater advantage of our non-fuel
product and service offerings.
- ENHANCE AND EXPAND OUR NETWORK. We plan to strengthen our network by
completing our travel center re-image and upgrade program and expanding
our operations to additional geographic areas through select new site
construction, strategic acquisitions and franchising.
- Enhance Our Network. We began a capital investment program in 1997 to
re-image, re-brand and upgrade and expand the product offerings of our
travel centers to maximize trucking-related revenues and attract
additional motorist traffic. Through September 30, 2000, we completed
full re-image projects at 24 of our sites at an average investment of
$1.8 million per site. These full re-image projects typically include
expanding the square footage of the travel and convenience store,
adding a fast food court with two or three QSRs, upgrading showers and
restrooms, updating the full-service restaurant and upgrading the
lighting in the parking areas. We believe that these full re-image
projects have been successful to date in increasing the volume of both
trucking and general motorist traffic at our travel centers. At the 20
sites at which we had completed a full re-image project by December
31, 1999, on an annualized basis, per site EBITDA increased by an
average of $482,000, during the six-month period immediately following
the completion of the re-image project as compared to the six-month
period immediately preceding the initiation of our site re-image
program in 1998. For the six sites that we acquired subsequent to the
initiation of our site re-image program, the comparison period used
was the first six months in which we operated each site. By the end of
2002, we intend to invest an additional $32.1 million to complete full
re-image projects at 18 of our sites and to invest an additional $3.8
million to complete smaller scale re-image projects at 29 of our
sites.
- Expand Our Network. Based on traffic count analysis, freight movement
research and mapping and census data, we have identified several new
interstate areas available for our network's expansion. We have
designed a "prototype" facility and a smaller "protolite" facility to
standardize our travel centers and expand our brand name into new
geographic markets while also increasing our appeal to motorists. The
prototype and protolite designs combine an improved and efficient
facility layout, nationally branded QSRs and expanded product and
service offerings with what we believe is the most advanced fueling,
billing and repair and maintenance technology in our industry. Since
May 1999, we have completed construction of one protolite and six
prototype facilities. Most of our future expansion will be with the
protolite format, which requires significantly less land and capital
investment than the prototype design and enables us to quickly and
cost effectively gain a presence in smaller markets. We will also
pursue strategic acquisitions.
OUR TRAVELCENTERS
Our travel centers are designed to appeal to drivers seeking either a quick
stop or a more extended visit. The typical truck driver visits a travel center
for diesel fuel and for food, truck repair and maintenance services, supplies,
business and telecommunications services, restrooms, showers, laundry
facilities, sleeping facilities and parking facilities. General motorists
typically stop at travel centers to purchase gasoline, food or travel and
convenience store items or to use the telephones, motels or restrooms. Each of
our travel centers is a full-service facility located on or near an interstate
highway and offers fuel and non-fuel products and services 24 hours per day, 365
days per year.
Property. The layouts of the travel centers owned by us vary from site to
site. The facilities owned by us are located on properties averaging 22 acres,
of which an average of approximately 19 acres are developed. The
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majority of the developed acreage consists of truck and car fuel islands,
separate truck and car paved parking and the main building, which contains a
full-service restaurant and one or more QSRs, a travel and convenience store and
driver amenities and a truck maintenance and repair shop. The remaining
developed acreage contains landscaping and access roads.
Expansion Initiatives. To continue our growth trend and strengthen our
national brand identity, we began to develop a prototype travel center design in
1995. We conducted extensive market research in order to design a travel center
that would both appeal to the needs of our core fleet customer and truck driver
base and better enable us to capture additional motorist traffic. The prototype
represents a significant advancement from our historical site format in terms of
layout and design to maximize the overall attractiveness, labor efficiency and
profitability of a site. Prominent prototype features include a front entrance
bearing the TA logo, a large main central hall, separate parking areas and
entrances for truck drivers and general motorists and a floor plan configured to
maximize foot traffic through the various profit centers while minimizing the
number of paypoints.
In addition to the prototype, we have designed a smaller format, the
protolite, to more cost effectively address smaller markets. A protolite travel
center requires significantly less land and capital and provides us with:
- better access to new markets where larger facilities are not practical or
economical;
- the potential to further increase our geographic reach, including the
state highway market, to improve service to national fleets; and
- increased opportunities to capture additional general motorist traffic.
We also believe that the significantly reduced construction costs of the
protolite will result in site profitability in a shorter period of time and
increased return on investment. The prototype and protolite designs will be used
in the construction of new sites, as well as the re-imaging of existing sites,
most of which will be based on the protolite design. We estimate that the
average cost of a prototype and protolite facility is $8.0 million and $5.0
million, respectively, excluding the cost of land.
Product and Service Offerings. We have developed an extensive and diverse
offering of products and services, which include:
- Diesel Fuel. We supply diesel fuel to 49 of the 50 largest long-haul
trucking fleets and are the largest supplier of diesel fuel to the two
largest and four of the five largest long-haul trucking fleets in the
United States. For the nine months ended September 30, 2000, our total
diesel fuel sales volume was 1.0 billion gallons, with trucking fleet
purchases accounting for approximately 70% of our sites' total diesel
fuel sales volume.
- Gasoline. To better attract and service additional general motorist
traffic, we offer nationally recognized branded gasoline, consistently
offering one of the top three gasoline brands in each geographic region.
Of our 121 company-operated sites that are currently in operation, we
offer branded gasoline at 106 sites and unbranded gasoline at four sites.
- Full-Service and Fast Food Restaurants. Most of our travel centers have
both full-service restaurants and QSRs that offer customers a wide
variety of nationally recognized brand names and food choices. Our
full-service restaurants, branded under our "Country Pride," "Buckhorn
Family Restaurants" and "Mrs. B's" proprietary brands, offer "home style"
meals through menu table service and buffets. We also offer nationally
branded QSRs such as Burger King, Dunkin' Donuts, Pizza Hut, Popeye's
Chicken & Biscuits, Sbarro, Subway and Taco Bell. We generally attempt to
locate QSRs within the main travel center building, as opposed to
constructing stand-alone buildings. As of September 30, 2000, 84 of our
company-operated travel centers offered at least one branded QSR. In the
future, locations using the protolite format will generally offer
multiple QSRs but no full-service restaurant.
- Truck Repair and Maintenance Shops. All but 11 of our travel centers have
truck repair and maintenance shops. The typical repair shop has between
two and four service bays, a parts storage
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room and fully trained mechanics on duty at all times. These shops, which
operate 24 hours per day, 365 days per year, offer extensive maintenance
and emergency repair and road services, ranging 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. Our
work is backed by a warranty honored at all of our other repair and
maintenance facilities.
In July 1999, we entered into an operating agreement with Freightliner to
operate our truck repair shops as Freightliner ServicePoint Program
facilities. As ServicePoint Program facilities, our shops are authorized
to perform a limited menu of warranty repairs on trucks purchased from
Freightliner and are included in Freightliner's 24-hour customer
assistance center database as a major supplier of emergency and roadside
repairs. Our shop employees 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 at most of our company-owned and
franchisee-owned sites by the end of 2000. As of September 30, 2000, 103
of our sites were operating in the ServicePoint Program.
- Travel and Convenience Stores. Each travel center has a travel and
convenience store that caters to truck drivers, motorists, recreational
vehicle operators and bus drivers and passengers. Each travel and
convenience store has a selection of over 4,000 items, including food and
snack items, beverages, non-prescription drug and beauty aids, batteries,
automobile accessories, music and audio products. In addition to complete
travel and convenience store offerings, the stores sell items
specifically designed for the truck driver's on-the-road lifestyle,
including laundry supplies and clothing as well as truck accessories.
Many stores also have a "to go" snack bar installed as an additional food
offering.
- Additional Driver Services. We believe that fleets can improve the
retention and recruitment of truck drivers by directing them to visit
high-quality, full-service travel centers. All of our facilities strive
to provide a consistently high level of service and amenities to drivers,
making our network an attractive choice for trucking fleets. Most of our
travel centers provide truck 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 fund transfers from fleet
operators. Most sites have installed telephone rooms with 20 to 25 pay
telephones with AT&T long distance service. The typical travel center
also has designated "truck driver only" areas, including a television
room with a VCR and comfortable seating for drivers, a laundry area with
washers and dryers and an average of six to 12 private showers.
Additionally, we offer truck drivers a loyal fueler program that is
similar to the frequent flyer programs offered by airlines. Drivers
receive a point for each gallon of diesel fuel purchased and can redeem
their points for discounts on non-fuel products and services at any of
our travel centers. We also offer service from Park 'N View, which
provides telephone, cable television and Internet access service directly
to the driver in the privacy of his truck cab in the parking lot.
- Motels. Twenty of our travel centers offer motels, with an average
capacity of 35 rooms. Fourteen of these motels are operated under
franchise grants from nationally branded motel chains, including Days
Inn, HoJo Inn, Super 8, Rodeway and Travelodge.
SALES AND MARKETING
Trucking Fleets. We derive a significant percentage of our revenues from
the sale of diesel fuel and non-fuel products and services to long-haul trucking
fleets and their drivers. In addition to providing the products and services
that fleets and their truck drivers demand, we are committed to developing and
maintaining strong relationships with fleet customers as part of our long-term
sales and marketing effort. The following include certain of our larger trucking
fleet customers (based on diesel fuel sales volume): Allied Holdings, Arnold
Industries, Inc., Celadon Group, Inc., Covenant Transport, Inc., Crete Carrier
Corp., C.R. England, Inc., CRST International, J.B. Hunt Transport Services,
Landstar Systems, Inc., Marten Transport, Ltd., M.S. Carriers, Prime Inc.,
Schneider National, Swift Transportation, Co., Inc., USA Truck, Inc., U.S.
Xpress Enterprises, Watkins Associated Industries and Werner Enterprises. We
manage our fleet relationships
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through a sales force composed of eight regional sales managers and seven
corporate customer service personnel, under the direction of our director of
fleet sales. In addition, members of our billing and customer support,
information systems, repair and maintenance shop marketing and credit
departments work closely with their counterparts at our trucking fleet
customers. We host trucking fleet customer group meetings with our senior
management at our headquarters four to six times each year and sponsor numerous
trucking industry events and awards that involve our trucking fleet customers.
Alliances that we have formed with, among others, Freightliner, Simons
Petroleum's Pathway Network, Bridgestone and Shell provide fleets the products
and services they and their truck drivers want in a "one-stop shopping"
environment and further strengthen the relationships we have developed with our
trucking fleet customers.
Independent Truck Drivers. In addition to strategically located sites,
recognizable brands, travel and convenience stores, driver amenities and
high-quality repair and maintenance services, we market ourselves to independent
truck drivers through a variety of traditional advertising and marketing
efforts. Our loyal fueler program allocates points redeemable on nearly all
non-fuel purchases at our travel center stores, truck maintenance and repair
shops and restaurants based on diesel fuel gallons purchased. In keeping with
our overall strategy of maintaining a recognizable brand name, we also
participate in various trucking industry events such as the Mid-America Truck
Show and the Great American Truck Show, the two most widely attended events in
the trucking industry.
Motorists. We market to general motorists primarily by offering a variety
of nationally branded gasolines and fast food restaurants, which we have added
and will continue to add either as part of our re-imaging program or as site
upgrades. Our market research indicates that motorists are primarily concerned
with quality and convenience, as well as safety and cleanliness. Specifically,
motorists are attracted to our sites by:
- the proximity of our travel centers to interstate highways;
- the travel and convenience stores;
- clean restrooms;
- phone services; and
- in certain locations, motels.
Advertising and Promotion. We have established advertising, marketing and
promotion programs that include spending for magazine advertisements, billboards
and interstate highway logo signs, trade magazines, point of sale advertising,
on-site promotions and limited local advertisements. Franchised sites are
required to contribute to our advertising and marketing budget. In addition to
direct advertising, we publish "Road King Magazine," a bi-monthly subscription
publication for professional truck drivers, and a quarterly TA newsletter for
our trucking fleet customers. We also believe that by offering branded gasoline
and QSRs at our travel centers, we can benefit from the brand advertising done
by these oil companies and franchisors. We are members of several trucking
industry trade organizations, including the American Trucking Association and
the Truckload Carriers Association, the two largest trucking industry
organizations in the United States.
Customer Service Initiatives. We have implemented a variety of customer
service support programs and have a quality assurance program in place for
nearly all of our travel centers. For example, we employ a mystery shopper
program, which is an independent quality assurance program that provides an
evaluation of the overall performance of each of our travel centers, including
our major non-fuel profit centers, performed by independent shoppers
approximately six to eight times a year. In addition, we have an "800" number
and web site where customers can contact us with questions or comments.
Optimization of Network Sites. One of our key objectives is to optimize our
revenue-producing assets to maximize the earnings generated at both a network
level and a site level. From a network perspective, we perform analyses and
studies to identify redundant sites, sites that are economically troubled and
markets in which our network is inadequately represented. Based on the results
of these analyses, we make decisions as to which sites to close or sell and
which locations are good candidates for capital investments such as new sites,
re-images, QSR additions and other improvements. On a site level, operating
managers are constantly challenged to maximize the earnings generated from their
facilities, through incentive-based compensation
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based on achieving department-level EBITDA targets. We periodically evaluate our
gasoline and QSR offerings to ensure that the best brands are offered.
OPERATIONS
Supply. We purchase diesel fuel from various suppliers at rates that
fluctuate with market prices and are reset daily and resell fuel to certain
franchisees and to the public at prices that we establish daily. By establishing
supply relationships with an average of four to five alternate suppliers per
location, we have been able to effectively create competition for our purchases
among various diesel fuel suppliers on a daily basis. We believe that this
flexibility has improved our purchasing position and helped us partially to
offset the decline in retail diesel fuel margins. We further believe that this
positioning with our suppliers will help our sites avoid product outages during
times of diesel fuel supply disruptions.
We have a single source of supply for gasoline at most of our sites that
offer branded gasoline. At 48 of our company-operated sites, we purchase our
gasoline directly from oil companies under jobber agreements; at 36
company-operated sites, we purchase our gasoline from jobbers under sub-jobber
agreements; and at six company-operated sites, we purchase gasoline directly
from the oil companies as a contract dealer. At 13 sites operating under our
trademark license agreement with Unocal, we purchase unbranded gasoline and sell
it under the "76" brand. Oil companies offer their lowest branded gasoline price
to their jobbers, typically one to two cents per gallon lower than the rate they
offer their contract dealers. Jobbers typically price their gasoline sold to
their sub-jobbers at one-half to one cent per gallon above the jobbers' cost.
Sites selling unbranded gasoline do not have exclusive supply arrangements and,
along with the sites operating under the trademark license agreement, can
purchase unbranded gasoline at one to two cents per gallon less than branded
gasoline.
Other than pipeline tenders, our fuel purchases are delivered directly from
suppliers' terminals to our travel centers. We operate a fleet of 25 tankers to
haul fuel to certain of our sites and to deliver supply to a select number of
wholesale customers, but contract with common carriers for the majority of our
fuel hauling needs. We do not contract to purchase substantial quantities of
fuel for our inventory and are therefore susceptible to price increases and
interruptions in supply. In the western United States, we use pipeline tenders
and leased terminal space to mitigate the risk of supply disruptions, while in
the eastern United States, we own and operate our own product terminal for this
purpose. The susceptibility to market price increases for diesel fuel is
substantially mitigated by the significant percentage of our total diesel fuel
sales volume that is sold under pricing formulae that are indexed to market
prices, which we reset daily. We do not engage in any fixed-price contracts with
customers. We sell a majority of our diesel fuel on the basis of a daily
industry index of average fuel costs plus a pumping fee, and we hold less than
three days of diesel fuel inventory at our sites. We currently engage in only a
minimal level of hedging of our fuel purchases with futures and other derivative
instruments that primarily are traded on the New York Mercantile Exchange.
Centralized Purchasing and Distribution. We maintain a distribution and
warehouse center that services our network. This distribution center is the only
dedicated purchasing, warehousing and distribution center in the travel center
and truck stop industry. The distribution center is located near Nashville,
Tennessee and has approximately 85,000 square feet of storage space.
Approximately every two weeks, the distribution center delivers products to our
network sites using a combination of contract carriers and our fleet of trucks
and trailers. In 1999, the distribution center shipped approximately $57.0
million of products. The distribution center's cost savings allow our travel
centers to offer products at reduced prices while maintaining higher profit
margins than many industry competitors.
The distribution center provides us with cost savings by using its
consolidated purchasing power to negotiate volume discounts with third-party
suppliers. The distribution center is also able to obtain further price
reductions from suppliers in the form of reduced shipping charges, as suppliers
need only deliver their products to the distribution center warehouse, as
opposed to each site individually. The distribution center's sophisticated
inventory management system provides administrative cost savings to us. The
system handles returns of defective or obsolete items and provides us with
information regarding product sales volumes, allowing us to react quickly to
changing market conditions. In addition, use of the system has reduced the time
that site managers spend on inventory matters and has allowed them to focus on
product merchandising.
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COMPETITION
The travel center and truck stop industry is highly competitive and
fragmented. According to NATSO, there are in excess of 3,000 travel center and
truck stops located on or near highways nationwide, of which we consider
approximately 500 to be full-service facilities. Further, according to the 1999
edition of The Trucker's Friend, 10 chains in the United States have 25 or more
travel center and truck stop locations on the interstate highways, which we
believe is the minimum number of locations needed to provide even regional
coverage to truck drivers and trucking fleets. In the United States, there are
generally two types of facilities designed to serve the trucking industry:
- pumper-only truck stops, which provide fuel, typically at discounted
prices, with limited additional services; and
- full-service travel centers, such as those in our network, which offer a
broad range of products and services to long-haul trucking fleets and
their drivers, independent truck drivers and general motorists. These
products and services include diesel fuel and gasoline; full-service and
fast food dining; truck repair and maintenance; secure parking areas and
other driver amenities.
Fuel and non-fuel products and services can be obtained by long-haul truck
drivers from a wide variety of sources other than us, including regional
full-service travel center and pumper-only truck stop chains, independently
owned and operated truck stops, some large service stations and fleet-operated
fueling terminals.
We believe that we experience substantial competition from pumper-only
truck stop chains and that this competition is based principally on diesel fuel
prices. In the pumper-only truck stop 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" brand
names, and Pilot Corporation. We experience additional substantial competition
from major full-service networks and independent chains, which is based
principally on diesel fuel prices, non-fuel product and service offerings and
customer service. In the full-service travel center segment, the only large
networks, other than ours, are operated by Flying J Inc. and Petro Stopping
Centers, L.P. Our truck repair and maintenance shops compete with regional
full-service travel center and truck stop chains, full-service independently
owned and operated truck stops, fleet maintenance terminals, independent
garages, truck dealerships and auto parts service centers. We also compete with
a variety of establishments located within walking distance of our travel
centers, including full-service restaurants, QSRs, electronics stores,
drugstores and travel and convenience stores.
A significant portion of all intercity diesel fuel consumption by trucking
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. These terminals often provide facilities for truck
repair and maintenance. Our pricing decisions for diesel fuel and truck repair
and maintenance services cannot be made without considering the existence of
these operations and their capacity for expansion. However, we believe that a
trucking industry trend has been to reduce the use of these terminals and to
outsource fuel, repair and maintenance services to maximize the benefits of
competitive fuel pricing, superior driver amenities and reduced environmental
compliance expenditures.
AGREEMENT WITH UNOCAL
In 1993, we entered into a software license agreement with Unocal which
provides us a 99-year, royalty-free license to use Unocal's ACCESS 76 software
program with the ownership and operation of our network. Under the terms of that
license agreement, we pay the costs of maintaining and upgrading the software
system. The software system is a proprietary, advanced on-line credit card
authorization and information retrieval system that offers our customers a
variety of ways to monitor, control and facilitate their purchase transactions
with us.
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EMPLOYEES
As of September 30, 2000, we employed approximately 10,730 people on a
full-time or part-time basis. Of this total, approximately 10,330 are employees
at company-operated sites or in fuel transportation, approximately 340 perform
managerial, operational or support services at our headquarters or elsewhere and
approximately 60 employees staff the distribution center. All of our employees
are non-union. We believe that our relationship with our employees is
satisfactory.
PROPERTIES
Our principal executive offices are leased and are located at 24601 Center
Ridge Road, Suite 200, Westlake, Ohio 44145-5634. We have entered into a
five-year lease for our principal executive offices that expires in the first
half of 2006 and includes an option to renew for another five years. Our
distribution center is a leased facility located at 1450 Gould Boulevard,
LaVergne, Tennessee 37086-3535. Our current lease for our distribution center
expires on June 30, 2002, and we have two, three-year extension options
available.
Of our 150 owned sites as of September 30, 2000, the land and improvements
at 11 are leased, the improvements but not the land at five are leased, four are
subject to ground leases of the entire site and eight are subject to ground
leases of portions of these sites. We consider our facilities suitable and
adequate for the purposes for which they are used. In addition to these 150
sites, including one currently held for development, we own one additional site
that will be developed as a travel center and two sites that are closed and
being held for sale. In December 2000, we sold two company-operated sites and,
we expect to consummate the sale of the New Lemont, Illinois facility, one of
our leased sites, by the end of the first quarter of 2001.
The following charts set forth a list of each of the sites owned and
operated by us, leased from us and operated by an operator and owned and
operated by an independent franchisee, and also lists certain of the products
and services available at each travel center.
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The TravelCenters of
America Network
<TABLE>
<CAPTION>
FACILITY SERVICES
METHOD -----------------------------------------------
MAP SIZE OF OP. PRIVATE PARKING PARK TRAVEL LAUNDRY
NUMBER ST NAME INTERSTATE LOCATION (ACRES) (1) SHOWERS SPACES 'N VIEW STORE SERVICES
------ --- ----------- ------------------- ------- ------ ------- ------- ------- ------ --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AL Mobile I-10, Exit 4 15.2 CoCo 10 102 Y Y Y
2 AL Montgomery I-65, Exit 168 10.4 CoFo 12 125 Y Y Y
3 AL Tuscaloosa Exit 77, I-20/159 &
Buttermilk Rd. 14.7 CoCo 12 135 Y Y Y
4 AZ Eloy I-10, Exit 203,
Toltec Rd. 22.0 CoCo 12 208 Y Y Y
5 AZ Kingman I-40, Exit 48 27.9 CoCo 12 125 Y Y Y
6 AR West Earle Exit 260,
Memphis I-40 & SR 149 47.4 CoCo 10 175 Y Y Y
7 CA Barstow I-15, West Main
Exit 12.2 CoCo 7 150 Y
8 CA Buttonwillow I-5, Exit 58 15.8 CoCo 12 220 Y Y Y
9 CA Coachella I-10 at Dillon Rd 17.4 CoCo 10 300 Y Y Y
10 CA Corning Hwy 5 at South Ave 24.0 CoCo 20 300 Y Y Y
11 CA Lost Hills I-5, Hwy 46 Exit 17.4 CoCo 6 65 Y
12 CA Ontario Exit Milliken Ave.,
East I-10 & Milliken Ave 31.8 CoCo 28 650 Y Y Y
13 CA Ontario I-10 at Milliken
West Ave 34.7 CoCo 18 450 Y Y Y
14 CA Redding I-5, Knighton Rd 20.0 CoCo 7 250 Y Y Y
15 CA Santa Nella I-5 & Hwy 33, Santa
Nella Exit 22.7 CoCo 13 216 Y Y Y
16 CA Wheeler I-5 at Lake
Ridge Isabella or Laval
Rd 20.0 CoCo 13 165 Y Y Y
17 CO Denver East I-70/I-270, Exit
278 (Quebec St.
Exit) 27.0 CoCo 10 210 Y Y Y
18 CO Denver West I-70, Exit 266 12.9 CoFo 10 155 Y Y Y
19 CT New Haven I-95, CT Exit 56 12.3 CoFo 7 120 Y Y
20 CT Southington I-84, Exit 28, Hwy
322 14.6 CoCo 12 150 Y Y Y
21 CT Willington I-84, Exit 71 Ruby
Rd 43.0 CoCo 10 220 Y Y Y
22 FL Jacksonville Jct. I-10 & U.S.
I-10 301, Exit 50 17.9 CoFo 9 137 Y Y Y
23 FL Jacksonville I-95 & CR 210 West,
S Exit 96 11.3 CoFo 6 90 Y Y Y
24 FL Marianna I-10 & State Route
71 31.6 CoFo 12 138 Y Y Y
25 FL Vero Beach I-95, Exit 68 29.2 CoFo 12 180 Y Y Y
26 FL Wildwood I-76 at Route 44,
Exit 66 23.0 CoCo 12 170 Y Y Y
27 GA Atlanta Exit 39, Hwy 160,
I-285 East 17.8 CoCo 12 230 Y Y Y
28 GA Atlanta I-75 & Georgia Hwy
South 36 29.2 CoFo 12 200 Y Y Y
29 GA Brunswick Exit 6, I-95 at
U.S. 17 28.2 CoCo 12 110 Y Y
30 GA Cartersville I-75, Exit 127 21.2 CoCo 10 200 Y Y Y
31 GA Commerce I-85 & U.S. 441,
Exit 53 13.4 CoCo 14 151 Y Y
32 GA Cordele I-75 & Winona, Exit
97 18.6 CoCo 8 100 Y Y
33 GA Lake Park I-75, Exit 1 8.8 CoFo 6 75 Y Y Y
34 GA Madison I-20 & U.S. 441,
Exit 51 11.6 CoCo 10 175 Y Y Y
35 GA Savannah I-95 & U.S. 17
South,
Exit 14 20.0 CoFo 9 107 Y Y Y
36 ID Boise I-84, Exit 54 13.0 CoCo 12 130 Y Y
<CAPTION>
FUEL TRUCK MAINTENANCE
FACILITY SERVICES --------------------- ------------------------------------------
---------------------------- DIESEL EMERGENCY SERVICE TRUCK
MAP WEIGH BUSINESS DRIVER'S SATELLITE GASOLINE TRUCK ROAD POINT SERVICE
NUMBER SCALES SERVICES LOUNGE PUMPS AVAILABLE SERVICE SERVICE FACILITIES BAYS
------ ------ -------- -------- --------- --------- ------- --------- ---------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 CAT Y Y Y BP Y Y Y 5
2 Y Y Y Y Citgo Y Y Y 2
3
Y Y Y BP Y Y Y 2
4
CAT Y Y Y Exxon Y Y Y 3
5 CAT Y Y 76 Y Y Y 2
6
CAT Y Y Y BP Y Y Y 3
7
Y Y Unbranded
8 CAT Y Y Y 76 Y Y Y 2
9 CAT Y Y Y Arco Y Y Y 4
10 CAT Y Y Y Arco Y Y Y 4
11 Y Arco
12
CAT Y Y Y Y Y Y 3
13
CAT Y Y Y 76 Y Y Y 3
14 CAT Y Y Y 76 Y Y Y 2
15
CAT Y Y Y 76 Y Y Y 5
16
CAT Y Y Y Chevron Y Y Y 3
17
CAT Y Y Y Unbranded Y Y Y 3
18 CAT Y Y Y 76 Y Y Y 2
19 CAT Y Y Y Sunoco Y Y Y 2
20
CAT Y Y Y Texaco Y Y Y 3
21
CAT Y Y Y Shell Y Y Y 3
22
Y Y Y Y Amoco Y Y Y 2
23
Y Y Y Y Shell Y Y Y 2
24
CAT Y Y Y BP Y Y Y 2
25 CAT Y Y Y Amoco Y Y Y 2
26
CAT Y Y Y BP Y Y Y 3
27
CAT Y Y Y Y Y Y 4
28
CAT Y Y Y Citgo Y Y Y 4
29
CAT Y Y Y BP Y Y Y 3
30 CAT Y Y Y Exxon Y Y Y 3
31
Y Y Y Y 76 Y Y Y 2
32
Y Y Y Y BP Y Y Y 3
33 Y Y Y Y BP Y Y Y 2
34
CAT Y Y Y BP Y Y Y 2
35
CAT Y Y Y Amoco Y Y Y 2
36 CAT Y Y Y Amoco Y Y Y 3
<CAPTION>
MOTEL
FOOD AVAILABLE
-------------------- ----------
FULL FAST
MAP SERVICE FOOD
NUMBER DINING OFFERINGS
------ ------- ----------
<C> <C> <C> <C>
1 Y
2 Y
3
Y 2,3
4
Y 2,19
5 Y 11
6
Y 2,7
7
Y
8 Y 2
9 Y 1,2,17
10 Y 1,3,17
11 Y
12
Y 2,6,7,17
13
Y 1,22
14 Y 1,11
15
Y
16
Y 1,2,3,7,17
17
Y 1,10,11
18 Y
19 Y
20
Y
21
Y 7,12
22
Y
23
Y
24
Y
25 Y 9
26
Y 1,3,11,17
27
Y 11 Unbranded
28
Y 2,3
29
Y 13 Days Inn
30 Y 6,7,11
31
Y
32
Y
33 Y
34
Y 2,11
35
Y 1,8
36 Y 2,3
</TABLE>
66
<PAGE> 73
The TravelCenters of
America Network
<TABLE>
<CAPTION>
FACILITY SERVICES
METHOD -----------------------------------------------
MAP SIZE OF OP. PRIVATE PARKING PARK TRAVEL LAUNDRY
NUMBER ST NAME INTERSTATE LOCATION (ACRES) (1) SHOWERS SPACES 'N VIEW STORE SERVICES
------ --- ----------- ------------------- ------- ------ ------- ------- ------- ------ --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
37 IL Bloomington I-55, I-74, I-39 at
Route 9, Exit 160A 19.0 CoCo 11 150 Y Y Y
38 IL Chicago N Illinois/Wisconsin
Line
I-94 & Russell 63.2 CoCo 12 300 Y Y Y
39 IL Effingham I-57 & I-70 State
Route 32 & 33, Exit
160 13.0 CoCo 10 120 Y Y Y
40 IL Elgin West I-90 & U.S. Hwy 20,
Marengo-Hampshire
Exit 14.8 CoCo 10 125 Y Y Y
41 IL Mt. Vernon I-57 & I-64 32.5 CoCo 8 175 Y Y Y
42 IL New
Lemont(2) I-55, Exit 267 16.6 CoFo 9 175 Y Y
43 IN Gary Burr St. Exit,
I-80/ I-94 21.6 CoCo 22 350 Y Y Y
44 IN Indianapolis I-70 & State Road
West 39,
Exit 59 16.4 CoFo 7 100 Y Y Y
45 IN Indy 500 I-65, State Road
334,
Exit 130 38.8 CoFo 6 150 Y Y
46 IN Lake
Station I-80/I-94, Exit 15B 23.2 CoCo 15 250 Y Y Y
47 IN Porter 1600 West US Hwy 20 34.5 CoCo 10 300 Y Y Y
48 IN Seymour Exit 50, I-65 &
S.R. 50 16.0 CoCo 11 130 Y Y Y
49 IA Council
Bluffs I-80 & I-29, Exit 3 11.3 CoCo 5 100 Y Y Y
50 IA Iowa 80 I-80 at Exit 284 N/A FoFo 23 700 Y Y
51 KS Beto Exit 155, U.S. 75 &
Junction I-35 N/A FoFo 6 200 Y Y Y
52 KY Cincinnati Exit 175, I-75/I-71
South & S.R. 338 9.0 CoCo 8 95 Y Y Y
53 KY Florence I-75, Exit 181 11.0 CoCo 8 160 Y Y Y
54 LA Lafayette I-10 & State Road
182 14.0 CoCo 13 119 Y Y Y
55 LA Slidell I-10, Exit 266 21.6 CoFo 10 200 Y Y Y
56 LA Tallulah I-20 & U.S. 65,
Exit 171 16.7 CoCo 8 120 Y Y Y
57 MD Baltimore I-95, Exit 57 21.0 CoCo 19 250 Y Y Y
58 MD Baltimore Jessup Exit 41A,
South Rt. 175 & I-95 20.0 CoCo 19 650 Y Y Y
59 MD Elkton I-95, Exit 109B 30.0 CoCo 12 230 Y Y Y
60 MI Ann Arbor I-94, Exit 167 31.9 CoCo 10 112 Y Y Y
61 MI Monroe Exit 15, I-75 &
S.R. 50 33.1 CoCo 10 200 Y Y Y
62 MI Saginaw I-75, Exit 144 11.5 CoFo 4 100 Y Y Y
63 MI Sawyer I-94, Exit 12 23.3 CoCo 8 155 Y Y Y
64 MN Albert Lea I-90 & I-35, Exit
11 N/A FoFo 10 160 Y Y Y
65 MN Twin City I-94 & Hwy 101,
West Exit 207 12.1 CoFo 8 127 Y Y Y
66 MS Meridian I-20 & I-59, Exit
160 12.5 CoCo 6 115 Y Y Y
67 MO Concordia Exit 58, I-70 & Rt.
23 20.2 CoCo 12 120 Y Y Y
68 MO Kansas City I-70 & Route H,
East Exit 28 15.2 CoCo 10 130 Y Y Y
69 MO Matthews I-55 & Hwy 80, Exit
58 28.6 CoCo 6 100 Y Y Y
70 MO Mt. Vernon Exit 46, I-44 &
S.R. 39 N/A FoFo 12 150 Y Y
71 MO Springfield
East I-44, Exit 88 N/A FoFo 8 130 Y Y
72 MO St. Louis I-70 & Route W,
W. I-70 Exit 203 16.7 CoFo 8 86 Y Y Y
<CAPTION>
FUEL TRUCK MAINTENANCE
FACILITY SERVICES --------------------- ------------------------------------------
---------------------------- DIESEL EMERGENCY SERVICE TRUCK
MAP WEIGH BUSINESS DRIVER'S SATELLITE GASOLINE TRUCK ROAD POINT SERVICE
NUMBER SCALES SERVICES LOUNGE PUMPS AVAILABLE SERVICE SERVICE FACILITIES BAYS
------ ------ -------- -------- --------- --------- ------- --------- ---------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
37
CAT Y Y Y 76 Y Y Y 2
38
CAT Y Y Y Mobil Y Y Y 3
39
Y Y Y Y BP Y Y Y 3
40
CAT Y Y Y Amoco Y Y Y 2
41 CAT Y Y Y Citgo Y Y Y 2
42
CAT Y Y Y 76 Y Y Y 2
43
CAT Y Y Y BP Y Y Y 4
44
CAT Y Y Y 76 Y Y Y 2
45
CAT Y Y Y Marathon Y Y Y 2
46
Y Y Y Y Phillips Y Y Y 3
47 CAT Y Y Y Mobil Y Y 2
48
CAT Y Y Y BP Y Y Y 2
49
CAT Y Y Y Conoco Y Y Y 2
50 CAT Y Y Y Amoco Y Y Y 5
51
CAT Y Y Y Texaco Y Y Y 2
52
CAT Y Y Y BP Y Y Y 2
53 CAT Y Y Y Sunoco Y Y Y 3
54
CAT Y Y Y Amoco Y Y Y 2
55 Y Y Y Y Mobil Y Y Y 3
56
CAT Y Y Y Mobil Y Y Y 2
57 CAT Y Y Y Mobil
58
CAT Y Y Y Citgo Y Y Y 4
59 CAT Y Y Y Mobil Y Y Y 3
60 CAT Y Y Y BP Y Y Y 2
61
CAT Y Y Y BP Y Y Y 3
62 Y Y Y Y Citgo Y Y Y 2
63 CAT Y Y Y Mobil Y Y Y 3
64
CAT Y Y Y Texaco Y Y Y 2
65
CAT Y Y Y Citgo Y Y Y 2
66
CAT Y Y Y BP Y Y Y 2
67
CAT Y Y Y Phillips Y Y Y 2
68
CAT Y Y Y Conoco Y Y Y 2
69
CAT Y Y Y Citgo Y Y Y 2
70
Y Y Y Y Conoco Y Y Y 2
71
Y Y Y Y Conoco Y Y Y 2
72
CAT Y Y Y Mobil Y Y Y 2
<CAPTION>
MOTEL
FOOD AVAILABLE
-------------------- ----------
FULL FAST
MAP SERVICE FOOD
NUMBER DINING OFFERINGS
------ ------- ----------
<C> <C> <C> <C>
37
Y
38
Y 1
39
Y 6, 11
40
Y 1, 2
41 Y 11
42
Y
43
Y 1,2
44
Y 5
45
Y
46
Y 3
47 Y 3
48
Y
49
Y 1,20
50 Y 4,9,13
51
Y 9
52
Y 2
53 1,11,21
54
Y
55 Y
56
Y
57 Y 2,3 Unbranded
58
Y 3
59 Y 3,6
60 Y
61
Y 1,10,11
62 Y
63 Y 2,7,11
64
Y 1,15
65
Y
66
Y
67
Y 1,3,17
68
Y 1,11
69
Y 2
70
Y 14,15
71
Y 3,2
72
Y
</TABLE>
67
<PAGE> 74
The TravelCenters of
America Network
<TABLE>
<CAPTION>
FACILITY SERVICES
METHOD -----------------------------------------------
MAP SIZE OF OP. PRIVATE PARKING PARK TRAVEL LAUNDRY
NUMBER ST NAME INTERSTATE LOCATION (ACRES) (1) SHOWERS SPACES 'N VIEW STORE SERVICES
------ --- ----------- ------------------- ------- ------ ------- ------- ------- ------ --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
73 NE Grand
Island West I-80, Exit 305 18.6 CoFo 7 125 Y Y Y
74 NE Ogallala I-80, Exit 126 16.8 CoCo 9 75 Y Y Y
75 NE Waco I-80, Exit 360 15.5 CoCo 3 70 Y Y
76 NV Las Vegas I-15, Blue Diamond
Exit 33 12.1 CoCo 14 135 Y Y Y
77 NV Mill City I-80, Exit 151
(West)
Exit 149 (East) 73.4 CoCo 10 120 Y Y
78 NV Reno-Sparks I-80, Exit 19 14.7 CoFo 16 187 Y Y
79 NV Rye Patch I-80, Exit 129 12.0 CoCo 3 40 Y
80 NH Greenland I-95, Exit 3
Northbound; Exit 34
Southbound 6.8 CoCo 7 120 Y Y Y
81 NJ Bloomsbury I-78, Bloomsbury
Exit 7 12.5 CoCo 7 140 Y Y Y
82 NJ Carney's
Point Exit 2C, I-295 10.0 CoCo 6 70 Y Y
83 NJ Columbia Exit 4, I-80 at Rt.
94 16.3 CoCo 7 190 Y Y Y
84 NJ Paulsboro I-295, 18A,
Mt. Royal Exit 25.0 CoCo 10 200 Y Y Y
85 NM Albuquerque I-25 & I-40, Exit
227A 11.6 CoCo 11 125 Y Y Y
86 NM Gallup Exit 16, I-40 & Hwy
66 14.9 CoCo 12 125 Y Y Y
87 NM Las Cruces I-10 & Amandor
Exit, Hwy 292 19.2 CoCo 15 145 Y Y Y
88 NM Santa Rosa Exit 277, I-40 &
U.S. 66, 54 & 84 24.7 CoCo 10 175 Y Y Y
89 NY Belmont Rts. 17 & 19 8.2 CoCo 1 50 Y
90 NY Binghamton I-81 N. Exit 2W,
NY-17 or I-815,
Exit 3,
I-81/I-17 10.0 CoCo 6 97 Y Y
91 NY Buffalo I-90 & SR77, Exit
I-90 East 48A, Pembroke 16.3 CoFo 8 150 Y Y Y
92 NY Dansville I-390, Exit 5 16.0 CoCo 5 126 Y Y Y
93 NY Fultonville I-90, Exit 28 15.1 CoCo 8 100 Y Y Y
94 NY Maybrook I-84, Exit 5 15.6 CoCo 12 180 Y Y Y
95 NC Candler I-40, Exit 37 20.3 CoCo 8 125 Y Y Y
96 NC Greensboro Exit 138, I-85/I-40
& Hwy 61 28.6 CoCo 14 185 Y Y Y
97 NC Kenly Exit 106, I-95 N/A FoFo 12 250 Y Y Y
98 OH Ashland Exit 186, I-71 &
U.S. 250 7.1 CoCo 4 60 Y Y
99 OH Columbus I-70 at Ohio 37,
East Exit 126 17.4 CoCo 9 160 Y Y Y
100 OH Columbus I-70 & U.S. 42,
West Exit 79 27.0 CoCo 8 200 Y Y Y
101 OH Dayton Exit 10, I-70 &
U.S. 127 89.8 CoCo 9 200 Y Y Y
102 OH Jeffersonville
East I-77, MM 65 11.7 CoCo 6 190 Y Y Y
103 OH Kingsville I-90, Exit 235 37.0 CoCo 9 126 Y Y Y
104 OH Lodi Exit 209, I-71 &
I-76 at Rt. 224 25.3 CoCo 12 270 Y Y Y
<CAPTION>
FUEL TRUCK MAINTENANCE
FACILITY SERVICES --------------------- ------------------------------------------
---------------------------- DIESEL EMERGENCY SERVICE TRUCK
MAP WEIGH BUSINESS DRIVER'S SATELLITE GASOLINE TRUCK ROAD POINT SERVICE
NUMBER SCALES SERVICES LOUNGE PUMPS AVAILABLE SERVICE SERVICE FACILITIES BAYS
------ ------ -------- -------- --------- --------- ------- --------- ---------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
73
CAT Y Y Y Conoco Y Y Y 2
74 CAT Y Y Y 76 Y Y Y 2
75 Y Y Amoco
76
CAT Y Y Y 76 Y Y Y 2
77
CAT Y Y Y Arco Y Y Y 3
78 Y Y Y Y 76 Y Y Y 2
79 Y Arco
80
Y Y Y Unbranded Y
81
CAT Y Y Y Mobil Y Y Y 3
82
CAT Y Y Y Texaco Y
83
CAT Y Y Y BP Y Y Y 2
84
Y Y Y Y Unbranded Y Y Y 3
85
CAT Y Y Y 76 Y Y Y 3
86
CAT Y Y Y Shell Y Y Y 2
87
CAT Y Y Y Shell Y Y Y 5
88
CAT Y Y Y Shell Y Y Y 3
89 Mobil
90
Y Sunoco Y Y Y 2
91
Y Y Y Y Citgo Y Y Y 2
92 Y Y Y Y Mobil Y Y Y 2
93 Y Y Y Sunoco Y Y Y 2
94 Y Y Y Y Sunoco Y Y Y 3
95 Y Y Y Y Citgo Y Y 3
96
CAT Y Y Y BP Y Y Y 2
97 Y Y Y Y Texaco Y Y Y 4
98
CAT Y BP Y Y Y 2
99
CAT Y Y Y BP Y Y Y 2
100
CAT Y Y Y BP Y Y Y 2
101
CAT Y Y BP Y Y Y 2
102
CAT Y Y Y BP Y Y Y 2
103 CAT Y Y Y BP Y Y Y 3
104
CAT Y Y Y BP Y Y Y 2
<CAPTION>
MOTEL
FOOD AVAILABLE
-------------------- ----------
FULL FAST
MAP SERVICE FOOD
NUMBER DINING OFFERINGS
------ ------- ----------
<C> <C> <C> <C>
73
Y
74 Y
75 Y
76
Y 7,20
77
Y 2 Unbranded
78 Y
79
80
Y 1
81
Y 7
82
11
83
Y 1,2,6 Days Inn
84
Y Unbranded
85
Y
86
Y 4 HoJo
87
Y 1,2,7
88
Y 3
89 Y
90
Y
91
Y
92 Y Days Inn
93 Y Unbranded
94 Y 1 Unbranded
95 Y
96
Y 7,11 Days Inn
97 Y 9
98
Y
99
Y 6,11
100
Y 1,11
101
Y 3,7
102
Y 1,11
103 Y 7
104
Y 1,7
</TABLE>
68
<PAGE> 75
The TravelCenters of
America Network
<TABLE>
<CAPTION>
FACILITY SERVICES
METHOD -----------------------------------------------
MAP SIZE OF OP. PRIVATE PARKING PARK TRAVEL LAUNDRY
NUMBER ST NAME INTERSTATE LOCATION (ACRES) (1) SHOWERS SPACES 'N VIEW STORE SERVICES
------ --- ----------- ------------------- ------- ------ ------- ------- ------- ------ --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
105 OH North
Canton I-77, Exit 111 11.2 CoCo 4 90 Y Y Y
106 OH Stony Ridge Ohio Turnpike Exit
5,
I-80 & I-280 17.0 CoCo 15 300 Y Y Y
107 OH Toledo/Perrysburg I-80/90 & I-280,
Exit 5 17.6 CoCo 12 200 Y Y Y
108 OH Youngstown I-80, Route 46,
Exit 223A 16.2 CoCo 12 200 Y Y Y
109 OK Oklahoma
City East I-40, Exit 142 19.0 CoCo 12 220 Y Y Y
110 OK Oklahoma
City West I-40, Exit 140 19.3 CoCo 6 200 Y Y Y
111 OK Sayre I-40 & Cemetery
Road 20.0 CoCo 6 100 Y Y Y
112 OR Eugene Exit 199, I-5 N/A FoFo 6 110 Y Y Y
113 OR Portland I-5, Exit 278 20.0 CoCo 6 150 Y Y Y
114 OR Troutdale I-84, Exit 17 25.4 CoCo 10 240 Y Y Y
115 PA Barkeyville Exit 3, I-80 & S.R.
8 61.0 CoCo 9 95 Y Y Y
116 PA Bloomsburg I-80, Exit 34 13.0 CoCo 14 200 Y Y Y
117 PA Breezewood PA Turnpike Exit 12
& U.S. 30, I-76/
I-70 N/A FoFo 16 200 Y Y
118 PA Brookville Exit 13, I-80 & Rt.
36 48.5 CoCo 14 180 Y Y Y
119 PA Greencastle I-81, Exit 3 23.5 CoCo 11 220 Y Y Y
120 PA Harborcreek I-90, Exit 10 72.0 CoCo 11 266 Y Y Y
121 PA Harrisburg Manada Hill Exit
27, I-81 & S.R. 39 54.0 CoCo 17 170 Y Y Y
122 PA Lamar Exit 25, I-80 &
S.R. 64 68.3 CoCo 10 100 Y Y Y
123 PA Milesburg I-80, Exit 23 11.3 CoCo 6 90 Y Y
124 PA North East I-90, Route 20,
Exit 12 9.6 CoCo 10 90 Y Y
125 SC Manning I-95, MM 119 15.1 CoFo 7 114 Y Y Y
126 SC Spartanburg Exit 63, I-85 &
S.R. 290 25.7 CoCo 12 160 Y Y Y
127 SD Spencer I-90, Exit 353 12.0 CoCo 2 12 Y Y
128 TN Antioch I-24, Exit 62 21.5 CoCo 6 150 Y Y Y
129 TN Jackson I-40, Exit 68 10.0 CoFo 6 100 Y Y
130 TN Knoxville Exit 374, I-40 &
I-75 24.0 CoCo 15 150 Y Y Y
131 TN Knoxville I-40 & I-75, Exit
West 369 25.3 CoFo 13 176 Y Y Y
132 TN Nashville Exit 85, I-65,
James Robertson
Pkwy 16.6 CoCo 11 180 Y Y
133 TN Nashville
South I-65, Exit 61 13.2 CoCo 6 86 Y Y
134 TX Amarillo Exit 81, I-40 E &
East FM 1912 25.0 CoCo 12 156 Y Y
135 TX Amarillo
West I-40, Exit 74 29.5 CoCo 10 175 Y Y Y
136 TX Baytown Exit 789, I-10 &
Thompson Rd 17.0 CoCo 10 230 Y Y
137 TX Dallas Big Town Blvd.,
I-30 & U.S. 80 13.7 CoCo 16 150 Y Y Y
138 TX Dallas I-20 & BonnieView,
South Exit 470/Opens July
2001 21.8 CoCo 10 200 Y Y Y
<CAPTION>
FUEL TRUCK MAINTENANCE
FACILITY SERVICES --------------------- ------------------------------------------
---------------------------- DIESEL EMERGENCY SERVICE TRUCK
MAP WEIGH BUSINESS DRIVER'S SATELLITE GASOLINE TRUCK ROAD POINT SERVICE
NUMBER SCALES SERVICES LOUNGE PUMPS AVAILABLE SERVICE SERVICE FACILITIES BAYS
------ ------ -------- -------- --------- --------- ------- --------- ---------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
105
CAT Y Y Ashland Y Y Y 2
106
CAT Y Y Y Y Y Y 3
107
CAT Y Y Y BP Y Y Y 2
108
CAT Y Y Y Y Y Y 3
109
CAT Y Y Y Conoco Y Y Y 3
110
CAT Y Y Y Phillips Y Y Y 2
111
CAT Y Y Y Texaco Y Y 2
112 Y Y Y Y Shell Y Y Y 3
113 CAT Y Y Y Shell Y Y Y 2
114 CAT Y Y Y Arco Y Y Y 4
115
CAT Y Y Y BP Y Y Y 2
116 CAT Y Y Y Amoco Y Y Y 5
117
CAT Y Y Y Mobil Y Y Y 3
118
CAT Y Y Y BP Y Y Y 3
119 Y Y Y Y Mobil Y Y Y 4
120 Y Y Y Y Sunoco Y Y Y 3
121
CAT Y Y Y Y Y Y 2
122
CAT Y Y Y BP Y Y Y 2
123 Y Y Y Amoco Y Y Y 3
124
Y Y Y Y Shell Y Y Y 2
125 CAT Y Y Y Amoco Y Y Y 2
126
CAT Y Y Y BP Y Y Y 3
127 Y Amoco
128 CAT Y Y Y BP Y Y Y 4
129 Y Y Y Y BP Y Y Y 2
130
CAT Y Y Y Y Y Y 3
131
CAT Y Y Y BP Y Y Y 3
132
CAT Y Y Y Y Y Y 3
133
Y Y Y Y BP Y Y Y 2
134
CAT Y Y Y Y Y Y 3
135
CAT Y Y Y Exxon Y Y Y 3
136
CAT Y Y Y Y Y Y 3
137
CAT Y Y Y Y Y Y 3
138
CAT Y Y Y Exxon Y Y Y 3
<CAPTION>
MOTEL
FOOD AVAILABLE
-------------------- ----------
FULL FAST
MAP SERVICE FOOD
NUMBER DINING OFFERINGS
------ ------- ----------
<C> <C> <C> <C>
105
Y
106
Y 6
107
Y 2,7
108
Y
109
Y 1,22
110
Y 6,11
111
21
112 Y
113 Y
114 Y 3 Unbranded
115
Y 3
116 Y 3
117
Y 3,13,16
118
Y 2,4 HoJo
119 Y Rodeway
120 Y 1 Rodeway
121
Y Days Inn
122
Y 3
123 Y 3
124
Y 1,2
125 Y 2,4,6,8
126
Y 13 Travelodge
127 3
128 Y 7,11
129 Y
130
Y 2 Travelodge
131
Y 1,7
132
Y 3
133
Y
134
Y 3
135
Y 1,7,11
136
Y
137
Y
138
Y 1,7,22
</TABLE>
69
<PAGE> 76
The TravelCenters of
America Network
<TABLE>
<CAPTION>
FACILITY SERVICES
METHOD -----------------------------------------------
MAP SIZE OF OP. PRIVATE PARKING PARK TRAVEL LAUNDRY
NUMBER ST NAME INTERSTATE LOCATION (ACRES) (1) SHOWERS SPACES 'N VIEW STORE SERVICES
------ --- ----------- ------------------- ------- ------ ------- ------- ------- ------ --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
139 TX Denton I-35 & U.S. 77,
Exit 471 17.9 CoFo 9 160 Y Y
140 TX Rockwall I-30 at Route 205,
Exit 68 13.2 CoCo 6 100 Y Y
141 TX San Antonio I-10 & Foster Rd,
Exit 583 31.2 CoCo 10 200 Y Y Y
142 TX Sweetwater I-20, Exit 242 14.6 CoFo 6 110 Y Y Y
143 UT Parowan I-15, Exit 78 7.2 CoCo 6 48 Y
144 UT Salt Lake
City I-80, Exit 99 20.2 CoCo 12 150 Y Y Y
145 VA Ashland Exit 92, I-95 & Rt.
54 19.2 CoCo 16 200 Y Y Y
146 VA Richmond I-95, Exit 89 25.1 CoCo 8 158 Y Y Y
147 VA Roanoke Exit 150, I-81 &
U.S. 220 12.2 CoCo 10 110 Y Y Y
148 VA Wytheville I-77, Exit 41,
I-81,
Exit 72 17.0 CoCo 12 120 Y Y Y
149 WV Hurricane I-64, Exit 39 21.3 CoCo 7 95 Y Y Y
150 WV Martinsburg I-81, Exit 20 37.2 CoCo 4 103 Y Y Y
151 WV Wheeling Exit 11, I-70 at
Dallas Pike 8.3 CoCo 11 200 Y Y Y
152 WI Janesville Exit 171-C, I-90 &
Hwy 14 N/A FoFo 4 50 Y Y
153 WI Madison I-90 & I-94, Exit
132 10.7 CoCo 9 160 Y Y Y
154 WI Twin City
East I-94, Exit 4 15.1 CoFo 6 90 Y Y Y
155 WY Cheyenne I-80, Exit 377 23.4 CoCo 12 140 Y Y Y
156 WY Ft. Bridger I-80, Exit 30 134.7 CoCo 9 200 Y Y
157 WY Sinclair I-80, Exit 227 10.8 CoCo 4 150 Y
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
FUEL TRUCK MAINTENANCE
FACILITY SERVICES --------------------- ------------------------------------------
---------------------------- DIESEL EMERGENCY SERVICE TRUCK
MAP WEIGH BUSINESS DRIVER'S SATELLITE GASOLINE TRUCK ROAD POINT SERVICE
NUMBER SCALES SERVICES LOUNGE PUMPS AVAILABLE SERVICE SERVICE FACILITIES BAYS
------ ------ -------- -------- --------- --------- ------- --------- ---------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
139
CAT Y Y Y Shell Y Y Y 2
140
CAT Y Y Y 76 Y Y Y 2
141
CAT Y Y Y Exxon Y Y Y 3
142 Y Y Y Y Conoco Y Y Y 2
143 CAT Y Y Y Arco
144
CAT Y Y Sinclair Y Y Y 3
145
CAT Y Y Y BP Y Y Y 3
146 CAT Y Y Y Mobil Y Y Y 2
147
CAT Y Y Y BP Y Y Y 3
148
CAT Y Y Y BP Y Y Y 2
149 CAT Y Y Y 76 Y Y Y 2
150 CAT Y Y Y 76 Y Y Y 2
151
CAT Y Y Y Y Y Y 4
152
CAT Y Y Y Mobil
153
CAT Y Y Y Citgo Y Y Y 2
154
CAT Y Y Y Mobil Y Y Y 2
155 CAT Y Y Y Amoco Y Y Y 3
156 CAT Y Y Amoco Y Y Y 3
157 Y Y Amoco
------
<CAPTION>
MOTEL
FOOD AVAILABLE
-------------------- ----------
FULL FAST
MAP SERVICE FOOD
NUMBER DINING OFFERINGS
------ ------- ----------
<C> <C> <C> <C>
139
Y
140
Y
141
Y 1,7,11
142 Y 1,18
143 2,3
144
Y 2, 7
145
Y Travelodge
146 Y 1,2
147
Y 7 Days Inn
148
Y 2,3,17
149 Y
150 Y
151
Y
152
9
153
Y 2,3
154
Y
155 Y 2,7
156 Y 2
157
------
</TABLE>
ITALIC PRINT INDICATES COMING IN 2000 OR 2001.
FAST FOOD OFFERINGS KEY:
<TABLE>
<S> <C> <C>
1 PIZZA HUT EXPRESS 10 QUIZNO'S
2 TACO BELL EXPRESS 11 POPEYE'S CHICKEN & BISCUITS
3 SUBWAY 12 DUNKIN' DONUTS
4 BLIMPIE 13 DAIRY QUEEN
5 OSCAR MEYER HOT DOG CONSTRUCTION CO. 14 KFC
6 SBARRO 15 MCDONALD'S
7 BURGER KING 16 LITTLE CAESARS'
8 LONG JOHN SILVER'S 17 TCBY TREATS
9 WENDY'S 18 CHESTER CHICKEN
<S> <C>
19 A&W ALL AMERICAN FOOD
20 TACO TIME
21 MRS. B'S
22 CHURCH'S CHICKEN
</TABLE>
(1) CoCo = a Company-operated site; CoFo = a leased site; FoFo = a
Franchisee-owned site.
(2)National 76 location accepting Access 76 card, but not offering our programs
and services.
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<PAGE> 77
RELATIONSHIPS WITH FRANCHISEES
TA Licensing, Inc., a wholly owned subsidiary, licenses its trademarks to
us, TA Operating Corporation and TA Franchise Systems. We enter into franchise
agreements with operators and franchisee-owners of travel centers through TA
Franchise Systems, and TA Franchise Systems collects franchise fees and
royalties under these agreements. TA Franchise System's assets consist primarily
of the rights under the original franchise agreements, the network franchise
agreements and its trademark licenses from TA Licensing. TA Franchise Systems
has no significant tangible assets. The sole remaining franchise agreement for
the Unocal network is between TA Operating Corporation, as successor to
National, and the operator of the New Lemont, Illinois facility. We expect this
franchise agreement to be terminated in the first quarter of 2001.
Network Franchise Agreement
Currently, there are 25 leased sites operating under network franchise
agreements. Most of these were signed in July through December of 1997.
Initial Franchise Fee. If the franchisee was continuously operating under a
franchise agreement, license agreement or prescribed marketing plan or system of
another travel center or truck stop company during the one-year period before
signing the network franchise agreement and met certain other conditions, the
initial franchise fee was $5,000. Otherwise, the franchise fee was $100,000.
Term of Agreement. The initial term of the network franchise agreement is
five years. The network franchise agreement provides for five three-year
renewals on the terms being offered to prospective franchisees at the time of
the franchisee's renewal. We reserve the right to decline renewal under certain
circumstances or if specified terms and conditions are not satisfied by the
franchisee. Subject to specified exceptions, including existing operations, so
long as the franchisee is not in default under the network franchise agreement,
we agree not to operate, or allow another person to operate, a travel center or
travel center business that uses the "TA" brand, within 75 miles in either
direction along the primary interstate on which the franchised site is located.
Restrictive Covenants. Except for the continued operation of specified
businesses identified by the franchisee at the time of execution of the network
franchise agreement, the franchisee cannot, during the term of the agreement,
operate any travel center or truck stop-related business under a franchise
agreement, licensing agreement or marketing plan or system of its own or another
person or entity. If the franchisee owns the franchised premises, the franchisee
may continue to operate a travel center at the franchised premises after
termination of the franchise agreement, but if the termination is for any reason
other than a termination at the expiration of the term of the agreement, the
franchisee is restricted for a two-year period from re-branding the facility
with any other truck stop or travel center company or other organization
offering similar services and/or fleet billing services.
Royalty Payments. Franchisees are required to pay us a continuing services
and royalty fee equal to 3.75% of all non-fuel revenues. If branded fast food is
sold from the franchised premises, the franchisee must pay us 3% of all net
revenues earned directly or indirectly in connection with those sales after
deduction of royalties paid to the fast food franchisor.
Advertising, Promotion and Image Enhancement. The network franchise
agreement establishes a system-wide advertising, marketing and promotional fund
to which the franchisees are required to contribute 0.6% of their non-fuel
revenues and net revenues from fast food sales. Franchisees who own the
franchised premises are also required to spend certain minimum amounts on
advertising.
Fuel Purchases and Sales. Under the network franchise agreement, we agree
to sell to franchisees, and franchisees agree to buy from us, 100% of their
requirements of diesel fuel. If the franchisee does not purchase gasoline from
us, the franchisee agrees to purchase gasoline from only those suppliers that we
approve in writing. For all gasoline that is not purchased from us, the
franchisee must pay a $0.03 per gallon royalty fee to us on all gallons of
gasoline sold. Franchisees may not commingle any diesel fuel.
Non-fuel Product Offerings. Franchisees are required to operate their sites
in conformity with guidelines that we establish and offer any products and
services that we deem integral to the network. We will offer
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<PAGE> 78
franchisees the right to purchase products through our distribution center,
subject to a warehouse fee equal to 5% of the purchased product's current
average weighted cost. If franchisees do not purchase products through our
distribution center, the products purchased by franchisees must comply with our
standards and specifications and be approved by us. We have the right to require
a franchisee to discontinue any product or service that we conclude is harmful
to the image or productivity of the network.
Transfer or Assignment/Right of First Refusal. Transfers of the network
franchise agreement require a $25,000 fee and prior written approval from us. We
have a right of first refusal on all transfers.
Termination/Nonrenewal. The network franchise agreement may be terminated
by the franchisee without cause or reason upon 180 days' prior written notice.
We may terminate the network franchise agreement for the following reasons:
- the default of the franchisee;
- our withdrawal from the marketing of motor fuel in the state, county or
parish where the franchise is located; or
- the default or termination of the lease.
The foregoing reasons also constitute grounds for nonrenewal of the network
franchise agreement. In addition, we can decline to renew the network franchise
agreement for the following reasons:
- we and the operator fail to agree to changes or additions to the network
franchise agreement;
- we make a good faith determination not to renew the network franchise
agreement because it would be uneconomical to us; or
- if we own the franchised premises, we make a good faith determination to
sell the premises or convert it to a use other than for a truck stop or
travel center.
If we do not renew the network franchise agreement due to any of the three
foregoing reasons, we may not enter into another network franchise agreement
relating to the same franchised premises with another party within 180 days of
the expiration date on terms materially different from those offered to the
prior franchisee, unless the prior franchisee is offered the right, for a period
of 30 days, to accept a renewal of the network franchise agreement on those
different terms. If we do not renew the network franchise agreement because we
make a good faith determination to withdraw from the marketing of fuel in the
area of the franchised premises, we may not sell the franchised premises or
franchised business for 90 days following the expiration of the network
franchise agreement. The prior franchisee does not have a right of first refusal
on the sale of the franchised premises.
Network Lease Agreement
In addition to franchise fees, we also collect rent from those franchisees
that operate a travel center owned by us. As of September 30, 2000, there were
28 leased sites. Rent revenue for the 28 sites for the nine months ended
September 30, 2000 was $8.8 million. Currently, there are 26 sites owned by us
but leased to a franchisee. Of the 26 leased sites, 25 sites operate under the
network lease agreement, and one site, in New Lemont, Illinois, operates under a
lease agreement that predates the network lease agreement. We expect to
consummate the sale of the New Lemont, Illinois facility by the end of the first
quarter of 2001. After taking into account this expected sale, the rent revenue
for the 25 sites for the nine months ended September 30, 2000 would have been
$7.9 million.
Term. Each operator of a leased site that enters into a network franchise
agreement also must enter into a network lease. The lease agreements we have
with our franchisees have a term of five years and allow for five renewals of
three years each. We reserve the right to decline renewal under certain
circumstances or if specified terms and conditions are not satisfied by the
operator.
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<PAGE> 79
Leased Site. The leased site consists only of the improved land, which
includes the buildings and improvements, existing as of the date of the network
lease. We may develop, improve, lease or sell all of our property not included
in the leased site in our discretion as long as that property is not used for or
in connection with any business engaged principally in the sale of fuel.
Rent. Under the network lease, an operator must pay annual fixed rent equal
to the sum of
- base rent agreed upon by the operator and us, plus
- an amount equal to 14% of the cost of all capital improvements, that we
and the operator mutually agree will enhance the value of the leased
premises, which cost in excess of $2,500 and are paid for by us, plus
- an annual inflator equal to the percentage increase in the consumer price
index.
The base rent will not be increased if the operator elects to pay for capital
improvements. If we and the operator agree upon an amortization schedule for a
capital improvement funded by the operator, we will, upon termination of the
network lease, reimburse the operator for an amount equal to the unamortized
portion of the cost of the capital improvement. The fixed rent, as adjusted by
the annual inflator, may not increase more than 20% during the initial five-year
term or 12% during any three-year renewal term of the network lease. The
operator is responsible for the payment of all charges and expenses in
connection with the operation of the leased site, including certain maintenance
costs.
Use of the Leased Site. The operator must operate the leased site as a
travel center in compliance with all laws, including all environmental laws. The
operator must submit to quality inspections that we request and appoint a
manager that we approve, who is responsible for the day-to-day operations at the
leased site.
Termination /Nonrenewal /Transferability /Right of First Refusal. The
network lease agreement contains terms and provisions regarding termination,
nonrenewal, transferability and our right of first refusal which are
substantially the same as the terms and provisions of the network franchise
agreement.
Original Franchise Agreement with BP Network Independent Franchisees
There are nine sites that continue to operate under the franchise
agreements they had with TA Franchise Systems prior to the network franchise
agreement being revised to its current form in 1997. The terms of these
franchise agreements are generally the same as the network franchise agreement,
but they do not require the franchises to purchase their diesel fuel from us and
their provisions vary. The average remaining term of these agreements is
approximately seven years. At the expiration of these agreements, the respective
franchisees may be offered an option to renew their franchises under our
then-current franchise agreement.
Term of Agreement. In general, the initial term of the original franchise
agreement is 10 years. The original franchise agreement provides for one
five-year renewal. The original franchise agreement offers no assurance that the
terms of the renewal will be the same as those of the initial franchise
agreement. We may decline renewal under some circumstances or if specified terms
and conditions are not satisfied by the franchisee. So long as the franchisee is
not in default under the franchise agreement, we agree not to operate, or allow
another person to operate, the travel center or travel center business that uses
the "TA" brand, within a specified area in either direction along one or more
interstates at which the franchised site is located.
Restrictive Covenants. Although the restrictive covenants in the original
franchise agreements may vary slightly from franchise to franchise, each
franchisee is subject to restrictions that prohibit two or more of the following
during the term of the franchise agreement and for two years after its
expiration:
- operation of any other truck stop or travel center within its protected
territory;
- operation at the franchise location under any national brand other than
"TA";
- operation of a branded facility within a certain distance of any other TA
facility; and
- operation of any competitive business or a business that trades upon the
franchise within the area adjacent to the franchise location.
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<PAGE> 80
Royalty Payments. In general, we require franchisees to pay us a continuing
services and royalty fee equal to 4% of all revenues earned directly or
indirectly by the franchisee from any business conducted at or from the
franchised premises, excluding fuel sales and sales of branded fast food. As
part of the royalty fee, we require the franchisee to pay us $0.004 per gallon
on all sales of fuel.
Advertising, Promotion and Image Enhancement. The original franchise
agreement establishes a system-wide advertising, marketing and promotional fund
to which franchisees are required to contribute 0.25% of all revenues, including
revenues from fuel and fast food sales, and mandates certain minimum franchisee
expenditures on advertising.
Fuel Purchases and Sales. We do not require franchisees to purchase
gasoline or diesel fuel from us. However, we charge royalty fees generally on
all fuel sales at the franchised premises.
Non-fuel Product Offerings. Franchisees are required to operate their
travel centers in conformity with our guidelines, participate in and comply with
all programs that we prescribe as mandatory and offer any products and services
we deem integral to the network. We grant franchisees the right to purchase
products from the distribution center. If a franchise does not purchase products
through the distribution center, the products purchased by the franchisee must
meet our approval and be in accordance with our standards and specifications. We
have the right to require a franchisee to discontinue the sale of any product or
service that we conclude is harmful to the image or productivity of our network.
Transfer or Assignment of an Original Franchise Agreement. Franchisees may
not transfer or assign their rights or interests under the franchise agreement
without our prior written consent. Any transfer or assignment is subject to our
right of first refusal and the payment of a transfer and training fee in an
amount equal to 25% of the initial franchise fee that we are then charging to
new franchisees.
Termination of an Original Franchise Agreement. We may terminate the
franchise agreement upon the occurrence of certain defaults, upon notice and
without affording the franchisee an opportunity to cure the defaults. When other
defaults occur, we may terminate the franchise agreement if, after receipt of a
notice of default, the franchisee has not cured the default within the
applicable cure period. The franchisee may terminate the franchise agreement
upon thirty days notice, if we are in material default under the franchise
agreement and we fail to cure or attempt to cure the default within a reasonable
period after notification.
FRANCHISE REGULATION
State franchise laws apply to TA Franchise Systems, and some of these laws
require TA Franchise Systems to register with the state before it may offer a
franchise, require TA Franchise Systems to deliver specified disclosure
documentation to potential franchisees and impose special regulations upon
petroleum franchises. Some state franchise laws also impose restrictions on TA
Franchise Systems' 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. 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 Federal Trade Commission, or the FTC, regulates us under their rule
entitled "Disclosure Requirements and Prohibitions Concerning Franchising and
Business Opportunity Ventures." Under this rule, the FTC requires that
franchisors make extensive disclosure to prospective franchisees but does not
require registration. We believe that we are in compliance with this rule.
We cannot predict the effect of any future federal, state or local
legislation or regulation on our franchising operations.
ENVIRONMENTAL MATTERS
Our operations and properties are extensively regulated by Environmental
Laws that:
- govern operations that may have adverse environmental effects, such as
discharges to air, soil and water, as well as the management of Hazardous
Substances or
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<PAGE> 81
- impose liability for the costs of cleaning up sites affected by, and for
damages resulting from disposal or other releases of Hazardous
Substances.
We own and use underground storage tanks and aboveground storage tanks to
store petroleum products and waste at our facilities. 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. At
some locations, we must also comply with Environmental Laws relating to vapor
recovery and discharges to water. We have completed necessary upgrades to
underground storage tanks to comply with federal regulations that took effect on
December 22, 1998, and believe that all of our travel centers, including those
acquired in the Burns Bros. and Travel Ports acquisitions, are in material
compliance with applicable requirements of Environmental Laws.
We have received notices of alleged violations of Environmental Laws, or
are aware of the need to undertake corrective actions to comply with
Environmental Laws, at travel centers owned by us in a number of jurisdictions.
We do not expect that any financial penalties associated with these alleged
violations or compliance costs incurred in connection with these violations or
corrective actions will be material to our results of operations or financial
condition. We are conducting investigatory and/or remedial actions with respect
to releases of Hazardous Substances that have occurred subsequent to the
acquisition of the Unocal and BP networks and also regarding historical
contamination at certain of the former Burns Bros. and Travel Ports facilities.
While we cannot precisely estimate the ultimate costs we will incur in
connection with the investigation and remediation of these properties, based on
our current knowledge, we do not expect that the costs to be incurred at these
properties, individually or in the aggregate, will be material to our results of
operations or financial condition. While the matters discussed above are, to the
best of our knowledge, the only proceedings for which we are currently exposed
to potential liability, particularly given the Unocal and BP indemnities
discussed below, we cannot assure you 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 us.
As of September 30, 2000, we had a reserve for those matters of $6.0 million. In
addition, we have obtained environmental insurance of up to $25.0 million for
unanticipated costs regarding certain known environmental liabilities and for up
to $40.0 million regarding certain unknown environmental liabilities.
As part of the acquisition of the Unocal network, Phase I environmental
assessments were conducted of the then 97 Unocal network properties purchased by
us. Under an agreement with Unocal, Phase II environmental assessments of all
Unocal network properties were completed by Unocal by December 31, 1998. Under
the terms of the agreement with Unocal, Unocal is responsible for all costs
incurred for:
- remediation of environmental contamination, and
- otherwise bringing the properties into compliance with Environmental Laws
as in effect at the date of the acquisition of the Unocal network,
with respect to the matters identified in the Phase I or Phase II environmental
assessments, which matters existed on or prior to the date of the acquisition of
the Unocal network. Under the terms of the agreement with Unocal, Unocal also
must indemnify us against any other environmental liabilities that arise out of
conditions at, or ownership or operations of, the Unocal network prior to the
date of the acquisition of the Unocal network. The remediation must achieve
compliance with the Environmental Laws in effect on the date the remediation is
completed. We must make claims for indemnification prior to 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
Unocal network after the date of the acquisition of the Unocal network. We
cannot assure you that, if additional environmental claims or liabilities were
to arise under the agreement with Unocal, Unocal would not dispute our claims
for indemnification.
Prior to the acquisition of the BP network, all of the then 38
company-owned locations purchased by us were subject to Phase I and Phase II
environmental assessments, undertaken at BP's expense. The
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<PAGE> 82
environmental agreement with BP 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 the environmental contamination,
and
- for otherwise bringing the properties into compliance with Environmental
Laws as in effect at the date of the acquisition of the BP network.
The remediation must achieve compliance with the Environmental Laws in effect on
the date the remedial action is completed. The environmental agreement with BP
requires BP to indemnify us against any other environmental liabilities that
arise out of conditions at, or ownership or operations of, the BP network
locations prior to the date of the acquisition of the BP network. We must make
claims for indemnification before December 11, 2004. BP must also indemnify us
for liabilities relating to non-compliance with Environmental Laws for 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 BP network after the date of the acquisition of
the BP network. We cannot assure you that, if additional environmental claims or
liabilities were to arise under the environmental agreement with BP, BP would
not dispute our claims for indemnification.
As part of the Burns Bros. acquisition, Phase I environmental assessments
were conducted on all 17 sites acquired. Based on the results of those
assessments, Phase II environmental assessments were conducted on nine of the
sites. The purchase price paid to Burns Bros. was adjusted based on the findings
of the Phase I and Phase II environmental assessments. Under the asset purchase
agreement with Burns Bros., we released Burns Bros. from any environmental
liabilities that may have existed as of the Burns Bros. acquisition date, other
than specified non-waived environmental claims as described in the agreement
with Burns Bros.
As part of the Travel Ports acquisition, Phase I environmental assessments
were conducted on all 16 sites acquired. Based on the results of those
assessments, Phase II environmental assessments were conducted on five of these
sites. The results of these assessments were taken into account in recognizing
the related environmental contingency accrual for purchase accounting purposes.
LEGAL PROCEEDINGS
We are involved from time to time in various legal and administrative
proceedings and threatened legal and administrative proceedings incidental to
the ordinary course of our business. We believe that we are not now involved in
any litigation, individually or in the aggregate, which could have a material
adverse effect on our business, financial condition, results of operations or
cash flows.
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<PAGE> 83
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and members of our board of directors and their
ages, as of December 31, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edwin P. Kuhn.............................. 58 Chairman of the Board, Chief Executive
Officer and President
James W. George............................ 49 Senior Vice President, Chief Financial
Officer and Secretary
Timothy L. Doane........................... 43 Senior Vice President, Market Development
Michael H. Hinderliter..................... 51 Senior Vice President, Marketing
Steven C. Lee.............................. 37 Vice President and General Counsel
Steven B. Gruber........................... 43 Director
Robert J. Branson.......................... 51 Director
Rowan G.P. Taylor.......................... 33 Director
Jeremy J. Thompson......................... 28 Director
James L. Hebe.............................. 51 Director
Louis J. Mischianti........................ 41 Director
</TABLE>
Our officers are appointed by the board of directors and serve at its
discretion. The term of office for each director expires when the director's
successor is elected and qualified.
Edwin P. Kuhn was named Chief Executive Officer and President of us and our
subsidiaries in January 1997. Upon completion of the Transactions, Mr. Kuhn
became the Chairman of our Board of Directors. Mr. Kuhn served as President and
Chief Executive Officer of TA Operating Corporation, a wholly owned subsidiary
of ours, since the closing of the acquisition of the BP network in December
1993. Mr. Kuhn served as the General Manager (the most senior executive
position) of the BP network under BP's ownership from April 1992 to December
1993. Prior to joining the BP network, Mr. Kuhn spent 25 years with The Standard
Oil Company of Ohio ("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 us and our subsidiaries in January 1997. Mr. George served as a
Vice President and as Chief Financial Officer of TA Operating Corporation since
the closing of the acquisition of the BP network in December 1993. From August
1990 to December 1993, Mr. George served as the Controller (the most senior
financial position) of the BP network under BP's ownership. Prior to joining the
BP network, Mr. George spent 10 years with Sohio and BP in various accounting
and finance positions.
Timothy L. Doane was named Senior Vice President, Market Development of us
and our subsidiaries in January 1997. Mr. Doane served as Vice President, Market
Development of TA Operating Corporation since 1995. Prior to joining TA
Operating Corporation, Mr. Doane spent 15 years with Sohio and BP in various
positions including as 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.
Michael H. Hinderliter was named Senior Vice President, Marketing of us and
our subsidiaries in January 1997. Mr. Hinderliter served as Vice President,
Marketing of TA Operating Corporation since the closing of the acquisition of
the BP network in December 1993. From August 1992 to December 1993, Mr.
Hinderliter served as the Marketing Manager of the BP network under BP's
ownership. From 1989 to August 1992, Mr. Hinderliter was the manager of BP
Truckstops Limited, BP's truck stop network in the United Kingdom. Prior to
1989, Mr. Hinderliter spent 14 years with the BP network under Ryder System,
Inc., Sohio and BP ownership in various positions including Fleet Sales Manager,
Division Manager and Location General Manager.
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<PAGE> 84
Steven C. Lee was named Vice President and General Counsel of us and our
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 was a corporate
attorney with Calfee, Halter & Griswold LLP from 1989 to 1995.
Steven B. Gruber became a director upon completion of the Transactions.
From February 1999 to the present, Mr. Gruber has been a Managing Partner of Oak
Hill Capital Management, Inc., the manager of Oak Hill. From March 1992 to the
present, he has been a Managing Director of Oak Hill Partners, Inc. From May
1990 to March 1992, he was a Managing Director of Rosecliff, Inc. Since February
1994, Mr. Gruber has also been an officer of Insurance Partners Advisors, L.P.,
an investment advisor to Insurance Partners, L.P. Since October 1992, he has
been a Vice President of Keystone, Inc. (formerly known as Robert M. Bass Group,
Inc.). Prior to joining Keystone, Mr. Gruber was a Managing Director and co-head
of High Yield Securities and held various other positions at Lehman Brothers
Inc. He is also a director of American Skiing Company, Integrated Orthopedics,
Inc., Superior National Insurance Group, Inc., Grove Worldwide, LLC, Reliant
Building Products, Inc. and several private companies.
Robert J. Branson became a director upon completion of the Transactions.
Mr. Branson has been affiliated with RMB Realty, Inc., which from time to time
acts as a consultant and advisor to Oak Hill with respect to real estate
matters, since 1989. From 1981 to 1989, Mr. Branson was a Principal of Linden &
Branson, a real estate investment advisory firm and, from 1970 to 1981, he was
employed by Arthur Andersen & Co. Mr. Branson is a Certified Public Accountant.
Rowan G.P. Taylor became a director upon completion of the Transactions.
From March 1999 to the present, Mr. Taylor has been a Principal of Oak Hill
Capital Management. From April 1991 to March 1999, Mr. Taylor was employed by
The Clipper Group, L.P. or one of its affiliates, most recently as a Principal.
From January 1998 to March 1999, Mr. Taylor was also a Principal of Monitor
Clipper Partners, Inc. Prior to April 1991, Mr. Taylor was employed by Credit
Suisse First Boston Corporation.
Jeremy J. Thompson became a director upon completion of the Transactions.
From February 1999 to the present, Mr. Thompson has been employed by Oak Hill
Capital Management, most recently as a Vice President. From August 1996 to the
present, he has been employed by Oak Hill Partners, Inc. Prior to August 1996,
Mr. Thompson was employed by Goldman, Sachs & Co. He serves as a director of
several private companies.
James L. Hebe was appointed a director of ours on September 22, 1999. Mr.
Hebe has been Chairman, President and Chief Executive Officer of Freightliner
since 1992. Mr. Hebe's career spans 28 years in the transportation industry. He
serves on the boards of various transportation-related associations.
Louis J. Mischianti has been a director of ours since December 1992. Mr.
Mischianti has been employed by Olympus Advisory Partners, Inc., an affiliate of
Olympus Growth Fund III, L.P. and Olympus Executive Fund, L.P., since May 1994.
Mr. Mischianti was employed by The Clipper Group, L.P. or one of its affiliates
from 1991 to April 1994. Prior to 1991, Mr. Mischianti was employed by Credit
Suisse First Boston Corporation. Mr. Mischianti serves as a director of several
private companies.
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<PAGE> 85
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by or
paid to the Chief Executive Officer and each of our four other most highly
compensated executive officers as of December 31, 1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------- SECURITIES ALL OTHER
BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) OPTIONS (#) ($)(2)
--------------------------- ---- --------- ------- ------------ ------------
<S> <C> <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 (1) life insurance premiums paid by us and (2) (a) in Mr. Kuhn's
case, use of a company automobile in the amount of $4,363 in 1999, $3,405 in
1998 and $3,424 in 1997, (b) in Mr. George's case, use of a company
automobile in the amount of $5,083 in 1999, $3,084 in 1998 and $3,712 in
1997, (c) in Mr. Hinderliter's case, use of a company automobile in the
amount of $3,303 in 1999, $4,960 in 1998 and $4,953 in 1997, and (d) in Mr.
Doane's case, use of a company automobile in amount of $5,088 in 1999 and
$6,917 in 1998.
(3) Mr. Lee began employment with us in December 1997, and was elected as Vice
President and General Counsel effective December 17, 1997.
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OPTION GRANTS
The following table sets forth information regarding stock options granted
in 1999 under our 1997 Stock Incentive Plan to the executive officers named in
the Summary Compensation Table above. 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 remain exercisable through
December 31, 2006, at which time they will terminate. As part of the
Transactions, all unvested options vested and all outstanding options were
canceled in exchange for a cash payment, except that, prior to the completion of
the Transactions, our management team exercised a portion of their options to
purchase 0.5% of our equity, such that, after the completion of the
Transactions, our management team now owns in the aggregate approximately 2.5%
of our equity, with the percentage increasing to approximately 13.8% on a
fully-diluted basis.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
--------------------------------------------------- ASSUMED ANNUAL RATE OF STOCK
PERCENT OF TOTAL PRICE APPRECIATION FOR OPTION
NUMBER OF OPTIONS TERM(1)
SECURITIES GRANTED -----------------------------------------
UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR OF OPTION DATE 5% 10%
---- --------------- ---------------- -------------- ----------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edwin P. Kuhn......... 41,340 17.8% $25.00 December 31, 2006 $813,383 $1,744,396
James W. George....... 24,664 10.6% $25.00 December 31, 2006 $485,275 $1,040,730
Michael H.
Hinderliter......... 24,664 10.6% $25.00 December 31, 2006 $485,275 $1,040,730
Timothy L. Doane...... 24,664 10.6% $25.00 December 31, 2006 $485,275 $1,040,730
Steven C. Lee......... 8,604 3.7% $25.00 December 31, 2006 $169,287 $ 363,057
</TABLE>
---------------
(1) Based on a stock price of $31.75 per share as of December 31, 1999.
The following table sets forth information concerning the value of
unexercised options as of December 31, 1999 held by the named executive
officers. No options were exercised by any named executive officer in 1999. As
part of the Transactions, all outstanding options vested and were canceled in
exchange for a cash payment, except that, prior to the completion of the
Transactions, our management team exercised a portion of their options to
purchase 0.5% of our equity, such that, after the completion of the
Transactions, our management team now owns in the aggregate approximately 2.5%
of our equity, with the percentage increasing to approximately 13.8% on a
fully-diluted basis.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
LAST FISCAL YEAR-END OPTION VALUES TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE 1999 YEAR-END (#) AT 1999 YEAR-END
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (1) (1)(2)
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Edwin P. Kuhn......................... -- -- 141,879/-- 1,479,009/--
James W. George....................... -- -- 84,023/-- 880,620/--
Michael H. Hinderliter................ -- -- 84,023/-- 880,620/--
Timothy L. Doane...................... -- -- 76,722/-- 769,417/--
Steven C. Lee......................... -- -- 14,604/-- 109,077/--
</TABLE>
---------------
(1) The portion of all options granted under the 1993 Stock Incentive Plan which
were unexercisable as of December 31, 1996 were canceled in connection with
the adoption of the 1997 Stock Incentive Plan.
(2) Based on a stock price of $31.75 per share as of December 31, 1999.
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<PAGE> 87
COMPENSATION OF DIRECTORS
Employee directors are not entitled to receive any compensation for serving
on the board or any committees of the board. Non-employee directors may receive
compensation for their services in an amount to be determined. All directors are
entitled to receive reimbursement for reasonable out-of-pocket expenses in
connection with travel to and attendance at meetings.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Edwin P. Kuhn,
James W. George, Michael H. Hinderliter and Timothy L. Doane. These employment
agreements provide as follows: Edwin P. Kuhn is employed as Chief Executive
Officer and President, James W. George is employed as Senior Vice President,
Chief Financial Officer and Secretary, Michael H. Hinderliter is employed as
Senior Vice President, Marketing and Timothy L. Doane is employed as Senior Vice
President, Market Development. In exchange for these services, Mr. Kuhn receives
an annual base salary of $450,000, and Messrs. Hinderliter, George and Doane
receive an annual base salary of $270,000, which amounts may be increased but
not decreased by action of the board of directors or its delegate. Each
executive is eligible to receive an annual bonus determined by the board of
directors, based on individual and company performance objectives, ranging from
0% to 75% of base salary, with 75% of base salary being the target bonus. Each
executive's employment agreement provides for a two-year term, ending on
December 31, 2001, with automatic one-year extensions through age 65, unless
notice of non-renewal is given at least one year in advance. If we terminate the
executive's employment without cause or the executive resigns with good reason,
the executive will be eligible to receive, among other things, a pro rata bonus
for the year of termination, 24 months' base salary, plus two-times target
bonus. Each executive agrees that during the employment term and for the
24-month period that he is entitled to receive certain severance payments
following a termination of employment by us without cause or by his resignation
for good reason he will refrain from competing with us.
The term of the employment agreements have by their terms been extended
through December 31 of the second anniversary following the date of the
transaction. The executive will be guaranteed an annual bonus for 2000 at least
equal to 37 1/2% of base salary and will be paid an incentive bonus equal to two
times base salary and target bonus.
OPTION PLAN
We intend to grant certain of our executives non-qualified stock options to
purchase shares of our common stock representing an aggregate of approximately
12% of our fully diluted common stock. All of the options will have a term of 10
years from the date of grant, although the options will be terminated earlier if
certain customary events occur. For example, if an executive's employment is
terminated by us without cause or by the executive for good reason, all vested
options will expire 60 days following termination of employment. The executive
will be allowed to hold a limited portion of his unvested options for a longer
period of time following termination of employment for further vesting. Time
options become exercisable over the passage of time, while performance options
become exercisable if certain earnings targets are achieved. Time options
generally vest 20% per year over a period of five years. Performance options
vest if Oak Hill achieves specified internal rates of return on specified
measurement dates. In general, the number of performance options that will vest
is based upon Oak Hill achieving an internal rate of return of between 22.5% and
30.0% on a measurement date. A measurement date is generally defined as the
earliest of (1) five years from the closing of the Transactions, (2) specified
dates following an initial public offering of our stock, depending on the date
the initial public offering occurs, or (3) the date that at least 30% of our
shares owned by Oak Hill are distributed to its limited partners or sold, except
that a subsequent measurement date may occur if less than 100% of our shares
owned by Oak Hill are so sold or distributed. Vesting is partially accelerated
for time options following termination of employment due to death, disability or
scheduled retirement. If a change of control occurs, the vesting of time options
will fully accelerate. Option holders will have rights to require us to
repurchase vested options upon a termination of employment due to disability,
death or scheduled retirement, or upon a change of control.
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<PAGE> 88
COMMITTEES OF THE BOARD OF DIRECTORS
We have established an executive committee; an audit and compliance
committee; a health, safety and environmental committee and a compensation
committee. The executive committee is authorized to exercise, between meetings
of our board, all of the powers and authority of the board for our direction and
management, except as prohibited by applicable law and except to the extent
another committee has been accorded authority over the matter. The audit and
compliance committee recommends the annual appointment of our auditors, with
whom the audit committee reviews the scope of audit and non-audit assignments
and related fees, accounting principles used by us in financial reporting,
internal auditing procedures and the adequacy of our internal control procedures
and other compliance programs. The health, safety and environmental committee
oversees significant matters relating to health, safety and environmental
compliance affecting us or our properties. The compensation committee
administers our stock option and related plans and establishes the compensation
for our executive officers. Our board may alter the duties of these committees
and may establish other committees from time to time to facilitate the
management of our business and affairs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of our board of directors are
Steven B. Gruber and Rowan G.P. Taylor, both of whom are employed by Oak Hill
Capital Management.
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<PAGE> 89
PRINCIPAL STOCKHOLDERS
We have one class of common stock outstanding and no preferred stock
outstanding. The following table sets forth certain information regarding the
beneficial ownership of our common stock as of December 31, 2000, assuming
completion of the Transactions on that date, by:
- each person known by us to own beneficially more than 5% of the
outstanding shares of our common stock;
- each of our directors;
- each of the executive officers named in the table under
"Management -- Compensation of Executive Officers -- Summary Compensation
Table"; and
- all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
OF COMMON STOCK OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNERSHIP (2) COMMON STOCK (2)
---------------------------------------- ---------------- ----------------
<S> <C> <C>
Oak Hill Capital Partners, L.P. ........................... 4,084,253 58.9%
Oak Hill Capital Management Partners, L.P. ................ 104,724 1.6
201 Main Street
Fort Worth, TX 76102
Olympus Growth Fund III, L.P. ............................. 797,796 11.5
Olympus Executive Fund, L.P., ............................. 5,356 0.1
Metro Center
One Station Place
Fourth Floor North Tower
Stamford, CT 06902-6876
UBS Capital Americas II, LLC............................... 740,158 10.7
299 Park Avenue
New York, NY 10171
Monitor Clipper Equity Partners, L.P. ..................... 397,336 5.7
Monitor Clipper Equity Partners (Foreign), L.P. ........... 75,105 1.1
Two Canal Park
Cambridge, MA 02141
Edwin P. Kuhn.............................................. 25,701 *
James W. George............................................ 18,192 *
Timothy L. Doane........................................... 14,060 *
Michael H. Hinderliter..................................... 18,692 *
Steven C. Lee.............................................. 4,242 *
Steven B. Gruber........................................... -- --
Robert J. Branson.......................................... -- --
Rowan G.P. Taylor.......................................... -- --
Jeremy J. Thompson......................................... -- --
James L. Hebe.............................................. -- --
Louis J. Mischianti........................................ -- --
(All directors and officers as a group (11 persons))....... 80,887 1.2
</TABLE>
---------------
(1) Unless otherwise indicated, the address for each person listed in the table
is care of TravelCenters of America, Inc., 24601 Center Ridge Road, Suite
200, Westlake, Ohio 44145-5634.
(2) Reflects beneficial ownership of common stock. No options or warrants to
purchase common stock owned by the stockholders are currently convertible or
exercisable within 60 days after December 31, 2000.
* The percentage of shares beneficially owned is less than one percent of the
outstanding number of shares.
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<PAGE> 90
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 20 million shares of common stock,
par value $.00001 per share, and five million shares of blank check preferred
stock, par value $.00001 per share. We have 6,929,762 shares of common stock
issued and outstanding. We do not have any preferred stock issued or
outstanding.
COMMON STOCK
The following is a summary of the terms of our common stock. This summary
is not a complete description of our common stock and is qualified by reference
to the terms of our common stock set forth in our amended and restated
certificate of incorporation. As of the date of this prospectus, our common
stock is held of record by 35 stockholders.
Voting. Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of our stockholders.
Dividends. The holders of the common stock are entitled to receive
dividends, if, as and when declared by our board of directors out of funds
legally available.
Liquidation Rights and Other Rights. Upon our liquidation, dissolution or
winding up, the holders of our common stock will be entitled to share pro rata
in the distribution of all of our assets remaining after satisfaction of all of
our liabilities and the payment of the liquidation preference of any of our
outstanding preferred stock. The holders of our common stock do not have any
conversion, redemption or preemptive rights.
PREFERRED STOCK
The board of directors has the authority to issue preferred stock in one or
more classes or series and to fix the designations, powers, preferences and
dividend rates, conversion rights, voting rights, terms of redemption, and
liquidation preferences and the number of shares constituting each class or
series.
REGISTRATION RIGHTS
Under a stockholders' agreement described below under "Certain
Relationships and Related Transactions -- The Stockholders' Agreement", certain
of our stockholders have the right, under certain circumstances, to require us
to register under the Securities Act shares of our common stock held by them and
allow them to include shares of common stock held by them in a registration
under the Securities Act commenced by us.
DELAWARE LAW, CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS THAT MAY HAVE
AN ANTITAKEOVER EFFECT
The following discussion concerns certain provisions of Delaware law and
our certificate of incorporation and by-laws that may delay, deter or prevent a
tender offer or takeover attempt that a stockholder might consider to be in its
best interest, including offers or attempts that might result in a premium being
paid over the market price for its shares.
Delaware Law. We are governed by the provisions of Section 203 of the
Delaware General Corporation Law. In general, Section 203 prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless:
- prior to the business combination the corporation's board of directors
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; or
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the stockholder owned at least 85% of
the outstanding voting stock of the corporation at the time the
transaction commenced, excluding for the purpose of determining the
number of shares
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<PAGE> 91
outstanding those shares owned by the corporation's officers and
directors and by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
- at or subsequent to the time the business combination is approved by the
corporation's board of directors and authorized at an annual or special
meeting of its stockholders, and not by written consent, the business
combination is approved by the affirmative vote of at least 66 2/3% of
its outstanding voting stock which is not owned by the interested
stockholder.
A "business combination" includes any merger, asset sale or other
transaction resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years did own) 15% or more of the corporation's voting stock.
Certification of Incorporation and By-Laws. Our certificate of
incorporation authorizes the board of directors to issue preferred stock with
voting or other rights that could impede the success of any attempt to effect a
change of control. Our by-laws provide that special meetings of stockholders may
be called only by the board of directors, the Chairman of the Board, the Chief
Executive Officer or the Secretary. Written notice of a special meeting stating
the place, date and hour of the meeting and the purposes for which the meeting
is called must be given between 10 and 60 days before the date of the meeting,
and only business specified in the notice may come before the meeting. In
addition, our by-laws provide that directors be elected by a plurality of votes
cast at an annual meeting and does not include a provision for cumulative voting
for directors. Under cumulative voting, a minority stockholder holding a
sufficient percentage of a class of shares may be able to ensure the election of
one or more directors.
DESCRIPTION OF THE WARRANTS
The warrants were issued under a warrant agreement between TravelCenters of
America, Inc. and State Street Bank and Trust Company, as warrant agent. We
originally issued initial warrants in connection with a private placement of
190,000 units, each unit consisting of one outstanding note, three initial
warrants and one contingent warrant. Each warrant, whether initial or
contingent, entitles its holder to purchase 0.36469 shares of our common stock
at an exercise price of $0.001 per share, subject to anti-dilution adjustments
under some circumstances. We have no warrants outstanding other than the 570,000
initial warrants and the 190,000 contingent warrants.
Initial Warrants
The initial warrants, when exercised, will entitle the holders to purchase
207,874 shares of our common stock at an exercise price of $0.001 per share.
Contingent Warrants
The contingent warrants, if released from escrow and exercised, will
entitle the holders to purchase 69,291 shares of our common stock at an exercise
price of $0.001 per share. The contingent warrants will be held in escrow under
an escrow agreement between TravelCenters of America, Inc. and State Street Bank
and Trust Company, as escrow agent and, subject to some conditions, will be
released from escrow and distributed to holders of the initial warrants on March
31, 2003, the contingent warrant release date. The contingent warrants will be
released from escrow and delivered to us for cancellation only if, as of
December 31, 2002,
- the Consolidated Leverage Ratio, as defined in the indenture governing
the notes, is equal to or less than 4.5 to 1.0 and our chief financial
officer delivers a certificate to that effect to the escrow agent prior
to the contingent warrant release date, or
- all of the notes have been repaid, redeemed or repurchased by us.
If the contingent warrants are required to be released to the holders of the
initial warrants on the contingent warrant release date, the contingent warrants
will be distributed pro rata to all the registered holders of initial warrants
determined as of the contingent warrant release date. To the extent an initial
warrant is exercised
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<PAGE> 92
prior to the contingent warrant release date, the last registered holder of the
initial warrant will be treated as the registered holder of the initial warrant
as of the contingent warrant release date for purposes of participating in the
distribution of contingent warrants.
Exercise of Warrants
The initial warrants may be exercised at any time on or after November 14,
2001, and the contingent warrants may be exercised at any time after the
contingent warrant release date. However, holders of warrants will be able to
exercise their warrants only if the shelf registration statement is effective or
the exercise of the warrants is exempt from the registration requirements of the
Securities Act and only if the shares of common stock are qualified for sale or
exempt from qualification under the applicable securities laws of the states or
other jurisdictions in which the holders reside. Unless earlier exercised, the
warrants will expire on May 1, 2009. We will give notice of expiration not less
than 30 nor more than 60 days prior to the expiration date to the registered
holders of the then outstanding warrants. If we fail to give the notice, the
warrants will nevertheless expire and become void on the expiration date.
At our option, fractional shares of common stock may not be issued upon
exercise of the warrants. If any fraction of a share of common stock would,
except for the foregoing provision, be issuable upon the exercise of any
warrants, we will pay an amount in cash equal to the current market value per
share of common stock, as determined on the day immediately preceding the date
the warrant is presented for exercise, multiplied by the fraction, computed to
the nearest whole cent.
The exercise price and the number of shares of common stock issuable upon
exercise of a warrant are both subject to adjustment in certain cases.
Certificates for Warrants
Certificates for warrants will be issued in global form or certificated
form. No service charge will be made for registration of transfer or exchange
upon surrender of any warrant certificate at the office of the warrant agent
maintained for that purpose. We may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of warrant certificates.
Bankruptcy, Reorganization, etc.
If a bankruptcy, reorganization or similar proceeding is commenced by or
against us, a bankruptcy court may hold that unexercised warrants are executory
contracts which may be subject to rejection by us with approval of the
bankruptcy court. As a result, holders of the warrants may, even if sufficient
funds are available, not be entitled to receive any consideration or may receive
an amount less than they would be entitled to if they had exercised their
warrants prior to the commencement of any bankruptcy, reorganization or similar
proceeding.
No Rights as Stockholders
The holders of unexercised warrants are not entitled, as such, to receive
dividends, to vote, to consent, to exercise any preemptive rights or to receive
notice as our stockholders of any stockholders meeting for the election of our
directors or any other purpose, or to exercise any other rights whatsoever as
our stockholders.
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<PAGE> 93
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE STOCKHOLDERS' AGREEMENT
Under the recapitalization agreement and plan of merger, some of our
existing stockholders continued to retain equity interests in us. In connection
with the Transactions, we, Oak Hill, the Other Investors, Freightliner and some
members of our management team entered into a stockholders' agreement. The
stockholders' agreement provides that:
- other than in connection with transfers described below or permitted
transfers among certain Other Investors or to affiliates and for estate
purposes, the stockholders (other than Oak Hill) cannot transfer shares
prior to the earlier of:
- the first anniversary of the closing of the Transactions, and
- an initial public offering of our common stock;
- following the expiration of the initial holding period described above
but prior to the earlier of the (1) initial public offering of our common
stock and (2) seventh anniversary of the closing of the Transactions, we
will have the right of first purchase for any shares that any stockholder
(other than Oak Hill or the management stockholders) proposes to
transfer, other than transfers described below or certain permitted
transfers; and
- if we do not exercise our right to purchase the shares, then each
stockholder will have the right to purchase its pro rata portion of
the remaining offered shares; and
- if each stockholder does not fully exercise its right to purchase
its pro rata portion of the remaining shares, then Oak Hill, and any
transferee thereof who agrees to be bound by the terms of the
stockholders' agreement, will have the right to purchase all, but
not less than all, of the remaining offered shares;
- during the period following the expiration of the initial holding period
described above but prior to the initial public offering of our common
stock, if any management stockholder proposes to transfer any shares,
other than in connection with transfers described below or certain
permitted transfers and the transfer of shares to us by members of
management when the person's employment with us terminates or for estate
purposes, then the other management stockholders will have the right of
first refusal to purchase the shares; and
- if each management stockholder does not exercise its right to
purchase its pro rata portion of the shares, then we will have the
right to purchase the remaining offered shares; and
- if we do not exercise our right to purchase all of the remaining
shares then each stockholder (other than management stockholders)
will have the right to purchase its pro rata portion of the
remaining offered shares; and
- if each other stockholder does not exercise its right to purchase
its pro rata portion of the remaining shares, then Oak Hill, and any
transferee thereof who agrees to be bound by the terms of the
stockholders' agreement, will have the right to purchase all, but
not less than all, of the remaining offered shares;
- if Oak Hill transfers more than 10% of the total outstanding shares of
our common stock to a party (other than to a controlled affiliate), the
other stockholders have the right to transfer shares pro rata to the
third party on the same terms and conditions as Oak Hill;
- Oak Hill has the right to require the other stockholders to transfer a
pro rata percentage of their stock to any third party in a transaction
involving the acquisition of control of the total outstanding shares of
our common stock by a third party on the same terms and conditions as Oak
Hill;
- Freightliner continues to have a right of first refusal in connection
with any proposed sale of TravelCenters of America to certain truck
manufacturers;
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<PAGE> 94
- at any time and from time to time on or after the date 180 days (or a
greater number of days, not to exceed 365 days, as Oak Hill and its
affiliates may agree with the underwriters for the initial public
offering) after an initial public offering of our common stock,
stockholders, other than management stockholders, who own at least 4% of
the total issued and outstanding shares of our common stock at the time
the stockholders' agreement is entered into, will each have the right to
demand a registration of their shares, under certain circumstances
described in the stockholders' agreement;
- following an initial public offering of our common stock, stockholders
will be entitled to piggyback registration rights until the later of the
time (1) their shares are eligible for transfer without restriction under
Rule 144 of the Securities Act and (2) the second anniversary of the
consummation of the initial public offering; but the number of shares
included by each shareholder may be reduced if the total number of shares
of our common stock to be included in the registered offering by the
underwriter of the offering is limited;
- the stockholders have the right to purchase a pro rata share in
connection with other issuances of shares to our stockholders or their
affiliates;
- the stockholders may not publicly sell their shares during the seven days
prior to and the 180 days (or a greater number of days as Oak Hill may
agree with the underwriters) following any underwritten registration of
our common stock, unless the managing underwriters consent, in which case
the stockholders will be permitted to sell their shares on a pro rata
basis;
- the stockholders vote together to assure the following with respect to
us:
-- the authorized number of directors of our board of directors will
consist of at least seven directors;
-- for so long as Oak Hill continues to own any shares of our common
stock and Oak Hill, Freightliner and certain of the Other Investors
continue to own two-thirds of their shares of our common stock, the
stockholders will have the right to designate nominees to serve on
our board of directors and Oak Hill will have the right to nominate
a majority of our board of directors; and
-- unless otherwise agreed by our board of directors, the board of
directors of each of our subsidiaries will be identical to our
board of directors; and
- so long as certain of the Other Investors and their affiliates continue
to own at least two-thirds of their shares of our common stock or
one-third of their collective amount of shares of our common stock, such
Other Investors will have observer rights for all meetings of our board
of directors, reasonable access to consult and advise our management and
rights to inspect our books and records.
INDEMNIFICATION UNDER RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
In connection with the recapitalization agreement and plan of merger, we
have agreed to indemnify certain of our stockholders and any person who was one
of our officers or directors for any losses caused by TCA Acquisition
Corporation, Oak Hill or Oak Hill Capital Management Partners breaching any
representation, warranty or covenant made by any of them in the recapitalization
agreement and plan of merger. We have agreed to indemnify Oak Hill and its
affiliates, stockholders, partners, officers, directors and employees from any
losses resulting from a breach of any of our representations, warranties or
covenants in the recapitalization agreement and plan of merger.
TRANSACTIONS AND RELATIONSHIPS WITH INVESTORS
We lease one of our travel centers from a realty company owned by two
individuals, one of whom is a former stockholder and a former director. This
lease relationship commenced during 1999 and total rent expense related to this
lease for the year ended December 31, 1999 was $263,000.
In connection with the closing of the Transactions, affiliates of two of
our former stockholders, that are themselves affiliates of certain of the Other
Investors, were paid an aggregate fee of $1.25 million for advisory
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<PAGE> 95
services provided to us. In 1999, the same two former stockholders were paid an
aggregate fee of $250,000 as consideration for their financial advisory services
provided in completing the Travel Ports acquisition.
Upon consummation of the Transactions, Oak Hill Capital Management received
a fee of $7.25 million and the Other Investors received an aggregate fee of
$780,000. Credit Suisse First Boston Corporation, which was an initial purchaser
of the outstanding notes, and an affiliate of Credit Suisse First Boston
Corporation purchased an aggregate of $8.0 million of our stock upon the closing
of the Transactions and, accordingly, received a pro rata portion of the fee.
The offering circular relating to 190,000 units included the offering to
Oak Hill Securities Fund, L.P. ("OHSF") and Oak Hill Securities Fund II, L.P.
("OHSF II," together with OHSF, "Oak Hill Securities") of an aggregate of 10,500
units. Oak Hill Securities purchased these units from the initial purchasers at
a purchase price of $941.29 per unit. The units purchased by Oak Hill Securities
are identical to the other units sold in the offering. Oak Hill Securities has
agreed with the initial purchasers that, except for the exchange offer, it will
not sell, transfer or otherwise dispose of or transfer any of the units, notes
or the warrants that it purchased for a period of three months from the date of
purchase without the consent of the initial purchasers. In addition, Oak Hill
Securities purchased $30.0 million of the term loan facility from the co-lead
arrangers at a purchase price of 99.00%. The initial purchasers and the co-lead
arrangers purchased from us the number of units and the portion of the term loan
facility that was sold to Oak Hill Securities at the same price as the units and
portion of the term loan facility that was sold to Oak Hill Securities.
OHSF and OHSF II are Delaware limited partnerships that acquire and
actively manage a diverse portfolio of primarily debt investments, principally
in leveraged companies. The principals of Oak Hill Advisors, Inc., the adviser
to OHSF, and the principals of Oak Hill Advisors, L.P., the adviser to OHSF II,
may from time to time play an advisory and consulting role in connection with
the activities of Oak Hill and have an indirect limited partnership interest in
Oak Hill and its general partner. In addition, the principals of Oak Hill
Capital Management may from time to time play an advisory and consulting role in
connection with the activities of OHSF and OHSF II and have an indirect limited
partnership interest in OHSF and OHSF II and their general partners.
We paid a fee of $300,694 to Oak Hill Advisors, Inc. and $300,694 to Oak
Hill Advisors, L.P. for financial advisory services rendered in connection with
the debt financing for the Transactions.
TRANSACTIONS WITH OFFICERS
Some members of our senior management have purchased our common stock under
management subscription agreements. As of December 31, 1999, we 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,
respectively, under management subscription agreements. We refer to these shares
of common stock as the management shares. We financed a portion of the purchase
price of the management shares.
For the purchase of the management shares, each of the members of senior
management who entered into the management subscription agreement also received
financing from us for no more than one-half of the purchase price of the
management shares. In connection with the financing, each executive executed a
note in favor of us and a pledge agreement. The notes for the named executives
total $289,570 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.
Interest accrues at an annual rate of 4.76% for each of Messrs. Kuhn,
George and Hinderliter and at an annual rate of 6.01% for each of 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:
- the date of cessation of employment of the employee;
- the date the employee is no longer the owner of the particular management
shares; or
- the tenth anniversary of the note executed by the executive.
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We will continue to provide these loans to management and extend the term
of the loans to the earlier of five years or 50% of the original term of the
loan. In addition, we expect to establish a new loan program which will allow
new members of management to obtain loans on similar terms.
OUR OBLIGATION TO REPURCHASE MANAGEMENT'S EQUITY INTERESTS IN US
Some of our management employees have rights to require us to repurchase
the employee's equity interests at fair market value, plus the net value of
vested optioned shares, less the balance on any loans due, upon the employee's
termination of employment due to death, disability or scheduled retirement.
Repurchase will generally be for cash at fair market value on the date of
termination if termination is due to death or disability or scheduled retirement
at or after age 62, or for cash in installments over a period of years at fair
market value each year if termination is due to scheduled retirement prior to
age 62. With respect to Edwin P. Kuhn, if termination is due to scheduled
retirement, we will repurchase that portion of his equity interest on his
retirement date that is attributable to shares of our common stock owned on the
date of the Transactions less the balance due on any loans outstanding between
us and Mr. Kuhn on his scheduled retirement date. Thereafter, we will repurchase
the balance of his equity interest in two equal installments on the first and
second anniversary of his retirement, at the fair market value each year. If
there is a change of control of the company which involves the sale by
stockholders of their equity interest to a third party during the time that
installments are being paid to the management employees, we will accelerate the
installment payments at the time of the closing of the change of control. In
other cases of termination of employment, we will have call rights at fair
market value which generally will be exercised for cash, although in limited
circumstances the call rights may be exercised by promissory note. In all cases,
repurchase rights are restricted under law, credit agreements, financing
documents and other contracts, and our board's good faith determination that
repurchases would not cause undue financial strain on us. The Senior Credit
Facility and the notes limit our ability to repurchase the management shares.
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DESCRIPTION OF SENIOR CREDIT FACILITY AND OTHER INDEBTEDNESS
SENIOR CREDIT FACILITY
As part of the Transactions, we entered into the Senior Credit Facility,
which amended and restated the Existing Credit Agreement, in an aggregate
principal amount of up to $428.0 million with a syndicate of financial
institutions, or lenders, for which Chase Securities Inc. and Credit Suisse
First Boston, New York branch, acted as co-lead arrangers, The Chase Manhattan
Bank acted as administrative agent and Credit Suisse First Boston, New York
branch, acted as syndication agent. The following is a summary of the material
terms and conditions of the Senior Credit Facility and is subject to the
detailed provisions of the Senior Credit Facility and the various related
documents.
Loans; Interest Rates. The Senior Credit Facility is comprised of (a) a
senior term loan B facility in an aggregate principal amount of $328.0 million
and (b) a senior revolving credit facility in an aggregate principal amount of
up to $100.0 million. The proceeds of the term loan facility, together with the
proceeds of the offering, were used solely to provide a portion of the financing
for the Transactions, to pay certain expenses related to the Transactions, to
pay tender offer and consent solicitation premiums and fees and to repay certain
of our existing indebtedness. The proceeds of the revolving credit facility
generally provide financing for future working capital and other general
corporate purposes.
The term loan facility was available for one drawing on the date of the
closing of the Transactions and will be repaid in full at the end of eight
years. The revolving credit facility is available on a revolving basis during
the period commencing on the date of the closing of the Transactions and ending
on the date that is six years after the date of the closing of the Transactions.
The term loan facility bears interest, at our election, at either the alternate
base rate plus a margin of 2.25% or Adjusted LIBOR plus a margin of 3.25%. The
revolving credit facility bears interest, at our election, at either the
alternate base rate plus a margin of 1.75% or Adjusted LIBOR plus a margin of
2.75%.
Repayment. The principal amounts of the term loan facility are repayable in
quarterly installments, beginning in 2002, in the following approximate
aggregate annual amounts:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------------
<S> <C>
2002........................................................ $ 3,280,000
2003........................................................ 3,280,000
2004........................................................ 3,280,000
2005........................................................ 3,280,000
2006........................................................ 3,280,000
2007........................................................ 80,360,000
2008........................................................ 231,240,000
------------
Total....................................................... $328,000,000
============
</TABLE>
Security. The obligations under the Senior Credit Facility and the related
documents are secured by:
- first priority security interests in, and mortgages on, substantially all
of our tangible and intangible assets and the tangible and intangible
assets of each of our existing and subsequently acquired or organized
domestic subsidiaries; and
- a first priority pledge of the capital stock of each of our existing and
subsequently acquired or organized subsidiaries (which pledge, in the
case of the capital stock of foreign subsidiaries, will be limited to 65%
of the capital stock).
Guarantees. Our obligations under the Senior Credit Facility are and will
be guaranteed by each of our existing and subsequently acquired or organized
domestic subsidiaries. TA Franchise Systems Inc., however, has not provided a
guarantee.
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Prepayments. We are required to make prepayments, with customary
exceptions, on loans under the Senior Credit Facility in an amount equal to 50%
of excess cash flow and 100% of the net cash proceeds of:
- all asset sales or other dispositions of property by us or any of our
subsidiaries, including insurance and condemnation proceeds; and
- issuances of indebtedness by us or any of our subsidiaries.
Conditions and Covenants. The obligations of the lenders under the Senior
Credit Facility require the satisfaction of conditions precedent, including the
consummation of the offering and conditions customary for similar credit
facilities or otherwise appropriate under the circumstances. We and each of our
subsidiaries are subject to negative covenants contained in the Senior Credit
Facility, including covenants that restrict, subject to exceptions:
- the incurrence of additional indebtedness and other obligations;
- the granting of additional liens;
- sales and leasebacks;
- investments, loans and advances;
- mergers, consolidations, sales of assets and acquisitions;
- dividends and distributions;
- engaging in some transactions with affiliates;
- changes in lines of business;
- prepayment or repurchase of other indebtedness and amendments to some
agreements governing indebtedness;
- amendment of some documents, including some of our organizational
documents and agreements governing indebtedness;
- the entering into of leases; and
- capital expenditures.
The Senior Credit Facility also contains customary affirmative covenants,
including maintenance of corporate existence and rights and conduct of business,
maintenance of insurance, payment of taxes, performance of obligations, delivery
of financial statements, reports and other documents, delivery of notices of
default and litigation, inspection of property, books and records, use of
proceeds, further assurances (including the pledge of additional collateral and
guarantees from some new subsidiaries), maintenance of interest rate protection
and material contracts and compliance with environmental and safety laws. In
addition, the Senior Credit Facility requires us to maintain compliance with
certain specified financial covenants including a maximum ratio of total debt to
EBITDA as defined in the Senior Credit Facility and a minimum interest expense
coverage ratio. Some of these financial, negative and affirmative covenants are
more restrictive than those in the indenture.
Events of Default. The Senior Credit Facility also includes events of
default that are typical for senior credit facilities and appropriate in the
context of the Transactions, including nonpayment of principal, interest, fees
or reimbursement obligations with respect to letters of credit, violation of
covenants, inaccuracy of representations and warranties in any material respect,
cross default and cross-acceleration to certain other indebtedness and
agreements, bankruptcy and insolvency events, material judgments and
liabilities, defaults or judgments under ERISA and change of control. The
occurrence of any of the events of default could result in acceleration of our
obligations under the Senior Credit Facility and foreclosure on the collateral
securing the obligations, which could have material adverse results to holders
of the notes.
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OTHER INDEBTEDNESS
On September 1, 1998, as part of the purchase of the operating assets of a
leased site, we issued a note, which we refer to as the "Santa Nella Note,"
payable to the former operator of the site for $4.9 million. The Santa Nella
Note bears interest at an annual rate of 5% and requires quarterly payments of
principal and interest of $98,000 through October 1, 2018. This note is secured
by a mortgage interest in the related travel center. As of September 30, 2000,
$4.7 million was outstanding under the note, $3.0 million net of unamortized
debt discount.
On September 9, 1999, we entered into a master lease program that is being
used to finance the construction of eight travel centers on land we own or
expect to purchase. Four of these travel centers are new sites in our network
and four are travel centers being razed and rebuilt. All eight sites will follow
the prototype or protolite design. The total committed amount of the facility is
$68.0 million, of which $40.3 million was used as of September 30, 2000. The
remaining amount available under the program will be used by March 2002, at
which time construction of the eighth site is expected to be completed.
Construction at five of the travel centers was completed by December 31, 2000.
We expect two additional travel centers to be completed during 2001. We
currently own the land on which seven of the travel centers are being
constructed and expect to acquire the eighth site within the next six months.
The initial term of the lease expires on September 9, 2006, at which time, if
the lease is not extended, we have the option to purchase the improvements at a
negotiated price. Under the related lease agreement, our quarterly lease
payments are based on the capitalization and weighted-average cost of capital of
the lessor. The lessor was initially capitalized with $2.4 million of equity and
has entered into a loan and security agreement through which it has borrowed
$37.9 million through September 30, 2000 and can borrow an additional $27.7
million as the funds are needed to pay the construction costs of our sites. We
do not guarantee the indebtedness of the lessor. The lessor's equity holders
receive a return on their contributed capital equal to LIBOR plus 10.75%, while
the interest rate for the indebtedness is equal to LIBOR plus a spread that will
decrease from 4.0% to 3.0% if our ratio of total debt to EBITDA improves. Our
quarterly rent payments are calculated to equal the quarterly interest expense,
return on equity and debt amortization requirements of the lessor, based on a 40
year straight-line amortization schedule.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into an exchange and registration rights agreement with the
initial purchasers of the outstanding notes in which we agreed, under some
circumstances, to file a registration statement relating to an offer to exchange
the outstanding notes for exchange notes. We also agreed to use our reasonable
best efforts to cause the exchange offer registration statement to become
effective under the Securities Act within 180 days after the closing date and
keep the exchange offer registration statement effective for not less than 30
days after the date notice of the registered exchange offer is mailed to the
holders. The exchange notes will have terms substantially identical to the
outstanding notes, except that the exchange notes will not contain terms with
respect to transfer restrictions, registration rights and liquidated damages for
failure to observe certain obligations in the exchange and registration rights
agreement. The outstanding notes were issued on November 14, 2000.
Under the circumstances set forth below, we will use our reasonable best
efforts to cause the SEC to declare effective a shelf registration statement
with respect to the resale of the outstanding notes and keep the statement
effective for up to two years after the effective date of the shelf registration
statement. These circumstances include:
- because of any change in law or applicable interpretations of those laws
by the staff of the SEC do not permit us to effect the exchange offer as
contemplated by the exchange and registration rights agreement;
- if any outstanding notes validly tendered in the exchange offer are not
exchanged for exchange notes within 220 days after the original issue of
the outstanding notes;
- if any initial purchaser of the outstanding notes so requests, but only
with respect to any outstanding notes not eligible to be exchanged for
exchange notes in the exchange offer; or
- if any holder of the outstanding notes notifies us that it is not
permitted to participate in the exchange offer or would not receive fully
tradeable exchange notes in the exchange offer and so requests a shelf
registration statement.
If we fail to comply with certain obligations under the exchange and
registration rights agreement, we will be required to pay additional interest to
holders of the outstanding notes.
Each holder of outstanding notes that wishes to exchange outstanding notes
for transferable exchange notes in the exchange offer will be required to make
the following representations:
- any exchange notes will be acquired in the ordinary course of its
business;
- the holder will have no arrangements or understanding with any person to
participate in the distribution of the outstanding notes or the exchange
notes within the meaning of the Securities Act;
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours or if it is an affiliate, that it will comply
with applicable registration and prospectus delivery requirements of the
Securities Act to the extent applicable;
- if the holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of the exchange notes; and
- if the holder is a broker-dealer, that it will receive exchange notes for
its own account in exchange for outstanding notes that were acquired as a
result of market-making activities or other trading activities and that
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. See "Plan of
Distribution."
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for outstanding notes may be offered
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for resale, resold and otherwise transferred by any exchange note holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act, if:
- the holder is not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act;
- the exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of the
exchange notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- cannot rely on the position of the staff of the SEC enunciated in Exxon
Capital Holdings Corporation or similar interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired the
outstanding notes as a result of market-making activities or other trading
activities may participate in the exchange offer. Each broker-dealer that
receives exchange notes for its own account in exchange for outstanding notes,
where the outstanding notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
outstanding notes properly tendered and not withdrawn prior to the expiration
date. We will issue $1,000 principal amount of exchange notes in exchange for
each $1,000 principal amount of outstanding notes surrendered under the exchange
offer. Outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the outstanding notes except the exchange notes will be
registered under the Securities Act, will not bear legends restricting their
transfer and will not provide for any liquidated damages upon our failure to
fulfill our obligations under the exchange and registration rights agreement to
file, and cause to be effective, a registration statement. The exchange notes
will evidence the same debt as the outstanding notes. The exchange notes will be
issued under and entitled to the benefits of the same indenture that authorized
the issuance of the outstanding notes.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $190.0 million aggregate principal
amount of the outstanding notes are outstanding. This prospectus and a letter of
transmittal are being sent to all registered holders of outstanding notes. There
will be no fixed record date for determining registered holders of outstanding
notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the exchange offer and registration rights agreement, the applicable
requirements of the Securities Act and the Securities Exchange Act of 1934 and
the rules and regulations of the SEC. Outstanding notes that are not tendered
for exchange in the exchange offer will remain outstanding and continue to
accrue interest and will be entitled to the rights and benefits the holders have
under the indenture relating to the outstanding notes, except for any rights
under the exchange offer and registration rights agreement that by their terms
terminate upon the consummation of the exchange offer.
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We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from us and delivering
exchange notes to the holders. Under the terms of the exchange offer and
registration rights agreement, we reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any outstanding notes not
previously accepted for exchange, upon the occurrence of any of the conditions
specified below under the caption "-- Certain Conditions to the Exchange Offer."
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "-- Fees and Expenses" below for
more details regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
, 2001, unless in our sole discretion we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any outstanding notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of the
conditions set forth below under "-- Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of the
delay, extension or termination to the exchange agent; or
- under the terms of the exchange offer and registration rights agreement,
to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination, or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of outstanding notes. If we amend the exchange offer in a manner that we
determine constitutes a material change, we will promptly disclose the amendment
in a manner reasonably calculated to inform the holder of outstanding notes of
the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any outstanding notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange if in our reasonable judgment:
- the exchange notes to be received will not be tradable by the holder,
without restriction under the Securities Act, the Securities Exchange Act
and without material restrictions under the blue sky or securities laws
of substantially all of the states of the United States;
- the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC; or
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- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us:
- the representations described under "-- Purpose and Effect of the
Exchange Offer," "-- Procedures for Tendering" and "Plan of
Distribution"; and
- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
it an appropriate form for registration of the exchange notes under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any outstanding notes by giving oral or written notice of
the extension to their holders. During any such extensions, all notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange. We will return any outstanding notes that we do not accept for
exchange for any reason without expense to their tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance, or termination to the holders of the outstanding
notes as promptly as practicable.
Those conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of this right. Each right will be deemed an ongoing right that we may
assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any outstanding
notes, if at the time any stop order will be threatened or in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture under the Trust Indenture Act.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender the outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the accompanying letter of transmittal, or a
facsimile of the letter of transmittal; have the signature on the letter
of transmittal guaranteed if the letter of transmittal so requires; and
mail or deliver the letter of transmittal or facsimile to the exchange
agent prior to the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive the outstanding notes along with the
accompanying letter of transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of the outstanding notes into the
exchange agent's account at DTC according to the procedures for
book-entry transfer described below or a properly transmitted agent's
message; or
- the holder must comply with the guaranteed delivery procedures described
below.
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To be tendered effectively, the exchange agent must receive any physical
delivery of a letter of transmittal and other required documents at the address
set forth below under "-- Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or outstanding notes to
us. Holders may request their respective brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for them.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owners behalf. If the beneficial owner wishes to tender on its own
behalf, it must, prior to completing and executing the accompanying letter of
transmittal and delivering its outstanding notes either:
- make appropriate arrangements to register ownership of the outstanding
notes in such owner's name; or
- obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible institution" within the meaning of Rule 17Ad-15
under the Exchange Act, unless the outstanding notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
accompanying letter of transmittal; or
- for the account of an eligible institution.
If the accompanying letter of transmittal is signed by a person other than
the registered holder of any outstanding notes listed on the outstanding notes,
the outstanding notes must be endorsed or accompanied by a properly completed
bond power. The bond power must be signed by the registered holder as the
registered holder's name appears on the outstanding notes and an eligible
institution must guarantee the signature on the bond power.
If the accompanying letter of transmittal or any outstanding notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, these persons should so indicate when signing. Unless
waived by us, they should also submit evidence satisfactory to us of their
authority to deliver the accompanying letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
program to tender. Participants in the program may, instead of physically
completing and signing the accompanying letter of transmittal and delivering it
to the exchange agent, transmit their acceptance of the exchange offer
electronically. They may do so by causing DTC to transfer the outstanding notes
to the exchange agent in accordance with its procedures for transfer. DTC will
then send an agent's message to the exchange agent. The term "agent's message"
means a message
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<PAGE> 105
transmitted by DTC, received by the exchange agent and forming part of the
book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding notes that
are the subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
accompanying letter of transmittal, or, in the case of an agent's message
relating to guaranteed delivery, that the participant has received and
agrees to be bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against that participant.
We will determine in our sole discretion all outstanding questions as to
the validity, form, eligibility, including time or receipt, acceptance of
tendered outstanding notes and withdrawal of tendered outstanding notes. Our
determination will be final and binding. We reserve the absolute right to reject
any outstanding notes not properly tendered or any outstanding notes the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular outstanding notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the accompanying
letter of transmittal, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of outstanding notes
must be cured within such time as we will determine. Although we intend to
notify holders of defects or irregularities with respect to tenders of
outstanding notes, neither we, the exchange agent nor any other person will
incur any liability for failure to give the notification. Tenders of outstanding
notes will not be deemed made until any defects or irregularities have been
cured or waived. Any outstanding notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned to the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
- outstanding notes or a timely book-entry confirmation of the outstanding
notes into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the accompanying letter of transmittal or authorizing the
transmission of the agent's message, each tendering holder of outstanding notes
will represent or be deemed to have represented to us that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
- if the holder is not a broker-dealer, that is not engaged in and does not
intend to engage in the distribution of the exchange notes;
- if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for outstanding notes that were acquired as a
result of market-making activities or other trading activities, that it
will deliver a prospectus, as required by law, in connection with any
resale of any exchange notes. See "Plan of Distribution"; and
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act.
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BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus. Any financial institution participating in
DTC's system may make book-entry delivery of outstanding notes by causing DTC to
transfer the outstanding notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of outstanding notes who
are unable to deliver confirmation of the book-entry tender of their outstanding
notes into the exchange agent's account at DTC or all other documents required
by the letter of transmittal to the exchange agent on or prior to the expiration
date must tender their outstanding notes according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding notes but whose outstanding
notes are not immediately available or who cannot deliver their outstanding
notes, the accompanying letter of transmittal or any other required documents to
the exchange agent or comply with the applicable procedures under DTC's
Automated Tender Offer Program prior to the expiration date may tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from the
eligible institution either a properly completed and duly executed notice
of guaranteed delivery, by facsimile transmission, mail or hand delivery,
or a properly transmitted agent's message and notice of guaranteed
delivery:
- setting forth the name and address of the holder, the registered
number(s) of the outstanding notes and the principal amount of
outstanding notes tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the accompanying letter of transmittal, or
facsimile thereof, together with the outstanding notes or a book-entry
confirmation, and any other documents required by the accompanying
letter of transmittal will be deposited by the eligible institution
with the exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal, or facsimile thereof, as well as all tendered outstanding
notes in proper form for transfer or a book-entry confirmation, and all
other documents required by the accompanying letter of transmittal,
within three New York Stock Exchange trading days after the expiration
date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal, which
notice may be by telegram, telex, facsimile transmission or letter of
withdrawal at one of the addresses set forth below under "--Exchange
Agent", or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
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Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn;
- identify the outstanding notes to be withdrawn, including the principal
amount of the outstanding notes; and
- where certificates for outstanding notes have been transmitted, specify
the name in which the outstanding notes were registered, if different
from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of the
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless the holder is an eligible institution.
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding notes and otherwise comply with the procedures of that facility. We
will determine all questions as to the validity, form and eligibility, including
time of receipt, of the notices, and our determination will be final and binding
on all parties. We will deem any outstanding notes so withdrawn not to have been
validly tendered for exchange for purposes of the exchange offer. Any
outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder, or, in the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC according to the procedures described
above, the outstanding notes will be credited to an account maintained with DTC
for outstanding notes, as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn, outstanding
notes may be retendered by following one of the procedures described under
"-- Procedures for Tendering" above at any time on or prior to the expiration
date.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as exchange agent
for the exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or for the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent as follows:
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE: BY HAND OR OVERNIGHT DELIVERY:
State Street Bank and State Street Bank and State Street Bank and
Trust Company Trust Company Trust Company
P.O. Box 778 Attention: Mackenzie Elijah 2 Avenue de Lafayette
Boston, MA 02102-0078 (617) 662-1452 5th Floor, Corporate Trust Window
Attention: Mackenzie Elijah Boston, MA 02111-1724
CONFIRM RECEIPT OF Attention: Mackenzie Elijah
FACSIMILE BY TELEPHONE
(617) 662-1525
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
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FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitations by
telephone or in person by our officers and regular employees and those of our
affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptance of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. The expenses are estimated in the aggregate to be approximately
$450,000. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of the taxes is not submitted with the
letter of transmittal, the amount of the transfer taxes will be billed to that
tendering holder.
Holders who tender their outstanding notes for exchange will not be
required to pay any transfer taxes. However, holders who instruct us to register
exchange notes in the name of, or request that outstanding notes not tendered or
not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be required to pay any applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding notes who do not exchange their outstanding notes
for exchange notes under the exchange offer will remain subject to the
restrictions on transfer of the outstanding notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the outstanding notes under the exemption from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- otherwise as set forth in the offering circular distributed in connection
with the private offering of the outstanding notes.
In general, you may not offer or sell the outstanding notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the exchange and registration rights agreement, we do not
intend to register resales
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of the outstanding notes under the Securities Act. Based on interpretations of
the SEC staff, exchange notes issued under the exchange offer may be offered for
resale, resold or otherwise transferred by their holders (other than any holder
that is our "affiliate" within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that the holders acquired the exchange notes in the
ordinary course of the holders' business and the holders have no arrangement or
understanding with respect to the distribution of the exchange notes to be
acquired in the exchange offer. Any holder who tenders in the exchange offer for
the purpose of participating in a distribution of the exchange notes:
- cannot rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes, which is the aggregate principal
amount, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. We will record the expenses of the exchange
offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
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<PAGE> 110
DESCRIPTION OF THE NOTES
TravelCenters of America, Inc. issued the Notes under an Indenture (the
"Indenture") among itself, the subsidiary guarantors of the Company that are
party to the Indenture and State Street Bank and Trust Company, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "Trust Indenture Act").
Certain terms used in this description are defined under the subheading
"-- Certain Definitions". In this description, the word "Company" refers only to
TravelCenters of America, Inc. and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the Indenture and the Registration Rights Agreement. We urge you to read the
Indenture and the Registration Rights Agreement because they, not this
description, define your rights as holders of these Notes.
BRIEF DESCRIPTION OF THE NOTES
These Notes:
- are unsecured senior subordinated obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company;
- are guaranteed by each Subsidiary Guarantor; and
- are subject to registration with the SEC pursuant to the Registration
Rights Agreement.
PRINCIPAL, MATURITY AND INTEREST
We issued the Notes initially with a maximum aggregate principal amount of
$190 million. We issued the Notes in denominations of $1,000 and any integral
multiple of $1,000. The Notes will mature on May 1, 2009. Subject to our
compliance with the covenant described under the subheading "-- Certain
Covenants -- Limitation on Indebtedness", we are permitted to issue more Notes
under the Indenture up to an aggregate additional principal amount of $190
million (the "Additional Notes"). The Notes and the Additional Notes, if any,
will be treated as a single class for all purposes of the Indenture, including
waivers, amendments, redemptions and offers to purchase. Unless the context
otherwise requires, for all purposes of the Indenture and this "Description of
the Notes", references to the Notes include any Additional Notes actually
issued.
Interest on these Notes accrues at the rate of 12 3/4% per annum and is
payable semiannually in arrears on May 1 and November 1, commencing on May 1,
2001. We will make each interest payment to the holders of record of these Notes
on the immediately preceding April 15 and October 15.
Interest on these Notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest is computed on the basis of a 360-day year composed of twelve 30-day
months.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the Registration Rights Agreement.
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the Notes at
our option prior to November 1, 2005.
On and after November 1, 2005, we will be entitled at our option to redeem
all or a portion of these Notes on one or more occasions upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed in
percentages of principal amount on the redemption date), plus accrued interest
to the
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redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on November 1 of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2005........................................................ 106.375%
2006........................................................ 104.250
2007........................................................ 102.125
2008 and thereafter......................................... 100.000
</TABLE>
In addition, at any time prior to November 1, 2005, the Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a Change
of Control (as defined), upon not less than 30 nor more than 60 days' notice
(but in no event more than 90 days after the occurrence of such Change of
Control), at a redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium at the time plus accrued interest, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
"Applicable Premium" means, with respect to a Note at any time, the greater
of:
(1) 1.0% of the principal amount of such Note and
(2) the excess of
(a) the present value at such time of
(i) the redemption price of such Note on November 1, 2005 plus
(ii) all required interest payments due on such Note through
November 1, 2005, computed using a discount rate equal to the
Treasury Rate plus 50 basis points over
(b) the principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the date fixed
for repayment (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the
period from the redemption date to November 1, 2005; provided, however, that if
the period from the redemption date to November 1, 2005 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that, if the period from the redemption date to November 1, 2005
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes on a pro rata basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate.
We will redeem Notes of $1,000 in whole and not in part. We will cause
notices of redemption to be mailed by first-class mail at least 30 but not more
than 60 days before the redemption date to each holder of Notes to be redeemed
at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in principal amount equal to the
unredeemed portion of the original Note in the name of the holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
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MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund
payments with respect to the Notes. However, under certain circumstances, we may
be required to offer to purchase the Notes as described under the captions
"-- Change of Control" and "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock". We may at any time and from time to time purchase
Notes in the open market or otherwise.
GUARANTEES
The Subsidiary Guarantors are jointly and severally guaranteeing, on a
senior subordinated, unsecured basis, our obligations under these Notes. The
obligations of each Subsidiary Guarantor under its Subsidiary Guaranty are
limited as necessary to prevent that Subsidiary Guaranty from constituting a
fraudulent conveyance under applicable law. See "Risk Factors -- U.S. bankruptcy
or fraudulent conveyance law may interfere with the payment of the notes and the
subsidiary guarantees".
Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guaranty will be entitled to a contribution from each other Subsidiary Guarantor
in an amount equal to such other Subsidiary Guarantor's pro rata portion of the
payment based on the respective net assets of all the Subsidiary Guarantors at
the time of the payment determined in accordance with GAAP.
If a Subsidiary Guaranty were rendered voidable, it could be subordinated
by a court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of the indebtedness, a Subsidiary Guarantor's liability on its Subsidiary
Guaranty could be reduced to zero. See "Risk Factors -- The subsidiary
guarantees may not be enforceable, and there may be limitations on our ability
to receive distributions from the subsidiary guarantors".
The Subsidiary Guaranty of a Subsidiary Guarantor will be released:
(1) upon the sale or other disposition (including by way of
consolidation or merger) of a Subsidiary Guarantor; or
(2) upon the sale or disposition of all or substantially all the
assets of a Subsidiary Guarantor;
in each case other than to the Company or an Affiliate of the Company and as
permitted by the Indenture. The Subsidiary Guaranty of a Subsidiary Guarantor
will also be released at such time as the Subsidiary Guarantor ceases for any
reason to be a guarantor of the Credit Agreement; provided, however, that the
Subsidiary Guarantor will not be so released if it otherwise would then be
required to enter into a Guaranty Agreement under the covenant described in
"-- Certain Covenants -- Future Guarantors".
RANKING
Senior Indebtedness versus Notes
The payment of the principal of, premium, if any, and interest on the Notes
and the payment of any Subsidiary Guaranty is subordinate in right of payment to
the prior payment in full of all Senior Indebtedness of the Company or the
relevant Subsidiary Guarantor, as the case may be, including the obligations of
the Company and such Subsidiary Guarantor under the Credit Agreement.
As of September 30, 2000, after giving pro forma effect to the
Transactions:
(1) the Company's Senior Indebtedness would have been approximately
$328.3 million, all of which would have been secured indebtedness; and
(2) the Senior Indebtedness of the Subsidiary Guarantors would have
been approximately $333.0 million ($331.3 million net of unamortized debt
discount). Virtually all of the Senior Indebtedness of the Subsidiary
Guarantors consists of their respective guaranties of Senior Indebtedness
of the Company under the Credit Agreement.
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<PAGE> 113
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and the Subsidiary Guarantors may incur, under
certain circumstances the amount of Indebtedness could be substantial and, in
any case, the Indebtedness may be Senior Indebtedness. See "-- Certain
Covenants -- Limitation on Indebtedness".
Liabilities of Subsidiaries versus Notes
Substantially all of our operations are conducted through our subsidiaries.
Some of our subsidiaries are not guaranteeing the Notes. Claims of creditors of
the non-guarantor subsidiaries, including trade creditors holding indebtedness
or guarantees issued by the non-guarantor subsidiaries, and claims of preferred
stockholders of the non-guarantor subsidiaries generally will have priority with
respect to the assets and earnings of the non-guarantor subsidiaries over the
claims of our creditors, including holders of the Notes, even if the claims do
not constitute Senior Indebtedness. Accordingly, the Notes will be effectively
subordinated to creditors (including trade creditors) and preferred
stockholders, if any, of the non-guarantor subsidiaries.
As of September 30, 2000, after giving pro forma effect to the
Transactions, the total liabilities of our non-guarantor subsidiaries would have
been approximately $0.6 million, including trade payables. Although the
Indenture limits the incurrence of Indebtedness and preferred stock of certain
of our subsidiaries, the limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by the subsidiaries of liabilities that are not considered
Indebtedness under the Indenture. See "-- Certain Covenants -- Limitation on
Indebtedness".
Other Senior Subordinated Indebtedness versus Notes
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guaranty in all respects rank equally with all other Senior
Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively. As of September 30, 2000, after giving pro forma effect to the
Transactions, the Company and the Subsidiary Guarantors would have had no Senior
Subordinated Indebtedness outstanding (other than the Notes and the Subsidiary
Guarantees).
We and the Subsidiary Guarantors have agreed in the Indenture that we and
they will not Incur, directly or indirectly, any Indebtedness that is
contractually subordinate or junior in right of payment to our Senior
Indebtedness or the Senior Indebtedness of such Subsidiary Guarantors, unless
the Indebtedness is Senior Subordinated Indebtedness of the applicable Person or
is expressly subordinated in right of payment to Senior Subordinated
Indebtedness of such Person. The Indenture does not treat unsecured Indebtedness
as subordinated or junior to Secured Indebtedness merely because it is
unsecured.
Payment of Notes
We are not permitted to pay principal of, premium, if any, or interest on
the Notes or make any deposit pursuant to the provisions described under
"-- Defeasance" below and may not purchase, redeem or otherwise retire any Notes
whether pursuant to the terms of the Notes or otherwise (collectively, "pay the
Notes") if either of the following (a "Payment Default") occurs:
(1) any amount of principal of or premium or interest on any
Designated Senior Indebtedness of the Company is not paid in full in cash
when due; or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of the Designated Senior Indebtedness is
accelerated in accordance with its terms;
unless, in either case, the Payment Default has been cured or waived and any
acceleration has been rescinded or the Designated Senior Indebtedness has been
paid in full in cash. Regardless of the foregoing, we are permitted to pay the
Notes if we and the Trustee receive written notice approving the payment from
the Representatives of all Designated Senior Indebtedness with respect to which
the Payment Default has occurred and is continuing.
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<PAGE> 114
During the continuance of any default (other than a Payment Default) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated without further notice (except such notice as may be
required to effect the acceleration) or the expiration of any applicable grace
periods, we are not permitted to pay the Notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to us) of
written notice (a "Blockage Notice") of such default from the Representative of
the Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter. The Payment Blockage Period will
end earlier if such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and us from the Person or Persons
who gave the Blockage Notice;
(2) because all defaults with respect to the Designated Senior
Indebtedness that gave rise to the Blockage Notice are cured, waived or
otherwise no longer continuing; or
(3) because the Designated Senior Indebtedness has been discharged or
repaid in full in cash.
Notwithstanding the provisions described above, unless a Payment Default
has occurred and is continuing, we are permitted to resume paying the Notes
after the end of the Payment Blockage Period. The Notes will not be subject to
more than one Payment Blockage Period in any consecutive 360-day period
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during the period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full in cash of such Senior Indebtedness before the
holders of the Notes are entitled to receive any payment or distribution of
cash, securities or other property, except that holders of Notes may
receive and retain (a) Permitted Junior Securities and (b) payments made
from a trust as described under "-- Defeasance" so long as, on the date or
dates the respective amounts were paid into the trust, the payments were
made with respect to the Notes without violating the subordination
provisions described herein;
(2) until the Senior Indebtedness of the Company is paid in full in
cash, any payment or distribution to which holders of the Notes would be
entitled but for the subordination provisions of the Indenture will be made
to holders of such Senior Indebtedness as their interests may appear,
except that holders of Notes may receive and retain (a) Permitted Junior
Securities and (b) payments made from a trust as described under
"-- Defeasance" so long as, on the date or dates the respective amounts
were paid into the trust, the payments were made with respect to the Notes
without violating the subordination provisions described herein; and
(3) if a distribution is made to holders of the Notes that, due to the
subordination provisions, should not have been made to them, the holders of
the Notes are required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee must promptly notify the holders of Designated Senior
Indebtedness or the Representative of the Designated Senior Indebtedness of the
acceleration.
A Subsidiary Guarantor's obligations under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor under its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of such Subsidiary Guarantor. The terms of the subordination provisions
described above with respect to the Company's obligations under the Notes apply
equally to a Subsidiary Guarantor and the obligations of the Subsidiary
Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in
the event of a liquidation or insolvency proceeding, creditors of the Company or
a Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or
a Subsidiary Guarantor, as the case may be, may recover more, ratably, than
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the holders of the Notes, and creditors who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than the holders of the Notes.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-- Defeasance".
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
We have agreed in the Registration Rights Agreement that we will, subject
to certain exceptions:
- within 45 days after the Issue Date, file a registration statement
(the "Exchange Offer Registration Statement") with the SEC with respect to
a registered offer (the "Registered Exchange Offer") to exchange the Notes
for new notes of the Company (the "Exchange Notes") having terms
substantially identical in all material respects to the Notes (except that
the Exchange Notes will not contain terms with respect to transfer
restrictions);
- use our best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 180 days
after the Issue Date;
- as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement (the "Effectiveness Date"), offer the Exchange Notes
in exchange for surrender of the Notes; and
- keep the Registered Exchange Offer open for not less than 30 days
(or longer if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the holders of the Notes.
For each Note tendered to us pursuant to the Registered Exchange Offer, we
will issue to the holder of such Note an Exchange Note having a principal amount
equal to that of the surrendered Note. Interest on each Exchange Note will
accrue from the last interest payment date on which interest was paid on the
Note surrendered in exchange therefor, or, if no interest has been paid on such
Note, from the date of its original issue.
Under existing SEC interpretations, the Exchange Notes will be freely
transferable by holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of the
Exchange Notes represents to us in the Registered Exchange Offer that it is
acquiring the Exchange Notes in the ordinary course of its business, that it has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the SEC; provided, however, that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Registered Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Notes) with the prospectus contained in the Exchange
Offer Registration Statement.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes for
180 days following the effective date of such Exchange Offer Registration
Statement (or such shorter period during which Participating Broker-Dealers are
required by law to deliver such prospectus).
A Holder of Notes (other than certain specified holders) who wishes to
exchange Notes for Exchange Notes in the Registered Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
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In the event that:
- applicable interpretations of the staff of the SEC do not permit us
to effect a Registered Exchange Offer; or
- for any other reason we do not consummate the Registered Exchange
Offer within 220 days of the Issue Date; or
- an Initial Purchaser shall notify us following consummation of the
Registered Exchange Offer that Notes held by it are not eligible to
be exchanged for Exchange Notes in the Registered Exchange Offer; or
- certain holders are prohibited by law or SEC policy from
participating in the Registered Exchange Offer or may not resell the
Exchange Notes acquired by them in the Registered Exchange Offer to
the public without delivering a prospectus,
then, we will, subject to certain exceptions:
- promptly file a shelf registration statement (the "Shelf
Registration Statement") covering resales of the Notes or the
Exchange Notes, as the case may be;
- use our best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act; and
- keep the Shelf Registration Statement effective, subject to certain
exceptions, until the earliest of (A) the time when the Notes
covered by the Shelf Registration Statement can be sold pursuant to
Rule 144 without any limitations under clauses (c), (e), (f) and (h)
of Rule 144, (B) two years from the effective date and (C) the date
on which all Notes registered thereunder are disposed of in
accordance therewith.
We will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes or the Exchange Notes, as the case may be. A
holder selling such Notes or Exchange Notes pursuant to the Shelf Registration
Statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such holder (including
certain indemnification obligations).
We will pay additional cash interest on the applicable Notes and Exchange
Notes, subject to certain exceptions:
- if we fail to file an Exchange Offer Registration Statement with the
SEC on or prior to the 45th day after the Issue Date;
- if the Exchange Offer Registration Statement is not declared
effective by the SEC on or prior to the 180th day after the Issue
Date;
- if the Exchange Offer is not consummated on or before the 30th day
after the Exchange Offer Registration Statement is declared
effective;
- if we are obligated to file the Shelf Registration Statement and we
fail to file the Shelf Registration Statement with the SEC on or
prior to the 45th day after such filing obligation arises;
- if we are obligated to file a Shelf Registration Statement and the
Shelf Registration Statement is not declared effective on or prior
to the 140th day after the obligation to file a Shelf Registration
Statement arises; or
- after the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective,
the Registration Statement thereafter ceases to be effective or
usable
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(subject to certain exceptions) (each event referred to in the
preceding clauses, a "Registration Default"),
from and including the date on which any Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured.
The rate of the additional interest will be 0.50% per annum for the first
90-day period immediately following the occurrence of a Registration Default,
and the rate will increase by an additional 0.50% per annum with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum additional interest rate of 1.5% per annum. We will pay additional
interest on regular interest payment dates. The additional interest will be in
addition to any other interest payable from time to time with respect to the
Notes and the Exchange Notes.
All references in the Indenture, in any context, to any interest or other
amount payable on or with respect to the Notes will be deemed to include any
additional interest under the Registration Rights Agreement.
If we effect the Registered Exchange Offer, we will be entitled to close
the Registered Exchange Offer 30 days after the commencement thereof provided
that we have accepted all Notes theretofore validly tendered in accordance with
the terms of the Registered Exchange Offer.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(1) prior to the first public offering of common stock of the Company,
(i) the Holding Group Members cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, or (ii) the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of at least 45% of the total voting power of
the Voting Stock of the Company, whether as a result of issuance of
securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of securities
by the Permitted Holders or otherwise (for purposes of this clause (1) and
clause (2) below, the Permitted Holders shall be deemed to beneficially own
any Voting Stock of a Person (the "specified person") held by any other
Person (the "parent entity") so long as the Permitted Holders beneficially
own (as so defined), directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of the parent entity);
(2) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (1) above, except that for
purposes of this clause (2) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power
of the Voting Stock of the Company; provided, however, that the Permitted
Holders beneficially own (as defined in clause (1) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors (for the
purposes of this clause (2), such other person shall be deemed to
beneficially own any Voting Stock of a specified person held by a parent
entity, if such other person is the beneficial owner (as defined in this
clause (2)), directly or indirectly, of more than 35% of the voting power
of the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in clause (1) above), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent
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entity and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of such parent entity);
(3) individuals who on the Issue Date constituted the Board of
Directors (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66 2/3% of the directors of the Company
then still in office who were either directors on the Issue Date or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office;
(4) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(5) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person (other than, in all such cases, a
Person a majority of the Voting Stock of which is owned by the Permitted
Holders), other than a transaction following which (A) in the case of a
merger or consolidation transaction, securities that represented 100% of
the Voting Stock of the Company immediately prior to such transaction (or
other securities into which such securities are converted as part of such
merger or consolidation transaction) constitute at least a majority of the
voting power of the Voting Stock of the surviving Person in such merger or
consolidation transaction, and (B) in the case of a sale of assets
transaction, the transferee Person becomes the obligor in respect of the
Notes and a Subsidiary of the transferor of such assets.
Within 30 days following any Change of Control, unless we have exercised
our option to redeem the Notes as described under "-- Optional Redemption", we
will mail a notice to each Holder with a copy to the Trustee (the "Change of
Control Offer") stating:
(1) that a Change of Control has occurred and that the Holder has the
right to require us to purchase the Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to the Change of Control);
(3) the purchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the
covenant described hereunder, that a Holder must follow in order to have
its Notes purchased.
We will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by us and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and will not be deemed to have
breached our obligations under the covenant described hereunder by virtue of our
compliance with the securities laws or regulations.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the Initial
Purchasers. We have no present intention to engage in a transaction involving a
Change of Control, although it is possible that we could decide to do so in the
future. Subject to the limitations discussed below, we could, in
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the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect our capital structure or credit
ratings. Restrictions on our ability to Incur additional Indebtedness are
contained in the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness." The restrictions can only be waived with the consent of the
holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in the covenant, however, the Indenture does not
contain any covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
The Credit Agreement may limit our ability to purchase any Notes and will
also provide that the occurrence of certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when we are prohibited from purchasing Notes,
we may seek the consent of our lenders to the purchase of Notes or may attempt
to refinance the borrowings that contain the prohibition. If we do not obtain
the consent or repay the borrowings, we will remain prohibited from purchasing
Notes. In that case, our failure to offer to purchase Notes would constitute a
Default under the Indenture, which would, in turn, constitute a default under
the Credit Agreement.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of their right to require us to repurchase the Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of the repurchase on us. Finally,
our ability to pay cash to the holders of Notes following the occurrence of a
Change of Control may be limited by our then existing financial resources. We
cannot assure you that sufficient funds will be available when necessary to make
any required repurchases.
The provisions under the Indenture relating to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale of "all or substantially all" the assets of the Company
(determined on a consolidated basis). Although there is a limited body of case
law interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Company to repurchase Notes as a result of a sale
of less than all the assets of the Company (determined on a consolidated basis)
to another Person may be uncertain.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company and its Restricted Subsidiaries will be entitled to Incur Indebtedness
if, on the date of such Incurrence and after giving effect thereto on a pro
forma basis, (1) the Consolidated Coverage Ratio exceeds 2.0 to 1.0 if such
Indebtedness is Incurred on or prior to December 31, 2001, 2.25 to 1.0 if such
Indebtedness is Incurred thereafter and on or prior to December 31, 2002 and 2.4
to 1.0 if such Indebtedness is Incurred thereafter and (2) the Consolidated
Leverage Ratio is less than 5.0 to 1.0 if such Indebtedness is Incurred on or
prior to December 31, 2001, 4.75 to 1.0 if such Indebtedness is Incurred
thereafter and on or prior to December 31, 2002 and 4.4 to 1.0 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries will be entitled to Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to any Revolving Credit Facility;
provided, however, that, immediately after giving effect to any such
Incurrence, the aggregate principal amount of all Indebted-
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ness Incurred under this clause (1) and then outstanding does not exceed
$100 million less the sum of all principal payments with respect to such
Indebtedness pursuant to paragraph (a)(3)(A) of the covenant described
under "-- Limitation on Sales of Assets and Subsidiary Stock";
(2) Indebtedness Incurred pursuant to any Term Loan Facility;
provided, however, that, after giving effect to any such Incurrence, the
aggregate principal amount of such Indebtedness then outstanding does not
exceed $328.0 million less the aggregate sum of all principal payments
actually made from time to time after the Issue Date with respect to such
Indebtedness (other than principal payments made from any permitted
Refinancings thereof) pursuant to paragraph (a)(3)(A) of the covenant
described under "-- Limitation on Sales of Assets and Subsidiary Stock";
(3) Indebtedness Incurred pursuant to the Synthetic Lease Facility;
provided, however, that, after giving effect to any such Incurrence, the
aggregate principal amount of such Indebtedness then outstanding does not
exceed $68.0 million less the aggregate sum of all principal payments
actually made from time to time after the Issue Date with respect to such
Indebtedness;
(4) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that (A) any subsequent issuance or transfer
of any Capital Stock which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Restricted Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the obligor thereon and (B) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;
(5) the Notes, the Subsidiary Guarantees and the Exchange Notes
(other than any Additional Notes);
(6) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3), (4) or (5) of this
covenant);
(7) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Subsidiary was acquired by the
Company (other than Indebtedness Incurred in connection with, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company); provided,
however, that on the date of such acquisition and after giving pro forma
effect thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to paragraph (a) of this covenant;
(8) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (5), (6), (7) or this
clause (8); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (7), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary;
(9) Hedging Obligations consisting of (A) Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company or
a Restricted Subsidiary pursuant to the Indenture, (B) Currency Agreements
entered into in the ordinary course of business and not for the purpose of
speculation or (C) Commodity Agreements entered into in the ordinary course
of business and not for the purpose of speculation;
(10) Indebtedness (including Capital Lease Obligations) Incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when taken
together with the principal amount of all other Indebtedness then
outstanding and Incurred pursuant to this clause (10), does not exceed the
greater of (A) 2.0% of Total Assets at the time of Incurrence or (B) $15
million;
(11) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, Incurred in connection
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with the disposition of any business, assets or a Subsidiary of the Company
in accordance with the terms of the Indenture, other than Guarantees of
Indebtedness Incurred by any person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such
acquisition;
(12) obligations in respect of performance, bid and surety bonds and
performance or completion guarantees provided by the Company or any
Restricted Subsidiary in the ordinary course of business;
(13) any Guarantee by the Company or a Restricted Subsidiary of
Indebtedness or other obligations of the Company or any of its Restricted
Subsidiaries so long as the Incurrence of such Indebtedness by the Company
or such Restricted Subsidiary is permitted under the terms of the
Indenture;
(14) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within three Business Days of its
Incurrence; and
(15) Indebtedness of the Company or any Restricted Subsidiaries in an
aggregate principal amount which, when taken together with all other
Indebtedness of the Company or any Restricted Subsidiaries outstanding on
the date of such Incurrence (other than Indebtedness permitted by clauses
(1) through (14) above or paragraph (a)) does not exceed $25 million.
(c) Notwithstanding the foregoing, none of the Company, any Restricted
Subsidiary or any Subsidiary Guarantor will Incur any Indebtedness pursuant to
the foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations of the Company, any
Restricted Subsidiary or any Subsidiary Guarantor unless such Indebtedness shall
be subordinated to the Notes or the applicable Subsidiary Guaranty to at least
the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this covenant, (1) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described above, the Company, in its sole discretion, will
classify such item of Indebtedness at the time of Incurrence and only be
required to include the amount and type of such Indebtedness in one of the above
clauses (provided that any Indebtedness classified as Incurred pursuant to
clause (b)(15) above may later be reclassified as having been Incurred pursuant
to paragraph (a) above to the extent that such reclassified Indebtedness could
be Incurred pursuant to paragraph (a) above at the time of such
reclassification) and (2) the Company will be entitled to divide and classify an
item of Indebtedness in more than one of the types of Indebtedness described
above.
(e) Notwithstanding paragraphs (a) and (b) above, neither the Company nor
any Subsidiary Guarantor will Incur (1) any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness of
such Person, unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness
of such Person or (2) any Secured Indebtedness that is not Senior Indebtedness
of such Person unless contemporaneously therewith such Person makes effective
provision to secure the Notes equally and ratably with such Secured Indebtedness
for so long as such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or
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(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date (the amount so expended, if other
than in cash, to be determined in good faith by the Company, whose
determination will be conclusive) would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the Issue
Date occurs to the end of the most recent fiscal quarter ending at least
45 days prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit);
plus
(B) 100% of the aggregate Net Cash Proceeds (other than Excluded
Contributions) received by the Company from the issuance or sale of its
Capital Stock (other than Disqualified Stock and Designated Preferred
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees) and 100%
of any cash capital contribution (other than Excluded Contributions)
received by the Company from its shareholders subsequent to the Issue
Date; plus
(C) the amount by which Indebtedness of the Company or any of its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of the Company or any
of its Restricted Subsidiaries convertible or exchangeable for Capital
Stock (other than Disqualified Stock and Designated Preferred Stock) of
the Company (less the amount of any cash, or the fair market value of
any other property, distributed by the Company upon such conversion or
exchange); plus
(D) an amount equal to the sum of (x) the net reduction in the
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiary in any Person resulting from repurchases,
repayments or redemptions of such Investments by such Person, proceeds
realized on the sale of such Investment and proceeds representing the
return of capital (excluding dividends and distributions), in each case
received by the Company or any Restricted Subsidiary, and (y) to the
extent such Person is an Unrestricted Subsidiary, the portion
(proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Unrestricted Subsidiary
at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed,
in the case of any such Person or Unrestricted Subsidiary, the amount of
Investments (excluding Permitted Investments) previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made by exchange of or for Capital Stock
of the Company (other than Disqualified Stock and Designated Preferred
Stock and other than Capital Stock issued or sold to a Subsidiary of the
Company or to an employee stock ownership plan or to a trust established by
the Company or any of its Subsidiaries for the benefit of their employees)
subsequent to the Issue Date; provided, however, that such Restricted
Payment shall be excluded in the calculation of the amount of Restricted
Payments;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness which is permitted to be Incurred pursuant to the covenant
described under "-- Limitation on Indebtedness"; provided, however, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(3) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"-- Limitation on Sales of Assets and Subsidiary
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Stock"; provided, however, that such purchase or redemption shall be
excluded in subsequent calculations of the amount of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(5) so long as no Default has occurred and is continuing, the
repurchase or other acquisition of shares of Capital Stock of the Company
or any of its Subsidiaries from employees, former employees, directors or
former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of
Directors under which such individuals purchase or sell or are granted the
option to purchase or sell, shares of such Capital Stock; provided,
however, that the aggregate amount of such repurchases and other
acquisitions shall not exceed $3 million in any calendar year (with unused
amounts in any calendar year being permitted to be carried over for the two
succeeding calendar years); provided further, however, that such amount may
be increased by an amount not to exceed (A) the Net Cash Proceeds (other
than Excluded Contributions) from sales of Capital Stock of the Company
(other than Disqualified Stock and Designated Preferred Stock) to members
of management or directors or consultants of the Company and its
Subsidiaries that occur after the Issue Date plus (B) the cash proceeds of
key man life insurance policies received by the Company and its Restricted
Subsidiaries after the Issue Date (provided, however, that to the extent
such amount is increased by the receipt of any such cash proceeds, such
cash proceeds shall be excluded from the calculation of amounts under
clause (3)(B) of paragraph (a) above and the calculation of Consolidated
Net Income); and provided further, however, that such repurchases and other
acquisitions shall be excluded in the calculation of the amount of
Restricted Payments;
(6) the declaration and payment of dividends or distributions to
holders of any class or series of Disqualified Stock of the Company or any
of its Restricted Subsidiaries issued or Incurred in accordance with the
covenant described under "-- Limitation on Indebtedness"; provided,
however, that, to the extent included in the calculation of Consolidated
Interest Expense, such dividends or distributions shall be excluded in the
calculation of the amount of Restricted Payments;
(7) the payment of annual management, consulting, monitoring and
advisory fees to the Sponsor Group and their Affiliates in an amount in any
fiscal year not to exceed $1 million; provided, however, that such payments
shall be excluded in the calculation of the amount of Restricted Payments;
(8) the payment of dividends on the Company's common stock following
the first public offering of common stock of the Company, after the Issue
Date, of up to 6% per annum of the net proceeds received by the Company
from such public offering; provided, however, that (A) the aggregate amount
of all such dividends shall not exceed the aggregate amount of net proceeds
received by the Company from such public offering, (B) at the time of, and
after giving effect to, any payment permitted under this clause (8), no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof and (C) any such payment shall be included
in subsequent calculations of the amount of Restricted Payments;
(9) repurchases of Capital Stock deemed to occur upon exercise of
stock options if such Capital Stock represents a portion of the exercise
price of such options; provided, however, that such repurchases shall be
excluded in the calculation of the amount of Restricted Payments;
(10) so long as no Default shall have occurred and be continuing or
would occur as a consequence thereof, the declaration and payment of
dividends to holders of any class or series of Designated Preferred Stock
issued after the Issue Date; provided, however, that immediately after
giving pro forma effect to such declaration and payment of dividends, the
Company would be able to Incur an additional $1.00 of Indebtedness pursuant
to paragraph (a) of the covenant described under "-- Limitation on
Indebtedness"; and provided further, however, that such dividends shall be
excluded in the calculation of the amount of Restricted Payments;
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(11) Investments that are made with Excluded Contributions; provided,
however, that such Investments shall be excluded in the calculation of the
amount of Restricted Payments;
(12) payments on or immediately following the Issue Date contemplated
by (A) the Recapitalization Agreement and Plan of Merger, dated as of May
31, 2000, as amended, among TravelCenters of America, Inc., TCA Acquisition
Corporation, Clipper Capital Associates, L.P., National Partners, L.P.,
National Partners III, L.P., Clipper/Merchant I, L.P., Olympus Private
Placement Fund, L.P. and Olympus Growth Fund II, L.P. and (B) the
Stockholders' Agreement, to be dated as of the closing of the Transactions,
between TravelCenters of America, Inc. and the parties named therein; or
(13) other Restricted Payments in an aggregate amount not to exceed
$10 million; provided, however, that such Restricted Payments shall be
excluded in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(1) any encumbrance or restriction contained in the Credit Agreement
as in effect on the Issue Date;
(2) any encumbrance or restriction pursuant to applicable law or any
applicable rule, regulation or order or an agreement in effect at or
entered into on the Issue Date;
(3) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(4) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
(5) in the case of clause (c) above, restrictions contained in
security agreements, participation agreements or other similar financing
documents, leases or mortgages securing Indebtedness of a Restricted
Subsidiary (including with respect to Capital Lease Obligations, Synthetic
Lease Financings and Attributable Debt) to the extent such restrictions
restrict the transfer of the property subject to such security agreements,
participation agreements or other similar financing documents, leases or
mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(7) any restriction on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(8) encumbrances and restrictions contained in agreements evidencing
other Indebtedness of Restricted Subsidiaries permitted to be Incurred
subsequent to the Issue Date pursuant to the provisions of the covenant
described under "-- Limitation on Indebtedness"; provided, however, that
the encumbrances or restrictions apply only in the event of and during the
continuance of a default contained in such Indebtedness or agreement;
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(9) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business; and
(10) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements or
Refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (9) above; provided, however, that such amendments,
modifications, restatements, renewals, increases, supplements or
Refinancings are, in the good faith judgment of the Board of Directors, no
more restrictive with respect to such dividend and other payment or
transfer restrictions than those contained in the dividend or other payment
or transfer restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement or Refinancing.
Limitation on Sales of Assets and Subsidiary Stock
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market
value (including as to the value of all non-cash consideration), as
determined in good faith by the Company, of the shares and assets subject
to such Asset Disposition;
(2) at least 75% of the consideration thereof received by the Company
or such Restricted Subsidiary is in the form of cash or cash equivalents;
provided, however, that the amount of (A) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes), that are
assumed by the transferee of any such assets (provided, however, that the
Company or such Restricted Subsidiary is released from all liability with
respect thereto), (B) any notes, other obligations or securities received
by the Company or such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received) within 180 days following the closing of such
Asset Disposition, (C) any Designated Noncash Consideration received by the
Company or any of its Restricted Subsidiaries in such Asset Disposition
having an aggregate fair market value, when taken together with all other
Designated Noncash Consideration received pursuant to this clause (C) that
is at that time outstanding, not to exceed $10 million at time of receipt
of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value) and (D)
any real property or improvements received in exchange for real property or
improvements having a comparable market value as determined in good faith
by the Board of Directors, shall be deemed to be cash for purposes of this
provision and for no other purpose; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) to the extent the Company elects (or is required by the terms
of any Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness or Indebtedness (other than any Disqualified Stock) of a
Restricted Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the later
of the date of such Asset Disposition or the receipt of such Net
Available Cash;
(B) to the extent the Company elects, to acquire Additional Assets
within one year from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash;
(C) to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to
the holders of the Notes (and to holders of other Senior Subordinated
Indebtedness of the Company designated by the Company) to purchase Notes
(and such other Senior Subordinated Indebtedness of the Company)
pursuant to and subject to the conditions contained in the Indenture;
and
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(D) to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for any general
corporate purpose permitted pursuant to the terms of the Indenture;
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (C) above, the Company
or such Restricted Subsidiary shall permanently retire such Indebtedness
and shall cause the related loan commitment (if any) to be permanently
reduced in an amount equal to the principal amount so prepaid, repaid or
purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $15 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Temporary Cash Investments or applied to temporarily reduce revolving credit
indebtedness.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness of the Company) pursuant to
clause (a)(3)(C) above, the Company will purchase Notes tendered pursuant to an
offer by the Company for the Notes (and such other Senior Subordinated
Indebtedness) at a purchase price of 100% of their principal amount (or, in the
event such other Senior Subordinated Indebtedness of the Company was issued with
significant original issue discount, 100% of the accreted value thereof),
without premium, plus accrued but unpaid interest (or, in respect of such other
Senior Subordinated Indebtedness of the Company, such lesser price, if any, as
may be provided for by the terms of such Senior Subordinated Indebtedness) in
accordance with the procedures (including prorating in the event of over
subscription) set forth in the Indenture. If the aggregate purchase price of the
securities tendered exceeds the Net Available Cash allotted to their purchase,
the Company will select the securities to be purchased on a pro rata basis but
in round denominations, which in the case of the Notes will be denominations of
$1,000 principal amount or multiples thereof. The Company shall not be required
to make such an offer to purchase Notes (and other Senior Subordinated
Indebtedness of the Company) pursuant to this covenant if the Net Available Cash
available therefor is less than $15 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this clause by virtue of its compliance with
such securities laws or regulations.
Limitation on Affiliate Transactions
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with, or for the benefit of, any Affiliate of the
Company (an "Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are not materially less
favorable to the Company or such Restricted Subsidiary than those that
could be obtained at the time of the Affiliate Transaction in arm's-length
dealings with a Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $5
million, the terms of the Affiliate Transaction are set forth in writing
and a majority of directors of the Company have determined in good faith
that the criteria set forth in clause (1) are satisfied and have approved
the relevant Affiliate Transaction as evidenced by a resolution of the
Board of Directors; and
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(3) if such Affiliate Transaction involves an amount in excess of $25
million, the Board of Directors shall also have received a written opinion
from an investment banking, accounting or appraisal firm of national
prominence that is not an Affiliate of the Company to the effect that such
Affiliate Transaction is fair, from a financial standpoint, to the Company
and its Restricted Subsidiaries.
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment (other than a Permitted Investment) or other
Restricted Payment, in each case permitted to be made pursuant to the
covenant described under "-- Limitation on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors;
(3) loans or advances to employees or consultants in the ordinary
course of business of the Company or its Restricted Subsidiaries, but in
any event not to exceed $3 million in the aggregate outstanding at any one
time;
(4) the payment of reasonable fees to officers, employees,
consultants or directors of the Company or its Restricted Subsidiaries and
indemnity provided on behalf of officers, employees, consultants or
directors of the Company or its Restricted Subsidiaries;
(5) any transaction with a Restricted Subsidiary or joint venture or
similar entity which would constitute an Affiliate Transaction solely
because the Company or a Restricted Subsidiary owns an equity interest in
or otherwise controls such Restricted Subsidiary, joint venture or similar
entity;
(6) the issuance or sale of any Capital Stock (other than
Disqualified Stock) of the Company;
(7) the payment of annual management, consulting, monitoring and
advisory fees to the Sponsor Group and their Affiliates in an amount in any
fiscal year not to exceed $1 million and any related out-of-pocket
expenses;
(8) any agreement as in effect on the Issue Date and described in the
Offering Circular or any renewals or extensions of any such agreement (so
long as such renewals or extensions are not less favorable to the Company
or the Restricted Subsidiaries) and the transactions evidenced thereby;
(9) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of any
stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter;
provided, however, that the existence of, or the performance by the Company
or any of its Restricted Subsidiaries of obligations under any future
amendment to any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause
(9) to the extent that the terms of any such amendment or new agreement are
not otherwise disadvantageous to the Holders of the Notes in any material
respect;
(10) the payment by the Company or any of its Restricted Subsidiaries
of fees to the Sponsor Group and their Affiliates in connection with any
financial advisory, financing, underwriting or placement services
including, without limitation, in connection with any acquisition
transaction or divestiture entered into by the Company or any Restricted
Subsidiary; provided, however, that the aggregate amount of fees paid to
the Sponsor Group and their Affiliates in respect of any acquisition
transaction shall not exceed 1% of the total amount of such transaction;
(11) transactions with customers, clients, suppliers or purchasers or
sellers of goods or services in each case in the ordinary course of
business and otherwise in compliance with the terms of the Indenture which
are fair to the Company or its Restricted Subsidiaries, in the reasonable
determination of the Board of Directors or the senior management thereof,
or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party; and
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(12) the payment of all fees and expenses related to the Transactions,
including fees to the Sponsor Group and their Affiliates, which are
described in the Offering Circular.
Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
The Company
(1) will not, and will not permit any Restricted Subsidiary to, sell,
lease, transfer or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than the Company or a Wholly Owned
Subsidiary), and
(2) will not permit any Restricted Subsidiary to issue any of its
Capital Stock (other than, if necessary, shares of its Capital Stock
constituting directors' or other legally required qualifying shares) to any
Person (other than to the Company or a Wholly Owned Subsidiary), unless
(A) immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries owns any
Capital Stock of such Restricted Subsidiary; or
(B) in compliance with the covenant described under "-- Limitation
on Sales of Assets and Subsidiary Stock" and immediately after giving
effect to such issuance or sale, such Restricted Subsidiary either
continues to be a Restricted Subsidiary or if such Restricted Subsidiary
would no longer be a Restricted Subsidiary, then the Investment of the
Company in such Person (after giving effect to such issuance and sale)
would have been permitted to be made under the covenant described under
"-- Limitation on Restricted Payments" as if made on the date of such
issuance and sale.
Merger and Consolidation
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia,
and the Successor Company (if not the Company) shall expressly assume, by
an indenture supplemental thereto, executed and delivered to the Trustee,
in form reasonably satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture;
provided, however, that clause (3) will not be applicable to (A) a Restricted
Subsidiary consolidating with, merging into or transferring all or part of its
properties and assets to the Company or to another Restricted Subsidiary or (B)
the Company merging with an Affiliate of the Company solely for the purpose and
with the sole effect of reincorporating the Company in another jurisdiction or
changing the form of organization of the Company. The Successor Company will be
the successor to the Company and shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture, but the
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predecessor Company in the case of a conveyance, transfer or lease shall not be
released from the obligation to pay the principal of and interest on the Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) except in the case of a Subsidiary Guarantor (other than TA
Operating Corporation) that has been disposed of in its entirety to another
Person (other than to the Company or an Affiliate of the Company), whether
through a merger, consolidation or sale of Capital Stock or assets, if in
connection therewith the Company provides an Officers' Certificate to the
Trustee to the effect that the Company will comply with its obligations
under the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock" in respect of such disposition, the resulting, surviving
or transferee Person (if not such Subsidiary) shall be a Person organized
and existing under the laws of the jurisdiction under which such Subsidiary
was organized or under the laws of the United States of America, or any
State thereof or the District of Columbia, and such Person shall expressly
assume, by a Guaranty Agreement, in a form satisfactory to the Trustee, all
the obligations of such Subsidiary, if any, under its Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the time
of such transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such Guaranty Agreement, if any, complies with the Indenture.
Future Guarantors
The Company will cause each domestic Restricted Subsidiary that Guarantees
any Indebtedness of the Company or any other Restricted Subsidiary to, at the
same time, execute and deliver to the Trustee a Guaranty Agreement pursuant to
which the Restricted Subsidiary will Guarantee payment of the Notes on the same
terms and conditions as those set forth in the Indenture.
SEC Reports
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC and provide the Trustee and Holders and prospective Holders (upon
request in the case of prospective Holders) within 15 days after it files them
with the SEC, copies of its annual report and the information, documents and
other reports that are specified in Sections 13 and 15(d) of the Exchange Act;
provided, however, the Company will not be so obligated to file reports with the
SEC if the SEC does not permit such filing, in which event the Company will make
available the information to the Trustee, Holders and prospective investors
(upon request in the case of prospective investors) within 15 days after the
time the Company would be required to file the information with the SEC if it
were subject to Section 13 or 15(d) of the Exchange Act. Notwithstanding the
foregoing, the requirements shall be deemed satisfied prior to the commencement
of the exchange offer or the effectiveness of the Shelf Registration Statement
by the filing with the SEC of the Exchange Offer Registration Statement and/or
Shelf Registration Statement, and any amendments thereto, with such financial
information that satisfies Regulation S-X of the Securities Act. The Company
also will comply with the other provisions of Section 314(a) of the TIA.
In addition, the Company will furnish to the Holders of the Notes and to
prospective investors, upon the requests of such Holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Notes are not freely transferable under the Securities Act.
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Payments for Consent
Neither the Company nor any Affiliate of the Company will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of Notes for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid to all
Holders of Notes that so consent, waive or agree to amend in the time frame set
forth in solicitation documents relating to such consent, waiver or agreement.
DEFAULTS
Each of the following is an "Event of Default":
(1) a default in the payment of interest on the Notes when due,
continued for 30 days;
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required purchase, upon
declaration or otherwise;
(3) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with
any of its obligations in the covenants described above under "-- Change of
Control" (other than a failure to purchase Notes) or under "-- Certain
Covenants" under "-- Limitation on Indebtedness", "-- Limitation on
Restricted Payments", "-- Limitation on Restrictions on Distributions from
Restricted Subsidiaries", "-- Limitation on Sales of Assets and Subsidiary
Stock" (other than a failure to purchase Notes), "-- Limitation on
Affiliate Transactions", "-- Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries","-- Future Guarantors", or "-- SEC
Reports";
(5) the failure by the Company or a Subsidiary Guarantor to comply for
60 days after notice with its other agreements contained in the Indenture;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10 million (the
"cross acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions");
(8) any judgment or decree for the payment of money (other than
judgments which are covered by enforceable insurance policies issued by
solvent carriers) in excess of $10 million is entered against the Company
or a Significant Subsidiary, remains outstanding for a period of 60
consecutive days following such judgment and is not discharged, waived or
stayed within 10 days after notice (the "judgment default provision"); or
(9) (A) a Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty) and
such default continues for 10 days after receipt of the notice specified in
the Indenture or (B) a Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty.
However, a default under clauses (4), (5), (8) or 9(A) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable; provided, however, that so long as any Bank Indebtedness remains
outstanding, no such acceleration shall be effective until the earlier of (1)
five business days after the giving of written notice to the Company and the
administrative agent (or similar agent if there is no administrative agent)
under the Credit
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Agreement and (2) the day on which any Bank Indebtedness is accelerated. Upon
such a declaration, such principal and interest shall be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company occurs and is continuing, the
principal of and interest on all the Notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders of the Notes. Under certain circumstances, the
holders of a majority in principal amount of the outstanding Notes may rescind
any such acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with applicable law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each holder of the Notes notice of the Default within 90 days after
it occurs. Except in the case of a Default in the payment of principal of or
interest on any Note, the Trustee may withhold notice if and so long as a
committee of its trust officers determines that withholding notice is not
opposed to the interest of the holders of the Notes. In addition, we are
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. We are required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action we
are taking or propose to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, an amendment or waiver may not,
among other things:
(1) reduce the amount of Notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Note;
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(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the amount payable upon the redemption of any Note, change
the time at which any Note may be redeemed as described under "-- Optional
Redemption" above or waive a default arising from the failure to redeem or
purchase any Note when required pursuant to the Indenture;
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes;
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions;
(8) make any change in the ranking or priority of any Note that would
adversely affect the Noteholders; or
(9) make any change in any Subsidiary Guaranty that would adversely
affect the Noteholders.
Notwithstanding the preceding, without the consent of any holder of the
Notes, the Company, the Subsidiary Guarantors and Trustee may amend the
Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a Successor Company of the
obligations of the Company under the Indenture;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code);
(4) to add Guarantees with respect to the Notes, including any
Subsidiary Guaranties, or to secure the Notes;
(5) to add to the covenants of the Company or a Subsidiary Guarantor
for the benefit of the holders of the Notes or to surrender any right or
power conferred upon the Company or a Subsidiary Guarantor;
(6) to make any change that does not adversely affect the rights of
any holder of the Notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company or a Subsidiary Guarantor then outstanding unless the holders of
such Senior Indebtedness (or their Representative) consent to such change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required
to mail to holders of the Notes a notice briefly describing the amendment.
However, the failure to give the notice to all holders of the Notes, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes are issued in registered form and are transferable only upon the
surrender of the Notes being transferred for registration of transfer. We may
require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges.
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DEFEASANCE
At any time, we may terminate all our obligations under the Notes and the
Indenture ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and
to maintain a registrar and paying agent in respect of the Notes.
In addition, at any time we may terminate our obligations under "-- Change
of Control" and under the covenants described under "-- Certain Covenants"
(other than the covenant described under "-- Merger and Consolidation"), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries and the judgment default provision described
under "-- Defaults" above and the limitations contained in clause (3) of the
first paragraph under "-- Certain Covenants -- Merger and Consolidation" above
("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the Notes may not be accelerated because of an Event of Default
specified in clause (4), (6), (7) (with respect only to Significant
Subsidiaries) or (8) under "-- Defaults" above or because of the failure of the
Company to comply with clause (3) of the first paragraph under "-- Certain
Covenants -- Merger and Consolidation" above. If we exercise our legal
defeasance option or our covenant defeasance option, each Subsidiary Guarantor
will be released from all of its obligations with respect to its Subsidiary
Guaranty.
In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel (subject
to customary exceptions and exclusions) to the effect that holders of the Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of the deposit and defeasance and will be subject to Federal income tax
on the same amounts and in the same manner and at the same times as would have
been the case if the deposit and defeasance had not occurred (and, in the case
of legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or other change in applicable Federal income tax
law).
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture. We
have appointed State Street Bank and Trust Company as Registrar and Paying Agent
with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate the conflict within 90 days, apply to the SEC for permission to
continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. If an Event of Default occurs (and is not cured), the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any Holder of Notes, unless the Holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense and then only to the extent required by
the terms of the Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor will have any liability for any obligations of the
Company or any Subsidiary Guarantor under the Notes, any
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Subsidiary Guaranty or the Indenture or for any claim based on, in respect of,
or by reason of such obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. The waiver and release
may not be effective to waive liabilities under the U.S. federal securities
laws, and it is the view of the SEC that a waiver is against public policy.
GOVERNING LAW
The Indenture and the Notes are governed by, and construed in accordance
with, the laws of the State of New York.
CERTAIN DEFINITIONS
"Additional Assets" means any:
(1) property, plant, equipment or intellectual property used in a
Related Business;
(2) Capital Stock of a Person that becomes a Restricted Subsidiary as
a result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clauses (2)
or (3) above is primarily engaged in a Related Business.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenants described
under "-- Certain Covenants -- Limitation on Restricted Payments", "-- Certain
Covenants -- Limitation on Affiliate Transactions" and "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only,
"Affiliate" shall also mean any beneficial owner of Capital Stock representing
10% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of the Company or of rights or warrants to purchase such Capital Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease (other than an operating lease
entered into in the ordinary course of business), transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary
(other than, in the case of clauses (1), (2) and (3)
(A) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Restricted Subsidiary;
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(B) any sale of Capital Stock in, or indebtedness or other
securities of, an Unrestricted Subsidiary;
(C) a disposition of Temporary Cash Investments or obsolete or worn
out equipment in the ordinary course of business;
(D) the disposition of all or substantially all the assets of the
Company in a manner permitted pursuant to the covenant described under
"-- Certain Covenants -- Merger and Consolidation";
(E) sales of assets received by the Company upon the foreclosure on
a Lien;
(F) for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the
covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments" or a Permitted Investment; and
(G) any operating lease entered into in connection with a Synthetic
Lease Financing or any sale, transfer or other disposition of assets of
the Company in connection with a Synthetic Lease Financing, provided,
however, that (x) any asset sold, transferred or otherwise disposed of
in connection with a Synthetic Lease Financing is leased to the Company
or any Restricted Subsidiary simultaneously with the consummation of
such Synthetic Lease Financing or immediately thereafter and (y) such
sale, transfer or other disposition is part of a Synthetic Lease
Financing transaction containing customary terms for such a financing
arrangement (including with respect to the right of the Company to
repurchase the assets underlying such Synthetic Lease Financing); and
(H) a disposition of assets with a fair market value of less than
$1 million).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/ Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of or redemption or similar payment with respect to such Indebtedness
multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means any and all Indebtedness and other amounts
payable under or in respect of the Credit Agreement or Hedging Obligations
related to the Credit Agreement, including principal, premium (if any), interest
(including interest accruing at the contract rate specified in the Credit
Agreement (including any rate applicable on default) on or after the filing of
any petition in bankruptcy or the commencement of any similar state, Federal or
foreign reorganization or liquidation proceeding relating to the Company and
interest that would accrue but for the commencement of such proceeding whether
or not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board.
"Business Day" means each day which is not a Saturday, a Sunday or a day on
which banking institutions are not required to be open in the State of New York.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount
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due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means with respect to any Person any agreement for
the protection against fluctuations in commodity prices or similar agreements or
arrangements to which such Person is a party or of which it is a beneficiary.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (y) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness or Designated Preferred Stock since the beginning of such
period that remains outstanding or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness or Designated Preferred Stock, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness and Designated
Preferred Stock as if such Indebtedness and Designated Preferred Stock had
been Incurred on the first day of such period;
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Company or such
Restricted Subsidiary had not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, EBITDA for
such period shall be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition, including any acquisition
occurring in connection with a transaction requiring a calculation to be
made hereunder, which constitutes all or substantially all of an operating
unit of a business (it being understood that a TravelCenter constitutes
such an operating unit), EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period; and
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(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition that
would have required an adjustment pursuant to clause (3) or (4) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness and Designated
Preferred Stock Incurred in connection therewith, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
Officer of the Company. Any such pro forma calculations may include operating
expense reductions for such period resulting directly from the acquisition which
is being given pro forma effect that (1) are permitted by Regulation S-X
promulgated by the SEC or (2) have been realized or for which the steps
necessary for realization have been taken or are reasonably expected to be taken
within 90 days following such acquisition, including, but not limited to, the
execution or termination of any contracts, the termination of any personnel or
the closing (or approval by the Board of Directors of any closing) of any
facility, as applicable; provided, however, that such adjustments are set forth
in an Officers' Certificate signed by the Company's chief financial officer and
another Officer which states (a) the amount of such adjustment or adjustments,
(b) that such adjustment or adjustments are based on the reasonable good faith
belief of the officers executing such Officers' Certificate at the time of such
execution and (c) that any related Incurrence of Indebtedness and Designated
Preferred Stock is permitted pursuant to the Indenture. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest of such Indebtedness shall be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to such Indebtedness
if such Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to Capital Lease Obligations,
interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction and the interest component of rent expense
attributable to Synthetic Lease Financings;
(2) amortization of debt discount (it being understood that any
discount associated with the warrants being issued in connection with the
Notes will not be treated as debt discount);
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(6) net payments pursuant to Hedging Obligations;
(7) Preferred Stock dividends in respect of all Preferred Stock held
by Persons other than the Company or a Restricted Subsidiary (other than
dividends payable solely in Capital Stock (other than Disqualified Stock
and Designated Preferred Stock) of the issuer of such Preferred Stock);
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by (or secured by the assets of) the
Company or any Restricted Subsidiary; and
(10) cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
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"Consolidated Leverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries as of such date of determination to (y) EBITDA for the
most recent four consecutive fiscal quarters ending at least 45 days prior to
such date of determination (the "Reference Period"); provided, however, that:
(1) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an Incurrence of Indebtedness, the amount of
such Indebtedness shall be calculated after giving effect on a pro forma
basis to such Indebtedness;
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness that was
outstanding as of the end of such fiscal quarter or if any Indebtedness is
to be repaid, repurchased, defeased or otherwise discharged on the date of
the transaction giving rise to the need to calculate the Consolidated
Leverage Ratio (other than, in each case, Indebtedness Incurred under any
revolving credit agreement), the aggregate amount of Indebtedness shall be
calculated on a pro forma basis and EBITDA shall be calculated as if the
Company or such Restricted Subsidiary had not earned the interest income,
if any, actually earned during the Reference Period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or otherwise
discharge such Indebtedness;
(3) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, EBITDA for the
Reference Period shall be reduced by an amount equal to EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for the Reference Period or increased by an amount equal
to EBITDA (if negative) directly attributable thereto for the Reference
Period;
(4) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition, including any acquisition
occurring in connection with a transaction requiring a calculation to be
made hereunder, which constitutes all or substantially all of an operating
unit of a business (it being understood that a TravelCenter constitutes
such an operating unit), EBITDA for the Reference Period shall be
calculated after giving pro forma effect thereto (including the Incurrence
of any Indebtedness) as if such Investment or acquisition occurred on the
first day of the Reference Period; and
(5) if since the beginning of the Reference Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such Reference
Period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (3) or (4) above if made by the Company or a Restricted Subsidiary
during the Reference Period, EBITDA for the Reference Period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of the
Reference Period.
"Consolidated Net Income" means, for any period, the sum of (1) the net
income of the Company and its consolidated Subsidiaries and (2) to the extent
deducted in calculating net income of the Company and its consolidated
Subsidiaries, (A) any non-recurring fees, expenses or charges related to the
Transactions and (B) any non-recurring charges related to one-time severance or
lease termination costs incurred in connection with the Transactions; provided,
however, that there shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to
the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause
(3) below); and
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(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could be distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause); and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of
any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and
any gain (or loss) realized upon the sale or other disposition of any
Capital Stock of any Person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any repurchases, repayments or redemptions
of Investments, proceeds realized on the sale of the Investments or return of
capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"Credit Agreement" means the Credit Agreement entered into by and among,
the Company, the lenders referred to therein, The Chase Manhattan Bank, as
Administrative Agent, and Credit Suisse First Boston, as Syndication Agent,
together with the related documents thereto (including any guarantees, pledge
agreements and security documents), as amended, extended, waived, replaced,
restructured, repaid, refunded, refinanced, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time, and any
agreement (and related document) governing Indebtedness incurred to Refinance,
in whole or in part, the borrowings and commitments then outstanding or
permitted to be outstanding under such Credit Agreement or a successor Credit
Agreement, whether by the same or any other lender or group of lenders and
agents. Without limiting the generality of the foregoing, the term "Credit
Agreement" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to the Credit Agreement and
all refundings, restructurings, renewals, refinancings and replacements of any
facility provided for in the Credit Agreement, including any agreement or
agreements, (a) extending the maturity of any Indebtedness incurred thereunder
or contemplated thereby, (b) adding or deleting borrowers or guarantors
thereunder or (c) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder to the extent permitted under the Indenture.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of Temporary Cash Investments received in
connection with a subsequent sale of such Designated Noncash Consideration.
"Designated Preferred Stock" means Preferred Stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any of its Subsidiaries) and is so designated as Designated Preferred
Stock, pursuant to an Officers' Certificate, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Designated Senior Indebtedness" with respect to a Person means:
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness of such Person which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $20 million and is specifically designated by such
Person in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence
of certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
Notes; provided, however, that if such Capital Stock is issued to any employee
or to any plan for the benefit of employees of the Company or its Subsidiaries
or by any such plan to such employees, such Capital Stock shall not constitute
Disqualified Stock solely because it may be required to be repurchased by the
Company in order to satisfy obligations as a result of such employee's death or
disability; and provided further, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such Capital
Stock than the terms applicable to the Notes and described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary
Stock" and "-- Certain Covenants -- Change of Control"; and
(2) any such requirement only becomes operative after compliance with
such terms applicable to the Notes, including the purchase of any Notes
tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated
Restricted Subsidiaries;
(2) Consolidated Interest Expense;
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(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating activity item that was paid in cash in
a prior period);
(4) any non-recurring fees, expenses or charges related to any Equity
Offering, Permitted Investment, acquisition or Incurrence of Indebtedness
permitted to be Incurred by the Indenture (in each case, whether or not
successful), including any such fees, expenses or charges related to the
Transactions, in each case not exceeding $5 million in the aggregate for
all such non-recurring fees, expenses and charges attributable to the same
transaction or event (or group of related transactions or events);
(5) any extraordinary, one time or non-recurring charges related to
one-time severance and relocation costs Incurred in connection with
transactions or acquisitions consummated after the Issue Date, in each case
not exceeding $2 million in the aggregate for all such charges attributable
to the same transaction or acquisition (or group of related transactions or
acquisitions);
(6) Transition Expenses not exceeding 3% of the value of the related
acquisition or disposition and not exceeding $15 million in the aggregate;
and
(7) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period);
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Equity Offering" means a primary offering of common stock or nonredeemable
Preferred Stock of the Company to Persons who are not Affiliates of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the debt securities of the Company issued pursuant
to the Indenture in exchange for, and in an aggregate principal amount at
maturity equal to, the Notes, in compliance with the terms of the Registration
Rights Agreement.
"Excluded Contributions" means the Net Cash Proceeds received by the
Company after the Issue Date from (1) contributions to its common equity capital
and (2) the sale (other than to a Subsidiary of the Company or to any employee
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) of Capital Stock (other than
Disqualified Stock and Designated Preferred Stock) of the Company, in each case
designated at the time of receipt as Excluded Contributions pursuant to an
Officers' Certificate, the Net Cash Proceeds of which are excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) of the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments."
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting
Standards Board;
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession; and
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(4) the rules and regulations of the SEC governing the inclusion of
financial statements in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in
staff accounting bulletins and similar written statements from the
accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor Guarantees the
Company's obligations with respect to the Notes on the terms provided for in the
Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity
Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Holding Group Members" means the Sponsor Group, Freightliner LLC, each of
their respective Affiliates, and members of management of the Company who own
common stock of the Company as of the Issue Date and after giving effect to the
Transactions.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning. The accretion
of principal of a non-interest bearing or other discount security shall not be
deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/ Leaseback Transactions entered into by such
Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (1)
through (3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if
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and to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of such
Person or, with respect to any Preferred Stock of any Subsidiary of such
Person, the principal amount of such Preferred Stock to be determined in
accordance with the Indenture (but excluding, in each case, any accrued
dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets and the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations as described above at such date.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. Except as otherwise provided for
herein, the amount of an Investment shall be its fair value at the time the
investment is made and without giving effect to subsequent changes in value.
For purposes of the definition of "Unrestricted Subsidiary", the definition
of "Restricted Payment" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary equal to an amount (if positive) equal to (A)
the Company's "Investment" in such Subsidiary at the time of such
redesignation less (B) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Company.
"Issue Date" means the date on which the Notes were originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investor Services, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only
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as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other noncash form), in
each case net of:
(1) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all
Federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP, as a consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such
Asset Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Offering Circular" means the Offering Circular dated November 9, 2000
pursuant to which the Notes were originally sold.
"Permitted Holders" means Oak Hill Capital Partners, L.P., Oak Hill Capital
Management Partners, L.P. and Oak Hill Capital Management, Inc. and any
investment fund managed directly by Oak Hill Capital Partners, L.P., Oak Hill
Capital Management Partners, L.P. or Oak Hill Capital Management, Inc.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related
Business;
(3) cash and Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business of the Company or such Restricted Subsidiary;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
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(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
(9) any Person to the extent such Investment existed on the Issue
Date and any Investment that replaces, refinances or refunds an existing
Investment; provided, however, that the new Investment is in an amount that
does not exceed the amount replaced, refinanced or refunded and is made in
the same Person as the Investment replaced, refinanced or refunded;
(10) any Person to the extent such Investments have an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (10), not to exceed $20 million at the time of such Investment
(with the fair market value of each Investment being measured at the time
made and without giving effect to subsequent changes in value);
(11) any Person where such Investment was acquired by the Company or
any of its Restricted Subsidiaries (a) in exchange for any other Investment
or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment
or accounts receivable or (b) as a result of a foreclosure by the Company
or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured
Investment in default;
(12) Hedging Obligations permitted under clause (b)(9) of the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness";
(13) any Person, where such Investment consists of the licensing or
contribution of intellectual property pursuant to joint marketing
arrangements with such Person;
(14) performance bonds or similar Investments in connection with
pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
regulations;
(15) customers of the Company, where such Investments consist of
payments to customers in consideration for such customers' agreements with
the Company to purchase goods and inventory and which Investments are made
in the ordinary course of business consistent with past practices of the
Company and its Restricted Subsidiaries; and
(16) any special purpose Subsidiary of the Company or any trust,
special purpose entity or other Person (whether or not an Affiliate of the
Company) in connection with a Synthetic Lease Financing that, in the good
faith determination of the Board of Directors, is necessary or advisable to
effect such Synthetic Lease Financing.
"Permitted Junior Securities" shall mean debt or equity securities of the
Company or any successor corporation issued pursuant to a plan of reorganization
or readjustment of the Company that are subordinated to the payment of all then
outstanding Senior Indebtedness of the Company at least to the same extent that
the Notes are subordinated to the payment of all Senior Indebtedness of the
Company on the Issue Date.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
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"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount
(or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Restricted Subsidiary that Refinances Indebtedness of the
Company or (B) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary; and provided further that
clauses (1) and (2) of this clause will not apply to any refunding or
refinancing of any Senior Indebtedness.
"Registration Rights Agreement" means the Registration Rights Agreement
dated November 14, 2000, among the Company, Credit Suisse First Boston
Corporation, Chase Securities Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation.
"Related Business" means any business in which the Company was engaged on
the Issue Date and any business related, ancillary or complementary to any
business of the Company in which the Company was engaged on the Issue Date.
"Representative" means with respect to a Person any trustee, agent or
representative (if any) for an issue of Senior Indebtedness of such Person.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving such
Person) or similar payment to the direct or indirect holders of its Capital
Stock (other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than
pro rata dividends or other distributions made by a Subsidiary that is not
a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
of such Person (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of such purchase, repurchase or other
acquisition or Indebtedness Incurred pursuant to clause (4) of paragraph
(b) of the covenant
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described under "-- Certain Covenants -- Limitation on Indebtedness" and
not subsequently transferred to a Person other than the Company or its
Restricted Subsidiaries); or
(4) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility contained
in the Credit Agreement and any other facility contained in the Credit Agreement
and any other facility or financing arrangement that Refinances, in whole or in
part, any such revolving credit facility.
"Sale/Leaseback Transaction" means an arrangement relating to property
owned by the Company or a Restricted Subsidiary on the Issue Date or thereafter
acquired by the Company or a Restricted Subsidiary whereby the Company or a
Restricted Subsidiary transfers such property to a Person and the Company or a
Restricted Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means, with respect to any Person:
(1) Bank Indebtedness;
(2) Indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred; and
(3) accrued and unpaid interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to such Person to the extent post-filing interest is allowed in
such proceeding) and premium (if any) in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable
unless, in the case of clauses (1), (2) and (3), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes;
provided, however, that Senior Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary;
(2) any liability for Federal, state, local or other taxes owed or
owing by such Person;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect
to any other Indebtedness or other obligation of such Person; or
(5) that portion of any Indebtedness which at the time of Incurrence
is Incurred in violation of the Indenture; provided, however, that such
Indebtedness shall be deemed not to have been Incurred in violation of the
Indenture for purposes of this clause (5) if (x) the holders of such
Indebtedness or their representative or the Company shall have furnished to
the Trustee an opinion of recognized independent legal counsel, unqualified
in all material respects, addressed to the Trustee (which legal counsel
may, as to matters of fact, rely upon an Officers' Certificate of the
Company) to the effect that the Incurrence of such Indebtedness does not
violate the provisions of the Indenture or (y) such Indebtedness consists
of Bank Indebtedness, and the holders of such Indebtedness or their agent
or representative (1) had no actual knowledge at the time of the Incurrence
that the Incurrence of such Indebtedness violated the Indenture and (2)
shall have received an Officers' Certificate of the Company to the effect
that the Incurrence of such Indebtedness does not violate the provisions of
the Indenture.
"Senior Subordinated Indebtedness" means, with respect to a Person, the
Notes (in the case of the Company), a Subsidiary Guaranty (in the case of a
Subsidiary Guarantor) and any other Indebtedness of
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such Person that specifically provides that such Indebtedness is to rank pari
passu with the Notes or such Subsidiary Guaranty, as the case may be, in right
of payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of such Person which is not Senior Indebtedness
of such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"S&P" means Standard & Poor's Rating Group (or any successor to the rating
agency business thereof).
"Sponsor Group" means the collective reference to Oak Hill Capital
Partners, L.P., Oak Hill Capital Management Partners, L.P., Olympus Executive
Fund, L.P., Olympus Growth Fund III, L.P., Monitor Clipper Equity Partners,
L.P., Monitor Clipper Equity Partners (Foreign), L.P., UBS Capital Americas II,
LLC, Credit Suisse First Boston LFG Holdings 2000, L.P. and Credit Suisse First
Boston Corporation.
"Stated Maturity" means, with respect to any security, the date specified
in the security as the fixed date on which the final payment of principal of the
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date or thereafter Incurred)
which is subordinate or junior in right of payment to the Notes or a Subsidiary
Guaranty of such Person, as the case may be, pursuant to a written agreement to
that effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means TA Operating Corporation, TA Travel, LLC and
TA Licensing, Inc.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"Synthetic Lease Facility" means the Synthetic Lease Financing evidenced by
the Agreement for Lease and Lease Agreement, each dated September 9, 1999, among
TCA Network Funding, L.P., TA Operating Corporation and National
Auto/Truckstops, Inc.
"Synthetic Lease Financing" means any synthetic lease financing, tax
retention operating lease, off-balance sheet loan or similar off-balance sheet
financing product or arrangement designed to permit the lessee to (1) obtain or
retain the benefits of ownership of the property or asset that is the subject of
such lease for U.S. Federal income tax purposes and (2) treat such lease as an
operating lease or not to reflect the leased property or assets on the lessee's
balance sheet under GAAP.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within one year of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has
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outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor;
(3) repurchase obligations with a term of not more than 90 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than one year
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P; and
(5) investments in securities with maturities of one year or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A" by Moody's.
"Term Loan Facility" means the term loan facility contained in the Credit
Agreement and any other facility or financing arrangement that Refinances in
whole or in part any such term loan facility.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company available to management.
"Transactions" means the transactions contemplated by the Recapitalization
Agreement and Plan of Merger, dated as of May 31, 2000, as amended, among
TravelCenters of America, Inc., TCA Acquisition Corporation, Clipper Capital
Associates, L.P., National Partners, L.P., National Partners III, L.P., Clipper/
Merchant I, L.P., Olympus Private Placement Fund, L.P. and Olympus Growth Fund
II, L.P. and any financings related thereto.
"Transition Expenses" means, to the extent deducted in determining
Consolidated Net Income, transition costs in connection with effecting the
Company's conversion of acquired TravelCenters into the Company's network of
TravelCenters and the disposition of TravelCenters.
"TravelCenter" means a facility owned, operated or franchised by the
Company or a Restricted Subsidiary that provides fuel and nonfuel products,
services and amenities primarily to the trucking industry.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments".
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
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"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
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BOOK ENTRY; DELIVERY AND FORM
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The exchange notes will initially be represented in the form of one or more
global notes in definitive, fully-registered book-entry form, without interest
coupons that will be deposited with or on behalf of The Depository Trust
Company, or DTC, and registered in the name of DTC or its participants.
Except as set forth below, the global notes may be transferred, in whole
and not in part, solely to another nominee of DTC or to a successor of DTC or
its nominee. Beneficial interests in the global notes may not be exchanged for
notes in physical, certificated form except in the limited circumstances
described below.
The descriptions of the operations and procedures of DTC set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of the settlement system of DTC and are subject to
change by DTC from time to time. We take no responsibility for these operations
or procedures, and investors are urged to contact DTC or its participants
directly to discuss these matters.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
- a "clearing agency" registered under Section 17A of the Securities
Exchange Act of 1934.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, which
eliminates the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers; banks and trust companies;
clearing corporations and specified other organizations. Indirect access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies; these indirect participants clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Investors who are not participants may beneficially own securities held by or on
behalf of DTC only through participants or indirect participants.
So long as DTC or its nominee is the registered owner of a global note, DTC
or the nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by the global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note:
- will not be entitled to have notes represented by the global note
registered in their names;
- will not receive or be entitled to receive physical delivery of
certificated notes; and
- will not be considered the owners or holders of the notes under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee under the indenture.
Accordingly, each holder owning a beneficial interest in a global note must
rely on the procedures of DTC and, if the holder is not a participant or an
indirect participant, on the procedures of the participant through which the
holder owns its interest, to exercise any rights of a holder of notes under the
indenture or the global note. We understand that under existing industry
practice, if we request any action of holders of notes or a holder that is an
owner of a beneficial interest in a global note desires to take any action that
DTC, as the holder of the global note, is entitled to take, then DTC would
authorize the participants to take the action and the participants would
authorize holders owning through participants to take the action or would
otherwise act upon the instruction of the holders. Neither we nor the trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of notes by DTC, or for maintaining, supervising
or reviewing any records of DTC relating to the notes.
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Payments with respect to the principal of, any premium, any liquidated
damages, and interest on any notes represented by a global note registered in
the name of DTC or its nominee on the applicable record date will be payable by
the trustee to or at the direction of DTC or its nominee, in its capacity as the
registered holder of the global note representing the notes under the indenture.
Under the terms of the indenture, we and the trustee may treat the persons in
whose names the notes, including the global notes, are registered as the owners
of the notes for the purpose of receiving payment on the notes and for any and
all other purposes whatsoever. Accordingly, neither we nor the trustee has or
will have any responsibility or liability for the payment of amounts to owners
of beneficial interests in a global note, including principal, any premium, any
liquidated damages, and interest. Payments by the participants and the indirect
participants to the owners of beneficial interests in a global note will be
governed by standing instructions and customary industry practice and will be
the responsibility of the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
Although DTC has agreed to the above procedures to facilitate transfers of
interests in the global notes among its participants, it is under no obligation
to perform or to continue to perform the procedures, and the procedures may be
discontinued at any time. Neither we nor the trustee will have any
responsibility for the performance by DTC or its respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES
If:
- we notify the trustee in writing that DTC is no longer willing or able to
act as a depositary or DTC ceases to be registered as a clearing agency
under the Securities Exchange Act of 1934 and a successor depositary is
not appointed within 90 days of the notice or cessation;
- we, at our option, notify the trustee in writing that we elect to cause
the issuance of notes in definitive form under the indenture; or
- upon the occurrence of specified other events as provided in the
indenture;
then, certificated notes will be issued to each person that DTC identifies as
the beneficial owner of the notes represented by the global notes upon surrender
by DTC of the global notes. Upon the issuance of certificated notes, the trustee
is required to register certificated notes in the name of that person or
persons, or their nominee, and cause the certified notes to be delivered to
those persons.
Neither we nor the trustee will be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related notes and each of those persons may conclusively rely on, and will be
protected in relying on, instructions from DTC for all purposes, including with
respect to the registration and delivery, and the respective principal amounts,
of the notes to be issued.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United States federal
income tax considerations of the ownership of the notes as of the date of this
prospectus. This discussion deals only with notes held as capital assets.
For purposes of this discussion, a U.S. holder is:
- a citizen or resident of the United States;
- a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States or
of any state;
- an estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source;
- a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust; or
- a trust, if it has a valid election in effect to be treated as a United
States person for United States federal income tax purposes.
A non-U.S. holder of our notes is a holder that is not a U.S. holder.
This discussion is based on current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), current and proposed United States Treasury
regulations promulgated thereunder, and administrative and judicial decisions as
of the date hereof, all of which are subject to change, possibly on a
retroactive basis.
This summary does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to each person's decision to hold
notes. This discussion does not address all aspects of United States federal
income taxation that may be relevant to any particular U.S. holder based on the
holder's individual circumstances, and does not address the United States
federal income tax consequences to holders that are subject to special
treatment, including:
- dealers in securities or currencies;
- financial institutions;
- tax exempt organizations;
- persons liable for the alternative minimum tax;
- insurance companies;
- traders in securities that elect to use a mark-to-market method of
accounting with respect to their securities holdings;
- persons who hold notes as part of a hedging, integrated, conversion or
constructive sale transaction or a straddle; and
- U.S. holders whose functional currency is not the United States dollar.
If a partnership holds our notes, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our notes, you should
consult your tax advisor.
This discussion does not address any aspect of state, local or non-United
States tax laws.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF PURCHASING, HOLDING OR
DISPOSING OF NOTES, INCLUDING ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
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APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS
Because the yield to maturity of the notes (as determined for United States
federal income tax purposes) exceeds the "applicable federal rate", or AFR, for
the month in which the notes were issued plus five percentage points, the notes
may be subject to the applicable high-yield discount obligation ("AHYDO") rules
of the Code. In that case, under the AHYDO rules, our deductions with respect to
OID will be suspended until the amounts are actually paid, and the "disqualified
portion" of such OID (defined as the portion that is attributable to the yield
on the note in excess of the AFR plus six percentage points), if any, will be
permanently nondeductible. The AHYDO rules generally do not affect the amount,
timing, or character of a holder's income. However, U.S. holders of notes that
are corporations may be eligible for a dividends-received deduction with respect
to their inclusion in income of the "disqualified portion" if the amount, if
paid with respect to stock, would have constituted a dividend for United States
federal income tax purposes. The availability of a dividends-received deduction
is subject to a number of complex limitations.
TAXATION OF THE NOTES
Payment of Interest
Except as set forth below, stated interest on a note will generally be
taxable to a U.S. holder as ordinary income at the time it is paid or accrued in
accordance with the U.S. holder's method of accounting for tax purposes.
Original Issue Discount
Each note was issued with "original issue discount" in an amount equal to
the excess of (a) the "stated redemption price at maturity" of the note over (b)
its "issue price." U.S. holders should be aware that they generally must include
OID in gross income in advance of the receipt of cash attributable to that
income. Under these rules, a U.S. holder will have to include in income
increasingly greater amounts of original issue discount in successive accrual
periods.
The "issue price" of a note is the portion of the issue price of the unit
issued to initial purchasers that was allocated to the note. The "stated
redemption price at maturity" of a note is the sum of all cash payments required
to be made on the note other than payments of "qualified stated interest". The
term "qualified stated interest" means stated interest that is unconditionally
payable in cash or in property (other than debt instruments of the issuer) at
least annually at a single fixed rate or, subject to certain conditions, based
on one or more interest indices. The stated interest payments on the notes are
qualified stated interest. Accordingly, each note bears original issue discount
in an amount equal to the excess of its principal amount over its issue price.
The amount of original issue discount includible in income by a U.S. holder
of a note is the sum of the "daily portions" for each day of the taxable year
during which the U.S. holder holds the note. The daily portions of original
issue discount required to be included in a U.S. holder's gross income in a
taxable year are determined under a constant yield method by allocating to each
day during the taxable year on which the U.S. holder holds the note a pro rata
portion of the original issue discount on the note that is attributable to the
"accrual period" in which such day is included. The amount of the original issue
discount attributable to each accrual period is an amount equal to the excess,
if any, of (a) the product of the note's "adjusted issue price" at the beginning
of the accrual period (defined below), and its "yield to maturity" (the discount
rate which, when used in computing the present value of all principal and
interest payments to be made under the note, produces an amount equal to the
note's issue price) over (b) the sum of any qualified stated interest allocable
to the accrual period. Original issue discount allocable to a final accrual
period is the difference between the amount payable at maturity and the adjusted
issue price at the beginning of the final accrual period.
The "adjusted issue price" of the note at the beginning of the first
accrual period was its issue price. Thereafter, the adjusted issue price at the
beginning of any other accrual period will be (a) the sum of the note's issue
price, and the aggregate amount of original issue discount that accrued for all
prior accrual
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periods, less (b) any payments made on the note (other than qualified stated
interest), if any, on or before the first day of the accrual period.
A U.S. holder may elect to treat all interest on a note as OID and
calculate the amount includible in gross income under the constant yield method
described above. For purposes of this election, interest includes stated
interest, acquisition discount, OID, de minimis OID, market discount, de minimis
market discount and unstated interest, as adjusted by any amortizable bond
premium or acquisition premium. A U.S. holder must make this election for the
taxable year in which the holder acquired the note, and a U.S. holder may not
revoke the election without the consent of the Internal Revenue Service. U.S.
holders should consult with their own tax advisors about this election.
Market Discount
If a U.S. holder purchased a note for an amount that is less than its
adjusted issue price, the amount of the difference is treated as "market
discount" for United States federal income tax purposes, unless that difference
is less than a specified de minimis amount. Under the market discount rules, a
U.S. holder will be required to treat any payment, other than qualified stated
interest, on, or any gain on the sale, exchange, retirement or other disposition
of, a note as ordinary income to the extent of the market discount that a U.S.
holder has not previously included in income and is treated as having accrued on
the note at the time of its payment or disposition. In addition, a U.S. holder
may be required to defer, until the maturity of the note or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness attributable to the note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless a U.S.
holder elects to accrue on a constant interest method. A U.S. holder may elect
to include market discount in income currently as it accrues, on either a
ratable or constant interest method, in which case the rule described above
regarding deferral of interest deductions will not apply. A U.S. holder's
election to include market discount in income currently, once made, applies to
all market discount obligations acquired by the U.S. holder on or after the
first taxable year to which a U.S. holder's election applies and may not be
revoked without the consent of the Internal Revenue Service. U.S. holders should
consult their own tax advisors before making this election.
Acquisition Premium, Amortizable Bond Premium
If a U.S. holder purchased a note for an amount that is greater than its
adjusted issue price but equal to or less than the sum of all amounts payable on
the note after the purchase date other than payments of qualified stated
interest the U.S. holder is considered to have purchased that note at an
"acquisition premium." Under the acquisition premium rules, the amount of OID
that a U.S. holder must include in gross income with respect to the note for any
taxable year will be reduced by the portion of the acquisition premium properly
allocable to that year.
If a U.S. holder purchased a note for an amount in excess of the sum of all
amounts payable on the note after the purchase date other than qualified stated
interest, the U.S. holder will be considered to have purchased the note at a
"premium" and, although it is an original issue discount note, the U.S. holder
will not be required to include any OID in income. The U.S. holder generally may
elect to amortize the premium over the remaining term of the note on a constant
yield method as an offset to interest when includible in income under your
regular accounting method. If a U.S. holder does not elect to amortize bond
premium, that premium will decrease the gain or increase the loss the U.S.
holder would otherwise recognize on disposition of the note. A U.S. holder's
election to amortize premium on a constant yield method will also apply to all
debt obligations held or subsequently acquired by the U.S. holder on or after
the first day of the first taxable year to which the election applies. A U.S.
holder may not revoke the election without the consent of the Internal Revenue
Service. U.S. holders should consult their own tax advisors before making this
election.
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Registered Exchange Offer
The exchange of notes pursuant to the registered exchange offer will not
constitute a material modification of the terms of the notes and therefore will
not constitute a taxable event for United States federal income tax purposes. In
that event, the exchange would have no United States federal income tax
consequences to a U.S. holder, so that the U.S. holder's holding period and
adjusted tax basis for a note would not be affected, and the U.S. holder would
continue to take into account income in respect of a note in the same manner as
before the exchange.
Sale, Exchange or Retirement of Notes
Unless a non-recognition provision applies, a U.S. holder generally will
recognize capital gain or loss upon a sale, exchange or retirement of a note,
measured by the difference, if any, between:
- the amount realized (less an amount equal to any accrued but unpaid
qualified stated interest not previously included in income, which will
be taxable as such); and
- the U.S. holder's adjusted tax basis in the note.
A U.S. holder's initial tax basis in a note generally will be the portion
of the holder's purchase price allocated to the note. The initial basis in the
notes will be increased by the amount of OID or market discount the U.S. holder
includes in income and reduced by any amortized premium in the note.
Any gain or loss on the sale, exchange or other disposition of a note will
generally be long-term capital gain or loss if the note has a holding period of
more than one year at the time of the sale, exchange or other disposition.
Long-term capital gains recognized by individual U.S. holders are subject to tax
at a maximum rate of 20%. The deductibility of capital losses is subject to
limitations.
TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following discussion is a summary of certain United States federal
income and estate tax considerations, as of the date hereof, of a non-U.S.
holder of notes.
Special rules may apply to certain non-U.S. holders, such as "controlled
foreign corporations", "passive foreign investment companies", "foreign personal
holding companies" and corporations that accumulate earnings to avoid United
States federal income tax, that are subject to special treatment under the Code.
These entities should consult their own tax advisors to determine the United
States federal, state, local and other tax consequences that may be relevant to
them.
Payment of Interest
No withholding of United States federal income tax will be required with
respect to the payment by us or any paying agent of principal or interest (which
for purposes of this discussion includes OID) on a note owned by a non-U.S.
holder, provided:
(1) that the beneficial owner does not actually or constructively own
10% or more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of section 871(h)(3) of the Code and
the regulations thereunder,
(2) the beneficial owner is not a controlled foreign corporation that
is related to us through stock ownership,
(3) the beneficial owner is not a bank whose receipt of interest on a
note is described in section 881(c)(3)(A) of the Code, and
(4) the beneficial owner satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c)
of the Code and the regulations thereunder.
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To satisfy the statement requirement referred to in (4) above, you must
either
- provide your name and address on an Internal Revenue Service Form W-8BEN
(or successor form), and certify, under penalty of perjury, that you are
not a United States person, or
- if you hold your notes through certain foreign intermediaries, satisfy
the certification requirements of applicable United States Treasury
regulations.
If a non-U.S. holder cannot satisfy the requirements described above,
payments of premium, if any, and interest (including OID) made to the non-U.S.
holder will be subject to a 30% withholding tax unless the beneficial owner of
the note provides us or our paying agent, as the case may be, with a properly
executed (1) Internal Revenue Service Form W-8BEN (or successor form) claiming
an exemption from or reduction in withholding under the benefit of a tax treaty
or (2) Internal Revenue Service Form W-8ECI (or successor form) stating that
interest paid on the note is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or business
in the United States.
If a non-U.S. holder is engaged in a trade or business in the United States
and interest (including OID) on the note is effectively connected with the
conduct of such trade or business, the non-U.S. holder will be subject to United
States federal income tax on the interest and OID on a net income basis,
although exempt from the withholding tax discussed above, in the same manner as
if it were a US. holder. In addition, if the holder is a foreign corporation, it
may be subject to a branch profits tax equal to 30% (or a lesser rate under an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to adjustments. For this purpose, interest (including OID)
on a note will be included in the foreign corporation's earnings and profits.
Sale, Exchange or Redemption of Notes
Any gain realized upon the sale, exchange, retirement or other disposition
of a note generally will not be subject to United States federal income tax
unless:
- such gain or income is effectively connected with a trade or business in
the United States of the non-U.S. holder, or
- in the case of a non-U.S. holder who is an individual, the individual is
present in the United States for 183 days or more in the taxable year of
the sale, exchange, retirement or other disposition and certain other
conditions are met.
An individual non-U.S. holder described in the first bullet point above
will be subject to United States federal income tax on the net gain derived from
the sale. An individual non-U.S. holder described in the second bullet point
above will be subject to a flat 30% United States federal income tax on the gain
derived from the sale, which may be offset by United States source capital
losses, even though the holder is not considered a resident of the United
States. A non-U.S. holder that is a foreign corporation and is described in the
first bullet point above, will be subject to tax on gain under regular graduated
United States federal income tax rates and, in addition, may be subject to a
branch profits tax at a 30% rate or a lower rate if so specified by an
applicable income tax treaty.
United States Federal Estate Tax
A note owned by an individual who at the time of death is a non-U.S. holder
will not be subject to United States federal estate tax as a result of the
individual's death, provided that the individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of our stock entitled to vote within the meaning of section 871(h)(3) of the
Code and provided that the interest payments with respect to the note would not
have been, if received at the time of the individual's death, effectively
connected with the conduct of a United States trade or business by the
individual.
151
<PAGE> 158
INFORMATION REPORTING AND BACK-UP WITHHOLDING
Under the Code, a beneficial owner of notes that does not otherwise
establish an exemption may be subject to information reporting and back-up
withholding at a 31% rate on interest (including OID) and proceeds from the
disposition of the notes if the beneficial owner:
- fails to furnish his social security or other taxpayer identification
number within a reasonable time after the request therefor;
- furnishes an incorrect taxpayer identification number;
- fails to report properly interest;
- fails, under certain circumstances, to provide a certified statement,
signed under penalty of perjury, that the taxpayer identification number
provided is its correct number and that it is not subject to back-up
withholding; or
- in the case of a non-United States beneficial owner, fails to meet
certain certification requirements or exemptions.
Back-up withholding is not an additional United States federal income tax.
Rather, any amount withheld from a payment to a beneficial owner under back-up
withholding rules will be refunded or allowed as a credit against the beneficial
owner's United States federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service. Beneficial owners of
notes should consult their tax advisors as to their qualification for exemption
from back-up withholding and the procedure for obtaining the exemption.
152
<PAGE> 159
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange notes. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of exchange notes received in exchange
for outstanding notes where the outstanding notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for a
period of 180 days after the day the registered exchange offer expires, we will
make this prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any resale. In addition, until , 2001,
all dealers effecting transactions in the exchange notes may be required to
deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own accounts
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of these methods
of resale, at market prices prevailing at the time of resale, at prices related
to the prevailing market prices or negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer or
the purchasers of any exchange notes. Any broker-dealer that resells exchange
notes that were received by it for its own account pursuant to the exchange
offer and any broker or dealer that participates in a distribution of the
exchange notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any resale of exchange notes and any
commissions or concessions received by these persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the day the registered exchange offer
expires, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
the documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer, including the expenses of one counsel for the
holders of the outstanding notes, other than commissions or concessions of any
brokers or dealers and will indemnify the holders of outstanding notes,
including any broker-dealers, against certain liabilities, including liabilities
under the Securities Act.
153
<PAGE> 160
LEGAL MATTERS
Certain legal matters with respect to the validity of the exchange notes
will be passed upon for us by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The financial statements as of December 31, 1999 and December 31, 1998 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants given on the authority of
said firm as experts in auditing and accounting.
154
<PAGE> 161
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS:
TravelCenters of America, Inc.
Report of Independent Accountants...................... F-2
Consolidated Balance Sheet at December 31, 1998 and
1999.................................................. F-3
Consolidated Statement of Operations and Retained
Earnings for the years ended December 31, 1997, 1998
and 1999.............................................. F-4
Consolidated Statement of Cash Flows for the years
ended December 31, 1997, 1998 and 1999................ F-5
Notes to the Consolidated Financial Statements......... F-6
UNAUDITED FINANCIAL STATEMENTS:
TravelCenters of America, Inc.
Consolidated Balance Sheet at December 31, 1999 and
September 30, 2000.................................... F-37
Unaudited Consolidated Statement of Income and Retained
Earnings for the nine months ended September 30, 1999
and 2000.............................................. F-38
Unaudited Consolidated Statement of Cash Flows for the
nine months ended September 30, 1999 and 2000......... F-39
Selected Notes to the Unaudited Consolidated Financial
Statements............................................ F-40
</TABLE>
F-1
<PAGE> 162
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,
1998 and 1999, 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
F-2
<PAGE> 163
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 89,200 $ 18,040
Accounts receivable (less allowance for doubtful accounts
of $3,907 for 1998 and $2,894 for 1999)................ 61,012 66,439
Inventories............................................... 42,952 59,043
Deferred income taxes..................................... 2,269 4,533
Other current assets...................................... 12,619 16,441
-------- --------
Total current assets.............................. 208,052 164,496
Notes receivable, net....................................... 1,239 1,383
Property and equipment, net................................. 361,803 454,093
Intangible assets........................................... 21,141 28,792
Deferred financing costs.................................... 9,284 8,411
Deferred income taxes....................................... 5,114 1,879
Other assets................................................ 3,428 808
-------- --------
Total assets...................................... $610,061 $659,862
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 1,594 $ 1,601
Accounts payable.......................................... 46,652 60,920
Other accrued liabilities................................. 62,428 66,743
-------- --------
Total current liabilities......................... 110,674 129,264
Commitments and contingencies (Notes 13 and 18)
Long-term debt (net of unamortized discount)................ 390,865 404,369
Deferred income taxes....................................... 937 1,639
Other long-term liabilities................................. 9,162 16,615
-------- --------
511,638 551,887
Mandatorily redeemable senior convertible participating
preferred stock........................................... 69,974 79,739
Nonredeemable stockholders' equity:
Other preferred stock, common stock and other
stockholders' equity................................... 43,547 53,000
Retained earnings (deficit)............................... (15,098) (24,764)
-------- --------
Total nonredeemable stockholders' equity.......... 28,449 28,236
-------- --------
Total liabilities, redeemable equity and
nonredeemable stockholders' equity.............. $610,061 $659,862
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 164
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- -------- ----------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Fuel................................................. $ 708,637 $554,735 $ 955,105
Non-fuel............................................. 293,843 347,531 479,059
Rent and royalties................................... 36,848 21,544 20,460
---------- -------- ----------
Total revenues............................... 1,039,328 923,810 1,454,624
Cost of revenues (excluding depreciation).............. 773,084 627,149 1,051,080
---------- -------- ----------
Gross profit (excluding depreciation).................. 266,244 296,661 403,544
Operating expenses..................................... 167,072 193,697 267,107
Selling, general and administrative expenses........... 35,619 34,256 38,461
Transition expense..................................... 15,212 3,648 3,952
Depreciation and amortization expense.................. 35,840 44,662 53,202
(Gain) loss on sales of property and equipment......... (11,244) (1,195) (2,615)
Stock compensation expense............................. 1,400 2,500 5,062
---------- -------- ----------
Income from operations................................. 22,345 19,093 38,375
Interest (expense), net................................ (22,898) (25,371) (37,194)
---------- -------- ----------
Income (loss) before income taxes and extraordinary
items................................................ (553) (6,278) 1,181
Provision (benefit) for income taxes................... (344) (2,101) 1,082
---------- -------- ----------
Income (loss) before extraordinary item................ (209) (4,177) 99
Extraordinary loss, less applicable income tax benefits
of $2,012 in 1998 and $3,608 in 1997 (Note 12)....... (5,554) (3,905) --
---------- -------- ----------
Net income (loss)...................................... (5,763) (8,082) 99
Less: preferred dividends............................ (7,520) (8,570) (9,765)
---------- -------- ----------
Income (loss) available to common stockholders......... (13,283) (16,652) (9,666)
Retained earnings (deficit) -- beginning of the year... 14,837 1,554 (15,098)
---------- -------- ----------
Retained earnings (deficit) -- end of the year......... $ 1,554 $(15,098) $ (24,764)
========== ======== ==========
LOSS PER COMMON SHARE (BASIC AND DILUTED):
Loss before extraordinary item....................... $ (7.56) $ (21.12) $ (12.96)
Extraordinary loss................................... (5.44) (6.47) --
---------- -------- ----------
Net income (loss).................................... $ (13.00) $ (27.59) $ (12.96)
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 165
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (5,763) $ (8,082) $ 99
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary loss.............................. 5,554 3,905 --
Depreciation and amortization................... 35,840 44,662 53,202
Deferred income tax provision................... (4,330) (7,691) (3,151)
Provision for doubtful accounts................. 1,688 1,355 1,339
Provision for stock compensation................ 1,400 2,500 5,062
(Gain) on sales of property and equipment....... (11,244) (1,195) (2,615)
Changes in assets and liabilities, adjusted for
the effects of business acquisitions:
Accounts receivable........................ (20,773) 12,034 (1,428)
Inventories................................ 1,422 (4,028) (9,933)
Other current assets....................... 448 (2,954) (400)
Accounts payable........................... 8,327 (2,030) 7,367
Other current liabilities.................. 29,957 10,572 (7,780)
Other, net...................................... (856) (527) 2,950
--------- --------- ---------
Net cash provided by operating activities....... 41,670 48,521 44,712
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................................ (15,127) (63,215) (57,762)
Proceeds from sales of property and equipment........ 37,958 3,414 9,147
Capital expenditures................................. (60,818) (65,704) (87,401)
--------- --------- ---------
Net cash used in investing activities........... (37,987) (125,505) (136,016)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings............................ 3,750 -- 75,500
Revolving loan repayments............................ (17,750) -- (60,500)
Long-term debt borrowings............................ 205,000 229,250 --
Long-term debt repayments............................ (126,675) (129,987) (1,594)
Proceeds from issuance of stock...................... 329 -- 6,738
Repurchase of common stock........................... (7,456) (475) --
Debt issuance costs.................................. (12,904) (4,360) --
--------- --------- ---------
Net cash provided by financing activities....... 44,294 94,428 20,144
--------- --------- ---------
Net increase (decrease) in cash.............. 47,977 17,444 (71,160)
Cash at the beginning of the year...................... 23,779 71,756 89,200
--------- --------- ---------
Cash at the end of the year............................ $ 71,756 $ 89,200 $ 18,040
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 166
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
We are a nationwide, full-service travel center network providing diesel
fuel, gasoline and non-fuel products and services to long-haul trucking fleets
and their drivers, independent truck drivers and other motorists through our 158
full-service travel centers located in 40 states, primarily operating under the
"TravelCenters of America" or "TA" brand names. Of our 158 network locations at
December 31, 1999, we owned 147 locations, 118 of which we operated and 29 of
which we leased to independent lessee-franchisees or operators, which sites we
refer to as "leased sites." Eleven locations were owned and operated by
independent franchisees, which sites we refer to as "franchisee-owned sites." We
purchase and resell diesel fuel, gasoline and other travel center products and
services to consumers, commercial fleets, operators and independent franchisees;
provide fleet credit card and customer information services through our
proprietary ACCESS billing system; conduct centralized purchasing programs;
create promotional programs; and, as a franchisor, assist the operators and
independent franchisees in providing service to trucking fleets, independent
truck drivers and the motoring public.
We were incorporated on December 1, 1992 as National Auto/Truckstops
Holdings Corporation. Our name was changed to TravelCenters of America, Inc. in
March 1997. In April 1993, we acquired the truck stop network assets of a
subsidiary of Unocal Corporation, and in December 1993, we acquired the truck
stop network assets of certain subsidiaries of The British Petroleum Company
p.l.c. ("BP"). In December 1998, we acquired substantially all of the travel
center and truck stop network assets of Burns Bros., Inc., and certain of its
affiliates. In June 1999, we acquired the travel center and truck stop network
assets of Travel Ports of America, Inc. See Note 3 for disclosure regarding the
Travel Ports 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
Franchise Systems Inc., National Auto/Truckstops, Inc., and TA Licensing, Inc.
(formerly known as Travel Port Systems, Inc.), and TA Travel, L.L.C., a wholly
owned subsidiary of TA Operating Corporation. In January 2000, the stock of TA
Licensing, Inc. was contributed to TA Operating Corporation. 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 our
company-operated sites for retail fuel and non-fuel sales.
Initial franchise fee revenues are recognized at the point when the
franchisee opens for business under our brand name, which is when we have
fulfilled all of our obligations under the related agreements. Franchise royalty
revenues are collected and recognized monthly and are determined as a percentage
of the franchisees' revenues.
F-6
<PAGE> 167
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
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 non-fuel 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>
<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 (see Note 9).
Internal-Use Software Costs
During the application development stage of an internal-use computer
software project, we capitalize (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
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
F-7
<PAGE> 168
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
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 statement of operations and retained earnings (deficit).
Classification of Costs and Expenses
Cost of revenues represents the costs of fuels and other products sold,
including freight. Operating expenses principally represent costs incurred in
operating our sites, consisting primarily of labor, maintenance, supplies,
utilities, warehousing, purchasing and occupancy costs. Transition expenses
represent the nonrecurring costs we incurred in integrating the BP network, the
Unocal network, the Burns Bros. network and the Travel Ports network into a
single network under one management, including severance and relocation
expenses, costs to convert acquired sites, costs to dispose of leased sites,
convert leased sites to company-operated sites and terminate franchise
agreements, and related travel and training expenses. 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
We provide 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 our behalf 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, we consider all highly liquid
investments with an initial maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk
We grant credit to our customers and may require letters of credit or other
collateral.
Derivative Instruments
On a limited basis, we engage in commodity risk management activities
within the normal course of our 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, 1998 there were no
open derivative contracts. At December 31, 1999 the amount of open derivative
contracts and the related fair market value and deferred gains and losses were
immaterial.
We use interest rate swap agreements to reduce our 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, we were
involved in interest rate swap agreements with a
F-8
<PAGE> 169
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
notional principal amount of $160,250,000. Notional amounts do not quantify risk
or represent our assets or liabilities, but are used in the determination of
cash settlements under the agreements. We are exposed to credit losses from
counterparty nonperformance, but do not anticipate any losses from our
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 our fixed-rate indebtedness that is
publicly traded is estimated based on the quoted price for those notes. The fair
value of our fixed-rate indebtedness that is not publicly traded is estimated
based on the current borrowing rates available to us for financings with similar
terms and maturities. The fair values of our 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.
Travel Ports Acquisition. On June 3, 1999, we consummated the acquisition
of the network assets of Travel Ports by acquiring 100 percent of the common
stock of Travel Ports at a price of $4.30 per share. Under the terms of the
related merger agreement and certain ancillary agreements, we paid cash of
approximately $27,760,000 for all of Travel Ports's outstanding common shares
and common stock equivalents except approximately 653,000 common shares that
were exchanged for 85,000 shares of our common stock. In addition, we paid cash
of approximately $31,007,000 to retire all of Travel Ports's indebtedness
outstanding as of the merger date. Travel Ports operated a network of 16 travel
centers in seven states, primarily in the northeastern United States, and a
single fuel terminal in Pennsylvania. Upon consummation of the acquisition,
Travel Ports was merged into TA Operating Corporation.
The total cost of the acquisition was $86,003,000. This was comprised of
cash paid to purchase the Travel Ports stock and repay the Travel Ports debt of
$58,767,000, the value of the 85,000 shares of our common stock issued in
exchange for Travel Ports 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 Travel Ports 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 our revolving credit facility and
other available cash.
F-9
<PAGE> 170
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Burns Acquisition. On December 3, 1998, we consummated the acquisition of
the network assets of Burns Bros., Inc. whereby we acquired from Burns Bros. the
land, buildings, equipment and inventories at 17 of the 19 sites comprising the
Travel Stops division of Burns Bros., the equipment and inventories used in
Burns Bros.' 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 Bros. 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 Bros. acquisition was funded with
borrowings under our long-term bank term loan facility as part of the 1998
Refinancing (see Note 12).
The following unaudited pro forma information presents our results of
operations as if the acquisitions of the Travel Ports and Burns Bros. networks
had each taken place on January 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1999
------------- -------------
(IN THOUSANDS OF DOLLARS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Total revenue..................................... $1,205,835 $1,511,083
Gross profit...................................... $ 389,069 $ 428,070
Income from operations............................ $ 30,259 $ 42,281
Net income (loss)................................. $ (2,152) $ 1,808
Loss per common share (basic and diluted)......... $ (17.76) $ (10.67)
</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, we adopted a plan (the "Combination Plan") to combine the
operations of the Unocal network and the BP network into one network under the
TravelCenters of America brand. There were three primary elements to the
Combination Plan that have been implemented throughout 1997, 1998 and 1999: (1)
integrating the management of the BP and Unocal networks, (2) converting the
Unocal and BP network sites to one network, and (3) rationalizing and further
developing our network. These expenses relate to, among other things, (i)
employee separations, (ii) the costs to convert Unocal 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 Unocal and BP networks, including relocation, travel, training, and legal
expenses. In January 1997, certain executive officers of National
Auto/Truckstops, Inc. resigned and related severance costs of approximately
$774,000 were recognized. In May 1997, we finalized our plans regarding employee
terminations resulting from integrating management of the two networks and,
accordingly, the related expense of approximately $1,833,000 was recognized.
We have also incurred transition expenses as a result of the Burns Bros.
acquisition and the Travel Ports acquisition, primarily related to integrating
the acquired sites into our network. As a result of implementing the Combination
Plan and integrating the Burns network and Travel Ports network sites, for the
years ended December 31, 1997, 1998 and 1999, we incurred approximately
$15,212,000, $3,648,000 and $3,952,000, respectively, of expense, included in
transition expense in our consolidated financial statements.
F-10
<PAGE> 171
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
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
1997, 1998 and 1999. Effective January 1, 2000, 325,000 options to purchase
common stock were granted to certain members of management and non-employee
directors.
F-11
<PAGE> 172
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
6. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Non-fuel merchandise................................... $ 39,973 $ 51,043
Petroleum products..................................... 2,979 8,000
-------- --------
Total inventories............................ $ 42,952 $ 59,043
======== ========
</TABLE>
7. NOTES RECEIVABLE
We have notes receivable agreements with certain customers 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. We also have 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,
----------------
1998 1999
------ ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Principal amount of notes outstanding...................... $2,351 $5,169
Less: allowance for doubtful accounts.................... 280 586
------ ------
2,071 4,583
Less: amounts due within one year........................ 832 3,200
------ ------
Notes receivable, net.................................... $1,239 $1,383
====== ======
</TABLE>
The amount due within one year is included within other current assets on
the balance sheet.
8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Land................................................... $ 57,997 $ 61,091
Buildings and improvements............................. 221,091 316,392
Machinery, equipment and furniture..................... 113,680 192,423
Construction in progress............................... 80,586 38,220
-------- --------
Total cost................................... 473,354 608,126
Less: accumulated depreciation......................... 111,551 154,033
-------- --------
Property and equipment, net.......................... $361,803 $454,093
======== ========
</TABLE>
F-12
<PAGE> 173
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Pursuant to the Combination Plan, nine company-operated sites were being
held for sale as of December 31, 1997. Based on the 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 was
included in depreciation and amortization in the statement of operations and
retained earnings (deficit). 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. We re-evaluated the remaining seven sites and
determined that we 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, we were 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 exceeded 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 Auto/Truckstops, Inc.'s estimated useful
lives to those of TA Operating Corporation. The effect of this change in
estimate resulted in reductions in income before extraordinary items, net income
and earnings per share of $9,486,000 million, $5,668,000 million and $9.08 per
share, respectively. This change resulted in these assets becoming fully
depreciated at March 31, 1998.
9. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Noncompetition agreements................................ $26,200 $26,200
Leasehold interest....................................... 1,724 1,724
Trademarks............................................... 2,313 2,713
Goodwill................................................. 16,631 28,310
------- -------
Total cost..................................... 46,868 58,947
Less: accumulated amortization........................... 25,727 30,155
------- -------
Intangible assets, net................................. $21,141 $28,792
======= =======
</TABLE>
As part of acquisitions of the Unocal and BP networks, we 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 we 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 BP
acquisition, of favorable lease provisions at one location, the lease for which
extended 11 1/2 years from the date of the BP acquisition. The leasehold
interest is being amortized over the 11 1/2 year period. Trademarks relates
primarily to our purchase of trademarks, service marks, trade names and
commercial symbols from BP and Travel Ports. The trademarks are being amortized
over their estimated economic life of 15 years.
F-13
<PAGE> 174
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Goodwill results from acquisitions of network assets, including the Travel
Ports 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, 1997, 1998 and 1999, we recorded
acquired goodwill of $6,354,000, $9,283,000, and $11,679,000, respectively. This
goodwill is amortized on a straight-line basis over 15 years. During the fourth
quarter of 1997, as a result of a review of the operations of certain 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
statement of operations and retained earnings (deficit).
10. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Taxes payable, other than income taxes................... $14,422 $18,265
Accrued wages and benefits............................... 13,366 14,967
Interest payable......................................... 4,852 5,096
Other accrued liabilities................................ 29,788 28,415
------- -------
Total other accrued liabilities................ $62,428 $66,743
======= =======
</TABLE>
11. REVOLVING LOAN
We have 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. There were no borrowings outstanding under the revolving loan
facility at December 31, 1998. At December 31, 1999, there were outstanding
borrowings under this facility of $15,000,000. There were $1,529,000 of
available borrowings reserved for letters of credit at both December 31, 1998
and 1999. The revolving loan facility matures in March 2004.
12. LONG-TERM DEBT
In March 1997, we completed a refinancing, which we refer to as the "1997
Refinancing", whereby we refinanced the existing indebtedness of TA Operating
Corporation and National Auto/Truckstops, Inc. with new borrowings by us. We
issued $125,000,000 aggregate principal amount of 10 1/4% Senior Subordinated
Notes due 2007, entered into a Credit Agreement through which we obtained an
$80,000,000 senior secured term loan facility and a $40,000,000 revolving credit
facility, redeemed all of the outstanding subordinated notes of TA Operating
Corporation and National Auto/Truckstops, Inc., respectively, and a portion of
the senior notes of TA Operating Corporation, and, pursuant to a Senior Secured
Note Exchange Agreement, exchanged $85,500,000 aggregate principal amount of our
Senior Secured Notes ($35,500,000 of Series I Senior Secured Notes and
$50,000,000 of Series II Senior Secured Notes) for the senior notes of National
Auto/Truckstops, Inc. and the unredeemed senior notes of TA Operating
Corporation.
In December 1998, we completed a refinancing, which we refer to as the
"1998 Refinancing," in which we increased the term loan by $150,000,000. Of the
total amount borrowed, $50,000,000 was utilized to retire our Series II Senior
Secured Notes and $42,000,000 was specified to prefund planned capital
expenditures and
F-14
<PAGE> 175
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
business acquisitions and required to be placed in a cash collateral account
until used for such expenditures. The remaining $58,000,000 was used to fund the
Burns Bros. acquisition and pay fees and expenses of the transactions.
Provisions of the debt agreements required us 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. We utilized the $30,000,000 to partially fund the Travel
Ports acquisition (see Note 3).
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
INTEREST --------------------------
RATE MATURITY 1998 1999
-------- -------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Term Loan (a)...................... (b) 2005 $228,889 $227,442
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 4,919 4,771
-------- --------
Total.................... 394,308 407,713
Less: amounts due within one
year............................. 1,594 1,601
Less: unamortized discount......... 1,849 1,743
-------- --------
Total.................... $390,865 $404,369
======== ========
</TABLE>
---------------
(a) On March 21, 1997, in connection with the 1997 Refinancing, we entered into
a Credit Agreement with a group of lenders. On November 24, 1998, in
connection with the 1998 Refinancing, we amended our Credit Agreement. The
Amended and Restated Credit Agreement consists of two components: term loans
of a maximum $230,000,000 (increased from $80,000,000 in the 1998
Refinancing) and revolving loans (see Note 11) not to exceed $40,000,000
(including any letters of credit issued). Payments of principal, interest
and commitment fees related to the Amended and Restated Credit Agreement are
scheduled quarterly in installments of principal ranging from $362,000 to
$34,000,000, with the last quarterly payment due on March 27, 2005. Optional
prepayments are allowed under the Amended and Restated Credit Agreement and,
in addition, annual prepayments of principal may be required based, among
other things, on excess cash flows we generate.
(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. We have 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. We have 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 ABR borrowing. The average effective interest
rate for 1999 was 8.2 percent.
F-15
<PAGE> 176
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(d) On March 21, 1997, in connection with the 1997 Refinancing, we 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, we 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 that
represents the present value of future payments discounted at a rate equal
to the yield on U.S. Treasury securities with a similar maturity. In
addition, annual prepayments of principal may be required based, among other
things, on excess cash flows we generate.
(e) On March 27, 1997, in connection with the 1997 Refinancing, we 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, National Auto/Truckstops, Inc. 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
our prior indebtedness as a result of the 1997 Refinancing, we 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,
we 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 Amended and Restated Credit Agreement borrowings were incurred as part of
the 1998 Refinancing.
Pledged Assets. The borrowings under the Amended and Restated Credit
Agreement and Senior Secured Note Exchange Agreement are secured by mortgages on
substantially all of our property and equipment in the manner described in the
Master Collateral and Intercreditor Agreement negotiated between the lending
banks under the Amended and Restated Credit Agreement and the Senior Secured
Note holders. In the event of a change in control (as defined in the relevant
instruments) of us, the total amount outstanding under the debt agreements
described above may be declared immediately due and payable.
Debt Covenants. Under the terms of the Amended and Restated Credit
Agreement and the Senior Secured Note Exchange Agreement, we are 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. We were in
compliance with the covenants throughout 1999 and at December 31, 1999.
F-16
<PAGE> 177
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Under the terms of the Indenture for the Senior Subordinated Notes due
2007, we are required to maintain certain affirmative and negative covenants
that, among other things, provide for a minimum coverage ratio. We were 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 us 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, 1998 and 1999 approximated the recorded value.
Based on bank-quoted market prices, the fair value of the interest rate swap
agreement we had 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.
13. LEASE COMMITMENTS
We have entered into lease agreements covering certain of our travel center
locations, warehouse and office space, computer and other 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
$5,658,000, $6,743,000, and $9,576,000, for the years ended December 31, 1997,
1998 and 1999, respectively.
14. MANDATORILY REDEEMABLE SENIOR CONVERTIBLE PARTICIPATING PREFERRED STOCK
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(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....................................... $51,888 $59,129
Series II-1,000,000 shares authorized, $0.01 par value;
934,344 shares issued and outstanding, shown at
redemption value....................................... 18,086 20,610
------- -------
Total.......................................... $69,974 $79,739
======= =======
</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
F-17
<PAGE> 178
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Rights below), submitted to a vote of our 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 and the
redemption value presented in the balance sheet. Such dividends accrue whether
or not declared by the board of directors. Accrued dividends totaled $33,824,000
and $43,589,000 at December 31, 1998 and 1999, 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.
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 we
consummate an underwritten public offering of common stock pursuant to which the
net offering price per share is equal to or greater than 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 BP acquisition to the date of such
public offering, and the net proceeds raised in the offering are at least $50
million, we 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 our 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 we propose to declare and pay any dividends or
other distributions in respect of convertible preferred stock or common stock,
we 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 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.
F-18
<PAGE> 179
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Call Option. We may, at our 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. We shall redeem all of the then outstanding shares on
December 10, 2008, at a redemption price per share equal to the Senior
Liquidation Preference.
15. NONREDEEMABLE STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(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.......... 14 17
Additional paid-in capital............................. 52,382 62,003
Treasury stock-at cost; 827,700 and 817,700 shares at
December 31, 1999 and 1998, respectively............. (8,887) (9,058)
-------- --------
Total........................................ $ 43,547 $ 53,000
======== ========
</TABLE>
In April 1993, to partially fund the Unocal acquisition, we 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 BP acquisition, we 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, 1997, 1998 and 1999 we issued 35,339;
3,864 and, 6,182 respectively, shares of common stock to certain members of
management for cash and notes receivable (see Note 17) aggregating $655,000,
$77,000 and $154,000, respectively.
In June 1999, we issued 85,000 shares of common stock valued at $2,808,000
in exchange for common shares of Travel Ports as part of the Travel Ports
acquisition (see Note 3). In July 1999, we issued 200,000 shares of common stock
for cash consideration of $6,660,000 and also issued an option to purchase an
additional 100,000 shares of common stock 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 our stockholders.
Series II Convertible Preferred Stock is non-voting.
Dividends. See Common Stock -- Dividends below.
F-19
<PAGE> 180
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
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 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, we are 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 our stockholders.
Dividends. Holders of common stock are entitled to receive dividends if,
and when, declared by our board of directors. We are precluded from paying
dividends or making distributions to the holders of any of our 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 our capital stock; unless (i) in any fiscal year the
dividends and distributions do not exceed 50 percent of our 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 our 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 we 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 our senior management have purchased
shares of our common stock pursuant to individual management subscription
agreements. We have the right to repurchase, and the employees have the right to
require us to repurchase, subject to certain limitations, at formula prices, the
common stock upon termination of employment. The formula prices are based on our
consolidated operating results and indebtedness. At December 31, 1997, 1998 and
1999, the formula prices were $23.25, $25.00 and $33.30 per share, respectively.
Compensation expense recognized with regard to these shares during the years
ended December 31, 1997, 1998 and 1999 was $54,000, $62,000 and $96,000,
respectively.
Treasury Stock
From time to time we have acquired shares of our common stock from former
members of management and Operator Stockholders. For the years ended December
31, 1997, 1998 and 1999, we purchased 692,000; 37,500 and 10,000 treasury
shares, respectively. These shares were recorded at their acquisition costs of
$7,456,000, $475,000 and $170,000 for the years ended December 31, 1997, 1998
and 1999, respectively.
F-20
<PAGE> 181
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Stock Award and Option Plans
1997 Stock Plan. During 1997, the board of directors approved the adoption
of the 1997 Stock Incentive Plan, which we refer to as 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 our officers,
non-employee directors and key employees 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 our consolidated operating results and indebtedness; the
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 us (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 us) 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, which we refer to as 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 our employees and directors. 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 and (iii) stock
appreciation rights unrelated to an option. Stock options granted under the 1993
Stock Plan allow the purchase of 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
our consolidated operating results and indebtedness. 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.
F-21
<PAGE> 182
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Stock Option Status Summary. 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,
------------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Options outstanding beginning of year........ 531,181 376,779 538,529
Granted...................................... 161,750 161,750 238,751
Canceled..................................... (316,152) -- --
-------- ------- -------
Options outstanding, end of year............. 376,779 538,529 777,280
-------- ------- -------
Options exercisable, end of year............. 376,779 538,529 777,280
Options available for grant, end of year..... 588,250 426,500 187,749
</TABLE>
The weighted-average exercise price was $23.25 and $25.00 for those options
granted during 1998 and 1999, respectively, and $19.74 and $21.35 for all
outstanding options as of December 31, 1998 and 1999, 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.
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>
The purchase prices at December 31, 1997, 1998 and 1999 used to determine
compensation expense related to options granted under our stock plans were based
on the formula specified in the 1997 Stock Plan as applied by the compensation
committee of the board of directors and were $23.25, $25.00 and $33.30,
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, 1997, 1998 and 1999 were $1,346,000, $2,438,000 and
$4,966,000, respectively.
F-22
<PAGE> 183
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
16. INCOME TAXES
The (benefit) provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------ ------- ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal....................................... $3,524 $ 4,089 $3,335
State......................................... 462 1,501 898
------ ------- ------
3,986 5,590 4,233
------ ------- ------
Deferred:
Federal....................................... (3,880) (6,565) (3,047)
State......................................... (450) (1,126) (104)
------ ------- ------
(4,330) (7,691) (3,151)
------ ------- ------
Total.................................... $ (344) $(2,101) $1,082
====== ======= ======
</TABLE>
The difference between taxes calculated at the U. S. federal statutory tax
rate of 35 percent and our total income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
----- ------- ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
U.S. federal statutory rate applied to income
before taxes and extraordinary items........... $(194) $(2,198) $ 413
State income taxes, net of federal income tax
benefit........................................ 8 243 518
Non-deductible meals and entertainment........... 65 129 336
Non-deductible amortization...................... -- -- 140
Benefit of tax credits........................... (227) (320) (377)
Other -- net..................................... 4 45 52
----- ------- ------
Total.................................. $(344) $(2,101) $1,082
===== ======= ======
</TABLE>
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. 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.
F-23
<PAGE> 184
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Deferred income tax assets and liabilities resulted from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable.................................. $ 1,199 $ 1,459
Inventory............................................ 299 566
Intangible assets.................................... 11,511 11,421
Deferred revenues.................................... 887 1,806
Minimum tax credit................................... 5,472 7,494
General business credits (expiring 2009-2012)........ 1,561 2,140
Other accrued liabilities............................ 4,039 8,297
-------- --------
Total deferred tax assets.................... 24,968 33,183
-------- --------
Deferred tax liabilities:
Property and equipment............................... (18,522) (28,410)
-------- --------
Total deferred tax liabilities............... (18,522) (28,410)
-------- --------
Net deferred tax assets (liabilities)........ $ 6,446 $ 4,773
======== ========
</TABLE>
Our tax returns for 1996 through 1999 are subject to examination by the
Internal Revenue Service and state tax authorities. We believe we have made
adequate provision for income taxes and interest that may become payable for
years not yet examined.
17. RELATED PARTY TRANSACTIONS
We lease one of our travel centers from a realty company owned by two
individuals, one of whom is a stockholder and director. 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 1998 and 1999 certain of our shareholders were paid fees aggregating
$650,000 as consideration for their financial advisory services provided in
completing the Burns Bros. acquisition, the 1998 Refinancing and the Travel
Ports acquisition.
Certain members of our senior management have purchased our common stock
pursuant to management subscription agreements (see Note 15 -- Repurchase
Rights). As a result of such purchases, we have notes and related interest
receivable from the management stockholders totaling $967,000 and $1,062,000 at
December 31, 1998 and 1999, respectively.
18. COMMITMENTS AND CONTINGENCIES
Environmental Matters
Our operations and properties are extensively regulated through
environmental laws and regulations ("Environmental Laws") that (1) govern
operations that may have adverse environmental effects, such as discharges to
air, soil and water, as well as the management of petroleum products and other
hazardous substances ("Hazardous Substances"), or (2) impose liability for the
costs of cleaning up sites affected by, and for damages resulting from, disposal
or other releases of Hazardous Substances.
We own and use underground storage tanks and aboveground storage tanks to
store petroleum products and waste at our facilities. We must comply with
requirements of Environmental Laws regarding tank
F-24
<PAGE> 185
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
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 storage tank into the environment. At some locations,
we must also comply with Environmental Laws relating to vapor recovery and
discharges to water. We believe that all of our 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. We incurred
capital expenditures, maintenance, remediation and other environmental related
costs of approximately $8,867,000, $6,721,000 and $2,635,000 in 1997, 1998 and
1999, respectively.
We have received notices of alleged violations of Environmental Laws, or
are aware of the need to undertake corrective actions to comply with
Environmental Laws, at company-owned travel centers in a number of
jurisdictions. We do not expect that any financial penalties associated with
these alleged violations, or compliance costs incurred in connection with these
violations or corrective actions, will be material to our results of operation
or financial condition. We are conducting investigatory and/or remedial actions
with respect to releases of Hazardous Substances that have occurred subsequent
to the acquisitions of the Unocal and BP networks and also regarding historical
contamination at certain of the former Burns Bros. and Travel Ports facilities.
While we cannot precisely estimate the ultimate costs we will incur in
connection with the investigation and remediation of these properties, based on
our current knowledge, we do not expect that the costs to be incurred at these
properties, individually or in the aggregate, will be material to our results of
operation or financial condition. While the matters discussed above are, to the
best of our knowledge, the only proceedings for which we are currently exposed
to potential liability, particularly given the environmental indemnities (as
further described below) obtained as part of the Unocal and BP acquisitions, we
cannot assure you 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 us. As of December 31, 1999, we
had a reserve for these matters of $7,125,000. While it is not possible to
quantify with certainty the environmental exposure, in our opinion, 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 our financial condition, results of operations or
liquidity.
In connection with the acquisition of the Unocal network, Phase I
environmental assessments were conducted of the then 97 Unocal network
properties purchased by us. Pursuant to an agreement with Unocal, Phase II
environmental assessments of all Unocal network properties were completed by
Unocal by December 31, 1998. Under the terms of the agreement with Unocal,
Unocal is responsible for all costs incurred for (a) remediation of
environmental contamination, and (b) otherwise bringing the properties into
compliance with Environmental Laws as in effect at the date of the acquisition
of the Unocal network, with respect to the matters identified in the Phase I or
Phase II environmental assessments, which matters existed on or prior to the
date of the acquisition of the Unocal network. Under the terms of the agreement
with Unocal, Unocal also must indemnify us against any other environmental
liabilities that arise out of conditions at, or ownership or operations of, the
Unocal network prior to the date of the acquisition of the Unocal network. The
remediation must achieve compliance with the Environmental Laws in effect on the
date the remediation is completed. We must make claims for indemnification prior
to 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 Unocal network after the date of the acquisition of the Unocal
network. We cannot assure you that, if additional environmental claims or
liabilities were to arise under the agreement with Unocal, Unocal would not
dispute our claims for indemnification.
F-25
<PAGE> 186
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Prior to the acquisition of the BP network, all of the then 38
company-owned locations purchased by us were subject to Phase I and Phase II
environmental assessments, undertaken at BP's expense. The environmental
agreement with BP 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 (a) all costs incurred for
remediation of such environmental contamination, and (b) for otherwise bringing
the properties into compliance with Environmental Laws as in effect at the date
of the acquisition of the BP network.
The remediation must achieve compliance with the Environmental Laws in
effect on the date the remedial action is completed. The environmental agreement
with BP requires BP to indemnify us against any other environmental liabilities
that arise out of conditions at, or ownership or operations of, the BP network
locations prior to the date of the acquisition of the BP network. We must make
such claims for indemnification before December 11, 2004. BP must also indemnify
us for liabilities relating to non-compliance with Environmental Laws for 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 BP network after the date of the acquisition of
the BP network. There can be no assurance that, if additional environmental
claims or liabilities were to arise under the environmental agreement with BP,
BP would not dispute our claims for indemnification thereunder.
In connection with the Burns Bros. 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 Bros., we released Burns Bros. from any environmental
liabilities that may have existed as of the Burns Bros. acquisition date, other
than specified non-waived environmental claims as specified in the agreement
with Burns Bros.
In connection with the Travel Ports 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.
Pending Litigation
We are involved from time to time in various legal and administrative
proceedings and threatened legal and administrative proceedings incidental to
the ordinary course of its business. We are not involved in any litigation,
individually, or in the aggregate, which could have a material adverse effect on
our business, financial condition, results of operations or cash flows.
19. OPERATING LEASE COMMITMENTS
Thirty of the travel centers we owned 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 $29,433,000, $14,271,000
and $13,023,000 for 1997, 1998 and 1999, respectively.
F-26
<PAGE> 187
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
20. OTHER INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating expenses and selling, general and
administrative expenses include the
following:
Repairs and maintenance expenses......... $ 8,528 $ 9,223 $ 11,008
Advertising expenses..................... $ 9,141 $ 8,722 $ 10,106
Taxes other than payroll and income
taxes................................. $ 5,099 $ 5,585 $ 5,817
Interest expense, net consists of the
following:
Interest expense......................... $(26,418) $(28,285) $(38,944)
Interest income.......................... 3,520 2,914 1,750
-------- -------- --------
$(22,898) $(25,371) $(37,194)
======== ======== ========
</TABLE>
21. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest.................................... $24,611 $27,804 $36,951
Income taxes (net of refunds)............... $ 3,445 $(1,224) $ 3,386
Inventory, property and equipment, and
treasury stock received in liquidation of
trade accounts and notes receivable......... $ 5,023 $ 1,068 $ 170
Note received from sale of property and
equipment................................... $ -- $ -- $ 2,650
</TABLE>
Pursuant to the 1997 Refinancing, we 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). During
1998, we 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). In 1999, we issued
$2,808,000 of common stock as part of the consideration for the Travel Ports
acquisition.
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth our condensed consolidating balance sheet
schedules as of December 31, 1998 and 1999 and our condensed consolidating
statement of operations and retained earnings (deficit) schedules and condensed
consolidating statement of cash flows schedules for the years ended December 31,
1997, 1998 and 1999. 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 Operating
Corporation, National Auto/Truckstops, Inc., TA Licensing, Inc. and TA Travel,
L.L.C., and "Nonguarantor Subsidiary" refers to the balances of TA Franchise
Systems Inc. "Eliminations" represent the adjustments necessary to (a) eliminate
intercompany transactions and (b) eliminate our investments in our subsidiaries.
The Guarantor Subsidiaries, (TA Operating Corporation, National
Auto/Truckstops, Inc., TA Licensing, Inc. and TA Travel, L.L.C.), are direct or
indirect wholly-owned subsidiaries of ours and have fully and unconditionally,
jointly and severally, guaranteed our indebtedness. In this filing, we have not
presented separate financial statements and other disclosures concerning the
Guarantor Subsidiaries because management has determined such information is not
material to investors.
F-27
<PAGE> 188
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES:
<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................. 410 12,209 -- -- 12,619
-------- -------- ------- --------- --------
Total current assets......... 60,075 147,141 836 -- 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........................... 717 6,411 -- (3,700) 3,428
Investment in subsidiaries............. 114,814 -- -- (114,814) --
-------- -------- ------- --------- --------
Total assets................. $186,736 $541,003 $ 836 $(118,514) $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............ 2,088 57,424 2,916 -- 62,428
-------- -------- ------- --------- --------
Total current liabilities.... 3,534 104,217 2,923 -- 110,674
Long-term debt (net of unamortized
discount)............................ 387,942 2,923 -- -- 390,865
Deferred income taxes.................. -- 937 -- -- 937
Intercompany payable (receivable)...... (304,417) 312,277 (7,860) --
Other liabilities...................... -- 9,162 -- -- 9,162
-------- -------- ------- --------- --------
87,059 429,516 (4,937) -- 511,638
Mandatorily redeemable senior
convertible participating preferred
stock................................ 69,974 -- -- -- 69,974
Nonredeemable stockholders' equity:
Other preferred stock, common stock
and other stockholders' equity.... 44,801 84,880 -- (86,134) 43,547
Retained earnings (deficit).......... (15,098) 26,607 5,773 (32,380) (15,098)
-------- -------- ------- --------- --------
Total nonredeemable
stockholders' equity....... 29,703 111,487 5,773 (118,514) 28,449
-------- -------- ------- --------- --------
Total liabilities, redeemable
equity and nonredeemable
stockholders' equity....... $186,736 $541,003 $ 836 $(118,514) $610,061
======== ======== ======= ========= ========
</TABLE>
F-28
<PAGE> 189
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<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............. -- 65,344 1,095 -- 66,439
Inventories.......................... -- 59,043 -- -- 59,043
Deferred income taxes................ -- 4,533 -- -- 4,533
Other current assets................. 278 16,163 -- -- 16,441
-------- -------- ------ --------- --------
Total current assets......... 278 163,123 1,095 -- 164,496
Notes receivable, net.................. 1,062 321 -- -- 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........................... -- 808 -- -- 808
Investment in subsidiaries............. 118,417 -- -- (118,417) --
-------- -------- ------ --------- --------
Total assets................. $129,048 $648,136 $1,095 $(118,417) $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 60,043 108 -- 66,743
-------- -------- ------ --------- --------
Total current liabilities.... 8,038 120,858 368 -- 129,264
Long-term debt (net of unamortized
discount)............................ 401,495 2,874 -- -- 404,369
Deferred income taxes.................. -- 1,639 -- -- 1,639
Intercompany payable (receivable)...... (389,715) 396,370 (6,655) -- --
Other liabilities...................... -- 16,615 -- -- 16,615
-------- -------- ------ --------- --------
19,818 538,356 (6,287) -- 551,887
Mandatorily redeemable senior
convertible participating preferred
stock................................ 79,739 -- -- -- 79,739
Nonredeemable stockholders' equity:
Other preferred stock, common stock
and other stockholders' equity.... 54,255 84,839 -- (86,094) 53,000
Retained earnings (deficit).......... (24,764) 24,941 7,382 (32,323) (24,764)
-------- -------- ------ --------- --------
Total nonredeemable
stockholders' equity....... 29,491 109,780 7,382 (118,417) 28,236
-------- -------- ------ --------- --------
Total liabilities, redeemable
equity and nonredeemable
stockholders' equity....... $129,048 $648,136 $1,095 $(118,417) $659,862
======== ======== ====== ========= ========
</TABLE>
F-29
<PAGE> 190
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
SCHEDULES:
<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................................ $ -- $ 708,637 $ -- $ -- $ 708,637
Non-fuel............................ -- 293,836 7 -- 293,843
Rent and royalties.................. -- 33,434 3,414 -- 36,848
-------- ---------- ------ -------- ----------
Total revenues.............. -- 1,035,907 3,421 -- 1,039,328
Cost of revenues (excluding
depreciation)....................... -- 773,084 -- -- 773,084
-------- ---------- ------ -------- ----------
Gross profit (excluding
depreciation)....................... -- 262,823 3,421 -- 266,244
Operating expenses.................... -- 166,828 244 -- 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 (loss) from operations......... (1,933) 22,223 2,055 -- 22,345
Interest (expense), net (2,629) (20,269) -- -- (22,898)
Equity income (loss).................. (5,153) -- -- 5,153 --
-------- ---------- ------ -------- ----------
Income (loss) before income taxes and
extraordinary item.................. (9,715) 1,954 2,055 5,153 (553)
(Benefit) provision for income
taxes............................... (3,952) 509 802 2,297 (344)
-------- ---------- ------ -------- ----------
Income (loss) before extraordinary
item................................ (5,763) 1,445 1,253 2,856 (209)
Extraordinary loss (less applicable
income tax benefit)................. -- (5,554) -- -- (5,554)
-------- ---------- ------ -------- ----------
Net (loss) income..................... (5,763) (4,109) 1,253 2,856 (5,763)
Less: preferred dividends........... (7,520) -- -- -- (7,520)
-------- ---------- ------ -------- ----------
Income (loss) available to common
stockholders........................ (13,283) -- -- -- (13,283)
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>
F-30
<PAGE> 191
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<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
Non-fuel............................. -- 346,274 1,257 -- 347,531
Rent and royalties................... -- 14,669 6,875 -- 21,544
-------- -------- ------ -------- --------
Total revenues............... -- 915,678 8,132 -- 923,810
Cost of revenues (excluding
depreciation)........................ -- 627,149 -- -- 627,149
-------- -------- ------ -------- --------
Gross profit (excluding
depreciation)........................ -- 288,529 8,132 -- 296,661
Operating expenses..................... 160 191,966 1,571 -- 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)
-------- -------- ------ -------- --------
Income (loss) available to common
stockholders......................... (16,652) -- -- -- (16,652)
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>
F-31
<PAGE> 192
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<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>
REVENUES:
Fuel................................ $ -- $ 955,105 $ -- $ -- $ 955,105
Non-fuel............................ -- 477,583 1,476 -- 479,059
Rent and royalties.................. -- 13,134 7,326 -- 20,460
-------- ---------- ------ -------- ----------
Total revenues.............. -- 1,445,822 8,802 -- 1,454,624
Cost of revenues (excluding
depreciation)....................... -- 1,051,080 -- -- 1,051,080
-------- ---------- ------ -------- ----------
Gross profit (excluding
depreciation)....................... -- 394,742 8,802 -- 403,544
Operating expenses.................... -- 266,626 481 -- 267,107
Selling, general and administrative
expenses............................ 806 31,896 5,759 -- 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)
-------- ---------- ------ -------- ----------
Income (loss) available to common
stockholders........................ (9,666) -- -- -- (9,666)
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>
F-32
<PAGE> 193
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SCHEDULES:
<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>
F-33
<PAGE> 194
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<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>
F-34
<PAGE> 195
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<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>
23. SUBSEQUENT EVENT (UNAUDITED)
On May 31, 2000, we and shareholders owning a majority of our voting
capital stock entered into a recapitalization agreement and plan of merger, as
amended, with TCA Acquisition Corporation, a newly created corporation formed by
Oak Hill Capital Partners, L.P. and its affiliates, under which TCA Acquisition
Corporation agreed to merge with and into us. This merger was completed on
November 14, 2000. Concurrent with the closing of the merger, we completed a
series of transactions to effect a recapitalization and a refinancing that
included the following:
(i) we issued 6,456,698 shares of our common stock for proceeds of
$205,000,000
(ii) we redeemed all shares of our common and preferred stock outstanding
prior to the closing of the transactions, with the exception of
473,064 shares of common stock retained by continuing stockholders,
and cancelled all outstanding common stock options and warrants for
cash payments totaling $262,732,000,
(iii) we repaid all amounts outstanding under our existing Amended and
Restated Credit Agreement dated as of November 24, 1998 (the
"Existing Credit Facility"), redeemed in full all of our existing
senior secured notes and consummated a tender offer and consent
solicitation for our 10 1/4% Senior Subordinated Notes due 2007,
(iv) we amended and restated the Existing Credit Facility (the "Senior
Credit Facility") in an amount up to $428,000,000, under which we
borrowed $328,300,000,
F-35
<PAGE> 196
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(v) for gross proceeds of $182,962,000, we issued units consisting of
Senior Subordinated Notes due 2009 with a face amount of $190,000,000
and initial warrants and contingent warrants that in the aggregate
could be exercised in exchange for 277,165 shares of our common stock,
and
(vi) we paid $53,195,000 of fees and expenses related to the transactions,
including $31,371,000 of debt issuance costs, $2,590,000 of stock
issuance costs, and $19,234,000 charged to expenses.
Prior to the closing of the transactions listed above, we issued 137,572
shares of common stock for cash proceeds of $3,722,000 upon the exercise of
stock options held by existing stockholders.
The Senior Credit Facility is composed of a $328,000,000 term loan facility
and a $100,000,000 revolving credit facility, including a $25,000,000 sublimit
for the issuance of letters of credit. The term loan facility bears interest, at
our election, at the alternate base rate plus a margin of 2.25% or the Adjusted
LIBOR plus a margin of 3.25%. The revolving credit facility bears interest, at
our election, at the alternate base rate plus a margin of 1.75% or the Adjusted
LIBOR plus a margin of 2.75%. Principal and interest payments are due quarterly.
The aggregate annual amounts of required term loan principal repayments are as
follow: $3,280,000 for each year beginning with 2002 and ending with 2006,
$80,360,000 for 2007 and $231,240,000 for 2008. The term loan facility matures
on November 14, 2008 and the revolving credit facility matures on November 14,
2006. The Senior Credit Facility is secured by substantially all of our accounts
receivable, inventory and property and equipment. Under the terms of the Senior
Credit Facility we are required to maintain certain financial ratios and other
financial conditions and are subject to various prohibitions and limitations
that are consistent with the similar terms of the Existing Credit Facility. We
are permitted to make optional prepayments and may be required to make mandatory
prepayments based, among other things, on excess cash we generate.
The Subordinated Notes due 2009 have a coupon rate of 12 3/4% and mature on
May 1, 2009. Interest payments are due semiannually on May 1 and November 1,
commencing May 1, 2001. The notes are unsecured. We are not permitted to redeem
the notes prior to November 1, 2005, except in connection with a change of
control (as defined in the indenture). Under the terms of the indenture, we are
subject to various prohibitions and limitations that are consistent with the
similar terms of the indenture related to the Senior Subordinated Notes due 2007
that we redeemed in full.
F-36
<PAGE> 197
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000 (UNAUDITED)
------------ ----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 18,040 $ 28,382
Accounts receivable (less allowance for doubtful accounts
of $2,894 for 1999 and $3,400 for 2000)................ 66,439 92,012
Inventories............................................... 59,043 58,439
Deferred income taxes..................................... 4,533 3,581
Other current assets...................................... 16,441 18,571
-------- --------
Total current assets.............................. 164,496 201,165
Notes receivable, net....................................... 1,383 1,398
Property and equipment, net................................. 454,093 454,313
Intangible assets........................................... 28,792 25,248
Deferred financing costs.................................... 8,411 7,351
Deferred income taxes....................................... 1,879 5,990
Other assets................................................ 808 6,512
-------- --------
Total assets...................................... $659,862 $701,977
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 1,601 $ 1,601
Accounts payable.......................................... 60,920 106,285
Other accrued liabilities................................. 66,743 56,021
-------- --------
Total current liabilities......................... 129,264 163,907
Commitments and contingencies (Note 5)
Long-term debt.............................................. 404,369 415,012
Deferred income taxes....................................... 1,639 1,492
Other long-term liabilities................................. 16,615 17,796
-------- --------
551,887 598,207
Mandatorily redeemable senior convertible participating
preferred stock........................................... 79,739 87,994
Nonredeemable stockholders' equity:
Other preferred stock, common stock and other
stockholders' equity................................... 53,000 52,042
Retained earnings (deficit)............................... (24,764) (36,266)
-------- --------
Total nonredeemable stockholders' equity.......... 28,236 15,776
-------- --------
Total liabilities, redeemable equity and
nonredeemable stockholders' equity.............. $659,862 $701,977
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE> 198
TRAVELCENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 2000
---------- ----------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES:
Fuel...................................................... $ 660,841 $1,052,849
Non-fuel.................................................. 355,428 418,692
Rent and royalties........................................ 15,620 14,197
---------- ----------
Total revenues............................................ 1,031,889 1,485,738
Cost of revenues (excluding depreciation)................... 732,966 1,147,142
---------- ----------
Gross profit (excluding depreciation)....................... 298,923 338,596
Operating expenses.......................................... 198,814 232,301
Selling, general and administrative expenses................ 29,300 28,867
Transition expenses......................................... 3,025 972
Depreciation and amortization expense....................... 36,902 48,113
Loss on sales of property and equipment..................... (567) (194)
Stock compensation expense.................................. 2,700 1,350
---------- ----------
Income from operations...................................... 28,749 27,187
Interest (expense), net..................................... (27,404) (32,162)
---------- ----------
Income (loss) before income taxes........................... 1,345 (4,975)
Provision (benefit) for income taxes........................ 1,126 (1,728)
---------- ----------
Net income (loss)........................................... 219 (3,247)
Less: preferred dividends................................... (7,244) (8,255)
---------- ----------
Income (loss) available to common stockholders.............. (7,025) (11,502)
Retained (deficit) -- beginning of the period............... (15,098) (24,764)
---------- ----------
Retained (deficit) -- end of the period..................... $ (22,123) $ (36,266)
========== ==========
Loss per common share (basic and diluted)................... $ (10.01) $ (13.37)
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE> 199
TRAVELCENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 2000
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 219 $ (3,247)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization expense.................. 36,901 48,113
Deferred income tax provision.......................... 830 (3,306)
Provision for doubtful accounts........................ 1,130 945
Provision for stock compensation....................... 2,700 1,350
Gain on sales of property and equipment................ (567) (194)
Changes in assets and liabilities, adjusted for the
effects of business acquisitions:
Accounts receivable.................................. 6,253 (26,643)
Inventories.......................................... (4,662) 1,613
Other current assets................................. 3,839 (2,310)
Accounts payable..................................... (1,126) 45,365
Other current liabilities............................ (18,479) (10,722)
Other, net............................................. 2,942 (1,289)
--------- ---------
Net cash provided by operating activities.............. 29,980 49,675
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions..................................... (57,044) (8,959)
Proceeds from sales of property and equipment............. 5,883 449
Capital expenditures...................................... (66,826) (40,003)
--------- ---------
Net cash used in investing activities.................. (117,987) (48,513)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings................................. 61,500 200,400
Revolving loan repayments................................. (36,500) (189,000)
Long-term debt repayments................................. (1,116) (1,387)
Proceeds from issuance of stock........................... 6,660 --
Repurchase of common stock................................ -- (833)
--------- ---------
Net cash provided by financing activities.............. 30,544 9,180
--------- ---------
Net increase (decrease) in cash...................... (57,463) 10,342
Cash at the beginning of the period......................... 89,200 18,040
--------- ---------
Cash at the end of the period............................... $ 31,737 $ 28,382
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
<PAGE> 200
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
We are a nationwide, full-service travel center network providing diesel
fuel, gasoline and non-fuel products and services to long-haul trucking fleets
and their drivers, independent truck drivers and other motorists through our 160
full-service travel centers located in 40 states, primarily operating under the
"TravelCenters of America" or "TA" brand names. Of our 160 network locations at
September 30, 2000, we owned 150 locations, 122 of which we operated and 28 of
which we leased to independent lessee-franchisees or operators, which sites we
refer to as "leased sites." Ten locations were owned and operated by independent
franchisees, which sites we refer to as "franchisee-owned sites." We purchase
and resell diesel fuel, gasoline and other travel center products and services
to consumers, commercial fleets, operators and independent franchisees; provide
fleet credit card and customer information services through our proprietary
ACCESS billing system; conduct centralized purchasing programs; create
promotional programs; and, as a franchisor, assist the operators and independent
franchisees in providing service to trucking fleets, independent truck drivers
and the motoring public.
We were incorporated on December 1, 1992 as National Auto/Truckstops
Holdings Corporation. Our name was changed to TravelCenters of America, Inc. in
March 1997. In April 1993, we acquired the truck stop network assets of a
subsidiary of Unocal Corporation, and in December 1993, we acquired the truck
stop network assets of certain subsidiaries of The British Petroleum Company
p.l.c. ("BP"). In December 1998, we acquired substantially all of the travel
center and truck stop network assets of Burns Bros., Inc., and certain of its
affiliates. In June 1999, we acquired the travel center and truck stop network
assets of Travel Ports of America, Inc. See Note 4 for disclosure regarding the
Travel Ports acquisition.
On May 31, 2000, we and shareholders owning a majority of our voting
capital stock entered into a recapitalization agreement and plan of merger with
TCA Acquisition Corporation, a newly created corporation formed by Oak Hill
Capital Partners, L.P. and its affiliates, under which TCA Acquisition
Corporation agreed to merge with and into us. This merger, which occurred on
November 14, 2000, was part of a series of proposed transactions that included a
refinancing of our outstanding indebtedness with an increased amount of
indebtedness; equity contributions from Oak Hill, members of our management and
certain other investors; and redemption of all shares of our outstanding capital
stock with the exception of certain shares owned by our management and
Freightliner LLC. The merger and the related transactions were completed in the
fourth quarter of 2000. See Note 8 for a further discussion of these
transactions.
The consolidated financial statements include the accounts of TravelCenters
of America, Inc. and its wholly owned subsidiaries, TA Operating Corporation, TA
Franchise Systems Inc., National Auto/Truckstops, Inc., and TA Licensing, Inc.
(formerly known as Travel Port Systems, Inc.), and TA Travel, L.L.C., a wholly
owned subsidiary of TA Operating Corporation. Intercompany accounts and
transactions have been eliminated.
The accompanying unaudited, consolidated financial statements as of and for
the nine-month periods ended September 30, 1999 and 2000 have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, these statements should be read in conjunction with
the audited financial statements as of and for the year ended December 31, 1999.
In the opinion of management, the accompanying unaudited, consolidated financial
statements contain all adjustments, all of which were of a normal recurring
nature, necessary to present fairly, in all material respects, the consolidated
results of operations and of cash flows for the nine months ended September 30,
1999 and 2000, and are not necessarily indicative of the results to be expected
for the full year.
F-40
<PAGE> 201
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
2. EARNINGS PER SHARE
A reconciliation of the income and shares used in the computation follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 2000
---------- ---------
(DOLLARS AND SHARES IN
THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net income (loss)..................................... $ 219 $ (3,247)
Less: Preferred stock dividends....................... (7,244) (8,255)
------- --------
Net loss available to common stockholders............. (7,025) (11,502)
Weighted average shares outstanding................... 702 860
------- --------
Loss per share........................................ $(10.01) $ (13.37)
======= ========
</TABLE>
The assumed conversion of stock options, warrants and convertible series of
preferred stock would have an antidilutive effect on the loss per share for the
nine-month periods ended September 30, 1999 and 2000.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Non-fuel merchandise............................... $51,043 $48,093
Petroleum products................................. 8,000 10,346
------- -------
Total inventories........................ $59,043 $58,439
======= =======
</TABLE>
4. TRAVEL PORTS ACQUISITION
On June 3, 1999, we consummated the acquisition of the network assets of
Travel Ports by acquiring 100 percent of the common stock of Travel Ports at a
price of $4.30 per share. Under the terms of the related merger agreement and
certain ancillary agreements, we paid cash of approximately $27,760,000 for all
of Travel Ports's outstanding common shares and common stock equivalents except
approximately 653,000 common shares that were exchanged for 85,000 shares of our
common stock. In addition, we paid cash of approximately $31,007,000 to retire
all of Travel Ports's indebtedness outstanding as of the merger date. Travel
Ports operated a network of 16 travel centers in seven states, primarily in the
northeastern United States, and a single fuel terminal in Pennsylvania. Upon
consummation of the acquisition, Travel Ports was merged into TA Operating
Corporation.
The total cost of the acquisition was $86,003,000. This was comprised of
cash paid to purchase the Travel Ports stock and repay the Travel Ports debt of
$58,767,000, the value of the 85,000 shares of our common stock issued in
exchange for Travel Ports 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 $11,679,000,
has been recorded as goodwill and is being amortized on a straight-line basis
over 15 years.
F-41
<PAGE> 202
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
The following unaudited pro forma information presents our results of
operations as if the Travel Ports acquisition had taken place on January 1,
1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
(IN THOUSANDS OF
DOLLARS EXCEPT PER
SHARE AMOUNTS)
<S> <C>
Total revenue............................................. $1,088,348
Gross profit.............................................. $ 323,449
Income from operations.................................... $ 32,719
Net income................................................ $ 1,967
Loss per common share (basic and diluted)................. $ (7.52)
</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 acquisition occurred on January 1,
1999, or that may result in the future.
5. COMMITMENTS AND CONTINGENCIES
Environmental Matters
Our operations and properties are extensively regulated through
environmental laws and regulations ("Environmental Laws") that (i) govern
operations that may have adverse environmental effects, such as discharges to
air, soil and water, as well as the management of petroleum products and other
hazardous substances ("Hazardous Substances"), or (ii) impose liability for the
costs of cleaning up sites affected by, and for damages resulting from, disposal
or other releases of Hazardous Substances.
We own and use underground storage tanks and aboveground storage tanks to
store petroleum products and waste at our facilities. We 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
storage tank into the environment. At some locations, we must also comply with
Environmental Laws relating to vapor recovery and discharges to water. We
believe that all of our travel centers are in material compliance with
applicable requirements of Environmental Laws.
We have received notices of alleged violations of Environmental Laws, or
are aware of the need to undertake corrective actions to comply with
Environmental Laws, at company-owned travel centers in a number of
jurisdictions. We do not expect that any financial penalties associated with
these alleged violations, or compliance costs incurred in connection with these
violations or corrective actions, will be material to our results of operation
or financial condition. We are conducting investigatory and/or remedial actions
with respect to releases of Hazardous Substances that have occurred subsequent
to the acquisitions of the Unocal and BP networks and also regarding historical
contamination at certain of the former Burns Bros. and Travel Ports facilities.
While we cannot precisely estimate the ultimate costs we will incur in
connection with the investigation and remediation of these properties, based on
our current knowledge, we do not expect that the costs to be incurred at these
properties, individually or in the aggregate, will be material to our results of
operation or financial condition. While the matters discussed above are, to the
best of our knowledge, the only proceedings for which we are currently exposed
to potential liability, particularly given the environmental indemnities
obtained as part of the Unocal and BP acquisitions, we cannot assure you 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
F-42
<PAGE> 203
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
environmental requirements are imposed by government agencies, increased
environmental compliance or remediation expenditures may be required, which
could have a material adverse effect on us. As of September 30, 2000, we had a
reserve for these matters of $5,981,000. While it is not possible to quantify
with certainty the environmental exposure, in our opinion, 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 our financial condition, results of operations or liquidity.
Pending Litigation
We are involved from time to time in various legal and administrative
proceedings and threatened legal and administrative proceedings incidental to
the ordinary course of our business. We believe that we are not now involved in
any litigation, individually, or in the aggregate, which could have a material
adverse affect on our business, financial condition, results of operations or
cash flows.
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1999 2000
-------------- --------------
(DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Cash paid during the period for:
Interest....................................... $23,597 $27,542
Income taxes (net of refunds).................. $ 4,507 $ 3,278
</TABLE>
During the first quarter of 2000, we assumed a note payable for $540,000 as
part of the consideration paid in acquiring a full-service travel center and
acquired $125,000 of treasury stock in payment of accounts receivable from a
former operator.
7. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth our consolidating balance sheet schedules
as of September 30, 2000 and December 31, 1999, our consolidating statement of
operations and retained earnings (deficit) schedules for the nine-month periods
ended September 30, 1999 and 2000 and the consolidating statement of cash flows
schedules for the nine months ended September 30, 1999 and 2000. In the
following schedules, "Parent Company" refers to the unconsolidated balances of
TravelCenters of America, Inc., "Guarantor Subsidiaries" refers to the combined
balances of TA Operating Corporation, National Auto/Truckstops, Inc., TA
Licensing, Inc., and TA Travel, L.L.C., including related intercompany
eliminations, and "Nonguarantor Subsidiary" refers to the balances of TA
Franchise Systems. "Eliminations" represent the adjustments necessary to (a)
eliminate intercompany transactions between the Parent Company, the Guarantor
Subsidiaries on a combined basis and the Nonguarantor Subsidiary and, (b)
eliminate our investments in our subsidiaries. The Guarantor Subsidiaries (TA
Operating Corporation, National Auto/Truckstops, Inc., TA Licensing, Inc., TA
Travel, L.L.C.), are direct or indirect wholly-owned subsidiaries of ours and
have fully and unconditionally, jointly and severally, guaranteed our
indebtedness. In this filing, we have not presented separate financial
statements and other disclosures concerning the Guarantor Subsidiaries because
we have determined such information is not material to investors.
F-43
<PAGE> 204
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
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>
ASSETS
Current assets:
Cash................................. $ -- $ 18,040 $ -- $ -- $ 18,040
Accounts receivable, net............. -- 65,344 1,095 -- 66,439
Inventories.......................... -- 59,043 -- -- 59,043
Deferred income taxes................ -- 4,533 -- -- 4,533
Other current assets................. 278 16,163 -- -- 16,441
-------- -------- ------ --------- --------
Total current assets......... 278 163,123 1,095 -- 164,496
Notes receivable, net.................. 1,062 321 -- -- 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........................... -- 808 -- -- 808
Investment in subsidiaries............. 118,417 -- -- (118,417) --
-------- -------- ------ --------- --------
Total assets................. $129,048 $648,136 $1,095 $(118,417) $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 60,043 108 -- 66,743
-------- -------- ------ --------- --------
Total current liabilities.... 8,038 120,858 368 -- 129,264
Long-term debt (net of unamortized
discount)............................ 401,495 2,874 -- -- 404,369
Deferred income taxes.................. -- 1,639 -- -- 1,639
Intercompany payable (receivable)...... (389,715) 396,370 (6,655) -- --
Other liabilities...................... -- 16,615 -- -- 16,615
-------- -------- ------ --------- --------
19,818 538,356 (6,287) -- 551,887
Mandatorily redeemable senior
convertible participating preferred
stock................................ 79,739 -- -- -- 79,739
Nonredeemable stockholders' equity:
Other preferred stock, common stock
and other stockholders' equity.... 54,255 84,839 -- (86,094) 53,000
Retained earnings (deficit).......... (24,764) 24,941 7,382 (32,323) (24,764)
-------- -------- ------ --------- --------
Total redeemable
stockholders' equity....... 29,491 109,780 7,382 (118,417) 28,236
-------- -------- ------ --------- --------
Total liabilities, redeemable
equity and nonredeemable
stockholders' equity....... $129,048 $648,136 $1,095 $(118,417) $659,862
======== ======== ====== ========= ========
</TABLE>
F-44
<PAGE> 205
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ -- $ 28,382 $ -- $ -- $ 28,382
Accounts receivable, net............ -- 92,175 1,117 (1,280) 92,012
Inventories......................... -- 58,439 -- -- 58,439
Deferred income taxes............... -- 3,581 -- -- 3,581
Other current assets................ 1,121 17,630 -- -- 18,751
--------- -------- ------- --------- --------
Total current assets........ 1,121 200,207 1,117 (1,280) 201,165
Notes receivable, net................. 1,097 301 -- -- 1,398
Property and equipment, net........... -- 454,313 -- -- 454,313
Intangible assets..................... -- 25,248 -- -- 25,248
Deferred financing costs.............. 7,351 -- -- -- 7,351
Deferred income taxes................. 880 5,110 -- -- 5,990
Other assets.......................... -- 6,512 -- -- 6,512
Investment in subsidiaries............ 116,244 -- -- (116,244) --
--------- -------- ------- --------- --------
Total assets................ $ 126,693 $691,691 $ 1,117 $(117,524) $701,977
========= ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt............................. $ 1,446 $ 155 $ -- $ -- $ 1,601
Accounts payable.................... -- 106,045 240 -- 106,285
Other accrued liabilities........... 9,824 47,129 348 (1,280) 56,021
--------- -------- ------- --------- --------
Total current liabilities... 11,270 153,329 588 (1,280) 163,907
Long-term debt........................ 412,173 2,839 -- -- 415,012
Deferred income taxes................. -- 1,492 -- -- 1,492
Intercompany payable (receivable)..... (401,775) 407,428 (5,653) -- --
Other liabilities..................... -- 17,796 -- -- 17,796
--------- -------- ------- --------- --------
21,668 582,884 (5,065) (1,280) 598,207
Mandatorily redeemable senior
convertible participating preferred
stock............................... 87,994 -- -- -- 87,994
Nonredeemable stockholders' equity:
Other preferred stock, common stock
and other stockholders' equity... 53,297 84,838 -- (86,093) 52,042
Retained earnings (deficit)......... (36,266) 23,969 6,182 (30,151) (36,266)
--------- -------- ------- --------- --------
Total nonredeemable
stockholders' equity...... 17,031 108,807 6,182 (116,244) 15,776
--------- -------- ------- --------- --------
Total liabilities,
redeemable equity and
nonredeemable
stockholders' equity...... $ 126,693 $691,691 $ 1,117 $(117,524) $701,977
========= ======== ======= ========= ========
</TABLE>
F-45
<PAGE> 206
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
SCHEDULES:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Fuel................................ $ -- $ 660,841 $ -- $ -- $ 660,841
Non-fuel............................ -- 354,183 1,245 -- 355,428
Rent and royalties.................. -- 10,086 5,534 -- 15,620
-------- ---------- ------ -------- ----------
Total revenues.............. -- 1,025,110 6,779 -- 1,031,889
Cost of revenues (excluding
depreciation)....................... -- 732,966 -- -- 732,966
-------- ---------- ------ -------- ----------
Gross profit (excluding
depreciation)....................... -- 292,144 6,779 -- 298,923
Operating expenses.................... -- 198,339 475 -- 198,814
Selling, general and administrative
expenses............................ 713 25,159 3,428 -- 29,300
Transition expense.................... -- 3,025 -- -- 3,025
Depreciation and amortization
expense............................. 1,005 35,897 -- -- 36,902
(Gain) on sales of property and
equipment........................... -- (567) -- -- (567)
Stock compensation expense............ -- 2,700 -- -- 2,700
-------- ---------- ------ -------- ----------
Income (loss) from operations......... (1,718) 27,591 2,876 -- 28,749
Interest (expense), net............... -- (27,401) (3) -- (27,404)
Equity income (loss).................. 1,352 -- -- (1,352) --
-------- ---------- ------ -------- ----------
Income (loss) before income taxes..... (366) 190 2,873 (1,352) 1,345
Provision (benefit) for income
taxes............................... (585) 639 1,072 -- 1,126
-------- ---------- ------ -------- ----------
Net income (loss)..................... 219 (449) 1,801 (1,352) 219
Less: preferred dividends........... (7,244) -- -- -- (7,244)
-------- ---------- ------ -------- ----------
Income (loss) available to common
stockholders........................ (7,025) (449) 1,801 (1,352) (7,025)
Retained earnings
(deficit) -- beginning of the
period.............................. (15,098) 26,607 5,773 (32,380) (15,098)
-------- ---------- ------ -------- ----------
Retained earnings (deficit) -- end of
the period.......................... $(22,123) $ 26,158 $7,574 $(33,732) $ (22,123)
======== ========== ====== ======== ==========
</TABLE>
F-46
<PAGE> 207
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Fuel................................ $ -- $1,052,849 $ -- $ -- $1,052,849
Non-fuel............................ -- 418,692 -- -- 418,692
Rent and royalties.................. -- 12,487 5,356 (3,646) 14,197
-------- ---------- ------- -------- ----------
Total revenues.............. -- 1,484,028 5,356 (3,646) 1,485,738
Cost of revenues (excluding
depreciation)....................... -- 1,147,142 -- -- 1,147,142
-------- ---------- ------- -------- ----------
Gross profit (excluding
depreciation)....................... -- 336,886 5,356 (3,646) 338,596
Operating expenses.................... -- 232,223 3,724 (3,646) 232,301
Selling, general and administrative
expenses............................ 559 24,792 3,516 -- 28,867
Transition expenses................... -- 972 -- -- 972
Depreciation and amortization
expense............................. 1,069 47,044 -- -- 48,113
Loss on sales of property and
equipment........................... -- (194) -- -- (194)
Stock compensation expense............ -- 1,350 -- -- 1,350
-------- ---------- ------- -------- ----------
Income (loss) from operations......... (1,628) 30,699 (1,884) -- 27,187
Interest (expense), net............... -- (32,159) (3) -- (32,162)
Equity income (loss).................. (2,172) -- -- 2,172 --
-------- ---------- ------- -------- ----------
Income (loss) before income taxes..... (3,800) (1,460) (1,887) 2,172 (4,975)
Provision (benefit) for income
taxes............................... (553) (488) (687) -- (1,728)
-------- ---------- ------- -------- ----------
Net income (loss)..................... (3,247) (972) (1,200) 2,172 (3,247)
Less: preferred dividends........... (8,255) -- -- -- (8,255)
-------- ---------- ------- -------- ----------
Income (loss) available to common
stockholders........................ (11,502) (972) (1,200) 2,172 (11,502)
Retained earnings
(deficit) -- beginning of the
period.............................. (24,764) 24,941 7,382 (32,323) (24,764)
-------- ---------- ------- -------- ----------
Retained earnings (deficit) -- end of
the period.......................... $(36,266) $ 23,969 $ 6,182 $(30,151) $ (36,266)
======== ========== ======= ======== ==========
</TABLE>
F-47
<PAGE> 208
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SCHEDULES:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. $ 7,034 $ 22,946 $ -- $ -- $ 29,980
-------- --------- ---- ---- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................ -- (57,044) -- -- (57,044)
Proceeds from sales of property and
equipment......................... -- 5,883 -- -- 5,883
Capital expenditures................. -- (66,826) -- -- (66,826)
-------- --------- ---- ---- ---------
Net cash used in investing
activities...................... -- (117,987) -- -- (117,987)
-------- --------- ---- ---- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings............ 61,500 -- -- -- 61,500
Revolving loan repayments............ (36,500) -- -- -- (36,500)
Long-term debt repayments............ (1,085) (31) -- -- (1,116)
Proceeds from issuance of stock...... 6,660 -- -- -- 6,660
Intercompany advances................ (97,175) 97,175 -- -- --
-------- --------- ---- ---- ---------
Net cash provided by (used in)
financing activities......... (66,600) 97,144 -- -- 30,544
-------- --------- ---- ---- ---------
Net increase (decrease) in
cash......................... (59,566) (2,103) -- -- (57,463)
Cash at the beginning of the period.... 59,665 29,535 -- -- 89,200
-------- --------- ---- ---- ---------
Cash at the end of the period.......... $ 99 $ 31,638 $ -- $ -- $ 31,737
======== ========= ==== ==== =========
</TABLE>
F-48
<PAGE> 209
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES................ $ 167 $ 49,508 $ -- $ -- $ 49,675
--------- -------- ---- ---- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions............... -- (8,959) -- -- (8,959)
Proceeds from sales of property and
equipment........................ -- 449 -- -- 449
Capital expenditures................ -- (40,003) -- -- (40,003)
--------- -------- ---- ---- ---------
Net cash used in investing
activities..................... -- (48,513) -- -- (48,513)
--------- -------- ---- ---- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings........... 200,400 -- -- -- 200,400
Revolving loan repayments........... (189,000) -- -- -- (189,000)
Long-term debt repayments........... (722) (665) -- -- (1,387)
Repurchase of common stock.......... (833) -- -- -- (833)
Intercompany advances............... (10,012) 10,012 -- -- --
--------- -------- ---- ---- ---------
Net cash provided by (used in)
financing activities........ (167) 9,347 -- -- 9,180
--------- -------- ---- ---- ---------
Net increase in cash........ -- 10,342 -- -- 10,342
Cash at the beginning of the period... -- 18,040 -- -- 18,040
--------- -------- ---- ---- ---------
Cash at the end of the period......... $ -- $ 28,382 $ -- $ -- $ 28,382
========= ======== ==== ==== =========
</TABLE>
8. SUBSEQUENT EVENT
On November 14, 2000, we consummated our merger transaction with TCA
Acquisition Corporation. Concurrent with the closing of the merger, we completed
a series of transactions to effect a recapitalization and a refinancing that
included the following:
(i) we issued 6,456,698 shares of our common stock for proceeds of
$205,000,000,
(ii) we redeemed all shares of our common and preferred stock outstanding
prior to the closing of the transactions, with the exception of
473,064 shares of common stock retained by continuing stockholders,
and cancelled all outstanding common stock options and warrants for
cash payments totaling $262,732,000,
(iii) we repaid all amounts outstanding under our existing Amended and
Restated Credit Agreement dated as of November 24, 1998 (the
"Existing Credit Facility"), redeemed in full all of our existing
senior secured notes and consummated a tender offer and consent
solicitation for our 10 1/4% Senior Subordinated Notes due 2007,
(iv) we amended and restated the Existing Credit Facility (the "Senior
Credit Facility") in an amount up to $428,000,000, under which we
borrowed $328,300,000,
(v) for gross proceeds of $182,962,000, we issued units consisting of
Senior Subordinated Notes due 2009 with a face amount of $190,000,000
and initial warrants and contingent warrants that in the aggregate
could be exercised in exchange for 277,165 shares of our common stock,
and
F-49
<PAGE> 210
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(vi) we paid $53,195,000 of fees and expenses related to the transactions,
including $31,371,000 of debt issuance costs, $2,590,000 of stock
issuance costs, and $19,234,000 charged to expenses.
Prior to the closing of the transactions listed above, we issued 137,572
shares of common stock for cash proceeds of $3,722,000 upon the exercise of
stock options held by existing stockholders.
The Senior Credit Facility is composed of a $328,000,000 term loan facility
and a $100,000,000 revolving credit facility, including a $25,000,000 sublimit
for the issuance of letters of credit. The term loan facility bears interest, at
our election, at the alternate base rate plus a margin of 2.25% or the Adjusted
LIBOR plus a margin of 3.25%. The revolving credit facility bears interest, at
our election, at the alternate base rate plus a margin of 1.75% or the Adjusted
LIBOR plus a margin of 2.75%. Principal and interest payments are due quarterly.
The aggregate annual amounts of required term loan principal repayments are as
follow: $3,280,000 for each year beginning with 2002 and ending with 2006,
$80,360,000 for 2007 and $231,240,000 for 2008. The term loan facility matures
on November 14, 2008 and the revolving credit facility matures on November 14,
2006. The Senior Credit Facility is secured by substantially all of our accounts
receivable, inventory and property and equipment. Under the terms of the Senior
Credit Facility we are required to maintain certain financial ratios and other
financial conditions and are subject to various prohibitions and limitations
that are consistent with the similar terms of the Existing Credit Facility. We
are permitted to make optional prepayments and may be required to make mandatory
prepayments based, among other things, on excess cash we generate.
The Subordinated Notes due 2009 have a coupon rate of 12 3/4% and mature on
May 1, 2009. Interest payments are due semiannually on May 1 and November 1,
commencing May 1, 2001. The notes are unsecured. We are not permitted to redeem
the notes prior to November 1, 2005, except in connection with a change of
control (as defined in the indenture). Under the terms of the indenture, we are
subject to various prohibitions and limitations that are consistent with the
similar terms of the indenture related to the Senior Subordinated Notes due 2007
that we redeemed in full.
F-50
<PAGE> 211
TRAVELCENTERS OF AMERICA, INC. [TRAVELCENTERS OF AMERICA, INC. LOGO]
OFFER TO EXCHANGE ALL OUTSTANDING 12 3/4% SENIOR SUBORDINATED NOTES DUE 2009 FOR
12 3/4% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
-------------------------
PROSPECTUS
-------------------------
UNTIL , 2001, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THE UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
, 2001
<PAGE> 212
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) TravelCenters of America, Inc., TA Operating Corporation and TA
Licensing, Inc.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
TravelCenters of America, Inc., TA Operating Corporation and TA Licensing Inc.
to indemnify their officers and directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any threatened, pending or completed action
(except settlements or judgments in derivative suits), suit or proceeding in
which such person is made a party by reason of his or her being or having been a
director, officer, employee or agent of the company, in terms sufficiently broad
to permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933, as amended (the "Securities Act"). The statute provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any by-law, agreement,
vote of stockholders of disinterested directors, or otherwise.
The company's by-laws provide for the mandatory indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the DGCL.
As permitted by sections 102 and 145 of the DGCL, the company's certificate
of incorporation eliminates a director's personal liability for monetary damages
to the company and its stockholders arising from a breach of a director's
fiduciary duty, except as otherwise provided under the DGCL.
The company may purchase and maintain insurance on behalf of any director
or officer of the company against any liability asserted against such person,
whether or not the company would have the power to indemnify such person against
such liability under the provisions of the certificate of incorporation or
otherwise.
(b) TA Travel, L.L.C.
TA Travel, L.L.C. is empowered by Section 18-108 of the Delaware Limited
Liability Company Act, subject to the procedures and limitations stated therein,
to indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or proceeding
in which such person is made a party by reason of his being or having been a
director, officer, employee or agent of TA Travel, L.L.C. The statute provides
that indemnification pursuant to its provisions is not exclusive of other rights
of indemnification to which a person may be entitled under any agreement, vote
of members or disinterested directors or otherwise.
(c) TravelCenters Properties, L.P.
TravelCenters Properties, L.P. is empowered by Section 17-108 of the
Delaware Revised Uniform Limited Partnership Act, subject to the procedures and
limitations stated therein, to indemnify any person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding in which such person is made a party by
reason of his being or having been a director, officer, employee or agent of
TravelCenters Properties, L.P. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any agreement, vote of members or
disinterested directors or otherwise.
II-1
<PAGE> 213
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Purchase Agreement dated November 9, 2000, by and among
TravelCenters of America, Inc., TA Operating Corporation, TA
Travel, L.L.C., TA Licensing, Inc., TravelCenters
Properties, L.P., TravelCenters Realty, Inc, Credit Suisse
First Boston Corporation, Chase Securities Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation
2.1 Recapitalization Agreement and Plan of Merger dated as of
May 31, 2000(c)
*2.2 Amendment No. 1 to Recapitalization Agreement and Plan of
Merger dated as of October 2, 2000
*3.1 Amended and Restated Certificate of Incorporation of
TravelCenters of America, Inc.
*3.2 By-laws of TravelCenters of America, Inc.
3.3 Restated Certificate of Incorporation of TA Operating
Corporation(a)
3.4 Amended and Restated By-laws of TA Operating Corporation(a)
*3.5 Amended and Restated Certificate of Incorporation of TA
Licensing, Inc.
*3.6 By-laws of TA Licensing, Inc.
*3.7 Certificate of Limited Partnership of TravelCenters
Properties, L.P.
*3.8 Agreement of Limited Partnership of TravelCenters
Properties, L.P.
*3.9 Certificate of Incorporation of TravelCenters Realty, Inc.
*3.10 By-laws of TravelCenters Realty, Inc.
*3.11 Certificate of Formation of TA Travel, L.L.C.
*3.12 Operating Agreement of TA Travel, L.L.C.
*4.1 Indenture, dated as of November 14, 2000 by and among
TravelCenters of America, Inc., TA Operating Corporation, TA
Travel, L.L.C., TA Licensing, Inc., TravelCenters
Properties, L.P., TravelCenters Realty, Inc. and State
Street Bank and Trust Company
*4.2 Form of 12 3/4% Senior Subordinated Note due 2009 (included
in Exhibit 4.1)
*4.3 Exchange and Registration Rights Agreement, dated as of
November 14, 2000 by and among TravelCenters of America,
Inc., TA Operating Corporation, TA Travel, L.L.C., TA
Licensing, Inc., TravelCenters Properties, L.P.,
TravelCenters Realty, Inc., Credit Suisse First Boston
Corporation, Chase Securities Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation
*4.4 Form of Warrant Certificate (included in Exhibit 10.20)
+4.5 Form of Common Stock Certificate
*5.1 Opinion of Simpson Thacher & Bartlett as to the legality of
the securities being registered
*10.1 Amended and Restated Credit Agreement dated as of November
14, 2000
*10.2 Stockholders' Agreement among TravelCenters of America,
Inc., Oak Hill Capital Partners, L.P., Oak Hill Capital
Management Partners, L.P., Olympus Growth Fund III, L.P.,
Olympus Executive Fund, L.P., Monitor Clipper Equity
Partners, L.P., Monitor Clipper Equity Partners (Foreign),
L.P., UBS Capital America II, LLC, Credit Suisse First
Boston LFG Holdings 2000, LLC and Freightliner LLC dated as
of November 14, 2000
10.3 Operating Agreement of Freightliner Corporation and
TravelCenters of America, Inc. dated as of July 21, 1999(b)
*10.4 Amendment No. 1 to Operating Agreement of Freightliner
Corporation and TravelCenters of America, Inc. dated as of
November 9, 2000
10.5 Agreement for lease, dated as of September 9, 1999, among
TravelCenters of America, Inc., National and TCA Network
Funding, LP(b)
</TABLE>
II-2
<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 Lease Agreement, dated as of September 9, 1999, among
TravelCenters of America, Inc., National and TCA Network
Funding, LP(b)
10.7 TA Operating Corporation Transition Plan(c)
*10.8 Employment Agreement, dated as of January 1, 2000, by and
among TA Operating Corporation, TravelCenters of America,
Inc. and Timothy L. Doane
*10.9 Employment Agreement, dated as of January 1, 2000, by and
among TA Operating Corporation, TravelCenters of America,
Inc. and James W. George
*10.10 Employment Agreement, dated as of January 1, 2000, by and
among TA Operating Corporation, TravelCenters of America,
Inc. and Michael H. Hinderliter
*10.11 Employment Agreement, dated as of January 1, 2000, by and
among TA Operating Corporation, TravelCenters of America,
Inc. and Edwin P. Kuhn
*10.12 Amendment No. 1 to Employment Agreement dated as of May 26,
2000, by and among TA Operating Corporation, TravelCenters
of America, Inc. and Timothy L. Doane
*10.13 Amendment No. 1 to Employment Agreement dated as of May 26,
2000, by and among TA Operating Corporation, TravelCenters
of America, Inc. and James W. George
*10.14 Amendment No. 1 to Employment Agreement dated as of May 26,
2000, by and among TA Operating Corporation, TravelCenters
of America, Inc. and Michael H. Hinderliter
*10.15 Amendment No. 1 to Employment Agreement dated as of May 26,
2000, by and among TA Operating Corporation, TravelCenters
of America, Inc. and Edwin P. Kuhn
10.16 Amendment No. 1 to the 1997 Stock Incentive Plan(c)
10.17 Form of 1997 Stock Incentive Plan -- Nonqualified Stock
Option Agreement(c)
10.18 Schedule of 1997 Stock Incentive Plan -- Nonqualified Stock
Option Agreements omitted pursuant to Instruction 2 to Item
601 of Regulation S-K(c)
10.19 Success Bonus Letter(c)
*10.20 Warrant Agreement dated as of November 14, 2000 between
TravelCenters of America, Inc. and State Street Bank and
Trust Company, as warrant agent
*10.21 Contingent Warrant Escrow Agreement dated as November 14,
2000 between TravelCenters of America, Inc. and State Street
Bank and Trust Company, as warrant escrow agent
*12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges
*21.1 Subsidiaries of Registrants
*23.1 Consent of Simpson Thacher & Bartlett (contained in Exhibit
5.1)
+23.2 Consent of PricewaterhouseCoopers LLP
*25.1 Form T-I Statement of Eligibility under the Trust Indenture
Act of 1939 of State Street Bank and Trust Company as
Trustee
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
---------------
* Previously filed.
+ Filed herewith.
(a) Incorporated herein by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
(b) Incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(c) Incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
II-3
<PAGE> 215
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by the director, officer or controlling person of the
registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the opinion of
their counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 216
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT ISSUER
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WESTLAKE, STATE OF OHIO,
ON JANUARY 18, 2001.
TRAVELCENTERS OF AMERICA, INC.
Registrant
By: /s/ JAMES W. GEORGE
------------------------------------
Name: James W. George
Title: Senior Vice President
and Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON JANUARY 18, 2001 BY OR ON BEHALF
OF THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED WITH THE REGISTRANT.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board of Directors, President and
----------------------------------------------------- Chief Executive Officer (Principal Executive
Edwin P. Kuhn Officer)
* Senior Vice President and Chief Financial Officer
----------------------------------------------------- (Principal Financial and Accounting Officer)
James W. George
* Director
-----------------------------------------------------
Robert J. Branson
* Director
-----------------------------------------------------
Steven B. Gruber
* Director
-----------------------------------------------------
James L. Hebe
* Director
-----------------------------------------------------
Louis J. Mischianti
* Director
-----------------------------------------------------
Rowan G.P. Taylor
</TABLE>
II-5
<PAGE> 217
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Director
-----------------------------------------------------
Jeremy J. Thompson
*By: /s/ JAMES W. GEORGE
-------------------------------------------------
James W. George
Individually and as
Attorney-In-Fact
</TABLE>
II-6
<PAGE> 218
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WESTLAKE, STATE OF OHIO,
ON JANUARY 18, 2001.
TA OPERATING CORPORATION
Registrant
By: /s/ JAMES W. GEORGE
------------------------------------
Name: James W. George
Title: Senior Vice President
and Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON JANUARY 18, 2001 BY OR ON BEHALF
OF THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED WITH THE REGISTRANT.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board of Directors, President and
----------------------------------------------------- Chief Executive Officer (Principal Executive
Edwin P. Kuhn Officer)
* Senior Vice President and Chief Financial Officer
----------------------------------------------------- (Principal Financial and Accounting Officer)
James W. George
* Director
-----------------------------------------------------
Robert J. Branson
* Director
-----------------------------------------------------
Steven B. Gruber
* Director
-----------------------------------------------------
James L. Hebe
* Director
-----------------------------------------------------
Louis J. Mischianti
* Director
-----------------------------------------------------
Rowan G.P. Taylor
</TABLE>
II-7
<PAGE> 219
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Director
-----------------------------------------------------
Jeremy J. Thompson
*By: /s/ JAMES W. GEORGE
------------------------------------------------
James W. George
Individually and as
Attorney-In-Fact
</TABLE>
II-8
<PAGE> 220
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
GUARANTOR HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WESTLAKE, STATE OF
OHIO, ON JANUARY 18, 2001.
TRAVELCENTERS PROPERTIES, L.P.
Registrant
By: TA OPERATING CORPORATION
as General Partner
of TravelCenters Properties, L.P.
By: /s/ JAMES W. GEORGE
------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON JANUARY 18, 2001 BY OR ON BEHALF
OF THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED WITH THE REGISTRANT.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board of Directors, President and
----------------------------------------------------- Chief Executive Officer (Principal Executive
Edwin P. Kuhn Officer)
* Senior Vice President and Chief Financial Officer
----------------------------------------------------- (Principal Financial and Accounting Officer)
James W. George
* Director
-----------------------------------------------------
Robert J. Branson
* Director
-----------------------------------------------------
Steven B. Gruber
* Director
-----------------------------------------------------
James L. Hebe
* Director
-----------------------------------------------------
Louis J. Mischianti
* Director
-----------------------------------------------------
Rowan G.P. Taylor
</TABLE>
II-9
<PAGE> 221
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Director
-----------------------------------------------------
Jeremy J. Thompson
*By: /s/ JAMES W. GEORGE
------------------------------------------------
James W. George
Individually and as
Attorney-In-Fact
</TABLE>
II-10
<PAGE> 222
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
GUARANTOR HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WESTLAKE, STATE OF
OHIO, ON JANUARY 18, 2001.
TA TRAVEL, L.L.C.
Registrant
By: /s/ JAMES W. GEORGE
------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON JANUARY 18, 2001 BY OR ON BEHALF
OF THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED WITH THE REGISTRANT.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Manager
-----------------------------------------------------
Edwin P. Kuhn
* Manager
-----------------------------------------------------
James W. George
* Manager
-----------------------------------------------------
Michael H. Hinderliter
* Manager
-----------------------------------------------------
Timothy L. Doane
*By: /s/ JAMES W. GEORGE
------------------------------------------------
James W. George
Individually and as
Attorney-In-Fact
</TABLE>
II-11
<PAGE> 223
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
GUARANTOR HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WILMINGTON, STATE
OF DELAWARE, ON JANUARY 18, 2001.
TA LICENSING, INC.
Registrant
By: /s/ JAMES W. GEORGE
------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON JANUARY 18, 2001 BY OR ON BEHALF
OF THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED WITH THE REGISTRANT.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Director
-----------------------------------------------------
James W. George
* Director
-----------------------------------------------------
Steven C. Lee
* Director
-----------------------------------------------------
Daniel T. McHenry
* Director
-----------------------------------------------------
Andrew Panaccione
*By:/s/ JAMES W. GEORGE
------------------------------------------------
James W. George
Individually and as
Attorney-In-Fact
</TABLE>
II-12
<PAGE> 224
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
GUARANTOR HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WILMINGTON, STATE
OF DELAWARE, ON JANUARY 18, 2001.
TRAVELCENTERS REALTY, INC.
Registrant
By: /s/ JAMES W. GEORGE
------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON JANUARY 18, 2001 BY OR ON BEHALF
OF THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED WITH THE REGISTRANT.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Director
-----------------------------------------------------
James W. George
* Director
-----------------------------------------------------
Steven C. Lee
* Director
-----------------------------------------------------
Daniel T. McHenry
* Director
-----------------------------------------------------
Andrew Panaccione
*By:/s/ JAMES W. GEORGE
------------------------------------------------
James W. George
Individually and as
Attorney-In-Fact
</TABLE>
II-13
<PAGE> 225
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Purchase Agreement dated November 9, 2000, by and among
TravelCenters of America, Inc., TA Operating Corporation, TA
Travel, L.L.C., TA Licensing, Inc., TravelCenters
Properties, L.P., TravelCenters Realty, Inc, Credit Suisse
First Boston Corporation, Chase Securities Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation
2.1 Recapitalization Agreement and Plan of Merger dated as of
May 31, 2000(c)
*2.2 Amendment No. 1 to Recapitalization Agreement and Plan of
Merger dated as of October 2, 2000
*3.1 Amended and Restated Certificate of Incorporation of
TravelCenters of America, Inc.
*3.2 By-laws of TravelCenters of America, Inc.
3.3 Restated Certificate of Incorporation of TA Operating
Corporation(a)
3.4 Amended and Restated By-laws of TA Operating Corporation(a)
*3.5 Amended and Restated Certificate of Incorporation of TA
Licensing, Inc.
*3.6 By-laws of TA Licensing, Inc.
*3.7 Certificate of Limited Partnership of TravelCenters
Properties, L.P.
*3.8 Agreement of Limited Partnership of TravelCenters
Properties, L.P.
*3.9 Certificate of Incorporation of TravelCenters Realty, Inc.
*3.10 By-laws of TravelCenters Realty, Inc.
*3.11 Certificate of Formation of TA Travel, L.L.C.
*3.12 Operating Agreement of TA Travel, L.L.C.
*4.1 Indenture, dated as of November 14, 2000 by and among
TravelCenters of America, Inc., TA Operating Corporation, TA
Travel, L.L.C., TA Licensing, Inc., TravelCenters
Properties, L.P., TravelCenters Realty, Inc. and State
Street Bank and Trust Company
*4.2 Form of 12 3/4% Senior Subordinated Note due 2009 (included
in Exhibit 4.1)
*4.3 Exchange and Registration Rights Agreement, dated as of
November 14, 2000 by and among TravelCenters of America,
Inc., TA Operating Corporation, TA Travel, L.L.C., TA
Licensing, Inc., TravelCenters Properties, L.P.,
TravelCenters Realty, Inc., Credit Suisse First Boston
Corporation, Chase Securities Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation
*4.4 Form of Warrant Certificate (included in Exhibit 10.20)
+4.5 Form of Common Stock Certificate
*5.1 Opinion of Simpson Thacher & Bartlett as to the legality of
the securities being registered
*10.1 Amended and Restated Credit Agreement dated as of November
14, 2000
*10.2 Stockholders' Agreement among TravelCenters of America,
Inc., Oak Hill Capital Partners, L.P., Oak Hill Capital
Management Partners, L.P., Olympus Growth Fund III, L.P.,
Olympus Executive Fund, L.P., Monitor Clipper Equity
Partners, L.P., Monitor Clipper Equity Partners (Foreign),
L.P., UBS Capital America II, LLC, Credit Suisse First
Boston LFG Holdings 2000, LLC and Freightliner LLC dated as
of November 14, 2000
10.3 Operating Agreement of Freightliner Corporation and
TravelCenters of America, Inc. dated as of July 21, 1999(b)
*10.4 Amendment No. 1 to Operating Agreement of Freightliner
Corporation and TravelCenters of America, Inc. dated as of
November 9, 2000
10.5 Agreement for lease, dated as of September 9, 1999, among
TravelCenters of America, Inc., National and TCA Network
Funding, LP(b)
10.6 Lease Agreement, dated as of September 9, 1999, among
TravelCenters of America, Inc., National and TCA Network
Funding, LP(b)
10.7 TA Operating Corporation Transition Plan(c)
</TABLE>
<PAGE> 226
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*10.8 Employment Agreement, dated as of January 1, 2000, by and
among TA Operating Corporation, TravelCenters of America,
Inc. and Timothy L. Doane
*10.9 Employment Agreement, dated as of January 1, 2000, by and
among TA Operating Corporation, TravelCenters of America,
Inc. and James W. George
*10.10 Employment Agreement, dated as of January 1, 2000, by and
among TA Operating Corporation, TravelCenters of America,
Inc. and Michael H. Hinderliter
*10.11 Employment Agreement, dated as of January 1, 2000, by and
among TA Operating Corporation, TravelCenters of America,
Inc. and Edwin P. Kuhn
*10.12 Amendment No. 1 to Employment Agreement dated as of May 26,
2000, by and among TA Operating Corporation, TravelCenters
of America, Inc. and Timothy L. Doane
*10.13 Amendment No. 1 to Employment Agreement dated as of May 26,
2000, by and among TA Operating Corporation, TravelCenters
of America, Inc. and James W. George
*10.14 Amendment No. 1 to Employment Agreement dated as of May 26,
2000, by and among TA Operating Corporation, TravelCenters
of America, Inc. and Michael H. Hinderliter
*10.15 Amendment No. 1 to Employment Agreement dated as of May 26,
2000, by and among TA Operating Corporation, TravelCenters
of America, Inc. and Edwin P. Kuhn
10.16 Amendment No. 1 to the 1997 Stock Incentive Plan(c)
10.17 Form of 1997 Stock Incentive Plan -- Nonqualified Stock
Option Agreement(c)
10.18 Schedule of 1997 Stock Incentive Plan -- Nonqualified Stock
Option Agreements omitted pursuant to Instruction 2 to Item
601 of Regulation S-K(c)
10.19 Success Bonus Letter(c)
*10.20 Warrant Agreement dated as of November 14, 2000 between
TravelCenters of America, Inc. and State Street Bank and
Trust Company, as warrant agent
*10.21 Contingent Warrant Escrow Agreement dated as November 14,
2000 between TravelCenters of America, Inc. and State Street
Bank and Trust Company, as warrant escrow agent
*12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges
*21.1 Subsidiaries of Registrants
*23.1 Consent of Simpson Thacher & Bartlett (contained in Exhibit
5.1)
+23.2 Consent of PricewaterhouseCoopers LLP
*25.1 Form T-I Statement of Eligibility under the Trustee
Indenture Act of 1939 of State Street Bank and Trust Company
as Trustee
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
---------------
* Previously filed.
+ Filed herewith.
(a) Incorporated herein by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
(b) Incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(c) Incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
