<PAGE>
SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(AMENDMENT NO. )
Filed by the Registrant: [X]
Filed by a Party other than the Registrant: [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
MAYFLOWER GROUP, INC.
(Name Of Registrant As Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6-(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 [set forth
the amount on which the filing fee is calculated and
state how it was determined]: (i) The Stock Purchase
Agreement, dated December 4, 1994, among Mayflower
Group, Inc., UniGroup, Inc. and TCW Asset Management
Company provides for the acquisition by UniGroup, Inc.
of Mayflower Transit, Inc., a wholly owned subsidiary
of Mayflower Group, Inc. for
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 30, 1995
To the Shareholders of
MAYFLOWER GROUP, INC.
A Special Meeting of Shareholders of Mayflower Group, Inc.
(the "Company") will be held on March 30, 1995, at 11:00 A.M.,
local time (Eastern Standard Time), at the Company's home office,
9998 North Michigan Road, Carmel, Indiana 46032, phone (317) 875-
1000, for the following purposes:
1. To consider and vote upon the sale by the Company of
all the capital stock of Mayflower Transit, Inc., a
wholly owned subsidiary of the Company ("Transit"), to
UniGroup, Inc., a Missouri corporation ("UniGroup"),
pursuant to a Stock Purchase Agreement, dated December
4, 1994 and as amended on March 10, 1995, among the
Company, UniGroup and TCW Asset Management Company
("TCW"), the largest shareholder of the Company.
2. To consider and vote upon the acquisition of the
Company and its wholly owned subsidiary Mayflower
Contract Services, Inc. ("Contract Services") by
Laidlaw Transit, Inc., a Delaware corporation
("Laidlaw"), pursuant to an Agreement and Plan of
Merger, dated as of January 20, 1995, among the
Company, Laidlaw, MCS Transit, Inc., an Indiana
corporation ("Newco") and TCW (the "Merger Agreement"),
under which Newco would merge with and into the Company
(the "Merger") with the Company thereby becoming a
wholly owned subsidiary of Laidlaw and the outstanding
shares of common stock of the Company thereby
converting into a right to receive an amount estimated
to be between $10.00 and $10.40 per share. If the per
share merger consideration is reduced to less than
$10.00 per share, the Company will re-solicit
shareholders with respect to approval of the Merger.
Approval of the Merger will also constitute approval of
the sale of all the capital stock of Contract Services
by the Company to Laidlaw pursuant to an option
contained in the Merger Agreement which is exercisable
in the event the Merger Agreement is terminated because
of the failure of the Company to divest itself of
Transit (the "Contract Services Option"). In the event
that Contract Services is sold pursuant to the Contract
Services Option, the Company will continue operations
with Transit only.
3 To transact such other business as properly may come
before the meeting or any adjournments thereof.
The close of business on February 1, 1995, is the record
date for the determination of shareholders entitled to vote at
this meeting. Only those who are shareholders of record at the
close of business on such date will be entitled to vote at said
meeting and at any adjournments thereof.
<PAGE>
By Order of the Board of Directors.
Mayflower Group, Inc.
/s/ Robert H. Irvin
Robert H. Irvin, Secretary
March 10, 1995
<PAGE>
MAYFLOWER GROUP, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Mayflower Group, Inc.
(the "Company") of proxies to be voted at a Special Meeting of
Shareholders to be held on March 30, 1995 at 11:00 A.M. (Eastern
Standard Time) at 9998 North Michigan Road, Carmel, Indiana 46032
(the "Meeting"), and at any adjournments thereof. This Proxy
Statement and proxy card were first mailed to shareholders on or
about March 13, 1995.
GENERAL INFORMATION
Purpose of Meeting
The Meeting has been called to consider two proposals: (1)
the proposed sale (the "Transit Sale") by the Company of all the
capital stock of Mayflower Transit, Inc., a wholly owned
subsidiary of the Company ("Transit"), to UniGroup, Inc., a
Missouri corporation ("UniGroup"), pursuant to a Stock Purchase
Agreement, dated December 4, 1994 and as amended on March 10,
1995 (the "Stock Purchase Agreement"), among the Company,
UniGroup and TCW Asset Management Company ("TCW"), the largest
shareholder of the Company, and (2) the proposed acquisition of
the Company and its wholly owned subsidiary Mayflower Contract
Services, Inc. ("Contract Services") by Laidlaw Transit, Inc., a
Delaware corporation ("Laidlaw"), pursuant to an Agreement and
Plan of Merger, dated as of January 20, 1995, among the Company,
Laidlaw, MCS Transit, Inc., an Indiana corporation ("Newco"), and
TCW (the "Merger Agreement"), under which Newco would merge with
and into the Company (the "Merger") with the Company thereby
becoming a wholly owned subsidiary of Laidlaw and the outstanding
shares of common stock of the Company (the "Shares") thereby
converting into a right to receive cash. Approval of the Merger
will also constitute approval of the sale of all the capital
stock of Contract Services by the Company to Laidlaw pursuant to
an option contained in the Merger Agreement which is exercisable
in the event the Merger Agreement is terminated because of the
failure of the Company to divest itself of Transit (the "Contract
Services Option"). For more information, see "Proposal 2 -
Merger of the Company -- Summary of the Merger Agreement --
Option to Purchase Contract Services."
Possible Outcomes
Consummation of the Merger is not a condition precedent to
the Transit Sale and the Company intends to complete the Transit
Sale (provided applicable conditions precedent are satisfied or
waived) even if the Merger is terminated or abandoned. The
Merger is, however, contingent upon the prior disposition by the
Company of Transit pursuant to the Transit Sale or another
divestiture transaction including, but not limited to, a
potential spinoff of Transit to the Company's shareholders.
<PAGE>
Accordingly, shareholders need to be aware that the
following scenarios are possible outcomes with respect to the
proposals presented in this Proxy Statement:
1. Completion of Transit Sale Only. If the Company
completes the Transit Sale and does not consummate the Merger,
the Company will continue operations with Contract Services only.
For additional information regarding the terms of the Transit
Sale, see "Proposal 1 - Sale of Transit." In the event that the
Transit Sale only is consummated, NONE OF THE PROCEEDS OF THE
TRANSIT SALE WILL BE DISTRIBUTED TO SHAREHOLDERS OF THE COMPANY.
In this situation, it is anticipated that all of the proceeds
from the Transit Sale will be applied by the Company (i) to
satisfy certain indebtedness of the Company, Transit and Contract
Services; (ii) to pay the fees of the Company's financial
advisor; (iii) to satisfy the Company's obligations to certain
officers of the Company and Transit under employment agreements
and termination benefit agreements; (iv) to pay transaction
expenses; and (v) for general corporate purposes. For more
information regarding the estimated use of proceeds in the event
the Transit Sale only is consummated, see "Proposal 1 - Summary
of the Transit Sale - Purchase Price; Use of Proceeds." For more
information regarding the payments to officers of the Company and
Transit under the terms of certain employment agreements and
termination benefit agreements, see "Payment to Officers" below
and "Interest of Certain Persons." In considering the Transit
Sale, shareholders are urged to review (i) the pro forma
financial information contained in Appendix B to this Proxy
Statement for an illustration of the estimated effects of the
Transit Sale on the balance sheet and statements of operations of
the Company as of and for the periods indicated, and (ii) the
unaudited interim and annual financial statements of Transit and
Contract Services, contained in Appendix C and Appendix G,
respectively, of this Proxy Statement for information regarding
the historical separate company financial results of Transit and
Contract Services.
2. Consummation of Both the Transit Sale and the Merger.
If both the Transit Sale and the Merger are consummated, the
Company will become a wholly owned subsidiary of Laidlaw,
Contract Services will remain a wholly owned subsidiary of the
Company, and the outstanding Shares will be converted into the
right to receive cash pursuant to the Merger Agreement. For more
information concerning the terms of the Merger, see "Proposal 2 -
Summary of the Merger Agreement." As of the date of this Proxy
Statement, it is estimated that each Share will convert into a
right to receive between $10.00 and $10.40 per Share. Pursuant
to the terms of the Merger Agreement, the amount distributable to
shareholders will be determined by calculating each shareholder's
pro-rata portion of (i) $157,000,000, less (ii) the amount
required to satisfy certain indebtedness, fees to the Company's
financial advisor, payments to or for the benefit of officers of
the Company, Transit and Contract Services under employment
agreements, termination benefit agreements and supplemental
executive retirement plans, payments made to terminate
outstanding stock options and transaction expenses attributable
to the Company, Transit or Contract Services, including expenses
<PAGE>
and costs related to the Stock Purchase Agreement not previously
satisfied with the proceeds of the Transit Sale. For more
information regarding the calculation of the per Share merger
consideration to be received by shareholders of the Company, see
"Proposal 2 - Summary of the Merger - Merger Consideration." For
more information regarding payments (i) to or for the benefit of
officers of the Company, Transit and Contract Services pursuant
to employment agreements and termination benefit agreements,
supplemental executive retirement plans, and (ii) to officers of
the Company, Transit and Contract Services made in respect of the
termination of stock options, see "Payments to Officers" below
and "Interests of Certain Persons." If such estimated per Share
merger consideration is reduced to an amount less than $10.00 per
Share as a result of an increase in transaction expenses, a
decrease in the aggregate merger consideration as a result of
negotiations between the Company and Laidlaw, or for any other
reason, the Company will re-solicit shareholders with respect to
the approval of the Merger. Pursuant to the terms of the Merger
Agreement, the Effective Date of the Merger can occur as late as
July 31, 1995.
3. Sale of Contract Services Only. If the Transit Sale is
not consummated pursuant to the Stock Purchase Agreement or
Transit is not divested as a subsidiary of the Company and, as a
result, either Laidlaw or the Company terminates the Merger
Agreement on the grounds that one or more of its conditions to
closing is not satisfied, the Merger Agreement provides Laidlaw
the irrevocable right to acquire from the Company all of the
outstanding capital stock of Contract Services (the "Contract
Services Option"). For more information regarding the terms of
the Contract Services Option, see "Proposal 2 - Merger Summary -
Option to Purchase Contract Services." If the Contract Services
Option is exercised, the Company will continue operations with
Transit only. In the event that this should occur, NONE OF THE
PROCEEDS OF A SALE PURSUANT TO THE CONTRACT SERVICES OPTION WILL
BE DISTRIBUTED TO SHAREHOLDERS. It is currently anticipated that
if a sale of Contract Services should occur pursuant to the
Contract Services Option, that the proceeds would be applied by
the Company (i) to satisfy certain indebtedness of the Company,
Contract Services and Transit; (ii) to make payments to certain
officers of the Company and Contract Services pursuant to
satisfaction of obligations under employment agreements and
supplemental executive retirement plans; (iii) to pay the fees of
the Company's financial advisor; and (iv) for general corporate
purposes. See "Proposal 2 -Merger Summary - Option to Purchase
Contract Services" for more information regarding the estimated
use of proceeds from a sale of Contract Services pursuant to the
Contract Services Option. Shareholders are urged to review (i)
the pro forma financial information contained in Appendix F to
the Proxy Statement for an illustration of the estimated effects
of a sale of Contract Services pursuant to the Contract Services
Option on the balance sheet and statements of operations of the
Company as of and for the periods indicated, and (ii) the
unaudited interim and annual financial statements of Transit and
Contract Services, contained in Appendix C and Appendix G,
respectively, of this Proxy Statement for information regarding
<PAGE>
the historical separate company financial results of Transit and
Contract Services.
4. Sale or Divestiture of Transit Other than Pursuant to
the Stock Purchase Agreement. If the Stock Purchase Agreement is
terminated for any reason and the Company determines to divest
itself of Transit pursuant to any other transaction ("Alternative
Transaction"), the Company will solicit shareholders for approval
of any such Alternative Transaction. Further, if the Company
determines to continue to pursue the consummation of the Merger
in conjunction with the Alternative Transaction and the
Alternative Transaction results in a reduction of the per Share
merger consideration to be received by shareholders in the Merger
to an amount less than $10.00 per Share, or results in any other
material change in the terms of the Merger, the Company will re-
solicit shareholders with respect to the approval of the Merger.
Pursuant to the terms of the Merger Agreement, the Effective Date
of the Merger can occur as late as July 31, 1995.
Payment to Officers
A condition to UniGroup's obligations to close the Transit
Sale is that certain existing employment agreements and
termination benefit agreements to which Transit is a party must
be terminated. Michael L. Smith, Patrick F. Carr, Robert H.
Irvin, Dennis C. Norman, Steven J. Dawkins and Donald K. Sears,
all officers of the Company and/or Transit, have employment
agreements and/or termination benefit agreements to which Transit
is a party. The agreement with Messrs. Smith, Carr and Irvin
will be breached as a consequence of the Transit Sale. While the
agreements with Messrs. Norman, Dawkins and Sears will not be
breached, they must be terminated to fulfill UniGroup's
condition.
Under these agreements, Michael L. Smith is entitled to
$1,202,000, Patrick F. Carr is entitled to $679,475 and Robert H.
Irvin is entitled to $512,906. In a memorandum of understanding
between the Company and UniGroup executed at the same time as the
Stock Purchase Agreement, UniGroup agreed to assume $400,000 of
the obligations with respect to Mr. Carr, $306,000 of the
obligations with respect to Mr. Irvin and $1,017,800 of the
obligation with respect to Mr. Smith. The balance of the
payments pursuant to these contracts, an aggregate amount of
$670,581, will be required to be made by the Company from the
proceeds of the Transit Sale. With respect to Messrs. Norman,
Dawkins and Sears, UniGroup agreed to pay each of them one year's
base pay on normal pay periods whether or not he is employed by
UniGroup. The Company anticipates having to pay an aggregate of
$773,256 to Messrs. Norman, Dawkins and Sears to secure their
agreements to terminate their contracts. This amount will come
from the proceeds of the Transit Sale. For more information, see
"Interests of Certain Persons."
A condition of Laidlaw's obligation to consummate the Merger
is the termination or suspension of Contract Services'
obligations to fund the Mayflower Contract Services Supplemental
Executive Retirement Plan (the "SERP"). Michael L. Smith and
<PAGE>
Kyle E. Martin, both officers of the Company and Contract
Services, are participants in the SERP. Approximately 21 other
employees of Contract Services are also SERP participants. In a
memorandum of understanding entered into with Laidlaw, the
Company agreed to assume the obligation to provide the defined
benefits to Mr. Smith under the SERP when he becomes eligible to
receive them. The aggregate cost to the Company of meeting this
funding obligation is approximately $1,454,000, which will reduce
the proceeds of the Merger available for distribution to
shareholders. See "Interests of Certain Persons." Pursuant to
that memorandum of understanding, an amount will be paid to Mr.
Martin to obtain his consent to the termination of his
participation in the SERP, which amount will be funded solely by
Laidlaw and therefore will not reduce the amount of Merger
proceeds available for distribution to shareholders of the
Company. Upon the termination of their participation in the
SERP, Mr. Martin and the other participants (other than Mr.
Smith) will each receive a portion of the cash value of the life
insurance policies held by Contract Services for the SERP funding
at the time of its termination. This funding will be allocated
to Mr. Martin and the other participants based upon their salary
level and years of service. No additional amounts will be
contributed by the Company or Laidlaw. These payments will not
reduce the Merger proceeds available for distribution to
shareholders of the Company.
In addition, the Merger Agreement requires that the Company
terminate its stock option plans. Assuming per Share merger
consideration of $10.40 per Share, this obligation will result in
an aggregate payment of approximately $1,026,958.00 to 18 persons
who are officers and directors of the Company, Transit and/or
Contract Services as consideration for the termination of stock
options held by them. This entire amount will be paid from the
proceeds of the Merger. For more information, see "Interests of
Certain Persons."
Penalties for Termination of Agreements
Both the Stock Purchase Agreement and Merger Agreement
provide, in certain circumstances, for substantial payments to be
made by the Company upon termination of such agreements. Under
the terms of the Stock Purchase Agreement, if UniGroup terminates
the Stock Purchase Agreement as a result of the withdrawal or
change by the Board of Directors of its recommendation to approve
the Sale or the acceptance by the Company or TCW of an
acquisition proposal which affords the Company's shareholders
substantially more valuable economic benefit, the Company must
promptly pay to UniGroup $6,000,000 and reimburse UniGroup for
reasonable out-of-pocket expenses incurred in connection with the
Transit Sale. For more information regarding the terms of the
Stock Purchase Agreement, see "Proposal 1 - Summary of the Stock
Purchase Agreement." Under the terms of the Merger Agreement, if
Laidlaw terminates the Merger Agreement for similar reasons or
because TCW breaches its agreement to retain ownership of its
Shares and to vote in favor of the Merger, the Company must also
promptly pay to Laidlaw $10,500,000 in cash and reimburse Laidlaw
for reasonable out-of-pocket expenses incurred by Laidlaw in
<PAGE>
connection with the Merger. For more information regarding the
terms of the Merger Agreement, see "Proposal 2 - Merger of the
Company - Summary of the Merger Agreement."
Voting Information
The Shares constitute the only voting securities of the
Company. A majority of all outstanding Shares is necessary for a
quorum. Under Indiana law, once a Share is represented for any
purpose at a meeting it is deemed present for quorum purposes for
the remainder of the meeting. The affirmative vote of the
holders of a majority of the outstanding Shares entitled to vote
thereon is required for the approval of each of the Transit Sale
and the Merger. Abstentions and broker non-votes will have the
same effect as a vote against approval of the Transit Sale or the
Merger.
A proxy may be revoked by a shareholder of record at any
time with respect to any proposal before it is exercised by
giving written notice of its revocation to the Secretary of the
Company, by filing with the Secretary a subsequently dated proxy,
or by attending the meeting or any adjournments thereof and
voting in person. All Shares represented by the accompanying
proxy will be voted as directed by the shareholder if the proxy
is executed and returned and if the Shares are eligible to vote.
IF NO INSTRUCTIONS ARE INDICATED IN THE PROXY, SUCH SHARES WILL
BE VOTED FOR APPROVAL OF THE TRANSIT SALE AND FOR APPROVAL OF THE
MERGER.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE IN FAVOR OF THE TRANSIT SALE AND THE MERGER.
At the close of business on February 1, 1995, the record
date for the Special Meeting, 12,661,671 Shares were outstanding,
of which 11,498,337 Shares were entitled to vote. The
outstanding Shares not entitled to vote are beneficially owned by
TCW and are subject to voting restrictions imposed by Indiana
law. For more information, see "TCW Information" below and
"Principal Holders of Shares."
The cost of soliciting proxies will be borne by the Company.
The solicitation of proxies will be limited to the use of the
mails. The Company will reimburse banks, brokerage firms, and
other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy material to the
beneficial owners of Shares.
TCW Information
TCW, the beneficial owner of 51.1% of the outstanding Shares
and 46.1% of the votes entitled to be cast with respect to the
proposals described in this Proxy Statement, has agreed in the
Stock Purchase Agreement and the Merger Agreement to vote in
favor of the Transit Sale and Merger, respectively. UniGroup and
Laidlaw requested that TCW sign the Stock Purchase Agreement and
Merger Agreement, respectively, in order to assure themselves of
TCW's support for the respective transactions. In neither case
<PAGE>
has TCW received nor will it receive any consideration for its
agreement to vote its Shares in favor of the transactions, other
than the consideration which will be received by all other
shareholders upon the consummation of the Merger. Sheldon M.
Stone, a director of the Company, is a Managing Director of TCW.
Other than through Mr. Stone's participation in his role as a
member of the Board of Directors of the Company, the Company's
consultation with Mr. Stone regarding the terms of the proposed
transactions prior to obtaining TCW's agreement to sign the Stock
Purchase Agreement and the Merger Agreement, and Mr. Stone's
participation in a discussion with Laidlaw concerning the
termination date of the Merger Agreement, TCW has had no role in
the proposed transactions.
PRINCIPAL HOLDERS OF SHARES
Directors, Officers and Five Percent Shareholders
The respective number of the Company's outstanding Shares
and percentages of the outstanding Shares beneficially owned by
(i) each Director of the Company; (ii) each Executive Officer of
the Company who is not a Director; (iii) the Directors and
Executive Officers of the Company as a group, and (iv) all
persons beneficially owning more than five percent of the
outstanding Shares of the Company, are set forth on the following
table:
[The remainder of this page was intentionally left blank.]
<PAGE>
<TABLE>
<CAPTION>
Percent of
Name of Beneficial Owner Number of Shares (1) Outstanding (2)
<S> <C> <C>
Directors
Roderick M. Hills 1,000 *
Lary R. Scott 760 *
Michael L. Smith 49,159 (3) *
Sheldon M. Stone 6,468,231 (4) 51.1%
John B. Smith (Emeritus) 90,332 (5) *
Non-Director Executive Officers
Patrick F. Carr 8,849 *
Robert H. Irvin 1,679 *
All Directors and Executive
Officers as a Group (7 persons) 6,620,010 52.3%
Five Percent Shareholders
The TCW Group, Inc.
and affiliates
865 South Figueroa Street
Los Angeles, California 90017 6,468,231 (6) 51.1%
Massachusetts Financial
Services Company
500 Boylston Street
Boston Massachusetts 02116 1,006,810 (7) 8.0%
Massachusetts Financial High
Income Fund
500 Boylston Street
Boston, Massachusetts 02116 783,919 (8) 6.2%
Chesapeake Partners Management
Co., Inc.
1829 Reisterstown Road
Suite 320
Baltimore, Maryland 21208 816,300 (9) 6.5%
Chesapeake Partners Limited
Partnership
1829 Reisterstown Road
Suite 320
Baltimore, Maryland 21208 727,950 (10) 5.8%
WTG & Co., L.P.
499 Park Avenue
New York, New York 10022 692,000 (11)(14) 5.5%
D. Tisch & Co., Inc.
499 Park Avenue
New York, New York 10022 692,000 (12)(14) 5.5%
<PAGE>
Daniel R. Tisch
499 Park Avenue
New York, New York 10022 692,000 (13)(14) 5.5%
<FN>
---------------------------
* Less than 1 percent
(1) The number of Shares stated in this column is based on information
furnished by the person listed or is derived from filings on Schedule
13D made by such person and includes Shares personally owned of record
by the person and Shares which are or may be deemed to be otherwise
beneficially owned by the person under applicable regulations. Unless
otherwise indicated, each shareholder listed reports sole voting and
dispositive power over all Shares beneficially owned.
(2) The percentages set forth in this column were based upon 12,661,671
Shares outstanding as of February 1, 1995.
(3) Includes 102 Shares owned by Mr. Smith's minor children, with respect to
which Shares Mr. Smith's wife acts as custodian.
(4) Mr. Stone is a Managing Director of TCW Asset Management Company, a
subsidiary of The TCW Group, Inc., which, combined with its affiliates
(collectively, "TCW"), is investment manager for certain separate
accounts and certain trusts and, as general partner of certain limited
partnerships, holds 6,468,231 Shares. See footnote 6, below. Because
of Mr. Stone's position with TCW, beneficial ownership of the Shares
managed by TCW may be attributed to Mr. Stone. Mr. Stone disclaims
beneficial ownership of the Shares owned by TCW. 1,163,334 Shares held
by TCW cannot be voted by TCW pursuant to the Indiana Control Share
Acquisition Statute. This information is as of January 24, 1995.
(5) Includes 27,917 Shares owned by his wife, Barbara Smith, as to which Mr.
Smith disclaims beneficial ownership.
(6) Represents 6,468,231 Shares held by limited partnerships, trusts and
accounts for which TCW is investment manager and, therefore, such Shares
may be deemed beneficially owned by TCW for purposes of the reporting
requirements of the Securities and Exchange Act of 1934. TCW disclaims
ownership of these Shares. TCW has investment power over such Shares of
common stock. TCW has voting power over 5,316,597 Shares. 1,163,334
Shares held by TCW cannot be voted by TCW pursuant to the Indiana
Control Share Acquisition Statute. This information is as of January
24, 1995.
(7) Represents 1,006,810 Shares held by funds for which Massachusetts
Financial Services Company ("MFSC") acts as investment adviser and,
therefore, such Shares may be deemed beneficially owned by MFSC. These
Shares include the 783,919 Shares owned by Massachusetts Financial High
Income Fund, for which MFSC acts as investment adviser, and which are
also reported separately herein. See footnote 8, below. MFSC shares
voting and dispositive power over all such Shares with the funds for
which it acts as investment adviser. This information is as of January
26, 1995.
<PAGE>
(8) These Shares are also included in the Shares reported as being
beneficially owned by MFSC, which acts as investment adviser for the
Massachusetts Financial High Income Fund ("MFHIF"). See footnote 7,
above. MFHIF shares voting and dispositive power with MFSC in the
Shares owned by it. This information is as of January 26, 1995.
(9) Represents 816,300 Shares held by a group consisting of two limited
partnerships, for which Chesapeake Partners Management Co., Inc., a
Maryland corporation ("CPMC"), is general partner, and a corporation
organized in the Cayman Islands, for which CPMC is the investment
manager. As such, CPMC may be deemed to beneficially own these Shares.
These Shares include: (i) 727,950 Shares beneficially owned by
Chesapeake Partners Limited Partnership, a Maryland limited partnership
("CPLP"), for which CPMC is a general partner and are also reported
separately herein (see footnote 10, below), (ii) 47,150 Shares
beneficially owned by Chesapeake Partners Institutional Fund Limited
Partnership, a Maryland limited partnership ("CPIF"), for which CPMC is
a general partner, and (iii) 41,200 Shares beneficially owned by
Chesapeake Partners International Ltd., a corporation organized in the
Cayman Islands ("CPIL"), for which CPMC is the investment manager. CPMC
shares voting and dispositive power over 727,950 Shares, 47,150 Shares
and 47,200 Shares with CPLP, CPIF and CPIL, respectively. This
information is as of December 16, 1994.
(10) These Shares are also included in the Shares reported as being
beneficially owned by CPMC, which is a general partner of Chesapeake
Partners Limited Partnership, a Maryland limited partnership ("CPLP").
See footnote 9, above. CPLP shares voting and dispositive power over
727,950 Shares with CPMC. This information is as of December 16, 1994.
(11) Represents 692,000 Shares owned by Mentor Partners, L.P., a Delaware
limited partnership ("Mentor"), for which WTG & Co., L.P., a Delaware
limited partnership ("WTG"), is the general partner. As such, WTG may
be deemed to beneficially own these Shares. WTG disclaims ownership of
these Shares. WTG shares voting and dispositive power over 692,000
Shares. This information is as of January 3, 1995.
(12) Represents 692,000 Shares owned by Mentor. D. Tisch & Co., Inc., a
Delaware corporation ("Tisch & Co."), may be deemed to beneficially own
these Shares since it is the general partner of WTG. See footnote 11,
above. Tisch & Co. disclaims ownership of these Shares. Tisch & Co.
shares voting and dispositive power over 692,000 Shares. This
information is as of January 3, 1995.
(13) Represents 692,000 Shares owned by Mentor. Daniel R Tisch may be deemed
to beneficially own these Shares since he is the sole shareholder of
Tisch & Co. See footnotes 11 and 12, above. Mr. Tisch disclaims
ownership of these Shares. Mr. Tisch shares voting and dispositive
power over 692,000 Shares. This information is as of January 3, 1995.
(14) WTG, Tisch & Co. and Daniel R. Tisch disclaim their membership in a
group and do not affirm their existence as a group. This information is
as of January 3, 1995.
</TABLE>
<PAGE>
BACKGROUND OF PROPOSED TRANSACTIONS
On February 23, 1994, the Board of Directors of the Company
authorized management of the Company to engage the investment
banking firm of Smith Barney, Inc. ("Smith Barney") to assist the
Company in exploring ways to maximize shareholder value,
including a sale of the Company or one of its principal operating
subsidiaries. See "Arrangements with Financial Advisor." This
action was taken by the Board of Directors to determine whether
the Company could provide certain large shareholders of the
Company a means to liquidate their investments at an acceptable
price, while providing equal treatment for all shareholders of
the Company. Smith Barney subsequently outlined for the Board of
Directors a number of avenues available to the Company to
accomplish its objectives. After consideration of these options
by the Board of Directors, Smith Barney was then authorized to
approach certain financial buyers about their potential interest
in acquiring the Company or one of its principal operating
subsidiaries.
At a subsequent meeting of the Board of Directors, a special
committee of the Board of Directors (the "Special Committee")
consisting of Roderick M. Hills, Perry J. Lewis, and Lary R.
Scott, was appointed to oversee the work of Smith Barney. Mr.
Lewis served on the Special Committee until he resigned from the
Board of Directors of the Company on November 10, 1994 to pursue
other interests. Mr. Lewis did not resign from the Board of
Directors because of any disagreement with the Company on any
matter relating to the Company's operations, policies or
practices or the proposed transactions.
At a meeting of the Board of Directors held on July 29,
1994, Smith Barney reported to the Board of Directors on the
indications of interest received from certain of the financial
buyers contacted by Smith Barney, on alternative transaction
structures and on valuation issues. It was determined by the
Board of Directors that none of the indications of interest
received were at a level that would be acceptable to the
Company's shareholders. Based upon this finding and the report
of Smith Barney, Smith Barney was then authorized to seek
indications of interest from additional financial buyers, as well
as certain strategic buyers. In addition, Smith Barney
recommended that the Board of Directors consider making a public
disclosure regarding the engagement of Smith Barney and the
reasons therefor. One of the principal reasons given for making
such a disclosure was to insure that all parties that might be
interested in such a transaction had an opportunity to express an
interest. The Board of Directors of the Company approved making
such a disclosure and, on August 5, 1994, the Company issued a
press release regarding the engagement of Smith Barney to explore
strategic alternatives to maximize shareholder value and stating
that no decision had been made as to whether a transaction would
occur.
<PAGE>
As a result of Smith Barney's efforts in contacting
additional potentially interested parties, a group of primarily
strategic buyers and alternative structures were identified.
Based on discussions with potential buyers, there were interested
buyers for Transit and Contract Services separately, but there
was not sufficient interest expressed for the purchase of both
businesses together by any single buyer. The Board of Directors
authorized Smith Barney to work with each of these potential
purchasers to refine the terms on which they might be willing to
acquire Transit or Contract Services. Alternative structures
such as (i) the spin-off of Transit and the retention of Contract
Services, (ii) the sale of Transit only, and (iii) the sale of
both Transit and Contract Services separately and the liquidation
of the Company were explored by the Board of Directors. However,
such alternative structures to the proposed transaction involved
high transactions costs or did not permit the major shareholders
of the Company to achieve liquidity while assuring that all
shareholders attained the same result. Based on Smith Barney's
discussions with potential purchasers, the bidders for Transit
appeared better prepared at that time to proceed with the
negotiation of a transaction than were the bidders for Contract
Services. As a result, the Board of Directors determined that
Smith Barney should proceed first with those parties interested
in purchasing Transit.
Negotiations Regarding the Transit Sale
The group of buyers expressing the strongest interest in the
purchase of Transit was narrowed to two potential purchasers, one
of which was UniGroup. The Board of Directors authorized Smith
Barney to engage in preliminary negotiations with both parties
interested in the purchase of Transit to determine the most
favorable price and terms available from each.
Based upon the results of those negotiations and the advice
of Smith Barney, the Special Committee recommended that the
Company negotiate with UniGroup the terms of a definitive
agreement for the sale of the capital stock of Transit. The
UniGroup offer was selected because the other offer for Transit
was not firm, was subject to financing and was of a lower value
than the UniGroup offer. Based upon this recommendation and a
review of each potential purchaser's proposal, the Board of
Directors authorized the officers of the Company to enter into
exclusive negotiations with UniGroup for a specified period. As
a result of these negotiations, the Stock Purchase Agreement was
finalized and presented to the Board of Directors of the Company
for approval and recommendation to the shareholders.
In considering the Stock Purchase Agreement, the Board of
Directors, advised by management and Smith Barney, reviewed the
Company's options and the projected effect of the proposed
transaction on the Company's short-term and long-term value and
prospects, specifically considering the possibility that no
purchaser would be located for the Company or Contract Services.
Based upon its review, the advice of management and Smith Barney,
<PAGE>
and the oral opinion (subsequently confirmed in writing) of Smith
Barney regarding the fairness of the proposed transaction (see
"Proposal 1 - Sale of Transit --- Opinion of the Company's
Financial Advisor"), the Board of Directors approved the Stock
Purchase Agreement, agreed to recommend the transaction to the
shareholders and authorized management of the Company to call a
special meeting of the shareholders of the Company to consider
the transactions contemplated by the Stock Purchase Agreement.
The Board's recommendation of the proposed Transit Sale was based
on its determination that the consideration to be received by the
Company for the Transit Sale is fair to shareholders. In
reaching its decision, the Board of Directors considered (i) the
long process and wide publicity leading up to the Transit Sale;
(ii) the irregular operating results of the Company and Transit;
(iii) the lack of synergies between Transit and Contract
Services; (iv) the terms of the agreement; (v) the business,
operations, and prospects of the Company and Transit; (vi) the
financial terms of the Transit Sale as set forth in the agreement
in relation to historical and projected earnings and operating
data for Transit; (vii) the financial terms of the Transit Sale
as set forth in the agreement in relation to the financial terms
of certain other transactions and certain other financial, stock
market and other publicly available information relating to the
businesses of other companies which operate in the trucking
industry; (viii) the potential pro forma impact of the Transit
Sale on the Company; and (ix) the oral opinion of Smith Barney.
No specific weight was assigned to the factors considered in the
determination of the Board's opinion; however, the price and the
terms of the Stock Purchase Agreement were factors that were of
greater relative importance to the Board. The Stock Purchase
Agreement was executed on December 4, 1994.
Negotiations Regarding the Merger
As negotiations with regard to the Transit Sale were
proceeding, the Board of Directors directed Smith Barney to
continue to work with the strategic purchasers who had expressed
the greatest interest in acquiring Contract Services, either
through a merger with the Company or the acquisition of the
capital stock of Contract Services. Based upon the advice of
management and of Smith Barney, the Board of Directors determined
that the preferred form for this proposed transaction was a cash
merger with the Company.
As with the acquisition of Transit, the number of purchasers
interested in a potential transaction on terms acceptable to the
Board of Directors was narrowed to two. Based upon preliminary
negotiations between the Company and both potential purchasers,
and upon the advice of management and Smith Barney, the Board of
Directors determined that continuing to work with Laidlaw would
be the course of action most likely to result in a transaction in
a form and at a price that would be satisfactory to the Company's
shareholders. The other indication of interest for Contract
Services was rejected because it was not a firm offer, was
<PAGE>
subject to a substantial number of uncertainties and was of a
lower value than the Laidlaw offer.
Following preliminary negotiations, Smith Barney performed
an analysis for the Board of Directors as to whether the Company
should continue as a separate entity after the sale of Transit or
should proceed with a potential transaction with Laidlaw. Based
upon its review of the analysis of Smith Barney, and upon the
advice of management and Smith Barney, the Board of Directors
approved the continuation of negotiations with Laidlaw to
determine whether a cash merger on terms that would be acceptable
to the Company's shareholders could be achieved.
Based upon the results of the additional negotiations and
the advice of management and Smith Barney, the Board of Directors
authorized management and Smith Barney to enter into exclusive
negotiations with Laidlaw to determine whether a definitive
merger agreement could be agreed upon. As a result of the
exclusive negotiations, the Merger Agreement was finalized and
presented to the Board of Directors of the Company for approval
and recommendation to the shareholders.
In considering the Merger Agreement, the Board of Directors,
advised by management and Smith Barney, reviewed the Company's
various alternatives in light of the pending Transit Sale. Based
upon its review, the advice of management and Smith Barney and
the oral opinion (subsequently confirmed in writing) of Smith
Barney regarding the fairness of the proposed transaction (see
"Proposal 2 - Merger of the Company -- Opinion of the Company's
Financial Advisor"), the Board of Directors approved the Merger
Agreement, agreed to recommend the transaction to the
shareholders and authorized management of the Company to call a
special meeting of the shareholders of the Company to consider
the transactions contemplated by the Merger Agreement. The
Board's recommendation of the proposed Merger was based on its
determination that the consideration to be received by the
shareholders of the Company for the Merger is fair to the
shareholders. In reaching its decision, the Board of Directors
considered (i) the long process and wide publicity leading up to
the Merger and the fact that the Laidlaw proposal was the highest
and best received; (ii) the irregular operating results of
Contract Services; (iii) the terms of the agreement; (iv) the
business, operations, and prospects of the Company and Contract
Services; (v) the likelihood that the stock price of the Company,
after the Transit Sale and without the Merger, would trade at a
level below that available to shareholders through the Merger;
(vi) the desire of large shareholders to receive cash for their
shares while providing the same opportunity for all shareholders;
(vii) the financial terms of the Merger in relation to the market
prices and trading volumes of the Company common stock; (viii)
the financial terms of the Merger as set forth in the agreement
in relation to the historical and projected earnings and
operating data for Contract Services; and (ix) the oral opinion
of Smith Barney. The Board of Directors did not consider the tax
basis of Contract Services in determining the fairness of the
<PAGE>
Merger to shareholders. No specific weight was assigned to the
factors considered in the determination of the Board's opinion;
however, the price and the terms of the Merger Agreement were
factors that were of greater relative importance to the Board.
The Merger Agreement was executed on January 20, 1995.
PROPOSAL 1 - SALE OF TRANSIT
Introduction
On December 4, 1994, the Company, UniGroup and TCW entered
into a Stock Purchase Agreement (the "Stock Purchase Agreement")
pursuant to which the Company agreed to sell all the capital
stock of Transit to UniGroup for cash. UniGroup, with its
principal executive offices at One United Drive, Fenton, Missouri
63026 (telephone (314) 326-3100) is the holding company for
United Van Lines and several related companies and is owned by
agents of United Van Lines. United Van Lines is a provider of
world-wide moving and storage services.
The terms of the Transit Sale, and the amount and nature of
the consideration to be provided pursuant thereto, were
determined as a result of arms-length negotiation between the
Company and UniGroup. See "Background of the Proposed
Transactions - Negotiations Regarding the Transit Sale" for
information regarding the factors considered by the Company's
Board of Directors in determining that the terms of the Transit
Sale are fair to the shareholders of the Company.
TCW entered into the Stock Purchase Agreement for limited
purposes, primarily to agree to vote Shares beneficially owned by
it and entitled to vote under applicable law in favor of the
Transit Sale. See "Principal Holders of Shares".
COMPLETION OF THE TRANSIT SALE IS INDEPENDENT OF THE MERGER.
IT IS THE COMPANY'S INTENTION TO COMPLETE THE TRANSIT SALE
(PROVIDED SHAREHOLDER APPROVAL IS RECEIVED AND APPLICABLE
CONDITIONS PRECEDENT ARE SATISFIED OR WAIVED) EVEN IF THE MERGER
IS TERMINATED OR ABANDONED. See "General Information - Possible
Outcomes" for more information regarding the possible results
with respect to the proposals contained in this Proxy Statement.
Summary of the Stock Purchase Agreement
The following summary of the Stock Purchase Agreement does
not purport to be complete and is qualified in its entirety by
reference to the Stock Purchase Agreement, a copy of which is
Appendix A to this Proxy Statement (excluding schedules and
exhibits).
Purchase Price; Use of Proceeds
No proceeds of the Transit Sale will be distributed to
shareholders of the Company. The purchase price for the capital
<PAGE>
stock of Transit is $90,000,000 in cash. Under the terms of the
Stock Purchase Agreement and the terms of an agreement pursuant
to which Transit and Contract Services incurred an aggregate of
$80,000,000 of variable rate and fixed rate indebtedness (the
"Insurance Company Debt"), the Company is required to repay the
entire outstanding principal amount of the Insurance Company Debt
in order to consummate the Transit Sale. However, under the
terms of the Stock Purchase Agreement, if UniGroup elects to
assume $40,000,000 of the outstanding principal amount of the
fixed rate Insurance Company Debt (the "Assumed Debt") and the
Company is released from the prepayment penalty relating to the
Assumed Debt (which is currently estimated to be approximately
$3,600,000), the purchase price would be reduced by (i)
$40,000,000 plus (ii) $2,250,000.
See "Proposal 2 - Summary of the Merger - Merger
Consideration" for an estimate of the use of proceeds from the
Transit Sale and the Merger, assuming both the Transit Sale and
the Merger have occurred.
Assuming (i) the Merger is abandoned and only the Transit
Sale were to occur, (ii) UniGroup elects to assume the Assumed
Debt, and (iii) the closing of the Transit Sale were to occur on
March 31, 1995, the Company estimates that the proceeds would be
used as follows:
Proceeds
Proceeds of Transit Sale (net of
$42,250,000 relating to
assumption of the Assumed Debt) $ 47,750,000
Use of Proceeds
Prepayment of balance of Insurance
Company Debt ($40,000,000)
Prepayment Fees ($ 2,281,852)
(relating to fixed rate portions
not assumed)
Smith Barney Fee ($ 1,117,000)
Payments to Officers regarding
Employment and Termination Benefits
Agreements (See "General Information
- Payment to Officers" and "Interests
of Certain Persons") ($ 1,443,837)
Transaction Expenses
(Including legal, accounting,
filing fees, state taxes) ($ 1,679,000)
Proceeds Retained For General
Corporate Purposes ($ 1,228,311)
Proceeds to Shareholders $ -0-
<PAGE>
THE USE OF PROCEEDS SET FORTH ABOVE IS AN ESTIMATE BASED ON THE
STATED ASSUMPTIONS AND THE BEST INFORMATION AVAILABLE TO THE
COMPANY AS OF THE DATE OF THIS PROXY STATEMENT AND DOES NOT
REFLECT THE TAX BENEFIT TO THE COMPANY FROM CERTAIN USES OF THE
PROCEEDS. DEPENDING UPON THE OUTCOME OR TIMING OF FUTURE EVENTS,
THE PROCEEDS FROM THE TRANSIT SALE MAY BE USED DIFFERENTLY. IN
NO EVENT WILL PROCEEDS OF THE TRANSIT SALE BE DISTRIBUTED TO
SHAREHOLDERS OF THE COMPANY.
Representations and Warranties
The Stock Purchase Agreement contains representations and
warranties by the parties including, but not limited to,
representations and warranties regarding their organization,
authority to enter the Agreement, required governmental approvals
and obligations to pay broker or finder fees in connection with
the Transit Sale. In addition, the Company has made certain
representations and warranties concerning Transit with respect to
properties, capitalization, legal matters, compliance with laws,
labor matters, employee benefit plans, financial statements,
certain leases, contracts and insurance policies, tax matters,
claims and receivables, environmental matters, undisclosed
liabilities and the absence of certain material adverse changes.
Certain Covenants
The Company has agreed, prior to closing, among other
things, (i) to cause Transit to conduct its operations in the
ordinary and usual course of business and consistent with past
practice; (ii) not to permit Transit to: amend its Articles of
Incorporation or By-Laws; pay any dividend or distribution or
redeem or acquire securities of the Company, except for cash
payments to the Company consistent with past practices to pay
operating expenses or pursuant to an existing tax sharing
agreement; issue stock or acquire the stock or assets of any
business as a going concern; sell or lease material assets; waive
or release rights of material value; change in any material
respect any material contract; enter into any sale or leaseback
transaction other than a sale and leaseback of a specified
property; serve as a credit provider, except for certain ordinary
course of business transactions; prepay or retire long term debt,
except in accordance with scheduled amortization or with the net
cash proceeds from the specified sale and leaseback transaction;
grant certain increases in compensation or employee benefits;
make or commit to make certain capital expenditures; or incur
material indebtedness; (iii) to assign to Transit any interest it
may have in the names "Mayflower" and "Aero-Mayflower" and
related trademarks and service marks; (iv) to afford UniGroup
access to Transit's personnel, properties, books and records,
(including the right at the expense of UniGroup to perform an
environmental assessment); (v) to eliminate or cause to be repaid
all intercompany accounts among Transit, the Company and Contract
Services; and (vi) not to solicit, or initiate discussions with
respect to, or agree to, any other proposal to acquire the stock
or assets of Transit or, subject to the fiduciary duties of the
<PAGE>
directors of the Company, negotiate with, or provide information
to, any other person concerning a proposal to acquire Transit.
UniGroup and the Company have agreed to cooperate to (i)
obtain the release of, or substitution for, letters of credit
posted by the Company or Transit which secure Transit's
obligations to insurance companies and providers of surety and
performance bonds, and (ii) to terminate or replace guaranties of
the Company on obligations of Transit with a comparable guaranty
of UniGroup. The release of, or substitution for such letters of
credit and the termination or replacement of such guaranties are
conditions precedent to the obligations of both the Company and
UniGroup to close the Transit Sale. Failure to obtain such
release, terminations or replacement could result in a failure of
Transit Sale to close.
In the Stock Purchase Agreement, TCW has agreed to continue
to beneficially own all Shares owned by it as of the date of the
Stock Purchase Agreement (subject to certain exceptions) and that
it shall vote these Shares, to the extent permitted by applicable
law, in favor of the Transit Sale at the Meeting.
Conditions to Closing
The obligation of UniGroup to close the Transit Sale is
subject to the following conditions, among others: (i) the
accuracy in all material respects of the Company's
representations and warranties, (ii) the filing or obtaining of
all required applications, approvals or consents from applicable
regulatory authorities; (iii) the absence of any order or
injunction which restrains the Transit Sale or any governmental
agency's threatening to restrain or prohibit the Transit Sale;
(iv) the absence of any uninsured or unreserved casualty losses
in excess of $4,000,000 in the aggregate; (v) the release of
guaranties by Transit of obligations or debt of the Company or
Contract Services; and (vi) the satisfaction by the Company of
all indebtedness of Transit except (a) outstanding balances under
certain off balance sheet chattel paper facilities, (b) certain
purchase money indebtedness, (c) draws under the working capital
line to fund reimbursement obligations under specified letters of
credit, (d) short term borrowings in the ordinary course for
working capital needs, and (e) loans against certain life
insurance policies.
The obligation of the Company to close the Transit Sale is
subject to the following conditions, among others, (i) the
accuracy in all material respects of UniGroup's representations
and warranties; (ii) the filing or obtaining of all required
applications, approvals or consents with or from applicable
regulatory authorities; (iii) the absence of any order or
injunction which restrains the Transit Sale or any governmental
agency's threatening to restrain or prohibit the Transit Sale;
(iv) the completion of release or substitution of the letters of
credit posted by the Company to secure Transit's obligations to
insurance companies or providers of surety and performance bonds;
<PAGE>
(v) the termination of guaranties by the Company of Transit's
obligations and debt, (vi) the execution of license agreements
pursuant to which the Company and Contract Services will be
permitted to use the Mayflower name and certain other service
marks for a period of two years; (vii) the Company's reasonable
satisfaction that UniGroup will provide Transit with sufficient
working capital to continue to operate its business in the
ordinary course and to meet its contractual obligations; and
(viii) the requisite approval of the Transit Sale by the
shareholders of the Company.
Pursuant to the terms of the Stock Purchase Agreement, the
Company and Unigroup have the ability to waive any of the
conditions precedent to their respective obligations to close the
Transit Sale. As of the date of this Proxy Statement, the
Company has not determined whether it will waive any of the
conditions precedent to its obligations to close the Transit Sale
and has no knowledge of any determination by UniGroup to waive
any of the conditions precedent to its obligations to close the
Transit Sale.
Termination
The Stock Purchase Agreement may be terminated (i) by mutual
written consent of the Company and UniGroup; (ii) by the Company
or UniGroup if the closing has not occurred by July 31, 1995;
(iii) by the Company or UniGroup if the other breaches in any
material respect any material representation, warranty or
covenant (after considering any applicable materiality
limitation) and the breach has not been remedied within 30 days
after written notice of such breach; (iv) by the Company or
UniGroup, if the Transit Sale violates any applicable law or
legal requirement, non-appealable final order, decree or judgment
of the ICC (as hereinafter defined) or any court or governmental
body having competent jurisdiction; (v) by UniGroup, if (a) the
Company's Board of Directors withdraws or changes its
recommendation to the Company's shareholders to approve the
Transit Sale (the "Sale Withdrawal") or (b) the Company or TCW
accepts another acquisition proposal which affords the Company's
shareholders substantially more valuable economic benefit than is
afforded by the Transit Sale (the "Sale Fiduciary Out"); (vi) by
UniGroup, if (a) the Company or Transit has received termination
notices from agents which generated in the aggregate 20% or more
of the aggregate revenue of Transit during 1994, or (b) the
Company or Transit is aware of facts that indicate that agents
accounting for such revenues will terminate within the first year
following the closing; and (vii) by UniGroup, if there shall have
occurred since September 30, 1994 any events or developments
which would result in the reduction of over $4,000,000 in the net
worth of Transit as reflected on the September 30, 1994 balance
sheet, other than normal recurring variances in operating
results, usual and ordinary course of business changes,
transactions permitted under the Stock Purchase Agreement and
terminations by agents accounting for less than 20% of the 1994
aggregate revenue of Transit.
<PAGE>
If UniGroup terminates the Stock Purchase Agreement as a
result of the occurrence of a Sale Withdrawal or Sale Fiduciary
Out, the Company is required to pay promptly to UniGroup
$6,000,000 in cash and to reimburse UniGroup for all reasonable
out of pocket expenses incurred by UniGroup in connection with
the Transit Sale. If the Company terminates the Stock Purchase
Agreement because the closing has not occurred by July 31, 1995
and the Interstate Commerce Commission has not granted UniGroup's
exemption application and such application has not become
effective automatically by passage of time or a final order is
issued by the Interstate Commerce Commission or a court
disallowing the Transit Sale, UniGroup must promptly pay the
Company $2,000,000 in cash.
Survival; Indemnification; Tax Matters
Except for certain representations of the Company relating
to corporate authority, non-contravention and capitalization,
certain tax-related covenants and certain other covenants, the
representations, warranties and covenants contained in the Stock
Purchase Agreement will not survive the closing. There are no
general indemnity obligations in the Stock Purchase Agreement
other than tax-related indemnification provisions. Under these
provisions, the Company retains responsibility for, and agrees to
indemnify UniGroup with respect to, all combined, consolidated or
unitary returns filed before or after the Closing which include
the Company or Contract Services. On the other hand, UniGroup
assumes responsibility for all tax returns filed before or after
the closing which include only Transit and its subsidiaries. The
Stock Purchase Agreement also provides for certain adjusting
payments to be made by the Company or Transit, as appropriate, to
account for tax liabilities attributable to Transit for the stub
period from January 1, 1995 through the date of the closing of
the Transit Sale.
Pro Forma and Other Financial Information
Appendix B to this Proxy Statement contains the following
financial information which compares certain of the Company's
historical financial information with information which has been
adjusted to reflect, on a pro forma basis, the Transit Sale: (i)
Pro Forma Selected Financial Information for the fiscal years
ended December 31, 1993, 1992 and 1991 and for the nine months
ended September 30, 1994; (ii) a Pro Forma Condensed Consolidated
Balance Sheet as of September 30, 1994; (iii) a Pro Forma
Condensed Consolidated Income Statement for the nine months ended
September 30, 1994; and (iv) Pro Forma Condensed Consolidated
Income Statements for the fiscal years ended December 31, 1993,
1992 and 1991.
Appendix C to this Proxy Statement contains unaudited
interim financial statements of Transit as of September 30, 1994
and 1993 and unaudited annual financial statements of Transit for
the fiscal years ended December 31, 1993, 1992 and 1991.
<PAGE>
Appendix G to this Proxy Statement contains unaudited
interim financial statements of Contract Services as of September
30, 1994 and 1993 and unaudited annual financial statements of
Contract Services for the fiscal years ended June 30, 1994, 1993
and 1992.
IN CONSIDERING THE TRANSIT SALE, SHAREHOLDERS ARE URGED TO
REVIEW (I) THE PRO FORMA FINANCIAL INFORMATION CONTAINED IN
APPENDIX B TO THIS PROXY STATEMENT FOR AN ILLUSTRATION OF THE
ESTIMATED EFFECTS OF THE TRANSIT SALE ON THE BALANCE SHEET AND
STATEMENTS OF OPERATIONS OF THE COMPANY AS OF AND FOR THE PERIODS
INDICATED, AND (II) THE UNAUDITED INTERIM AND ANNUAL FINANCIAL
STATEMENTS OF TRANSIT AND CONTRACT SERVICES, CONTAINED IN
APPENDIX C AND APPENDIX G, RESPECTIVELY, OF THIS PROXY STATEMENT
FOR INFORMATION REGARDING THE HISTORICAL SEPARATE COMPANY
FINANCIAL RESULTS OF TRANSIT AND CONTRACT SERVICES.
Opinion of the Company's Financial Advisor
After Smith Barney assisted the Company in conducting a
sales process for Transit and negotiating an agreement for the
purchase of Transit by UniGroup, the Company requested that Smith
Barney evaluate the fairness, from a financial point of view, to
the Company of the consideration to be received by the Company in
connection with the Transit Sale. On December 4, 1994, Smith
Barney rendered to the Company's Board of Directors an oral
opinion (subsequently confirmed by a written opinion dated such
date) to the effect that, as of such date and based upon and
subject to certain matters, the consideration to be received by
the Company in the Transit Sale is fair, from a financial point
of view, to the Company. The opinion of Smith Barney will not be
updated prior to the Meeting.
In arriving at its opinion, Smith Barney (i) reviewed the
Stock Purchase Agreement; (ii) met with certain senior officers,
directors and other representatives and advisors of the Company
and Transit to discuss the business, operations and prospects of
the Company and Transit; (iii) examined certain publicly
available business and financial information relating to the
Company and Transit as well as certain financial analyses,
forecasts and other data for the Company and Transit that were
provided to Smith Barney by the Company's senior management,
which information is not publicly available, including financial
forecasts provided for Transit; (iv) reviewed the financial terms
of the Transit Sale as set forth in the Stock Purchase Agreement
in relation to historical and projected earnings and operating
data for Transit; (v) considered the potential pro forma impact
of the Transit Sale on the Company; and (vi) considered, to the
extent publicly available, the financial terms of certain other
transactions Smith Barney deemed relevant and analyzed certain
financial, stock market and other publicly available information
relating to the businesses of other companies which operate in
the trucking industry, and further considered to what extent
these companies were comparable to Transit. In addition to the
foregoing, Smith Barney conducted such other analyses and
<PAGE>
examinations and considered such other financial, economic and
market criteria as Smith Barney deemed necessary to arrive at its
opinion.
In rendering its opinion, Smith Barney assumed and relied,
without independent verification, upon the accuracy and
completeness of all financial and other information publicly
available, or furnished to, or otherwise discussed with Smith
Barney. Except as described above, Smith Barney has not
conducted any review or investigation of the Company or Transit.
With respect to financial forecasts and other information
provided to or otherwise discussed with Smith Barney, it assumed,
and it has been advised by senior management, that such forecasts
and other information were reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the senior management of the Company and Transit. Smith
Barney has assumed the correctness of and relied upon
representations and warranties of UniGroup and the Company
pursuant to the Stock Purchase Agreement and has not attempted to
independently verify any such information. Smith Barney did not
express an opinion as to the price at which the Company's common
stock would trade subsequent to the Transit Sale. Smith Barney
has not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise)
of the Company or Transit nor has it made any physical inspection
of the properties or assets of the Company or Transit. Smith
Barney's opinion does not address the relative merits of the
Transit Sale as compared to any alternative business strategies
that might exist for the Company or the effect of any other
transaction in which the Company might engage. Smith Barney's
opinion is necessarily based upon financial, stock market and
other conditions and circumstances existing and disclosed to it
as of December 4, 1994.
The full text of the written opinion of Smith Barney dated
December 4, 1994, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached
hereto as Appendix D to this Proxy Statement and is incorporated
herein by reference. Shareholders of the Company are urged to
read this opinion carefully in its entirety. Smith Barney's
opinion is directed only to the fairness of the consideration to
be received by the Company in the Transit Sale from a financial
point of view and has been provided pursuant to Smith Barney's
engagement by the Company's Board of Directors for the purpose of
assisting it in its evaluation of the Transit Sale, does not
address any other aspect of the Transit Sale, and does not
constitute a recommendation to any shareholder of the Company as
to how such shareholder should vote at the Meeting. The summary
of the opinion of Smith Barney set forth in this Proxy Statement
is qualified in its entirety by reference to the full text of
such opinion.
In preparing its opinion to the Board of Directors of the
Company, Smith Barney performed a variety of financial and
comparative analyses, including those described below. The
<PAGE>
summary of such analyses does not purport to be a complete
description of the analyses underlying Smith Barney's opinion.
The preparation of a fairness opinion is a complex analytical
process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the
application of those methods to particular circumstances and,
therefore, such an opinion is not readily susceptible to summary
description. In arriving at its opinion, Smith Barney did not
attribute any particular weight to any analysis considered by it,
but rather made qualitative judgments as to the significance and
relevance of each analysis. Accordingly, Smith Barney believes
that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying such analyses and
its opinion. In its analyses, Smith Barney made numerous
assumptions with respect to the Company, Transit, industry
performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the
control of the Company and Transit. The estimates contained in
such analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be
significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may
be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
Comparable Company Analysis.
Using publicly available information, Smith Barney analyzed
the market value and trading multiples of the Company, and
compared such multiples to those of certain other companies with
operations in the trucking, school bus and paratransit industries
which Smith Barney deemed to be similar. These companies were
divided into two groups, the "Trucking Comparables" and the
"Other Comparables." The Trucking Comparables included J.B. Hunt
Transport Services, Inc.; Werner Enterprises, Inc.; Arkansas Best
Corporation; Landstar System, Inc.; M.S. Carriers, Inc.; Swift
Transportation Co., Inc.; KLLM Transport Services, Inc.;
Heartland Express Inc.; U.S.A. Truck, Inc.; TRISM, Inc.; and NFC
plc. The list of Other Comparables included Laidlaw Inc.; Ryder
System, Inc. and Scott's Hospitality Inc. Smith Barney also
compared the multiples of adjusted market value (common equity
market value, plus the book value of debt and preferred stock,
less cash and cash equivalents) to the latest twelve months
("LTM"); revenues, earnings before interest, taxes, depreciation
and amortization ("EBITDA") and earnings before interest and
taxes ("EBIT") implied by the consideration to the trading
multiples of LTM revenue, EBITDA and EBIT of the Comparable
Companies. The mean multiples of LTM revenues, EBITDA and EBIT
of the Comparable Companies were 1.2x, 6.8x and 11.4x,
respectively. Based on the Enterprise Value implied by the
Transit Sale, the multiples of LTM EBITDA and EBIT of Transit
<PAGE>
were 6.3x and 14.3x, respectively. In general, the multiples
implied by the consideration to be received by the Company in the
Transit Sale compared favorably with those of the Comparable
Companies and supported Smith Barney's opinion as to the fairness
of the consideration to be received by the Company in the Transit
Sale from a financial point of view. However, there are no
publicly traded van line companies; the large van lines are
either privately owned or are subsidiaries of much larger public
companies.
Selected Mergers and Acquisition Transactions Analysis.
Using publicly available information, Smith Barney analyzed
the equity purchase prices and implied transaction multiples in
the following selected mergers and acquisition transactions in
the trucking industry: Swift Transportation Co./MNX Carriers;
Heartland Express/Munson Transportation, Inc.; Christina
Companies, Inc./TLC Group, Inc.; Roadway Services Inc./Central
Freight Lines, Inc.; Yellow Freight System, Inc./Preston Corp.;
Trism, Inc./Tri-State Motor Transit Co.; Roadway Services,
Inc./Viking Freight, Inc.; Kelso & Co./Arkansas Best Corp.;
Circle Express, Inc./Roadrunner Enterprises, Inc.; BVL
Holdings/Burnham Service Corp.; NEOAX Inc./IU International Corp;
Leaseway Holdings, Inc./Leaseway Transportation Corp.; Investor
Group/Sun Carriers, Inc.; and MG Holdings, Inc./Mayflower Group,
Inc. Smith Barney analyzed transaction consideration (equity
purchase price plus book value of debt and preferred stock, less
cash and cash equivalents) as multiples of EBITDA and EBIT, among
others, and compared these multiples to the multiples of the
Company's performance implied by the consideration to be received
by the Company in the Transit Sale. The mean multiples of EBITDA
and EBIT were 5.5x and 11.1x, respectively, as compared to EBITDA
and EBIT multiple ranges implied by the consideration proposed to
be paid in the Transaction of 6.3x and 14.3x, respectively. In
general, the multiples implied by the consideration to be
received by the Company in the Transit Sale compared favorably
with those of the selected transactions and supported Smith
Barney's opinion as to the fairness of the consideration to be
received by the Company in the Transit Sale from a financial
point of view.
No company, business or transaction used in the comparable
company and selected merger and acquisition transactions analyses
is identical to the Company, Transit or the Transit Sale.
Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating
characteristics of the companies included in the comparable
company or selected transactions analyses and other factors that
could affect the public trading value of the Comparable Companies
or the transaction consideration relating to the selected
transactions or the business segment, company, or transaction to
which they are being compared.
<PAGE>
Discounted Cash Flow Analysis.
In order to establish a range of values for the total
consideration to be received by the Company from the Transit
Sale, Smith Barney also analyzed the range of potential values
for the common stock of Transit based on the results of its
discounted cash flow analysis. The analysis used free cash flow
(unlevered net income plus depreciation less capital expenditures
plus the change in working capital) for the period beginning
January 1, 1995 through December 31, 1998, assuming, among other
things, discount rates ranging from 14.0% to 18.0% and terminal
multiples of 1998 projected EBITDA ranging from 4.5x to 6.0x.
The analysis yielded a range of Enterprise Values from $85.6 to
$119.9 million. Since the Company's recent operating performance
has been inconsistent, and management's projections had not been
revised after the Company missed its fiscal 1994 goal, Smith
Barney placed less weight on the discounted cash flow analysis
than on other analyses performed and the factors considered.
Other Factors.
In rendering its opinion, Smith Barney also considered the
wide publicity surrounding the sale of Transit and Smith Barney's
approach to other industry participants to solicit their interest
in a transaction.
Regulatory Approvals Required for Consummation of the Transit
Sale
The Transit Sale is subject to prior authorization by the
Interstate Commerce Commission (the "ICC"). In transactions such
as the Transit Sale, ICC authorizations normally are granted in
the form of an exemption. Such an exemption for the Transit Sale
(the "Transit Exemption") was sought in a joint filing with the
ICC by UniGroup and the Company, and the ICC gave public notice
of such filing on January 6, 1995. Under applicable law, the
Transit Exemption became effective at 11:59 p.m. on March 6,
1995.
The Company has determined that no approvals of the Transit
Sale by state regulatory authorities are required.
Prior Relationships between the Company and UniGroup
Except as described in "Background of the Proposed
Transactions," since January 1, 1991, there have been no material
contracts, arrangements, understandings, relationships,
negotiations or transactions between UniGroup or its affiliates
and the Company or its affiliates.
<PAGE>
Federal Income Tax Consequences of the Transit Sale
In General.
The following is a summary of the material federal income
tax consequences of the proposed Transit Sale to the Company and
its shareholders. This summary is based upon the Internal
Revenue Code of 1986 (the "Code"), as currently in effect, the
rules and regulations promulgated thereunder, current
administrative interpretations and court decisions. No assurance
can be given that future legislation, regulations, administrative
interpretations or court decisions will not significantly change
these authorities, possibly with retroactive effect.
No rulings have been requested or received from the Internal
Revenue Service ("IRS") as to the matters discussed and there is
no intent to seek any such ruling. Accordingly, no assurance can
be given that the IRS will not challenge the tax treatment of
certain matters discussed or, if it does challenge the tax
treatment, that it will not be successful.
Federal Income Tax Consequences to the Company.
The Transit Sale will be a taxable sale by the Company upon
which gain or loss will be recognized by the Company. The amount
of gain or loss recognized by the Company with respect to the
Transit Sale will be measured by the difference between the
amount realized on the Transit Sale and the Company's tax basis
in Transit.
The Company believes that its tax basis in Transit is
substantially in excess of the amount that will be realized on
the Transit Sale, and that it will therefore realize a capital
loss on the Transit Sale. Therefore, the Company believes it
will incur no federal income tax liability as a result of the
Transit Sale. The Company anticipates, however, that it may
incur state tax liability due to the Transit Sale.
The capital loss generated on the Transit Sale may be
disallowed, in whole or in part, by the relevant provisions of
the consolidated return regulations (including Treas. Reg.
Section 1.1502-20). To the extent so disallowed, the capital loss
generated on the Transit Sale will provide no material benefit to
the Company. Further, capital losses not disallowed by the
consolidated return regulations are deductible, in the case of a
corporation, only to the extent of recognized capital gains; such
capital losses may be carried forward five (5) years. Capital
loss carry forwards that expire by reason of the lapse of time
will provide no benefit to the Company. <PAGE>
Federal Income Tax Consequences to the Company's
Shareholders.
The Transit Sale will not affect the individual tax
situations of the Company's shareholders.
Accounting Treatment of the Transit Sale
The Transit Sale will be considered by the Company as a
sale, for financial statement purposes, of the Company's
investment in the consolidated net assets of Transit upon which
gain or loss will be recognized by the Company. The amount of
gain or loss to be recognized by the Company with respect to the
Transit sale will be measured by the difference between the net
amount of proceeds realized (after anticipated payoffs or
assumptions of amounts outstanding under various loan agreements
and contractual obligations, and the payment of expenses of the
transaction) and the Company's financial statement carrying value
(basis) of the Company's investment in the consolidated net
assets of Transit.
The Company believes that, for financial statement purposes,
the basis of its investment in the consolidated net assets of
Transit is less than the net amount of proceeds that will be
realized on the Transit Sale. Accordingly, the Company is
expected to realize a gain, for financial statement purposes, on
the Transit Sale.
Absence of Dissenters' Right of Appraisal
Indiana law governs the rights of the Company's shareholders
in connection with the Transit Sale. Under the applicable
provisions of Indiana law, the Company's shareholders will have
no right of appraisal or similar rights of dissenters with
respect to the Transit Sale since the Shares are traded on the
National Association of Securities Dealers, Inc. National Market
System ("NASDAQ").
Board of Director Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE TRANSIT SALE.
PROPOSAL 2 - MERGER OF THE COMPANY
Introduction
On January 20, 1995, the Company, Laidlaw, Newco and TCW
entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Newco will merge with and into the
Company and the Company will become a wholly-owned subsidiary of
Laidlaw. Laidlaw and Newco have their principal executive
offices at 3221 N. Service Road, Burlington, Ontario, Canada
L7R348 (telephone (905) 336-1800). Laidlaw is a Delaware
<PAGE>
corporation. Newco, which was formed for purposes of the merger,
is an Indiana corporation and a wholly-owned subsidiary of
Laidlaw. Laidlaw and its ultimate parent, Laidlaw, Inc., provide
school bus services, public transportation services, healthcare
transportation services and waste management and recycling
services throughout North America.
The terms of the Merger Agreement, and the amount and nature
of the consideration to be provided pursuant thereto, were
determined as a result of arms-length negotiation between the
Company and Laidlaw. See "Background of the Proposed
Transactions - Negotiations Regarding the Merger" for information
regarding the factors considered by the Company's Board of
Directors in determining that the terms of the Merger are fair to
the shareholders of the Company.
TCW entered into the Merger Agreement for limited purposes,
primarily to agree to vote Shares beneficially owned by it and
entitled to vote under applicable law in favor of the Merger.
See "Principal Holders of Shares."
THE MERGER IS CONDITIONED ON THE PRIOR DISPOSITION OF
TRANSIT BY THE COMPANY. HOWEVER, APPROVAL OF THE MERGER WILL
ALSO CONSTITUTE APPROVAL OF A SALE OF ALL OUTSTANDING SHARES OF
CONTRACT SERVICES BY THE COMPANY TO LAIDLAW PURSUANT TO THE
CONTRACT SERVICES OPTION IN THE EVENT THE MERGER AGREEMENT IS
TERMINATED BECAUSE OF THE FAILURE OF THE COMPANY TO DIVEST ITSELF
OF TRANSIT. SEE, SUMMARY OF THE MERGER AGREEMENT - OPTION TO
PURCHASE CONTRACT SERVICES. IF THE COMPANY IS UNABLE TO DIVEST
ITSELF OF TRANSIT, THE MERGER AGREEMENT IS TERMINATED AND THE
COMPANY SELLS THE CAPITAL STOCK OF CONTRACT SERVICES TO LAIDLAW
PURSUANT TO THE CONTRACT SERVICES OPTION, THE COMPANY WILL BE IN
THE POSITION OF CONTINUING OPERATIONS WITH TRANSIT ONLY. See
"General Information - Possible Outcomes" for more information
regarding the possible results with respect to the proposals
contained in this Proxy Statement.
Summary of the Merger Agreement
The following summary of the Merger Agreement does not
purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is Appendix E
to this Proxy Statement (excluding schedules and exhibits).
The Merger
In accordance with the provisions of the Merger Agreement,
on the Effective Date (as defined in the Merger Agreement and
which is anticipated to immediately follow the receipt of
shareholder and regulatory approvals), Newco will be merged with
and into the Company with the Company as the surviving
corporation. Each Share of the Company issued and outstanding
immediately prior to the Effective Date (excluding any Shares
owned by Newco or Laidlaw) will convert automatically into a
right to receive cash equal to the Merger Consideration (as
<PAGE>
defined below). As a result, the Company will become a wholly-
owned subsidiary of Laidlaw. No interest will be paid on the
Merger Consideration. After the Effective Date, each certificate
evidencing Shares ("Certificates") will evidence only the right
to receive the Merger Consideration. The Merger Agreement
provides for a procedure pursuant to which the Company's
shareholders will be able to exchange their Certificates for the
Merger Consideration. Upon the surrender of a Certificate in
accordance with these procedures, the holder will be paid by
check, without interest, the amount of cash to which the holder
is entitled pursuant to the Merger Agreement. Under the terms of
the Merger Agreement, the Effective Date of the Merger can occur
as late as July 31, 1995.
Merger Consideration
Pursuant to the Merger Agreement, upon the Effective Date
each Share of the Company will automatically convert into a right
to receive a pro-rata portion of (i) $157,000,000 less (ii) the
amount required to satisfy certain indebtedness, contractual and
employee benefit obligations and transaction expenses
attributable to the Company or Contract Services, including
expenses and costs related to the Stock Purchase Agreement not
previously satisfied from the proceeds of the Transit Sale. See
"Proposal 1 -Sale of Transit." It is estimated as of the date of
this Proxy Statement that each Share will convert into the right
to receive between $10.00 and $10.40 per Share (the "Merger
Consideration"). The amount of Merger Consideration will be
affected by factors such as expenses of the Company related to
the Merger and the timing of the Merger. If such estimated per
Share merger consideration is reduced to an amount less than
$10.00 per Share as a result of an increase in transaction
expenses, a decrease in the aggregate merger consideration as a
result of negotiations between the Company and Laidlaw, or for
any other reason, the Company will re-solicit shareholders with
respect to the approval of the Merger. As of the date of this
Proxy Statement, transaction expenses in the amount of
$514,443.00 have been accrued.
Assuming (i) the prior closing of the Transit Sale, (ii)
that UniGroup elects to assume the Assumed Debt (see "Proposal 1
- Sale of Transit - Summary of the Stock Purchase Agreement -
Purchase Price; Use of Proceeds), and (iii) an Effective Date for
the Merger of March 31, 1995, the Company estimates the Merger
Consideration per Share would be calculated as follows:
Proceeds of Transit Sale and Merger
Transit Sale (net of $42,250,000
resulting from assumption of
Assumed Debt) $ 47,750,000
Merger $157,000,000
Gross Proceeds $204,750,000
Deductions
Prepayment of Debt (including
prepayment fees) ($65,163,852)
<PAGE>
Smith Barney Fee ($ 2,338,000)
Payments to Officers under Employment
Contracts or Termination Benefits
Agreements and to fund Supplemental
Retirement Benefits
(See "General Information -
Payment to Officers"
and "Interests of Certain Persons") ($ 2,897,837)
Payments for Termination of Stock Options
(See "General Information - Payment
to Officers" and "Interests of Certain
Persons") ($ 1,026,958)
Other Transaction Expenses
(Including legal, accounting,
filing fees, state taxes) ($ 1,679,000)
Total Deductions ($73,205,647)
Net Proceeds $131,644,353
Shares Outstanding (as of March 1, 1995) 12,661,671
Estimated Merger Consideration per Share $10.40
THE CALCULATION SET FORTH ABOVE IS AN ESTIMATE BASED ON THE
STATED ASSUMPTIONS AND THE BEST INFORMATION AVAILABLE TO THE
COMPANY AS OF THE DATE OF THIS PROXY STATEMENT. DEPENDING UPON
THE OUTCOME OR TIMING OF FUTURE EVENTS, THE MERGER CONSIDERATION
PER SHARE MAY DECREASE. IN THE EVENT THE MERGER CONSIDERATION IS
REDUCED TO LESS THAN $10.00 PER SHARE, THE COMPANY WILL RE-
SOLICIT SHAREHOLDERS WITH RESPECT TO APPROVAL OF THE MERGER.
Representations and Warranties
The Merger Agreement contains representations and warranties
by the parties including, but not limited to, representations and
warranties regarding their organization, authority to enter into
the Merger Agreement, required governmental approvals and
obligations to pay broker or finder fees in connection with the
Merger. In addition, the Company, with respect to the Company
and its subsidiaries other than Transit (the "Consolidated
Companies"), has made certain representations and warranties
concerning the Consolidated Companies' properties,
capitalization, legal matters, compliance with laws, labor
matters, employee benefit plans, intellectual properties,
adequacy of insurance and other reserves, financial statements,
books and records, equipment, certain real property leases,
permits, litigation, contracts and insurance policies, tax
matters, claims and receivables, environmental matters,
undisclosed liabilities and the absence of certain adverse
changes.
<PAGE>
Certain Covenants
The Company has agreed, prior to closing, among other
things, (i) to, and to cause the other Consolidated Companies to,
conduct its operations in the ordinary and usual course of
business and consistent with past practice; (ii) not to, and to
cause each of the other Consolidated Companies not to: amend its
Articles of Incorporation or By-Laws; change the number of its
authorized shares of common stock; declare, set aside or pay any
dividend or distribution or redeem or acquire any of its or
Transit's securities, except for amounts consistent with past
practices to pay operating expenses of the Company or amounts
pursuant to an existing tax sharing agreement; effect any split,
combination or other similar change in the outstanding shares of
its or their capital stock; settle or compromise any lawsuit,
claim or other proceeding to which any of the Consolidated
Companies is a party, except in the ordinary course of business
and consistent with past practice; issue stock or acquire the
stock or assets of any business as a going concern; transfer any
assets or liabilities to any new subsidiary or, except in the
ordinary course of business consistent with past practices, to
the Company or any existing direct or indirect subsidiary of the
Company; sell, lease, or dispose of any assets of the
Consolidated Companies, other than in the ordinary course of
business consistent with past practice and for reasonably
equivalent considerations; waive or release rights or change any
contract, other than in the ordinary course of business
consistent with past practice and for reasonably equivalent
consideration; enter into any sale or leaseback transaction;
serve as a credit provider, except for certain ordinary course of
business transactions; encumber, mortgage or pledge any assets or
properties of the Consolidated Companies; foreclose on or accept
a deed in lieu of foreclosure with respect to any real property;
prepay or retire long term debt, except in accordance with
scheduled amortization; grant certain increases in compensation
or employee benefits; enter into or amend any collective
bargaining agreement; make or commit to make certain capital
expenditures; or incur material indebtedness; (iii) to achieve
consolidated EBIT (as defined in the Merger Agreement) for the
period from January 1, 1995 through the last day of the month
immediately preceding the Effective Date, but in no event prior
to March 31, 1995 equalling at least 85% of Company projected
EBIT for that period, provided that no decline in EBIT due to
weather or other natural phenomena will be considered; (iv) to
afford Laidlaw access to its personnel, properties, books and
records (including the right to perform at Laidlaw's expense an
environmental assessment with respect to properties in which the
Consolidated Companies have an interest); (v) to cancel all
existing stock options in exchange for the right to receive a
cash payment immediately following the Effective Date equal to
the excess, if any, of the Merger Consideration over the exercise
price of each option multiplied by the number of Shares subject
thereto; (vi) to eliminate or cause to be repaid all intercompany
accounts among the Company and Transit or subsidiaries of
Transit; (vii) to terminate or replace guarantees of the Company
<PAGE>
of obligations of Transit or its subsidiaries with a comparable
guaranty of Transit or UniGroup; (viii) to take no action, other
than in the ordinary course of business, that would give rise to
any additional liability of the Company for taxes or any
reduction of favorable tax attributes of the Company; and (ix)
not to solicit, or initiate discussions with respect to, or agree
to, any other proposal to acquire the stock or assets of the
Company, except for the sale of Transit pursuant to the Stock
Purchase Agreement, or, subject to the fiduciary duties of the
directors of the Company, negotiate with, or provide information
to, any other person concerning a proposal to acquire the
Company.
Laidlaw has agreed, prior to closing, among other things,
(i) to purchase, for the benefit of all Company directors and
officers serving prior to the Effective Date, insurance covering
the risks insured under the Company's current directors' and
officers' liability policy (including the transactions
contemplated by the Merger Agreement) for a period not less than
six years from the Effective Date, or to cause the surviving
corporation to maintain the current directors' and officers'
liability policy or an acceptable substitute for the
aforementioned six year period; and (ii) to cause its ultimate
parent entity, Laidlaw, Inc. ("Laidlaw Parent"), to guarantee its
obligations to make payment of the Merger Consideration in the
manner set forth in the Merger Agreement.
Laidlaw and the Company have agreed to cooperate to obtain
the release of, or substitution for, letters of credit or
performance bonds posted by the Company or its subsidiaries
(including Transit) which secure obligations of the Company and
Contract Services to insurance companies and providers of surety
and performance bonds.
In the Merger Agreement, TCW has agreed to continue to
beneficially own all shares of Company common stock owned by it
as of the date of the Merger Agreement (subject to certain
exceptions) and that it shall vote these Shares, to the extent
permitted by applicable law, in favor of the Merger at the
Meeting (the "TCW Covenant").
Conditions to Closing
The obligation of Laidlaw and Newco to close the Merger is
subject to the following conditions, among others: (i) the
accuracy of the Company's representations and warranties, with
such representations and warranties being deemed true and correct
to the extent that the aggregate effect of all breaches of such
warranties and representations (without giving effect to
materiality limitations and including the liability attributed to
items listed on schedules to the Merger Agreement, except to the
extent reserves reflected on the unaudited December 31, 1994
balance sheet for the Consolidated Companies are adequate to
cover such items in the aggregate) has not resulted, or would not
result, if recorded on the books of the Consolidated Companies in
<PAGE>
accordance with generally accepted accounting principles
("GAAP"), in a reduction in the Consolidated Companies' net worth
of $5,000,000 or more; provided, however, that the aggregate
liability for all breaches of representations regarding
environmental matters and the aggregate liability for all
environmental matters listed on schedules to the Merger Agreement
shall be treated as required to be recorded on the books of the
Consolidated Companies under GAAP whether or not it would be
required to be recorded on such books under GAAP (with the amount
of such environmental liabilities to be determined by binding
arbitration if the Company and Laidlaw are unable to reach
agreement with respect thereto); (ii) the performance or
satisfaction by the Company of its covenants, conditions and
agreements under the Merger Agreement; (iii) the filing or
obtaining of all required applications, approvals or consents
with or from applicable regulatory authorities; (iv) the entering
into of license agreements by the Company and Contract Services
with Transit for use of the names "Mayflower" and related service
marks (the "License Agreements"); (v) either the consummation of
the Transit Sale pursuant to the Stock Purchase Agreement or the
divestiture of Transit as a subsidiary of the Company; (vi) the
absence of any order or injunction which restrains the Merger or
any governmental agency's threatening to restrain or prohibit the
Merger; (vii) the absence of any uninsured or unreserved damages
or other losses in excess of $5,000,000 in the aggregate; (viii)
the absence of any actual, pending or threatened employee strike,
slowdown or lock-out against or involving the Consolidated
Companies which effects 10% or more of the employees of the
Consolidated Companies; (ix) the requisite approval of the Merger
by the shareholders of the Company; (x) the satisfaction by the
Consolidated Companies utilizing either proceeds of the Merger or
proceeds of the Transit Sale of all indebtedness for borrowed
money (except certain indebtedness of the Company to its former
shareholders) and for credit advanced on which the Company is an
obligor except (a) payout of operating leases for vehicles and
(b) payments made to fund reimbursement obligations under a
specified letter of credit; (xi) the termination by the Company
of the employment contracts with certain executive officers of
the Company; (xii) the termination by the Company of Contract
Services' Supplemental Employee Retirement Plan (the "SERP") and
the satisfaction of all obligations arising therefrom in relation
to employee participation in the SERP by certain employees to the
extent such obligations exceed a specified amount; (xiii) the
termination by the Company of all its stock option plans; and
(xiv) completion by March 13, 1995 by Laidlaw of its special due
diligence investigation of the Consolidated Companies.
The obligation of the Company to close the Merger is subject
to the following conditions, among others, (i) the accuracy in
all material respects of Laidlaw's and Newco's representations
and warranties; (ii) the performance or satisfaction by Laidlaw
of their covenants, conditions and agreements under the Merger
Agreement; (iii) the filing or obtaining of all required
applications, approvals or consents with or from applicable
regulatory authorities; (iv) the absence of any order or
<PAGE>
injunction which restrains the Merger or any governmental
agency's threatening to restrain or prohibit the Merger; (v) the
entering into the License Agreements by the Company and Contract
Services with Transit; (vi) either the consummation of the
Transit Sale pursuant to the Stock Purchase Agreement or the
divestiture of Transit as a subsidiary of the Company; (vii) the
completion of, release of, or substitution for, letters of credit
or performance bonds posted by the Company and Transit which
secure Company's and Contract Services' obligations to insurance
companies and providers of surety and performance bonds; (viii)
the requisite approval of the Merger by the shareholders of the
Company; (ix) the receipt of a legal opinion from Laidlaw's and
Newco's counsel to the effect that, among other things, no
approval of the Interstate Commerce Commission is necessary to
consummate the Merger; and (x) the execution by Laidlaw of a
guarantee agreement pursuant to which Laidlaw Parent guarantees
Laidlaw's obligations to make payment of the Merger Consideration
in the manner set forth in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, the Company
and Laidlaw have the ability to waive any of the conditions
precedent to their respective obligations to complete the Merger.
As of the date of this Proxy Statement, the Company has not
determined whether it will waive any of the conditions precedent
to its obligations to complete the Merger and has no knowledge of
any determination by Laidlaw to waive any of the conditions
precedent to its obligations to consummate the Merger.
Termination
The Merger Agreement may be terminated (i) by mutual written
consent of the Company and Laidlaw; (ii) by the Company or
Laidlaw if the closing has not occurred by July 31, 1995; (iii)
by the Company or Laidlaw if one or more of their respective
conditions to closing is not satisfied within 30 days after
written notice of such failure of the condition; (iv) by the
Company if, on or after March 14, 1995, all other conditions
precedent to the transactions have been satisfied, except that
Laidlaw has notified the Company of a breach of a representation,
warranty or covenant by the Company entitling Laidlaw to
terminate the Merger Agreement and, in connection therewith,
Laidlaw requests a reduction in the aggregate Merger
Consideration or other change in the terms and conditions of the
Merger Agreement that is materially detrimental to the
shareholders of the Company; (iv) by the Company or Laidlaw if
the Merger violates any applicable law or legal requirement: (v)
by Laidlaw if the Company breaches any representations and
warranties if the aggregate effect of such breaches (without
giving effect to materiality limitations and including any
liability attributed to any item listed on schedules to the
Merger Agreement, except to the extent reserves reflected on the
unaudited balance sheet for the Consolidated Companies as of
December 31, 1994 are adequate to cover such items in the
aggregate) has resulted, or would result, if recorded on the
books of the Consolidated Companies in accordance with GAAP, in a
<PAGE>
reduction in the Consolidated Companies' net worth of $5,000,000
or more; provided, however, that the aggregate liability for all
breaches of representations regarding environmental matters and
the aggregate liability for all environmental matters listed on
schedules to the Merger Agreement shall be treated as required to
be recorded on the books of the Consolidated Companies under GAAP
whether or not it would be required to be recorded on such books
under GAAP (with the amount of such environmental liabilities to
be determined by binding arbitration if the Company and Laidlaw
are unable to reach agreement with respect thereto); or (vi) by
Laidlaw, (a) if the Company's Board of Directors withdraws or
changes its recommendation to the Company's shareholders to
approve the Merger (the "Merger Withdrawal") or (b) the Company
or TCW accepts another acquisition proposal which affords the
Company's shareholders substantially more valuable economic
benefit than is afforded by the Merger (the "Merger Fiduciary
Out") or (c) TCW breaches the TCW Covenant.
If Laidlaw terminates the Merger Agreement as a result of
the occurrence of a Merger Withdrawal, Merger Fiduciary Out or a
breach of the TCW Covenant, the Company is required to pay
promptly to Laidlaw $10,500,000 in cash and to reimburse Laidlaw
for all reasonable out-of-pocket expenses incurred by Laidlaw in
connection with the Merger.
Option to Purchase Contract Services
If the Transit Sale is not consummated pursuant to the Stock
Purchase Agreement or Transit is not divested as a subsidiary of
the Company and, as a result, either Laidlaw or the Company
terminates the Merger Agreement on the grounds that one of its
conditions to closing is not satisfied, Laidlaw has the
irrevocable right to acquire from the Company all of the
outstanding capital stock of Contract Services (the "Contract
Services Option") for a cash purchase price of $158,600,000
(subject to the satisfaction of certain indebtedness and
contractual obligations), pursuant to the form of stock purchase
agreement agreed upon between the Company and Laidlaw (the "MCS
Agreement"). The MCS Agreement contains representations,
warranties, and covenants substantially similar to those
contained in the Merger Agreement. IN THE EVENT LAIDLAW
PURCHASES THE SHARES OF CONTRACT SERVICES PURSUANT TO THE
CONTRACT SERVICES OPTION, NONE OF THE PROCEEDS OF SUCH SALE WILL
BE DISTRIBUTED TO SHAREHOLDERS AND THE COMPANY WILL CONTINUE
OPERATIONS WITH TRANSIT ONLY. See "General Information -
Possible Outcomes" for more information regarding the possible
results with respect to the proposals contained in this Proxy
Statement.
Assuming (i) the Transit Sale is abandoned, and (ii) a sale
of Contract Services pursuant to the Contract Services Option
were to occur on March 31, 1995, the Company estimates that the
proceeds would be used as follows:
<PAGE>
Proceeds
Proceeds of sale of Contract Services $158,600,000
Use of Proceeds
Prepayment of Indebtedness ($102,632,000)
Prepayment Fees ($ 6,344,508)
Smith Barney Fee ($ 1,717,000)
Payments to or for the benefit of
Officers under Employment
Agreements and Supplemental
Executive Retirement Plans ($ 1,454,000)
Transaction Expenses
(Including legal, accounting,
filing fees, state taxes) ($ 2,733,200)
Proceeds Retained For General
Corporate Purposes ($ 43,719,292)
Proceeds to Shareholders $ -0-
THE USE OF PROCEEDS SET FORTH ABOVE IS AN ESTIMATE BASED ON THE
STATED ASSUMPTIONS AND THE BEST INFORMATION AVAILABLE TO THE
COMPANY AS OF THE DATE OF THIS PROXY STATEMENT AND DOES NOT
REFLECT THE TAX BENEFIT TO THE COMPANY FROM CERTAIN USES OF THE
PROCEEDS. DEPENDING UPON THE OUTCOME OR TIMING OF FUTURE EVENTS,
THE PROCEEDS FROM THE SALE OF CONTRACT SERVICES MAY BE USED
DIFFERENTLY. IN NO EVENT WILL PROCEEDS OF THE SALE OF CONTRACT
SERVICES BE DISTRIBUTED TO SHAREHOLDERS OF THE COMPANY.
Appendix F to this Proxy Statement contains the following
financial information which compares certain of the Company's
historical financial information with information for the same
period to reflect, on a pro forma basis, a sale of the capital
stock of Contract Services pursuant to the Contract Services
Option: (i) Pro Forma Selected Financial Information for the
fiscal years ended December 31, 1993, 1992 and 1991 and the nine
months ended September 30, 1994; (ii) a Pro Forma Condensed
Consolidated Balance Sheet as of September 30, 1994; (iii) a Pro
Forma Condensed Consolidated Income Statement for the nine months
ended September 30, 1994; and (iv) Pro Forma Condensed
Consolidated Income Statements for the fiscal years ended
December 31, 1993, 1992 and 1991.
Appendix G to this Proxy Statement contains unaudited
interim financial statements of Contract Services as of September
30, 1994 and 1993 and unaudited annual financial statements of
Contract Services for the fiscal years ended June 30, 1994, 1993
and 1992.
Appendix C to this Proxy Statement contains unaudited
interim financial statements of Transit as of September 30, 1994
and 1993 and unaudited annual financial statements of Transit for
the fiscal years ended December 31, 1993, 1992 and 1991.
<PAGE>
SHAREHOLDERS ARE URGED TO REVIEW (I) THE PRO FORMA FINANCIAL
INFORMATION CONTAINED IN APPENDIX F TO THE PROXY STATEMENT FOR AN
ILLUSTRATION OF THE ESTIMATED EFFECTS OF A SALE OF CONTRACT
SERVICES PURSUANT TO THE CONTRACT SERVICES OPTION ON THE BALANCE
SHEET AND STATEMENTS OF OPERATIONS OF THE COMPANY AS OF AND FOR
THE PERIODS INDICATED, and (II) THE UNAUDITED INTERIM AND ANNUAL
FINANCIAL STATEMENTS OF TRANSIT AND CONTRACT SERVICES, CONTAINED
IN APPENDIX C AND APPENDIX G, RESPECTIVELY, OF THIS PROXY
STATEMENT FOR INFORMATION REGARDING THE HISTORICAL SEPARATE
COMPANY FINANCIAL RESULTS OF TRANSIT AND CONTRACT SERVICES.
Survival; Indemnification
Except for certain representations of the Company relating
to corporate authority, non-contravention, capitalization and
certain covenants relating to, among other things, the
continuation of directors' and officers' liability insurance, the
representations, warranties and covenants contained in the Merger
Agreement will not survive the Effective Date of the Merger. The
Company and Laidlaw have agreed in the Merger Agreement to
indemnify each present and former director, officer, employee and
agent of the Company against any losses or claims arising out of
or pertaining to any action or omission taken by such persons in
their capacities as directors, officers, employees or agents of
the Company occurring at or prior to the Effective Date to the
full extent permitted under Indiana law. This indemnification
provision will survive the Effective Date of the Merger and
continue without time limit.
Pro Forma Financial Information
Pro forma financial statements giving effect to the Merger
if both the Merger and the Transit Sale are consummated have not
been provided. If both transactions are consummated, each Share
will convert into the right to receive the Merger Consideration
which, as described in "Summary of the Merger - Merger
Consideration" above, is estimated to be an amount between $10.00
and $10.40 per Share.
Opinion of the Company's Financial Advisor
After Smith Barney assisted the Company in conducting the
sales process for the Company and Contract Services and
negotiating the Merger Agreement, the Company requested that
Smith Barney evaluate the fairness, from a financial point of
view, to the shareholders of the Company other than TCW (the
"Public Shareholders") of the cash consideration to be received
by such Public Shareholders of the Company in connection with the
Merger. On January 20, 1995, Smith Barney rendered to the Board
of Directors of the Company an oral opinion (subsequently
confirmed by a written opinion dated January 26, 1995) to the
effect that, as of such date and based upon and subject to
certain matters, the consideration to be received by the Public
Shareholders of the Company in the Merger was fair, from a
<PAGE>
financial point of view, to the Public Shareholders. The opinion
of Smith Barney will not be updated prior to the Meeting.
In arriving at its opinion, Smith Barney (i) reviewed the
Merger Agreement; (ii) met with certain senior officers,
directors and other representatives and advisors of the Company
and Contract Services to discuss the business, operations and
prospects of the Company and Contract Services; (iii) examined
certain publicly available business and financial information
relating to the Company and Contract Services as well as certain
financial analyses, forecasts and other data for the Company and
Contract Services that were provided to Smith Barney by the
Company's senior management, which information is not publicly
available, including financial forecasts provided for Contract
Services; (iv) reviewed the financial terms of the Merger as set
forth in the Merger Agreement in relation to current and
historical market prices and trading volumes of the Company
common stock; (v) reviewed the financial terms of the Merger as
set forth in the Merger Agreement in relation to historical and
projected earnings and operating data for Contract Services; and
(vi) considered, to the extent publicly available, the financial
terms of certain other transactions Smith Barney deemed relevant
and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other
companies which operate in the industry, and further considered
to what extent these companies were comparable to Contract
Services. In addition to the foregoing, Smith Barney conducted
such other analyses and examinations and considered such other
financial, economic and market criteria as Smith Barney deemed
necessary to arrive at its opinion.
In rendering its opinion, Smith Barney assumed and relied,
without independent verification, upon the accuracy and
completeness of all financial and other information publicly
available, or furnished to, or otherwise discussed with Smith
Barney. Except as described above, Smith Barney has not
conducted any review or investigation of the Company or Contract
Services. With respect to financial forecasts and other
information provided to or otherwise discussed with Smith Barney
(including estimates as to amounts due under various loan
agreements, contractual obligations, and expenses of the
transaction), it assumed, and it has been advised by senior
management, that such forecasts and other information were
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior management of the
Company and Contract Services. Smith Barney has assumed the
correctness of and relied upon representations and warranties of
Laidlaw and the Company pursuant to the Merger Agreement and has
not attempted to independently verify any such information.
Smith Barney has not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of the Company or Contract Services nor has it made
any physical inspection of the properties or assets of the
Company or Contract Services. Smith Barney's opinion does not
address the relative merits of the Merger as compared to any
<PAGE>
alternative business strategies that might exist for the Company
or the effect of any other transaction in which the Company might
engage. Smith Barney's opinion is necessarily based upon
financial, stock market and other conditions and circumstances
existing and disclosed to it as of January 20, 1995.
The full text of the written opinion of Smith Barney dated
January 26, 1995, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached
hereto as Appendix H to this Proxy Statement and is incorporated
herein by reference. Shareholders of the Company are urged to
read this opinion carefully in its entirety. Smith Barney's
opinion is directed only to the fairness of the consideration to
be received by the Public Shareholders of the Company in the
Merger from a financial point of view and has been provided
pursuant to Smith Barney's engagement by the Company's Board of
Directors for the purpose of assisting it in its evaluation of
the Merger, does not address any other aspect of the Merger, and
does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote at the Meeting.
The summary of the opinion of Smith Barney set forth in this
Proxy Statement is qualified in its entirety by reference to the
full text of such opinion.
In preparing its opinion to the Board of Directors of the
Company, Smith Barney performed a variety of financial and
comparative analyses, including those described below. The
summary of such analyses does not purport to be a complete
description of the analyses underlying Smith Barney's opinion.
The preparation of a fairness opinion is a complex analytical
process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the
application of those methods to particular circumstances and,
therefore, such an opinion is not readily susceptible to summary
description. In arriving at its opinion, Smith Barney did not
attribute any particular weight to any analysis considered by it,
but rather made qualitative judgments as to the significance and
relevance of each analysis. Accordingly, Smith Barney believes
that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying such analyses and
its opinion. In its analyses, Smith Barney made numerous
assumptions with respect to the Company and Contract Services,
industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond
the control of the Company and Contract Services. The estimates
contained in such analyses are not necessarily indicative of
actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may
be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
<PAGE>
Comparable Company Analysis.
Using publicly available information, Smith Barney analyzed
the market value and trading multiples of the Company, and
compared such multiples to those of certain other companies with
operations in the trucking, school bus and paratransit
industries. However, there are no directly comparable publicly
traded companies; the major bus and paratransit operators are
either privately owned or are subsidiaries of larger public
companies. In light of the lack of direct comparables, and
considering the two different types of companies used in the
analysis, Smith Barney deemed these comparables to be the best
available for Contract Services and divided them into two groups,
the "Trucking Comparables" and the "Other Comparables." The
Trucking Comparables included J.B. Hunt Transport Services, Inc.;
Werner Enterprises, Inc.; Arkansas Best Corporation; Landstar
System, Inc.; M.S. Carriers, Inc.; Swift Transportation Co.,
Inc.; KLLM Transport Services, Inc.; Heartland Express Inc.;
U.S.A. Truck, Inc.; TRISM, Inc. and NFC plc. The list of Other
Comparables included Laidlaw Inc.; Ryder System, Inc. and Scott's
Hospitality Inc. Smith Barney also compared the multiples of
adjusted market value (common equity market value, plus the book
value of debt and preferred stock, less cash and cash
equivalents) based on the latest twelve months ("LTM"); earnings
before interest, taxes, depreciation and amortization ("EBITDA")
and earnings before interest and taxes ("EBIT") implied by the
consideration to the trading multiples of EBITDA and EBIT of the
Trucking Comparables and the Other Comparables. The mean
multiples of the LTM EBITDA and EBIT of the Trucking Comparables
were 7.1x and 12.1x, respectively. The mean multiples of the LTM
EBITDA and EBIT of the Other Comparables were 5.7x and 12.3x,
respectively. Based on the Enterprise Value implied by the
Merger, the multiples of estimated 1994 EBITDA and EBIT of
Contract Services were 5.1x and 14.0x, respectively. The EBIT
multiple ranges implied by the consideration to be received by
the Company in the Merger compared favorably with those of the
comparable companies and supported Smith Barney's opinion as to
the fairness of the consideration to be received by the Public
Shareholders in the Merger from a financial point of view.
Selected Mergers and Acquisition Transactions Analysis.
Using publicly available information, Smith Barney analyzed
the equity purchase prices and implied transaction multiples in
the following selected mergers and acquisition transactions in
the trucking industry: Swift Transportation Co./MNX Carriers;
Heartland Express/Munson Transportation, Inc.; Christina
Companies, Inc./TLC Group, Inc.; Roadway Services Inc./Central
Freight Lines, Inc.; Yellow Freight System, Inc./Preston Corp.;
Trism, Inc./Tri-State Motor Transit Co.; Roadway Services,
Inc./Viking Freight, Inc.; Kelso & Co./Arkansas Best Corp.;
Circle Express, Inc./Roadrunner Enterprises, Inc; BVL
Holdings/Burham Service Corp.; NEOAX Inc./IU International Corp.;
Leaseway Holdings, Inc./Leaseway Transportation Corp.; Investor
Group/Sun Carriers, Inc. and MG Holdings, Inc./Mayflower Group,
<PAGE>
Inc. Smith Barney analyzed transaction considerations (equity
purchase price plus book value of debt and preferred stock, less
cash and cash equivalents) as multiples of EBITDA and EBIT, among
others, and compared these multiples to the multiples of the
Company's performance implied by the consideration to be received
by the Company in the Merger. The mean multiples of EBITDA and
EBIT were 5.5x and 11.1x, respectively, as compared to EBITDA and
EBIT multiples implied by the consideration of 5.1x and 14.0x,
respectively. In general, the multiples implied by the
consideration to be received by the Company in the Merger are
reasonably similar to those of the selected transactions and
supported Smith Barney's opinion as to the fairness of the
consideration to be received by Public Shareholders in the Merger
from a financial point of view.
No company, transaction or business used in the comparable
company and selected merger and acquisition transactions analyses
is identical to the Company, Contract Services, Laidlaw or the
Merger. Accordingly, an analysis of the results of the foregoing
is not entirely mathematical; rather, it involves complex
considerations and judgments concerning differences in financial
and operating characteristics of the companies included in the
comparable company or selected transaction analyses and other
factors that could affect the public trading value of the
comparable companies or the transaction consideration relating to
the selected transactions or the business segment, company, or
transaction to which they are being compared.
Discounted Cash Flow Analysis.
In order to establish a range of value for the total
consideration to be received by Public Shareholders from the
Merger, Smith Barney also analyzed the range of potential values
for the Enterprise Value of Contract Services based on the
results of its discounted cash flow analysis. The analysis used
free cash flow (unlevered net income plus depreciation less
capital expenditures plus the change in working capital) for the
period beginning January 1, 1995 through December 31, 1999,
assuming, among other things, significant capital expenditures
determined by the Company to be required in the ordinary course
of Contract Services' business, discount rates ranging from 12.0%
to 15.0% and terminal multiples of 1999 projected EBITDA ranging
from 4.5x to 6.0x. The analysis yielded a range of Enterprise
Values from $126.9 to $210.4 million. Smith Barney concluded
that the discounted cash flow analysis supported the fairness of
the consideration to be received by the Public Shareholders.
Since the Company's recent operating performance has been
inconsistent, and management's projections had not been revised
after the Company missed its fiscal 1994 goal, Smith Barney
placed less weight on the discounted cash flow analysis than on
other analyses performed and factors considered.
<PAGE>
Other Factors.
In rendering its opinion, Smith Barney also considered the
extent and public character of the sale process and reviewed
Contract Services' historical and projected financial results and
the history of trading prices and trading volume for the Shares
of the Company.
Regulatory Approval Required for Consummation of the Merger
Under the Hart-Scott-Rodino Antitrust Improvements Act ("HSR
Act") and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been
furnished to the FTC and the Antitrust Division of the Department
of Justice (the "Antitrust Division") and specific waiting period
requirements have been satisfied. The Company and Laidlaw filed
their respective notification and report forms under the HSR Act
with the FTC and the Antitrust Division as of January 10, 1995.
The Company has been notified by the FTC that the waiting period
will expire at 11:59 p.m. on March 12, 1995, unless extended
pursuant to a request for additional information. To date, no
request for additional information extending the waiting period
has been received by the Company or Laidlaw.
The Company has determined that an advance notice of the
Merger or an application for approval of the Merger is required
to be filed with certain state and local regulatory authorities.
The Company has filed all required notices or applications for
approval. Although the Company can give no assurances that these
approvals will be granted, the Company believes that such
approvals will be obtained. Obtaining such approvals is a
condition precedent to both the Company's and Laidlaw's
obligations to consummate the Merger. Failure to obtain such
regulatory approvals would preclude the consummation of the
Merger unless both the Company and Laidlaw waived such approvals
as a condition precedent. The Company has made no determination
as to whether it would waive the obtaining of any such regulatory
approvals as a condition precedent and has no knowledge of any
determination by Laidlaw regarding whether Laidlaw would waive
the obtaining of any such regulatory approvals as a condition
precedent.
Prior Relationships Between the Company and Laidlaw
Except as described in "Background of the Proposed
Transactions," since January 1, 1991, there have been no material
contracts, arrangements, understandings, relationships,
negotiations or transactions between Laidlaw or its affiliates
and the Company or its affiliates.
<PAGE>
Federal Income Tax Consequences of the Merger
The Merger.
In General. The following is a summary of the material
federal income tax consequences of the proposed Merger to the
Company and its shareholders. This summary is based upon the
Code, the rules and regulations promulgated thereunder, current
administrative interpretations and court decisions. No assurance
can be given that future legislation, regulations, administrative
interpretations or court decisions will not significantly change
these authorities, possibly with retroactive effect. No rulings
have been requested or received from the IRS as to the matters
discussed and there is no intent to seek any such ruling.
Accordingly, no assurance can be given that the IRS will not
challenge the tax treatment of certain matters discussed or, if
it does challenge the tax treatment, that it will not be
successful.
Federal Income Tax Consequences to the Company. The merger
of Newco with and into the Company, with the Company surviving
and with the Company shareholders receiving solely cash in the
transaction, will be treated for federal income tax purposes as a
sale by the Company's shareholders of their Shares to Laidlaw for
cash. Accordingly, no gain or loss will be recognized by the
Company as a result of the Merger.
Federal Income Tax Consequences to the Company's
Shareholders. Consistent with the analysis described in the
preceding paragraph, a Company shareholder will recognize gain or
loss as a result of the Merger, measured by the difference
between their amount realized and their basis in the Shares.
For shareholders of the Company who hold their Shares as a
capital asset, their gain or loss recognized as a result of the
Merger will be treated as a capital gain or loss. In the case of
a corporate shareholder, capital losses are allowed only to the
extent of capital gains. In the case of a noncorporate
shareholder, capital losses are allowed only to the extent of
capital gains plus the lesser of (i) $3,000 ($1,500 in the case
of a married individual filing a separate return) or (ii) the
excess of losses over such gains. Generally, a corporation may
carry its excess capital loss back three years or forward five
years, subject to limitations in the Code. Generally, in the
case of a noncorporate taxpayer, excess capital losses may be
carried forward indefinitely and used each year, subject to the
$3,000 limitation ($1,500 in the case of a married individual
filing a separate return).
The discussion of federal tax consequences set forth above
is directed primarily toward individual taxpayers who are
citizens or residents of the United States. However, because of
the complexities of federal, state and local income tax laws, it
is recommended that the Company's shareholders consult their own
tax advisors concerning the federal, state and local tax
<PAGE>
consequences of the proposed transaction to them. Persons who
are trusts, tax-exempt entities, corporations subject to
specialized income tax rules (for example, insurance companies)
or non-U.S. citizens or residents are particularly cautioned to
consult their tax advisors in considering the tax consequences of
the proposed transaction. Further, shareholders of the Company
who received their Shares in exchange for debt in the Company's
Chapter 11 bankruptcy in 1992 (the "Restructuring"), or who
received their shares in a transaction (or a series of
transactions) in which no gain or loss was recognized from a
person who received their shares in exchange for debt in the
Restructuring, are urged to consult their own tax advisors in
considering the tax consequences of the Merger.
Exercise of the Contract Services Option.
In the event that the Merger Agreement is terminated and
Laidlaw exercises the Contract Services Option, the following are
the material federal income tax consequences to the Company and
its shareholders.
Federal Income Tax Consequences to the Company. The sale of
the Contract Services shares will be a taxable sale by the
Company upon which gain or loss will be recognized by the
Company. The amount of gain or loss recognized by the Company
with respect to the sale of the Contract Services shares will be
measured by the difference between the amount realized on the
sale of the Contract Services shares and the Company's tax basis
in the Contract Services shares. The Company believes its tax
basis in the Contract Services shares is approximately equal to
the amount that will be realized on the sale. Therefore, the
Company believes that it will incur only minimal (if any) federal
income tax liability as a result of the sale of the Contract
Services shares. The Company anticipates, however, it may incur
state tax liability due to the sale.
Federal Income Tax Consequences to the Company's
Shareholders. The sale of the Contract Services shares by the
Company pursuant to the Contract Services Option will not affect
the individual tax situations of the Company's shareholders.
Accounting Treatment of the Merger
The Merger
The Merger will be treated, for financial statement
purposes, as a sale by the Company's shareholders to Laidlaw for
cash. Accordingly, no gain or loss will be recognized by the
Company as a result of the Merger.
Exercise of the Contract Services Option
In the event that the Merger Agreement is terminated and
Laidlaw exercises the Contract Services Option, the following are
the financial statement consequences to the Company.
<PAGE>
The sale of the Contract Services shares will be considered
by the Company as a sale, for financial statement purposes, of
the Company's investment in the consolidated net assets of
Contract Services upon which gain or loss will be recognized by
the Company. The amount of gain or loss to be recognized by the
Company with respect to the sale of Contract Services will be
measured by the difference between the net amount of proceeds
realized (after anticipated payoffs or assumptions of amounts
outstanding under various loan agreements and contractual
obligations, and the payment of expenses of the transaction) and
the Company's financial statement carrying value (basis) of the
Company's investment in the consolidated net assets of Contract
Services.
The Company believes that, for financial statement purposes,
the basis of its investment in the consolidated net assets of
Contract Services is less than the net amount of proceeds that
will be realized on the sale of Contract Services. Accordingly,
the Company is expected to realize a gain, for financial
statement purposes, on the sale of Contract Services.
Absence of Dissenters' Right of Appraisal
Indiana law governs the rights of the Company's shareholders
in connection with the Merger. Under the applicable provisions
of Indiana law, the Company's shareholders will have no right of
appraisal or similar rights of dissenters with respect to the
Merger since the Shares are traded on the National Association of
Securities Dealers, Inc. National Market System ("NASDAQ").
Board of Director Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER.
INTERESTS OF CERTAIN PERSONS
Transit Sale
A condition to UniGroup's obligation to close is that
certain existing employment agreements and termination benefits
agreements of Transit must be terminated. Messrs. Carr and
Irvin, both executive officers of the Company, have employment
agreements with the Company and Transit. Mr. Smith, the Chief
Executive Officer of the Company, has an employment agreement
with the Company, Transit and Contract Services. The employment
agreements of Messrs. Smith, Carr and Irvin will all be breached
as a consequence of this transaction. In addition, Messrs. Carr
and Irvin have termination benefits agreements that currently
provide a benefit upon severance from Transit.
Under these agreements, Mr. Smith is entitled to $1,202,000,
Mr. Carr is entitled to $679,000 and Mr. Irvin is entitled to
$511,000. In a memorandum of understanding between the Company
<PAGE>
and UniGroup executed at the same time as the Stock Purchase
Agreement, UniGroup agreed to assume $400,000 and $306,000
respectively, of the severance obligations to Messrs. Carr and
Irvin. In addition, UniGroup agreed to assume $1,017,800 of the
obligation to Mr. Smith. Each of these payments, however, is
conditioned upon the Company funding the remaining obligations to
these officers as set forth in the memorandum of understanding.
For more information, see "General Information - Payment to
Officers."
Merger
Mayflower Contract Services Supplemental Executive
Retirement Plan
A condition of Laidlaw's obligation to close is the
termination or suspension of Contract Services' obligations to
fund the Mayflower Contract Services Supplemental Executive
Retirement Plan (the "SERP"). Mr. Smith is a participant in the
SERP. In a memorandum of understanding executed at the same time
as the Merger Agreement, the Company agreed to assume the
obligation to provide the defined benefits to Mr. Smith under the
SERP when he becomes eligible to receive them. Under Mr. Smith's
participation agreement, Mr. Smith will be entitled when he
reaches age 50 to receive $210,000 annually for 15 years. He
agreed not to compete with Contract Services for the period of
time that he is receiving benefits under the SERP. Pursuant to
the memorandum of understanding, the Company will fund a trust
with approximately $1,454,000 for the purpose of meeting its
funding obligation under the SERP. For more information, see
"General Information - Payment to Officers."
Stock Option Plans
The Company currently has two plans pursuant to which stock
options are granted to directors and executive officers, the
Mayflower Group, Inc. 1992 Director Stock Option Plan and the
Mayflower Group, Inc. 1992 Stock Option Plan (the "Group Stock
Plans"). The Merger Agreement requires that, as a condition to
the closing of the Merger, the Company must terminate the Group
Stock Plans. The Company intends to fulfill this obligation by
obtaining the consent to such termination of all persons to whom
options have been granted under the Group Stock Plans in exchange
for the right to receive a cash payment immediately following the
Effective Date equal to the excess, if any, of the per share
Merger Consideration over the per share exercise price of each
such option granted (whether or not vested) multiplied by the
number of shares subject thereto. For more information, see
"General Information - Payment to Officers."
Set forth below are the names of the directors and executive
officers of the Company who participate in the Group Stock Plans
and, assuming Merger Consideration of $10.40 per share, the
amount of the payment estimated to be received in respect of
termination of their options: Roderick M. Hills -- $20,100, Lary
<PAGE>
R. Scott -- $20,100, John B. Smith (Emeritus) -- $20,100, Michael
L. Smith -- $118,125, Patrick F. Carr - $96,062.50 and Robert H.
Irvin -- $67,000 .
ARRANGEMENTS WITH FINANCIAL ADVISOR
Smith Barney has been engaged to render financial advisory
services to the Company in connection with the Transit Sale and
the Merger and will receive a fee for its services, a significant
portion of which is contingent upon consummation of the Transit
Sale and/or the Merger. Pursuant to the February 23, 1994
engagement, Smith Barney is entitled to receive certain fees
which include an advisory fee of $250,000 creditable against any
ultimate transaction fee determined under Smith Barney's
engagement letter. The transaction values ascribed to the
Transit Sale and the Merger would result in an aggregate fee of
$2,338,000. In addition, the engagement provides for the
reimbursement of Smith Barney's out of pocket expenses and the
indemnification by the Company of Smith Barney against certain
liabilities, including certain liabilities under the federal
securities laws.
In the ordinary course of business, Smith Barney and its
affiliates may actively trade the equity and debt securities of
the Company, UniGroup and Laidlaw for its own account or for the
account of its customers and, accordingly, may at any time hold a
long or short position in such securities. More than two years
ago, Smith Barney provided financial advisory and investment
banking services to the Company unrelated to the Transit Sale or
the Merger and received fees for the rendering of such services.
In addition, Smith Barney and its affiliates may maintain
business relationships with the Company, UniGroup and Laidlaw.
COMPANY SHARE PRICE
As of January 20, 1995, the Company had 280 shareholders of
record. The high and low prices reported for the Shares reported
by NASDAQ for each calendar quarter of 1994 were as follows:
Quarter High Low
1 $ 11.75 $9.50
2 $ 9.50 $7.50
3 $ 12.50 $9.375
4 $ 12.25 $8.00
On December 2, 1994, the last business day preceding the
Company's public announcement of the execution of the Stock
Purchase Agreement, the high and low prices of the Company's
Common Stock were $10.50 and $9.75, respectively, as reported by
NASDAQ.
On January 20, 1995, the last business day preceding the
Company's public announcement of the execution of the Merger
<PAGE>
Agreement, the high and low prices of the Company's Shares were
$10.75 and $10.00, respectively, as reported by NASDAQ.
On January 27, 1995, the high and low prices of the
Company's shares were $9.312 and $9.25, respectively, as reported
by NASDAQ.
All of the above quotations represent prices between dealers
and do not reflect retail mark-ups, mark-downs or commissions.
ADDITIONAL FINANCIAL AND OTHER INFORMATION
REGARDING THE COMPANY
Attached to, and incorporated in, this Proxy Statement as
Appendices I and J, respectively, are (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993
(without exhibits (the "1993 10-K"); and (ii) the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994 (the "Third Quarter 10-Q"). These reports contain
additional financial and other information regarding the Company
and its subsidiaries which should be read and considered in
conjunction with the other information contained in this Proxy
Statement. Other than the recent developments and the settlement
of certain shareholder litigation, as described below, and the
transactions described in this Proxy Statement, there have been
no material changes in the Company's affairs between December 31,
1993 and the date of this Proxy Statement which are not described
in the Third Quarter 10-Q.
RECENT DEVELOPMENTS
As of the date of this Proxy Statement, the audit of the
Company's financial statements for the fiscal year ended December
31, 1994 is not complete. However, two developments occurred in
the fourth quarter of 1994, which will be reflected in the final
audited full year 1994 financial statements, that may be of
importance to shareholders.
In July, 1994, Contract Services began operation on a new
contract in Lancaster, Pennsylvania. For the third quarter and
nine months ended September 30, 1994, Contract Services had
recognized $224,000 of revenue and $529,000 of costs relative to
this contract. The third quarter results on this contract were
discussed in the Third Quarter 10-Q MD&A for Contract Services.
After approximately five months of operation, it was determined
that Contract Services could not profitably operate the contract
on existing contract terms. Following negotiations with the
customer during the last half of the fourth quarter of 1994,
Contract Services terminated this contract at an aggregate cost
of $500,000 ($315,000 net of tax).
Also during the fourth quarter of 1994, new information
became available to Transit which caused it to determine that a
portion of the amount recorded as a receivable from its
independent drivers was uncollectible. Accordingly, in December
<PAGE>
1994, the Company increased its reserve with respect to these
receivables by $850,000 ($535,000 net of tax). A portion of
these receivables may have been attributable to the period prior
to September 30, 1994, but the Company has no method of
estimating that amount.
The Company does not believe that either of these items
represents a material adverse trend.
SETTLEMENT OF SHAREHOLDER SUIT
The state and federal court class actions brought by certain
former shareholders of the Company's predecessor (as described in
Item 3 of the 1993 10-K, which is attached hereto as Appendix I)
were settled on substantially the terms described in the 1993 10-
K. Pursuant to the terms of the settlement which was approved by
both the state and federal courts in which the actions were
brought and which became effective on May 4, 1994, the Company
issued settlement notes, on the terms described in the 1993 10-K,
in the aggregate principal amount of $204,102.00, to those former
shareholders having claims of $100.00 or more and paid cash in an
aggregate amount of $4,085.00 to former shareholder with claims
of less than $100.00. The amount of settlement notes issued was
less than the maximum potential amount reported in the 1993 10-K
as a result of the cash payments made to those former
shareholders with claims of less than $100.00 and the failure of
many potentially eligible former shareholders to submit claims.
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY
Coopers & Lybrand L.L.P., Indianapolis, audited the
financial statements of the Company for its 1993 fiscal year and
has been selected to audit the financial statements of the
Company for its 1994 fiscal year. A representative of that firm
will be present at the Meeting, will have the opportunity to make
a statement and will be available to respond to questions.
PROPOSALS OF SHAREHOLDERS
In accordance with the current By-Laws of the Company,
notice of proposals of shareholders intended to be presented at
the Company's 1995 Annual Meeting of Shareholders must be in
writing and delivered to or mailed to and received by the
Secretary of the Company at the principal executive offices of
the Company not less than sixty days nor more than ninety days
prior to the 1995 Annual Meeting of Shareholders. The Board of
Directors has voted to postpone the 1995 Annual Meeting of
Shareholders until further notice as a result of the pendency of
the Transit Sale and the Merger. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder
proposes to bring before the Annual Meeting: (a) a brief
description of the business desired to be brought before the
Annual Meeting and the reasons for conducting such business at
the Annual Meeting; (b) name and address, as they appear on the
Company's books, of the shareholder proposing such business; (c)
<PAGE>
the number of shares of the Company which are beneficially owned
by the shareholder; and (d) any material interest of the
shareholder in such business.
As was reported to shareholders in the Company's Proxy
Statement, dated March 31, 1994, for the 1994 Annual Meeting of
Shareholders, the proposals must have been received at the
corporate headquarters of Mayflower Group, Inc. no later than
December 31, 1994 to be included in the Proxy Statement for the
Company's 1995 Annual Meeting of Shareholders.
OTHER MATTERS
As of the date of this Proxy Statement, the management of
the Company has no knowledge of any matters to be presented for
consideration at the meeting other than those referred to
previously. If any other matters properly come before the
meeting, the persons named in the accompanying form of proxy
intend to vote such proxy to the extent entitled in accordance
with their best judgment.
By Order of the Board of Directors,
/s/ Robert H. Irvin
Robert H. Irvin, Secretary
Dated: March 10, 1995
All shareholders are cordially invited to attend the meeting in
person. TO INSURE YOUR REPRESENTATION AT THE MEETING, PLEASE
COMPLETE AND PROMPTLY MAIL YOUR PROXY IN THE RETURN ENVELOPE
PROVIDED. This will not prevent you from voting in person,
should you so desire.
<PAGE>
Appendix A
To Mayflower Group, Inc.
Proxy Statement
STOCK PURCHASE AGREEMENT
by and among
MAYFLOWER GROUP, INC.,
TCW ASSET MANAGEMENT COMPANY
and
UNIGROUP, INC.
Dated December 4, 1994
<PAGE>
TABLE OF CONTENTS
ARTICLE I Certain Definitions . . . . . . . . . . . 1
ARTICLE II Sale of Stock; Closing. . . . . . . . . . 7
Section 2.1. Purchase and Sale. . . . . . . . . . 7
Section 2.2. Time and Place of Closing. . . . . . 8
ARTICLE III Representations and Warranties of Group . 8
Section 3.1. Incorporation; Authorization, etc. . 8
Section 3.2. Capitalization . . . . . . . . . . . 10
Section 3.3. Properties . . . . . . . . . . . . . 12
Section 3.4. Litigation; Orders . . . . . . . . . 12
Section 3.5. Compliance with Laws . . . . . . . . 13
Section 3.6. Labor Matters. . . . . . . . . . . . 13
Section 3.7. Consents . . . . . . . . . . . . . . 15
Section 3.8. Employee Benefit Plans . . . . . . . 15
Section 3.9. Brokers, Finders, etc. . . . . . . . 19
Section 3.10. Intellectual Properties. . . . . . . 19
Section 3.11. Group Reports and Consolidated
Companies Financial Statements . . . . . 21
Section 3.12. Books and Records. . . . . . . . . . 22
Section 3.13. Absence of Certain Changes or Events. 23
Section 3.14. List of Properties, Contracts and
Other Data . . . . . . . . . . . . . . . . 24
Section 3.15. Leases, Contracts and Insurance
Policies. . . . . . . . . . . . . . . . . 26
Section 3.16. Equipment. . . . . . . . . . . . . . 27
Section 3.17. Taxes. . . . . . . . . . . . . . . . 27
Section 3.18. Provision for Claims and Receivables. 30
Section 3.19. Environmental Matters. . . . . . . . 31
Section 3.20. No Undisclosed Liabilities . . . . . 33
Section 3.21. Investment Company Status. . . . . . 33
Section 3.22. Proxy Statement; Other Information . 33
ARTICLE IV Representations and Warranties of Buyer . 34
Section 4.1. Organization and Authorization of
Buyer . . . . . . . . . . . . . . . . . . 34
Section 4.2. Enforceability of Agreement. . . . . 34
Section 4.3. No Violation . . . . . . . . . . . . 34
Section 4.4. Brokers, Finders, etc. . . . . . . . 35
Section 4.5. Approvals, Other Authorizations,
Consents, etc. . . . . . . . . . . . 35
Section 4.6. Investment Purposes. . . . . . . . . 35
Section 4.7. Buyer's Independent Investigation. . 35
Section 4.8. Proxy Statement, Other Information . 36
ARTICLE V Covenants of Parties . . . . . . . . . . 36
Section 5.1. Conduct of Group and Consolidated
Companies . . . . . . . . . . . . . . . . 36
<PAGE>
Section 5.2. Release of Certain Use Rights . . . . 40
Section 5.3. Obtaining Consents and Conditions to
Closing . . . . . . . . . . . . . . . . . 41
Section 5.4. Tax Provisions. . . . . . . . . . . . 42
Section 5.5. Cooperation on Tax Matters. . . . . . 46
Section 5.6. Tax Sharing . . . . . . . . . . . . . 46
Section 5.7. Termination of Existing Tax Sharing
Agreements . . . . . . . . . . . . . . . 51
Section 5.8. Access and Investigation. . . . . . . 51
Section 5.9. Further Assurances. . . . . . . . . . 53
Section 5.10. Intercompany Accounts . . . . . . . . 53
Section 5.11. Negotiations with Others. . . . . . . 53
Section 5.12. Termination of Group Guaranties . . . 54
Section 5.13. Notification and Remedies . . . . . . 55
Section 5.14. Confidentiality . . . . . . . . . . . 55
Section 5.15. Letters of Credit . . . . . . . . . . 55
Section 5.16. Provision for Claims. . . . . . . . . 56
Section 5.17. Filings and Other Information . . . . 56
Section 5.18. Group's Special Meeting of
Shareholders . . . . . . . . . . . . . . 56
Section 5.19. Covenant of TCW . . . . . . . . . . . 57
ARTICLE VI Conditions of Buyer's Obligation to Close. 57
Section 6.1. Representations, Warranties and
Covenants of Group . . . . . . . . . . . . 57
Section 6.2. Filings, Consents, Waiting Periods. . 58
Section 6.3. No Pending or Certain Threatened
Litigation . . . . . . . . . . . . . . . 58
Section 6.4. Casualty Loss . . . . . . . . . . . . 58
Section 6.5. Closing Documents . . . . . . . . . . 58
Section 6.6. Termination of Guaranties . . . . . . 60
Section 6.7. Satisfaction of Indebtedness. . . . . 60
Section 6.8. Diligence Investigation . . . . . . . 62
ARTICLE VII Conditions to Group's Obligation to Close. 63
Section 7.1. Representations, Warranties and
Covenants . . . . . . . . . . . . . . . . 63
Section 7.2. Filings, Consents, Waiting Periods. . 63
Section 7.3. No Pending or Certain Threatened
Litigation . . . . . . . . . . . . . . . . 64
Section 7.4. Letters of Credit . . . . . . . . . . 64
Section 7.5. License Agreements. . . . . . . . . . 64
Section 7.6. Termination of Guaranties . . . . . . 64
Section 7.7. Working Capital . . . . . . . . . . . 64
Section 7.8. Shareholder Approval. . . . . . . . . 65
ARTICLE VIII Termination, Amendment and Extension . . . 65
Section 8.1. Termination . . . . . . . . . . . . . 65
Section 8.2. Effect of Termination . . . . . . . . 68
Section 8.3. Amendment and Modification. . . . . . 69
ARTICLE IX Miscellaneous . . . . . . . . . . . . . . 69
<PAGE>
Section 9.1. Counterparts. . . . . . . . . . . . . 69
Section 9.2. Governing Law . . . . . . . . . . . . 69
Section 9.3. Entire Agreement. . . . . . . . . . . 69
Section 9.4. Expenses . . . . . . . . . . . . . . 70
Section 9.5. Survival of Representations and
Warranties . . . . . . . . . . . . . . . . 70
Section 9.6. Notices . . . . . . . . . . . . . . . 71
Section 9.7. Successors and Assigns. . . . . . . . 72
Section 9.8. Headings. . . . . . . . . . . . . . . 73
Section 9.9. Severable . . . . . . . . . . . . . . 73
Section 9.10. Gender. . . . . . . . . . . . . . . 73
Section 9.11. Further Assurances. . . . . . . . . 73
Section 9.12. Public Announcement . . . . . . . . 73
List of Exhibits
Exhibit A September 30, 1994 Company Consolidated
Balance Sheet A-1
Exhibit B Form of Licensing Agreement B-1
List of Schedules
Schedule 3.1(c) Incorporation, Authorization, Etc.
Schedule 3.2 Capitalization
Schedule 3.3 Properties
Schedule 3.4 Litigation; Orders
Schedule 3.5 Compliance with Laws
Schedule 3.6 Labor Matters
Schedule 3.7 Consents
Schedule 3.8 Employee Benefit Plans
Schedule 3.10 Intellectual Properties
Schedule 3.12 Books and Records
Schedule 3.13 Absence of Certain Changes or Events
Schedule 3.14A Real Property
Schedule 3.14B Insurance Policies
Schedule 3.14C Certain Leases and Contracts
Schedule 3.14D Loans and Credit Agreements, Etc.
Schedule 3.14E Litigation
Schedule 3.14F List of Properties, Contracts and other Data
Schedule 3.17 Taxes
Schedule 3.18 Provision for Claims and Receivables
Schedule 3.19 Environmental Matters
Schedule 4.5 Approvals, Other Authorizations, Consents
Schedule 5.1 Conduct of Group and Consolidated Companies;
Capital Stock Forbearances; Compensation
Forbearances
Schedule 5.17 Provision for Claims
Schedule 5.18 Provision for Receivables
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated
December 4, 1994, is by and among UniGroup, Inc., a Missouri
corporation ("Buyer"), TCW Asset Management Company, as
investment manager of funds and accounts which hold stock of
Mayflower Group, Inc. ("TCW"), and Mayflower Group, Inc., an
Indiana corporation ("Group"), which is the sole owner of the
only issued and outstanding share of common stock of Mayflower
Transit, Inc., an Indiana corporation (the "Company").
WHEREAS, Buyer desires to purchase from Group, and
Group desires to sell to Buyer, the only issued and outstanding
share of common stock of the Company upon the terms and subject
to the conditions set forth herein and to consummate the other
transactions contemplated hereby (the "Stock Purchase"); and
WHEREAS, as an inducement for Buyer to enter into the
Agreement, upon the specific request of Buyer, TCW has become a
party to the Agreement for the sole purposes of Sections 5.19,
8.1(g), 8.2, 9.4(c) and 9.6;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
As used in this Agreement the following terms shall have the
following respective meanings:
"Acquisition Proposal" shall have the meaning set forth
in Section 5.11 hereof.
"Antitrust Division" shall have the meaning set forth
in Section 3.7 hereof.
"Antitrust Improvements Act" shall have the meaning set
forth in Section 3.7 hereof.
"Audited Balance Sheet" shall have the meaning set
forth in Section 3.11 hereof.
"Balance Sheet" shall mean the consolidated unaudited
balance sheet of the Company and the Company Subsidiaries (as
defined in Section 3.2 hereof), attached hereto as Exhibit A,
which Balance Sheet was prepared as of September 30, 1994 in
accordance with GAAP.
"Chattel Paper Facilities" shall mean the credit
facilities and financial accommodations extended to Transport
Service of Indiana, Inc. up to $30 million in the aggregate under
its (a) Purchase and Guaranty Agreement dated as of December 31,
1993, among Transport Service of Indiana, Inc., the Company and
<PAGE>
Bank One, Indianapolis, NA, as amended; (b) Agreement for
Acquisition of Secured Retail Installment Paper dated as of
December 31, 1993, between PACCAR Financial Corp. and Transport
Service of Indiana, Inc., as amended; (c) Dealer Agreement dated
July 22, 1992, between Associates Commercial Corporation and
Transport Service of Indiana, Inc.; and (d) Amended and Restated
Purchase Agreement dated June 1, 1990, among Comerica Bank,
Transport Service of Indiana, Inc. and Mayflower Transit, Inc.,
as amended.
"Closing" shall mean the consummation of the
transactions contemplated by Article II of this Agreement in
accordance with the terms and upon the conditions set forth
herein.
"Closing Date" shall mean the fifth business day
following the date on which the requirements of Sections 6.2 and
7.2 have been satisfied, or such other date as the parties may
agree to in writing.
"Code" shall mean the Internal Revenue Code of 1986, as
amended. All citations to the Code or to the regulations
promulgated thereunder shall include any amendments or any
substitute or successor provisions thereto.
"Company Subsidiary" and "Company Subsidiaries" shall
have the meanings set forth in Section 3.2 hereof.
"Confidentiality Agreement" shall have the meaning set
forth in Section 5.14 hereof.
"Consents" shall have the meaning set forth in
Section 3.7 hereof.
"Consolidated Companies" shall have the meaning set
forth in Section 3.1 hereof.
"Contract Services" shall mean Mayflower Contract
Services, Inc., an Indiana corporation.
"Credit Agreement" shall mean that certain Credit,
Letter of Credit and Agency Agreement dated as of May 27, 1993,
as amended from time to time, among the Company, Group, Contract
Services, Bank One, Indianapolis, National Association, Comerica
Bank, NBD Bank, N.A., NationsBank of North Carolina, NA and Bank
One, Indianapolis, National Association, as Agent.
"Employee Plans" shall have the meaning set forth in
Section 3.8 hereof.
"Environmental Matters" shall have the meaning set
forth in Section 3.18 hereof.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
"FTC" means Federal Trade Commission as set forth in
Section 3.7 hereof.
"GAAP" shall mean generally accepted accounting
principles, applied consistently for all relevant dates and
periods.
"Group Affiliate" means any subsidiary of Group other
than the Consolidated Companies.
"Group's knowledge", "to the knowledge of Group", or
words of similar import, shall mean the actual knowledge, after
reasonable investigation, of the officers of Group and the
officers of each Consolidated Company.
"Group's SEC Documents" shall have the meaning set
forth in Section 3.11 hereof.
"Insurance Company Indebtedness" shall mean the
indebtedness of Contract Services and the Company under the
Insurance Company Note Agreement and any Notes (as defined
therein) issued thereunder.
"Insurance Company Indebtedness--Company Portion" shall
mean the portion of the Insurance Company Indebtedness which is
reflected in the Notes issued by the Company under the terms of
the Insurance Company Note Agreement.
"Insurance Company Indebtedness--Contract Services
Portion" shall mean the portion of the Insurance Company
Indebtedness which is reflected in the Notes issued by Contract
Services under the terms of the Insurance Company Note Agreement.
"Insurance Company Note Agreement" shall mean the Note
Agreement dated as of May 27, 1993 by and among Group, Contract
Services and the Company and The Prudential Insurance Company of
America, The Northwestern Mutual Life Insurance Company and The
Long-Term Credit Bank of Japan, Ltd. Chicago Branch, as amended.
"Intercompany Debt" means all debt of the Consolidated
Companies to Group or any Group Affiliate.
"Intercompany Receivables" means all debt of Group or
any Group Affiliate to the Consolidated Companies.
"Interstate Commerce Commission" means the Interstate
Commerce Commission of the United States of America and any
successor agency thereto.
"Material Adverse Effect" shall mean any change or
changes, effect or effects, event or events, or condition or
conditions that, to the extent not adequately covered by
<PAGE>
insurance or appropriate reserves previously established on the
books of the Consolidated Companies in the ordinary course of
business in accordance with Company's normal practice,
individually or in the aggregate are or are reasonably likely to
be materially adverse to the business, operations or financial
condition of the Consolidated Companies taken as a whole, by a
dollar amount in excess of $4,000,000; provided, however, that
such changes(s), effect(s) or condition(s) shall not include: (i)
normal recurring seasonal variations in operating results, (ii)
usual and ordinary course of business changes recorded in a
customary manner on the books and records of the Consolidated
Companies consistent with past practice, (iii) transactions
specifically allowable under this Agreement, including those
matters set forth on Schedule 5.1, or (iv) terminations by less
than "a significant number of the Company's agents" (as defined
in Section 8.1(h)) of their agency relationships with the Company
and the consequences thereof.
"Multiple Employer Pension Plan" shall have the meaning
set forth in Section 3.8 hereof.
"PBGC" shall have the meaning set forth in Section 3.8
hereof.
"Pension Plan" shall have the meaning set forth in
Section 3.8 hereof.
"Pro Forma Combined State Return" and "Pro Forma
Federal Return" shall have the meanings set forth in Section 5.6
hereof.
"Purchase Price" shall have the meaning set forth in
Section 2.1 hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" shall have the meaning set forth in
Section 4.6 hereof.
"Share" shall mean the sole issued and outstanding
share of common stock, no par value, of the Company.
"State Regulatory Authorities" shall have the meaning
set forth in Section 3.7 hereof.
"Stock Purchase" shall mean the purchase of the Share
at Closing.
"Subsidiary Shares" shall have the meaning set forth in
Section 3.2 hereof.
"Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (A) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, fuel,
third structure, ad valorem, franchise, profits, license, lease,
<PAGE>
use, withholding, payroll, employment, excise, severance,
property, transfer, documentary, mortgage, registration, stamp,
occupation, environmental, premium, customs, duties, or other tax
of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any
domestic or foreign governmental authority (a "Taxing
Authority"), (B) any penalties, interest, or other additions for
the failure to collect, withhold or pay over any of the
foregoing, or to accurately file any return (including without
limitation, any information return, declaration or estimate) with
respect to the foregoing, and (C) liability for the payment of
any Tax of an affiliated, consolidated, combined or unitary
group.
"Tax Returns" shall mean collectively, (A) all reports,
declarations, estimates, returns, information statements, and
similar documents relating to, or required to be filed in respect
of any Taxes; and (B) any statements, returns, reports, or
similar documents required to be filed pursuant to Part III of
Subchapter A of Chapter 61 of the Code or pursuant to any similar
income, excise, or other Tax provision of federal, territorial,
state, local, or foreign law; and the term "Tax Return" means any
one of the foregoing Tax Returns.
"Tax Sharing Agreement" shall have the meaning set
forth in Section 5.1(b)(i) hereof.
ARTICLE II
Sale of Stock; Closing
Section 2.1. Purchase and Sale. On the basis of the
representations, warranties, covenants and agreements and subject
to the satisfaction or waiver of the conditions set forth herein,
on the Closing Date, Group shall sell and Buyer shall purchase
the Share. In full payment for the Share, Buyer will pay Group
$90,000,000.00 (the "Purchase Price") at the Closing by wire
transfer of immediately available funds to such account as Group
shall designate in writing on or before the Closing; provided,
however, that if the Insurance Company Indebtedness--Company
Portion is assumed by the Buyer at Closing, or if Group and
Contract Services are released from their obligations to pay the
Insurance Company Indebtedness--Company Portion in connection
with the Closing (other than by reason of the payment thereof by
Group and Contract Services) as a result of agreements between
Buyer and the providers of the Insurance Company Indebtedness--
Company Portion, the Purchase Price shall be reduced by (i) the
principal amount of the Insurance Company Indebtedness--Company
Portion so assumed or released and (ii) fifty percent (50%) of
any yield-maintenance amount and other prepayment premium or
penalty which would have been payable with respect to such
Insurance Company Indebtedness--Company Portion had such
Insurance Company Indebtedness--Company Portion been prepaid at
Closing.
<PAGE>
Section 2.2. Time and Place of Closing. The Closing
shall take place on the Closing Date at 10:00 A.M., Indianapolis
time, at the offices of Barnes & Thornburg, 11 South Meridian
Street, Suite 1313, Indianapolis, Indiana 46204, or at such other
place or time as the parties may agree upon in writing.
ARTICLE III
Representations and Warranties of Group
Group represents and warrants as follows:
Section 3.1. Incorporation; Authorization, etc.
(a) The Company is a corporation duly
incorporated and validly existing under the laws of the State of
Indiana. Each Company Subsidiary is a corporation duly
incorporated, validly existing and, if applicable, in good
standing under the laws of the jurisdiction of its incorporation.
Each of the Company and the Company Subsidiaries (collectively,
the "Consolidated Companies") (i) has all requisite corporate
power and authority to own, lease and operate all of its
properties and assets and to carry on its business as it is now
being conducted; and (ii) is duly qualified to do business and,
if applicable, is in good standing, and is duly licensed,
authorized or qualified to transact business in, each
jurisdiction in which the ownership or lease of real property or
the conduct of its business requires it to be so qualified,
except where the failure to be so qualified or to be in good
standing or to be duly licensed, authorized or qualified to
transact business, would not, individually or in the aggregate,
have a Material Adverse Effect.
(b) Group has the corporate power and authority
to execute and deliver this Agreement and, subject to the
shareholder approval referred to herein, to consummate the
transactions contemplated on its part hereby. The execution,
delivery and performance by Group of this Agreement and the
consummation by Group of the transactions contemplated on its
part hereby have been duly authorized and approved by all
necessary action of its Board of Directors. Except for the
approval of the Stock Purchase by the shareholders of Group, no
other corporate proceedings on the part of Group or the
Consolidated Companies are necessary to authorize the execution
and delivery of this Agreement and the consummation by Group of
the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Group and is a legal, valid and
binding agreement of Group, enforceable against Group in
accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally and except as
the availability of equitable remedies may be limited by
equitable principles of general applicability.
(c) Except as set forth in Schedule 3.1(c) with
respect to clause (ii) below, the execution, delivery and
<PAGE>
performance of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, (i) violate any
provision of Group's or any Consolidated Company's Articles of
Incorporation or Bylaws, or (ii) violate any provision of, or be
an event that is, or with the passage of time will result in, a
violation of or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or lapse
of time or both) any obligation under, or result in the creation
or imposition of any lien, security interest or other encumbrance
upon the Share or any of the Consolidated Companies' assets or
properties pursuant to any provision of, or create any right on
the part of any party to modify, amend or terminate, any
mortgage, lien, lease, agreement, license, instrument, indenture,
law, statute, rule, order, ordinance, regulation, arbitration
award, judgment or decree to which any of the Consolidated
Companies or Group is a party or by which any of them or their
respective properties are bound, that would, individually or in
the aggregate, have a Material Adverse Effect. Upon consummation
of the Stock Purchase at the Closing, Buyer will acquire title to
the Share free and clear of any liens, claims, charges, security
interests, options or other legal or equitable encumbrances or
rights of any third parties.
Section 3.2. Capitalization. The authorized capital
stock of the Company consists of one thousand (1,000) shares of
common stock, no par value, of the Company, of which one (1)
Share is issued and outstanding. The Share (i) is validly
issued, fully paid and nonassessable, and (ii) except for the
items set forth on Schedule 3.2 (all of which Group will cause to
be released at Closing) is owned by Group free and clear of any
liens, claims, charges, security interests, options or other
legal or equitable encumbrances or rights of any third parties.
Except for the items set forth in Schedule 3.2 (all of which
Group will cause to be released at Closing) there are no
outstanding obligations, options, warrants or other rights of any
kind to acquire, from Group, the Company or any Group Affiliate,
shares of capital stock of any class or other equity securities
of the Company, or securities convertible into or exchangeable
for such capital stock or other equity securities of the Company.
Schedule 3.2 sets forth the name of each corporation or other
entity in which the Company owns, directly or indirectly, 50% or
more of the outstanding capital stock or other equity interests
(individually, a "Company Subsidiary," and collectively, the
"Company Subsidiaries") and its jurisdiction of incorporation or
formation. All of the issued and outstanding shares of capital
stock or other equity interests of the Company Subsidiaries
("Subsidiary Shares") are validly issued, fully paid and
nonassessable. There are no outstanding obligations, options,
warrants or other rights of any kind to acquire Subsidiary Shares
from Group, the Consolidated Companies or any Group Affiliate,
except for the items set forth on Schedule 3.2 (all of which,
except for outstanding options, Group will cause to be released
at Closing). The Subsidiary Shares are owned, directly or
indirectly, by the Company free and clear of any liens, claims,
charges, security interests, options or other legal or equitable
<PAGE>
encumbrances or rights of any third parties, except for the items
set forth on Schedule 3.2 (all of which, except for directors'
qualifying shares and outstanding options, Group will cause to be
released at Closing). The Company has no direct or indirect
equity investment in any corporation, association, partnership,
joint venture or other entity except as set forth on Schedule
3.2, and all of such investments are owned free and clear of any
liens, claims, charges, encumbrances, restrictions on voting or
alienation or any other limitation or rights of any third parties
except as disclosed on Schedule 3.2.
Section 3.3. Properties. Except (a) for leased
property, (b) for encumbrances for current Taxes not delinquent
or being contested in good faith, (c) for mechanics', carriers',
workers', repairers' and other similar liens arising or incurred
in the ordinary course of business, (d) for matters set forth in
Schedule 3.3, (e) for such imperfections of title, if any, as do
not materially interfere with a Consolidated Company's present
use of such property or materially impair the marketability of
title to such property, and (f) for purchase money security
interests on personal property which secure only the purchase
price of the relevant property, the Company or a Company
Subsidiary has good and marketable title, free and clear of any
liens, mortgages, security interests, claims, charges, options or
other title defects or encumbrances, to each piece of real and
personal property reflected on or included in the Balance Sheet
and to each piece of real and personal property acquired by the
Company or a Company Subsidiary since the date of the Balance
Sheet (except such properties as have been disposed of in
accordance with the Agreement since the date of the Balance Sheet
in the ordinary course of business, and property purchased in
accordance with the Agreement since the date of the Balance Sheet
in the ordinary course of business and subject to a purchase
money security interest).
Section 3.4. Litigation; Orders. Except as disclosed
in Schedule 3.4, there are no lawsuits, claims, actions,
administrative or arbitration or other proceedings or
governmental investigations pending or, to Group's knowledge,
contemplated or threatened against Group, the Company, the
Company Subsidiaries or any Group Affiliate or any of their
properties or assets or the transactions contemplated by this
Agreement that (i) seek to prevent or invalidate the Stock
Purchase; or (ii) would, if adversely determined, individually or
in the aggregate have a Material Adverse Effect. There are no
judgments or outstanding orders, rulings, injunctions, decrees,
stipulations or awards (whether rendered by a court or
administrative agency, or by arbitration) against Group, the
Company, the Company Subsidiaries or any Group Affiliate or any
of their properties or businesses that would individually or in
the aggregate have a Material Adverse Effect.
Section 3.5. Compliance with Laws. Except as set
forth in Schedule 3.5, the conduct of the business of the
Consolidated Companies complies with all laws and regulations
<PAGE>
applicable to the business of the Consolidated Companies, except
where the failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect. The Consolidated
Companies have obtained all permits, certificates, licenses,
approvals and other authorizations required in connection with
the operation of their businesses, except where the failure to
obtain such permits, certificates, licenses, approvals and other
authorizations would not, individually or in the aggregate, have
a Material Adverse Effect.
Section 3.6. Labor Matters. Schedule 3.6 contains a
listing of each presently existing collective bargaining or other
labor agreement or employment contract, consulting contract or
executive compensation agreement (whether written or otherwise)
to which any of the Consolidated Companies is a party ("Schedule
3.6"). The Consolidated Companies are not involved in, or to
Group's knowledge, threatened with, any labor dispute,
arbitration, lawsuit or administrative proceeding relating to
labor matters involving the employees of the Consolidated
Companies (including without limitation occupational safety and
health standards), except for any such dispute, arbitration,
lawsuit or proceeding which would not, individually or in the
aggregate, have a Material Adverse Effect. Except as disclosed
in Schedule 3.6, no Consolidated Company has materially breached
or otherwise materially failed to comply with any provision of
any collective bargaining or other labor agreement listed in
Schedule 3.6 and there are no significant grievances outstanding
against any Consolidated Company under any such agreement.
Except as disclosed in Schedule 3.6, Group knows of no activities
or proceedings of any labor union (or representatives thereof) to
organize any unorganized employees of any Consolidated Company,
or of any strikes, slowdowns, work stoppages, lockouts, or
threats thereof, by or with respect to any of the employees of
any Consolidated Company. Except as disclosed in Schedule 3.6,
no present or former employee of any Consolidated Company has
given notice to Group or any Consolidated Company of, or to the
knowledge of Group threatened to file, any significant claim
against any Consolidated Company (whether under federal or state
law, under any employment agreement or otherwise) on account of
or for (i) overtime pay, (ii) wages or salary, (iii) vacation
time off or pay in lieu of vacation time off; or (iv) any
violation of any statute, ordinance or regulation relating to
minimum wages or maximum hours of work. Except as disclosed in
Schedule 3.6, no person or party (including without limitation
government agencies of any kind) has given notice to Group or any
Consolidated Company of, or to the knowledge of Group threatened
to file, any material claim against any Consolidated Company
under or arising out of any statute, ordinance or regulation
relating to employer-employee relationships, employee
entitlements, discrimination in employment or employment
practices, immigration or plant closing laws. No employee of
Group, Contract Services or the Company has experienced any
"employment loss," nor has any other event occurred, which would
subject the Company or the Buyer to any liability under the
Workers Adjustment and Retraining Notification Act. The consent
<PAGE>
of any labor union which is a party to one or more of the
collective bargaining or labor agreements listed in Schedule 3.6
is not required to consummate the transactions contemplated by
this Agreement.
Section 3.7. Consents. Except as set forth in
Schedule 3.7 and except for filings with the SEC of a proxy
statement and form of proxy pursuant to the Exchange Act and for
filings with the Interstate Commerce Commission, any state
authorities regulating the provision of transportation services
("State Regulatory Authorities"), such filings, if any, as may be
required to be filed with the Federal Trade Commission ("FTC")
and the Antitrust Division of the United States Department of
Justice ("Antitrust Division") under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 or any comparable, similar,
successor or other law (the "Antitrust Improvements Act"), the
Company and Group are not required to make, file, give or obtain
any registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other
actions of any kind (collectively, "Consents") with, to or from
any foreign, federal or state governmental commission, board or
other regulatory body in connection with the consummation of the
Stock Purchase.
Section 3.8. Employee Benefit Plans. (a) Schedule
3.8 lists all pension, retirement, supplemental retirement, stock
option, stock purchase, stock ownership, savings, stock
appreciation right, profit sharing, deferred compensation,
consulting, bonus, medical, disability, workers' compensation,
vacation, group insurance, severance, employee welfare benefit
plans (as defined in ERISA), employee pension benefit plans (as
defined in ERISA) and other material employee benefit, incentive
and welfare policies, contracts, plans and arrangements, and all
trust agreements related thereto, maintained by or contributed to
by any of the Consolidated Companies in respect of any of the
present or former directors, officers, other employees and/or
consultants of or to any of the Consolidated Companies, or in
which any of such directors, officers, employees or consultants
participates (collectively, "Employee Plans"). Group has
furnished Buyer with the following documents with respect to each
Employee Plan: (i) a true and complete copy of all written
documents comprising such Employee Plan (including but not
limited to amendments, insurance contracts, and individual
agreements relating thereto) or, if there is no such written
document, an accurate and complete description of the Employee
Plan; (ii) the most recent Form 5500 (or such other applicable
Form 5500), including all schedules thereto, if applicable; (iii)
the most recent financial statements and actuarial reports, if
any; (iv) the summary plan description currently in effect and
all material modifications thereof, if any; and (v) the most
recent Internal Revenue Service determination letter, if any.
(b) All Employee Plans have been maintained and
operated substantially in accordance with both their terms and
with the requirements of all applicable statutes, orders, rules
<PAGE>
and regulations, including without limitation ERISA and the Code.
All contributions required to be made to Employee Plans have been
made.
(c) With respect to each of the Employee Plans which
is an employee pension benefit plan (as defined in Section 3(2)
of ERISA) (the "Pension Plans"), to the knowledge of Group: (i)
each Pension Plan which is intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and such
determination letter may still be relied upon, and each related
trust is exempt from taxation under Section 501(a) of the Code;
provided, however, that no such determination letter has been
received in response to pending requests made under the Tax
Reform Act of 1986; (ii) the present value of all benefits vested
and all benefits accrued under each Pension Plan which is subject
to Title IV of ERISA, valued using the assumptions in the most
recent actuarial report, did not, in each case, as of the last
applicable annual valuation date (as indicated on Schedule 3.8),
exceed the value of the assets of the Pension Plan allocable to
such vested or accrued benefits; (iii) there has been no
"prohibited transaction," as such term is defined in Section 4975
of the Code or Section 406 of ERISA, which could subject any
Pension Plan or associated trust, or any of the Consolidated
Companies, to any tax or penalty; (iv) no Pension Plan or any
trust created thereunder has been terminated, nor have there been
any "reportable events" with respect to any Pension Plan, as that
term is defined in Section 4043 of ERISA, which would require the
filing of a notice with the Pension Benefit Guaranty Corporation
("PBGC"); (v) no Pension Plan or any trust created thereunder has
incurred any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA (whether or not waived), and (vi)
no Consolidated Company has incurred any liability to the PBGC
that has not been satisfied, other than liability for premiums.
Except as set forth on Schedule 3.8, with respect to each Pension
Plan that is referred to in Section 413(c) of the Code (a
"Multiple Employer Pension Plan"): (i) none of the Consolidated
Companies would have any liability or obligation to post a bond
under Section 4063 of ERISA if any Consolidated Company were to
withdraw from such Multiple Employer Pension Plan; and (ii) none
of the Consolidated Companies would have any liability under
Section 4064 of ERISA if such Multiple Employer Pension Plan were
to terminate.
(d) No Consolidated Company has any liability for any
post-retirement health, medical or similar benefit of any kind
whatsoever, except as set forth in Schedule 3.8 or as required by
Section 4980B of the Internal Revenue Code.
(e) With respect to each Pension Plan, all
contributions which are due (including all employer contributions
and employee salary reduction contributions) have been paid to
such Pension Plan, all contributions for prior plan years which
are not yet due and with respect to the current plan year for the
period ending on the Closing Date have been (or as of the Closing
<PAGE>
Date will be) accrued on the books and records of the
Consolidated Companies. With respect to all other Employee
Plans, all premiums and other payments which are due have been
paid.
(f) Except as set forth on Schedule 3.8, neither the
execution nor delivery of this Agreement, nor the consummation of
any of the transactions contemplated hereby, will (i) result in
any payment (including without limitation any severance,
unemployment compensation or golden parachute payment) becoming
due to any director or employee of any Consolidated Company from
any of such entities, (ii) increase any benefit otherwise payable
under any of the Employee Plans or (iii) result in the
acceleration of the time of payment of any such benefit.
(g) No Consolidated Company has any current liability,
jointly or otherwise, for any withdrawal liability under Title IV
of ERISA for a complete or partial withdrawal from any
Multiemployer Plan as defined in Section 3(37) of ERISA by any
member of a controlled group of employees (as used in ERISA) or
which any of the Consolidated Companies is or was a member, which
liability has not been fully paid as of the date hereof.
Section 3.9. Brokers, Finders, etc. Group has not
employed, and is not subject to any claim of, any broker, finder,
consultant or intermediary in connection with the transactions
contemplated by this Agreement who might be entitled to a fee or
commission from Buyer or any of the Consolidated Companies upon
the consummation of the transactions contemplated hereby. None
of the Consolidated Companies have employed, or are subject to
any claim of, any broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement
who might be entitled to a fee or commission from Buyer or any of
the Consolidated Companies upon the consummation of the
transactions contemplated hereby.
Section 3.10. Intellectual Properties. Schedule 3.10
contains a listing of all patents, patent applications,
trademarks, trademark registrations and applications therefor,
trade names, trade dress, service marks, copyright registrations
and applications therefor, patent, trademark or trade name
licenses, contracts with employees or others relating in whole or
in part to disclosure, assignment or patenting of any inventions,
discoveries, improvements, processes, formulae or other know-how
of any of the Consolidated Companies and all patent, trademark or
trade name licenses granted by any of the Consolidated Companies
to others which are in force. Except as set forth on Schedule
3.10, the Company is the sole owner in the United States of the
"Mayflower", "Aero-Mayflower" and "ship" trademarks, trade names,
trade dress and service marks and all registrations thereof and
applications therefor for use in connection with the moving and
storage industry, and all other intellectual property rights
listed on Schedule 3.10 hereto, free and clear of all claims,
liens and encumbrances of every kind and pays no royalty to
anyone under or with respect to any of them. The Company has
<PAGE>
registered or applied to register certain of its trademarks,
trade names or service marks in the foreign countries identified
on Schedule 3.10. All of the patents, trademarks, trade names,
service marks, or copyrights shown as registered on Schedule 3.10
and owned by or licensed to any of the Consolidated Companies are
properly registered in the respective countries shown on
Schedule 3.10 and all such registrations are in full force and
effect; and, in order to conduct its business as such business is
currently being conducted, none of the Consolidated Companies
requires any rights under any patent, trademark, trade name,
copyright (or any application or registration respecting any
thereof), process or know-how that it does not already own or
license, except where the failure to own or license such rights
would not have a Material Adverse Effect. Except as disclosed in
Schedule 3.10, neither Group nor any of the Consolidated
Companies have received any notice of, nor to Group's knowledge
is there any conflict with the asserted rights of others with
respect to any intellectual property right used in, or useful to,
the operation of the assets or the conduct of the business of the
Consolidated Companies, or with respect to any license (whether
oral or in writing) related to the assets or the business under
which any Consolidated Company is licensor or licensee, except
where such conflict would not have a Material Adverse Effect.
Except as disclosed in Schedule 3.10, none of the Consolidated
Companies has granted any outstanding licenses or other rights,
either orally or in writing in the United States or elsewhere,
and except as set forth on Schedule 3.10 none has any obligations
to grant licenses or other rights under any of the intellectual
property rights owned by it or licensed to such company. To the
knowledge of Group, except as described in Schedule 3.10 none of
the Consolidated Companies is infringing any intellectual
property right of any other person in any significant manner and,
to Group's knowledge, no other person is infringing any
intellectual property right of any Consolidated Company in any
significant manner.
Section 3.11. Group Reports and Consolidated Companies
Financial Statements. Group has made available to Buyer a true
and complete copy of each report, schedule, and definitive proxy
statement filed by Group since January 1, 1993 in substantially
the form filed with the SEC ("Group's SEC Documents"). Group's
SEC Documents, as of their respective dates, complied in all
material respects with the requirements of the Exchange Act, and
the rules and regulations thereunder. The information pertaining
to the Consolidated Companies in Group's SEC Documents, as of
their respective dates, did not contain any untrue statement of
any material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Group has also delivered to Buyer: (a) the audited
consolidated balance sheet of the Consolidated Companies as of
December 31, 1993 (including the notes thereto, the "Audited
Balance Sheet") and the related audited consolidated statements
of income, changes in stockholders' equity and cash flow for the
fiscal year then ended, together with the report thereon of
<PAGE>
Coopers & Lybrand, independent certified public accountants, and
(b) the Balance Sheet and the related unaudited consolidated
statements of income, changes in stockholders' equity and cash
flow for the nine months ended September 30, 1994, including in
each case the notes (if any) thereto. Such financial statements
and notes are in accordance with the books and records of the
Consolidated Companies and fairly present the financial condition
and results of operations of the Consolidated Companies as of the
respective dates thereof and for the periods therein referred to,
all in accordance with GAAP, subject, in the case of interim
financial statements, to normal recurring year-end adjustments
(which will not, individually or in the aggregate, have a
Material Adverse Effect) and may omit, incorporate by reference
or contain condensed versions of certain information which might
be set forth in full or in footnote disclosures if such interim
financial statements were prepared in full accordance with GAAP.
The Consolidated Companies have maintained a system of internal
accounting controls sufficient to provide reasonable assurances
that: transactions have been executed in accordance with the
general or specific authorization of management of the
Consolidated Companies; transactions have been recorded as
necessary to permit preparation of financial statements and to
maintain accountability for assets; and access to assets is
permitted only in accordance with the general or specific
authorization of management of the Consolidated Companies.
Section 3.12. Books and Records. The books of
account, minute books, stock record books and other records of
the Consolidated Companies, all of which have been made available
to Buyer, are complete and correct in all material respects and
have been maintained in accordance with sound business practices.
The minute books of the Consolidated Companies contain accurate
and complete records of all meetings held of, and corporate
action taken by, the stockholders, the Boards of Directors and
committees of the Boards of Directors of the Consolidated
Companies and no meetings of any such stockholders, Boards of
Directors or committees has been held for which minutes have not
been prepared and are not contained in such minute books. Except
as set forth on Schedule 3.12, the stock record books of the
Consolidated Companies accurately reflect all transactions
involving equity securities of the Consolidated Companies and any
options, warrants and other securities excisable for or
convertible into equity securities of the Consolidated Companies.
At the Closing, all of those books and records will be in the
possession of the Consolidated Companies.
Section 3.13. Absence of Certain Changes or Events.
Since the date of the Balance Sheet and except as otherwise
disclosed in Schedule 3.13 or on any of the other Schedules to
this Agreement, there has not been (i) any material adverse
change in the assets, properties, financial condition or results
of operations of the Consolidated Companies, which has resulted
in a reduction of the shareholder's investment from that
reflected on the Balance Sheet, that is of the net worth of the
Consolidated Companies (calculated in accordance with GAAP), of
<PAGE>
Four Million Dollars ($4,000,000) or more; provided, however,
that (A) normal recurring variations in operating results, (B)
usual and ordinary course of business changes recorded in a
customary manner on the books and records of the Consolidated
Companies consistent with past practice, (C) transactions
specifically allowable under this Agreement, including those
matters set forth on Schedule 5.1, and (D) terminations by less
than a "significant number of the Company's agents" (as defined
in Section 8.1(h)) of their agency relationships with the Company
and the consequences thereof, shall not be deemed to be such a
change; (ii) any action by the Consolidated Companies which, if
taken on or after the date of this Agreement, would require the
consent or approval of Buyer pursuant to Section 5.1(b), except
for actions as to which consent or approval has been given as
provided therein; (iii) any new borrowing or capital expenditure
or commitment by the Consolidated Companies (other than
borrowings and capital expenditures or commitments through the
date hereof in the ordinary course of business and consistent
with past practice); (iv) any material change in the accounting
methods or principles used for financial reporting purposes by
the Consolidated Companies, except as may have been required by a
change in GAAP or as may have been concurred with by the
Company's independent public accountants and disclosed in their
report or the notes to the financial statements; or (v) any
agreement, whether in writing or otherwise, to take any action
described in this Section 3.13.
Section 3.14. List of Properties, Contracts and Other
Data. Group has delivered to the Buyer true and complete lists,
certified as true, accurate and correct by the President or a
Vice President of Group as of the date hereof, of the matters set
forth in the following subsections (a) through (f):
(a) Real Property. All real property owned,
leased (as lessor or lessee) or subject to option (as
optionee), of record or beneficially by any of the
Consolidated Companies ("Schedule 3.14A");
(b) Insurance Policies. All material policies of
insurance maintained by any of the Consolidated
Companies with respect to any of them and covering any
of such company's officers and directors, employees and
agents, properties, buildings, machinery, equipment,
furniture, fixtures and operations, and all reinsurance
agreements and fronting agreements with any person,
including any domestic and foreign carriers ("Schedule
3.14B");
(c) Certain Leases and Contracts. Each (i)
contract or other commitment or document evidencing or
relating to existing or pending agency development
agreements, (ii) other contract or other commitment or
document of any of the Consolidated Companies
evidencing loans with an outstanding principal balance
in excess of $50,000 made by any of the Consolidated
<PAGE>
Companies and collateral therefor (excluding (A)
advances, deferred charges and trade balances arising
in the ordinary course of business and (B) loans to
agents and drivers made to finance the purchase of
equipment in the ordinary course of business, in either
case reflected in agency or driver accounts on the
books and records of the Consolidated Companies) and
(iii) other contract or other commitment or document of
any of the Consolidated Companies (excluding (A)
contracts providing for the provision of moving
services, (B) agency agreements, and (C) independent
owner-operator agreements, in each case entered into in
the ordinary course of business) involving a payment by
or to such company of in the aggregate, more than
$500,000 (in each such case other than leases,
contracts or commitments described in other paragraphs
of this Section 3.14) ("Schedule 3.14C").
(d) Loans and Credit Agreements, etc. Any
mortgages, promissory notes, evidences of indebtedness,
deeds of trusts, indentures, loan or credit agreements,
guarantees, letters of credit, letter of credit
applications and reimbursement agreements or similar
instruments for money borrowed or credit obtained or
guaranteed, in an amount in excess of $100,000, to
which any of the Consolidated Companies is a party, and
all amendments or modifications, if any, thereof
("Schedule 3.14D");
(e) Litigation. A listing of each lawsuit,
administrative proceeding, governmental investigation
or arbitration to which any of the Consolidated
Companies is a party and of which process or other
notice has been served upon such party, whether insured
or uninsured and including but not limited to matters
with respect to which the Consolidated Company is
represented by an insurer or reinsurer ("Schedule
3.14E") excluding (i) cargo claim lawsuits in which the
damages or relief sought is less than $25,000 and (ii)
other lawsuits, administrative proceedings,
governmental investigations and arbitrations in which
the damage or relief sought is less than $100,000; and
(f) Permits, Licenses, etc. A list of any
permits, licenses, operating authorities (interstate
and Canadian), fictitious name registrations, pooling
orders or similar permissions held by each of the
Consolidated Companies and required under any foreign
or federal laws or regulations for the operation of the
current business of such company ("Schedule 3.14F").
Section 3.15. Leases, Contracts and Insurance
Policies. (a) Except as noted on Schedules 3.3, 3.14A, 3.14C and
3.14D, each lease, contract, mortgage, deed of trust, note,
evidence of indebtedness or other agreement or commitment listed
<PAGE>
on such schedules is in full force and effect on the date hereof,
and is legal, valid and binding and enforceable in accordance
with its terms; there has not been any event of default (or, to
the knowledge of Group, any event or condition which with notice
or the lapse of time, or both, would constitute an event of
default or facts or circumstances which make such an event of
default likely to occur subsequent to the date hereof) on the
part of any of the Consolidated Companies; and the performance by
any of the Consolidated Companies of any such lease, contract,
mortgage, deed of trust, note, evidence of indebtedness, or other
agreement or commitment will not have a Material Adverse Effect.
(b) Except as otherwise set forth on Schedule
3.14B, all policies of insurance and agreements listed on
Schedule 3.14B are in full force and effect.
Section 3.16. Equipment. The material fixtures,
equipment (including automobiles, trucks and trailers), plants
and operating assets essential to the operation of the
Consolidated Companies taken as a whole are generally suitable
for the uses for which intended and are in reasonable operating
condition and repair (ordinary wear and tear excepted), free of
material defects in light of their age and prior use and free of
defects that would prevent the continued use thereof by the
Consolidated Companies following the Closing Date in the conduct
of normal operations. Since December 31, 1993, each Consolidated
Company has continued to maintain its plants and equipment
substantially in accordance with its past practices in such
regard.
Section 3.17. Taxes. All Tax Returns that are or were
required to be filed by or with respect to any of the
Consolidated Companies (or any predecessor thereof), either
separately or as a member of an affiliated, combined, unitary or
consolidated group ("Company Returns"), have been filed in
accordance with the legal requirements of each governmental body
with taxing power over them or their assets, except where the
failure to file Company Returns would not, individually or in the
aggregate, have a Material Adverse Effect. All Taxes that have
or may have become due pursuant to Company Returns, or otherwise,
or pursuant to any assessment received by Group or any of the
Consolidated Companies, have been paid, or adequate reserves
(determined in accordance with GAAP) have been provided in the
Audited Balance Sheet and the Balance Sheet, except such Taxes,
if any, as are set forth in Schedule 3.17 and are being contested
in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Audited Balance
Sheet and the Balance Sheet and except where the failure to pay
such Taxes would not, individually or in the aggregate, have a
Material Adverse Effect. Except as provided on Schedule 3.17,
the United States federal income tax returns of Group have been
audited by the Internal Revenue Service or are closed by the
applicable statute of limitations for all taxable years through
1990. All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in
<PAGE>
Schedule 3.17, are being contested in good faith by appropriate
proceedings. Schedule 3.17 describes all adjustments to the
United States federal income tax returns filed by or with respect
to any of the Consolidated Companies for all taxable years since
1987, and the resulting deficiencies proposed by the Internal
Revenue Service. Except as set forth in Schedule 3.17, none of
Group or any of the Consolidated Companies has given or been
requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other person) of
any statute of limitations relating to the payment of Taxes of
any of the Consolidated Companies or for which any of the
Consolidated Companies may be liable. The charges, accruals and
reserves with respect to Taxes on the respective books of each of
the Consolidated Companies are adequate (determined in accordance
with GAAP). To the best knowledge of Group, there exists no
proposed or final Tax assessment with respect to any Company
Return except as disclosed in Schedule 3.17. No consent to the
application of Section 341(f)(2) of the Code has been filed with
respect to any property or assets held or acquired or to be
acquired by any of the Consolidated Companies. All Taxes that
any of the Consolidated Companies is or was required by legal
requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the
proper governmental body or other person, except where the
failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect. All Company Returns are true,
correct and complete in all material respects.
Except as otherwise set forth in Schedule 3.17, (i)
none of the Consolidated Companies has been, since 1970, a member
of an affiliated group of corporations within the meaning of
Section 1504 of the Code (with the exception of Group's
affiliated group as it is currently constituted); (ii) none of
the Consolidated Companies has ever been a member of any
combined, consolidated, or unitary group for state income or
franchise tax purposes and does not file (and is not required to
file) combined, consolidated, or unitary Tax Returns for state
income or franchise tax purposes; (iii) none of the Consolidated
Companies is a party to any agreement, arrangement, or plan that
has resulted or could result in the payment of any "excess
parachute payment" as defined in Section 280G of the Code
(without regard to subsection (b)(4) thereof); (iv) none of the
Consolidated Companies is subject to any joint venture,
partnership, or other arrangement or contract that could be
treated as a partnership for federal income tax purposes; (v)
none of the Consolidated Companies is, or has been, a United
States real property holding corporation within the meaning of
Code section 897(c)(2) during the period specified in Code
section 897(c)(1)(A)(ii); (vi) none of the Consolidated Companies
has agreed, or is otherwise required, to make any adjustment or
report any income under Section 481 of the Code after the Closing
Date by reason of a change in accounting method or otherwise;
(vii) none of the Consolidated Companies has made an election, or
is otherwise required, to treat any asset as owned by another
person pursuant to the so-called "safe harbor lease" provisions
<PAGE>
of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended by the Economic Recovery Tax Act of 1981; (viii) none of
the Consolidated Companies has any asset that directly or
indirectly secures any debt the interest on which is tax-exempt
under Section 103(a) of the Code; and (ix) none of the
Consolidated Companies has any asset that is "tax-exempt use
property" as defined in Section 168(h) of the Code. Set forth in
Schedule 3.17 is (i) a list of all states, territories, and
jurisdictions (whether foreign or domestic) to which any Tax is
properly payable with respect to each of the Consolidated
Companies, except those states where the failure to pay such Tax
would not have a Material Adverse Effect; and (ii) a complete
schedule containing the results of Group's calculation of the
amount of any net operating loss (including built-in losses), net
capital loss, unused investment or other credits (including
without limitation, alternative minimum tax credits), and unused
foreign tax credits allocable to each of the Consolidated
Companies pursuant to Treasury Regulation Section 1.1502-79,
together with the limitations to which those attributes are
currently subject.
Section 3.18. Provision for Claims and Receivables.
(a) Except as disclosed in Schedule 3.18, to the knowledge of
Group, the provision made for self-insured claims, indemnified
claims, cargo claims, loss adjustment expense and other losses on
the Balance Sheet is sufficient for the payment of all such
losses, claims and damages incurred prior to the date thereof and
premium adjustments for actual and anticipated losses, claims and
damages. Except as disclosed in Schedule 3.18, to the knowledge
of Group, the aggregate receivables of the Consolidated Companies
shown on the Balance Sheet arose in the ordinary course of
business and have been collected or are collectible in the
ordinary course of business, consistent with the past practice of
the Consolidated Companies, in the aggregate book amount of all
such receivables, less an amount not in excess of the aggregate
allowance for doubtful accounts provided for in the Balance
Sheet, except to the extent that such receivables are properly
offset by the payor thereof.
(b) Except as disclosed in Schedule 3.18, to the
knowledge of Group, the aggregate receivables of the Consolidated
Companies arising between the date of the Balance Sheet and the
date of this Agreement arose in the ordinary course of business
and have been collected or are collectible in the ordinary course
of business, consistent with the past practice of the
Consolidated Companies, in the aggregate book amount of all such
receivables, less an aggregate allowance for doubtful accounts
which shall be an amount which is in the same proportion to the
aggregate face amount of such receivables as the amount of
allowance for doubtful accounts provided for in the Balance Sheet
bears to the aggregate face amount of receivables provided for
therein, except to the extent that such receivables are properly
offset by the payor thereof.
Section 3.19. Environmental Matters.
<PAGE>
(a) Except as disclosed on Schedule 3.19, and
except for matters which will not, individually or in the
aggregate, have a Material Adverse Effect, neither Group nor any
of the Consolidated Companies has received any written notice of,
nor, to the knowledge of Group, is there any reasonable basis
for, any existing or pending violation, citation, claim or
complaint relating to the business of the Consolidated Companies
or any facility now or previously owned or operated by the
Consolidated Companies arising under any foreign, federal, state
or local laws relating to environmental protection, including
without limitation, the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response Compensation and
Liability Act, the Superfund Amendments and Reauthorization Act,
the Toxic Substances Control Act, the Safe Drinking Water Act,
the Federal Water Pollution Control Act (Clean Water Act), the
Clean Air Act, and antipollution, waste control and disposal and
environmental provisions of similar statutes or ordinances of any
foreign, state or local governmental authorities, and all
regulations, standards and guidelines enacted or promulgated
pursuant thereto and all permits and authorizations issued in
connection therewith (collectively, "Environmental Matters").
Schedule 3.19 sets forth all Environmental Matters and all such
violations, citations, claims and complaints.
(b) Except as set forth in Schedule 3.19: (i) to
the knowledge of Group no underground tanks are now located at
any facility now owned or operated by the Consolidated Companies,
nor were any underground tanks located at any facility previously
owned or operated by the Consolidated Companies on or after May
8, 1986, during all or any portion of the period of such
ownership or operation, (ii) to the knowledge of Group, no
underground tanks have been removed since May 8, 1986, from any
facility now or previously owned or operated by the Consolidated
Companies, during all or any portion of the period of such
ownership or operation, and (iii) to the knowledge of Group,
except for matters which will not, individually or in the
aggregate, have a Material Adverse Effect, no toxic or hazardous
substances have been generated, transported, treated, stored,
released or disposed of on or from or otherwise deposited in or
on or allowed to emanate from any such facility (irrespective of
whether such substances remain at the facility or were
transferred to or otherwise disposed of off site), including,
without limitation, the surface waters and subsurface waters
thereof, which may support a claim or cause of action under any
federal, state or local environmental statutes, ordinances,
regulations or guidelines.
Section 3.20. No Undisclosed Liabilities. Except as
otherwise disclosed in this Agreement or the Schedules hereto
(other than Schedule 3.14E), the Consolidated Companies have no
liabilities or obligations of any nature (known or unknown,
absolute, accrued, contingent or otherwise) of the type required
to be reflected or disclosed in a balance sheet (or the notes
thereto) prepared in accordance with GAAP that were not fully
reflected or reserved against in the Audited Balance Sheet or the
<PAGE>
Balance Sheet, except liabilities and obligations incurred in the
ordinary course of business since the respective dates thereof.
Section 3.21. Investment Company Status. Group is not
an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
Section 3.22. Proxy Statement; Other Information.
None of the information included in any letter to shareholders,
notice of meeting, proxy or information statement or form of
proxy to be distributed to shareholders of Group in connection
with the Stock Purchase (the "Proxy Statement"), if required, or
any schedules required to be filed with the SEC in connection
therewith, except information supplied by Buyer in writing for
inclusion in the Proxy Statement or in such schedules, will, as
of the date the Proxy Statement is first mailed to such
shareholders, and on the date of the meeting of Group's
shareholders and the date of any adjournment thereof, contain any
untrue statement of material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein not misleading.
ARTICLE IV
Representations and Warranties of Buyer
Buyer represents and warrants as follows:
Section 4.1. Organization and Authorization of Buyer.
Buyer (i) is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Missouri,
(ii) has all requisite corporate power and authority to own,
lease and operate its property and assets and to carry on its
business as it is now being conducted and (iii) is duly
authorized by all necessary corporate action to execute, deliver
and perform its obligations under and to consummate the
transactions contemplated by this Agreement.
Section 4.2. Enforceability of Agreement. This
Agreement is a legal, valid and binding agreement of Buyer,
enforceable against Buyer in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors'
rights generally and except as the availability of equitable
remedies may be limited by equitable principles of general
applicability.
Section 4.3. No Violation. The execution, delivery
and performance of this Agreement will (i) not violate any
provision of the Articles of Incorporation or By-Laws of Buyer,
or (ii) not violate any provision of any mortgage, lien, lease,
agreement, license, instrument, order, arbitration award,
judgment or decree, to which Buyer is a party or by which it is
bound that would, individually or in the aggregate, have a
<PAGE>
"material adverse effect" (meaning an effect or effects that
individually or in the aggregate are or are reasonably likely to
be materially adverse to the business, operations or financial
condition of the Buyer and its consolidated subsidiaries taken as
a whole by a dollar amount in excess of $4,000,000.
Section 4.4. Brokers, Finders, etc. Neither Buyer
nor any of its affiliates has employed any broker, finder,
consultant or other intermediary in connection with the
transactions contemplated by this Agreement who might be entitled
to a fee or commission from Group or any Group Affiliate upon the
consummation of the transactions contemplated hereby.
Section 4.5. Approvals, Other Authorizations,
Consents, etc. Except for the filings with the Interstate
Commerce Commission and State Regulatory Authorities and pursuant
to the Antitrust Improvements Act, Buyer is not required to make,
file, give or obtain any consents with, to or from any
governmental commission, board or regulatory authority in
connection with the consummation of the Stock Purchase.
Section 4.6. Investment Purposes. Buyer is
purchasing the Share for investment purposes only, for its own
account, and not with a view toward further sale or distribution
thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). Buyer is an "accredited
investor" as such term is defined in Rule 501 (a) of Regulation D
promulgated pursuant to the Securities Act.
Section 4.7. Buyer's Independent Investigation.
Buyer and its representatives have undertaken an independent
investigation and verification of the business, operations and
financial condition of the Consolidated Companies. Except for
the representations and warranties made by Group in this
Agreement (which representations and warranties shall not survive
the Closing, unless otherwise specified in Section 9.5 of this
Agreement), Buyer acknowledges that there are no representations
or warranties, express or implied, as to the financial condition,
assets, liabilities, equity, operations, business or prospects of
the Consolidated Companies.
Section 4.8. Proxy Statement, Other Information.
None of the information supplied in writing by Buyer for
inclusion in the Proxy Statement of Group in connection with the
Stock Purchase, if required, or any schedules required to be
filed with the SEC in connection therewith, contains or will
contain, at the time of the shareholders' meeting, any untrue
statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading.
ARTICLE V
Covenants of Parties
<PAGE>
Section 5.1. Conduct of Group and Consolidated
Companies. During the period from the date hereof to the Closing
Date:
(a) Operations in the Ordinary Course of
Business. Group shall cause the Consolidated Companies to
conduct their operations according to their ordinary and usual
course of business consistent with past practice and to pay their
respective obligations as they become due, and shall cause each
of the Consolidated Companies to use all reasonable efforts to
preserve intact its business organization and to maintain its
assets and properties, and all insurance and claims reserves,
consistent with past practice and in accordance with applicable
laws and regulations.
(b) Forbearances by Group and the Consolidated
Companies. Except as contemplated by this Agreement, or as
disclosed in Schedule 5.1 or with the written consent, or at the
written request, of Buyer, Group shall not cause or permit any of
the Consolidated Companies, directly or indirectly, to:
(i) (A) amend their Articles of
Incorporation or Bylaws; (B) declare, set aside or pay any
dividend or other distribution or payment in cash, stock or
property in respect of shares of the Company's capital stock,
except for (1) cash dividends to pay operating expenses of Group
(excluding Taxes) in amounts consistent with past practices for
comparable periods in last fiscal year, or (2) cash payments (if
any) required pursuant to that certain Tax Sharing Agreement
dated as of January 1, 1993, by and among Group, the Company and
Contract Services (the "Tax Sharing Agreement"); (C) effect any
split, combination or other similar change in the outstanding
shares of their capital stock, (D) redeem, purchase or otherwise
acquire any shares of capital stock or other securities of the
Company; or (E) settle or compromise any lawsuit, claim or other
proceeding to which any of the Consolidated Companies or its
assets is a party, except in the ordinary course of business and
consistent with past practice and provided that (1) if a
Consolidated Company is a defendant, such compromise or
settlement does not entail the payment of consideration valued in
excess of $100,000 over and above the amount of insurance for or
reserves allocated to the relevant claim or type of claim, (2) if
a Consolidated Company is a plaintiff, such compromise or
settlement does not entail the release of claims valued in excess
of $100,000, and (3) such compromise or settlement otherwise will
not materially impair the ability of such Consolidated Company to
conduct its business;
(ii) (A) issue or sell, or permit any
subsidiary to issue or sell, any shares of its capital stock or
any securities or obligations convertible into or exchangeable
for, or give any person any right to subscribe for or acquire
from the Consolidated Companies, any shares of capital stock of
the Consolidated Companies, except as listed on Schedule 5.1; (B)
acquire the stock or any assets of any agent or any business as a
going concern; (C) sell, lease or otherwise dispose of any assets
<PAGE>
or properties which are material to the Consolidated Companies
taken as a whole, other than in the ordinary course of business
consistent with past practice and for reasonably equivalent
consideration; (D) waive, release, grant or transfer any rights
of material value or modify or change in any material respect any
existing material license, lease, contract or other document,
other than (y) in the ordinary course of business consistent with
past practice and for reasonably equivalent consideration or (z)
entrance into the pending agency development agreements on the
terms described in Schedule 3.14C; (E) encumber, mortgage or
pledge any assets or properties of the Consolidated Companies,
except for encumbrances described in clauses (b), (c), (d) (with
respect to after-acquired collateral), (e), and (f) of Section
3.3.; (F) foreclose on or accept a deed in lieu of foreclosure
with respect to any real property; (G) enter into any sale and
leaseback transaction, other than a sale and leaseback of the
Alexandria, Virginia property upon commercially reasonable terms;
(H) serve as a credit provider by extending any credit to any
person (other than committed advances required under existing
credit facilities), enter into any new credit agreement with any
person, or extend or renew any existing credit facility with any
person, other than (w) the pending agency development agreements
on the terms described in Schedule 3.14C, (x) advances, deferred
charges and trade balances, (y) loans to agents and drivers made
to finance the purchase of equipment in the ordinary course of
business which are reflected in agency or driver accounts and on
the books and records of the Consolidated Companies, and (z)
other loans in an individual amount not in excess of $10,000, in
each case in the ordinary course of business and consistent with
past practice; or (I) utilize current assets or any borrowings to
prepay or retire any form of long-term debt except (y) in
accordance with regularly scheduled debt repayment or (z) with
the net cash proceeds from a sale and leaseback of the
Alexandria, Virginia, property.
(iii) (A) grant any general increase in the
compensation of directors, officers, non-union employees or
consultants (including any such increase pursuant to any bonus,
pension, profit sharing or other plan or commitment) or any
increase in the compensation payable to or to become payable to
any director, officer, non-union employee or consultant, except
for (y) increases in the ordinary course of business and in
amounts consistent with past practice, and (z) increases
described on Schedule 5.1 which occur by reason of the Stock
Purchase pursuant to this Agreement, (B) enter into or amend any
collective bargaining agreement, (C) adopt any new director,
officer, employee or consultant compensation plan or benefit
plan, whether formal or informal, or increase in any manner the
compensation or benefits (other than compensation increases in
accordance with its customary compensation practices and related
changes in benefits) of any of its present or former directors,
officers, employees or consultants or pay or agree to pay any
pension or retirement allowance not required by any existing
employee agreement or benefit plan to any such present or former
directors, officers, employees or consultants, commit itself to
<PAGE>
an employment agreement or benefit plan with or for the benefit
of any present or former director, officer, employee, consultant
or other person, or alter, amend, terminate in whole or in part,
or curtail or permanently discontinue any employee welfare plan,
compensation or benefit plan, (D) make or commit to any capital
expenditures in an individual amount equal to or greater than
$10,000 or in an aggregate amount equal to or greater than
$100,000, except for (y) the items set forth in Schedule 5.1 and
(z) in accordance with the 1995 capital budget of the
Consolidated Companies following written approval of such budget
by the Buyer prior to December 19, 1994, which approval shall not
be unreasonably withheld, or (E) incur or otherwise become liable
for any material indebtedness other than (x) refinancings of
existing indebtedness of the Consolidated Companies incurred in
the ordinary course of business and consistent with past
practice, (y) draws on existing lines of credit of the
Consolidated Companies which are either (I) incurred in the
ordinary course of business consistent with past practice, or
(II) the proceeds of which are utilized to fund reimbursement
obligations under letters of credit numbered STO4593, STO4591 and
STO4592 identified on Schedule 3.14D following a draw by the
beneficiary under such letters of credit up to an aggregate
maximum amount of $6,552,000 plus any additional amounts accrued
on the underlying payable in the ordinary course of business
consistent with past practice and (z) reimbursement obligations
with respect to a letter of credit with a face amount not in
excess of $452,000 issued in connection with the sale and
leaseback of the Alexandria, Virginia property, all of the
foregoing to be on commercially reasonable terms; or
(iv) enter into any agreement or commitment
to do or permit any of the actions described in clauses (i)
through (iii) which are prohibited by or require the prior
written consent of Buyer pursuant to this Section 5.1.
Section 5.2. Release of Certain Use Rights. Subject
to the license referenced in Section 7.5, on or prior to the
Closing Date, Group and each Group Affiliate shall transfer,
assign and release to the Consolidated Companies, for no
additional consideration, all of their right, title and interest
in and to the names "Mayflower", "Aero-Mayflower" and the
trademarks, trade dress and service marks relating thereto, and
all other items described in Schedule 3.10 and all licenses and
other rights of use with respect to any of the foregoing; and,
except for the license referenced in Section 7.5, any agreements
relating thereto shall be terminated.
Section 5.3. Obtaining Consents and Conditions to
Closing.
(a) Obtaining Consents. Buyer shall have primary
responsibility for the preparation and filing of all applications
and filings with the Interstate Commerce Commission, the FTC and
the Antitrust Division with respect to the consummation of the
Stock Purchase. Group shall have responsibility for the
preparation and filing of all filings with the SEC. Group and
<PAGE>
Buyer shall cooperate with each other and shall use all
reasonable efforts to make promptly all registrations, filings,
applications, and proxy statements, to give all notices and to
obtain all governmental consents, transfers, approvals, orders,
qualifications and waivers necessary for the consummation of the
Stock Purchase, or that may thereafter be reasonably necessary to
effect the transfer, grant or renewal of any other licenses,
approvals and authorizations. Group shall bear the expense of
all filings made by Group or any of the Consolidated Companies,
and Buyer shall bear the expense of all filings made by Buyer,
with any regulatory or governmental authorities, including but
not limited to all filings with (i) the Interstate Commerce
Commission, (ii) State Regulatory Authorities and (iii) the
Antitrust Division or the Federal Trade Commission pursuant to
the Antitrust Improvements Act, which are necessary or desirable
in connection with the Stock Purchase.
(b) Conditions to Closing. Group and Buyer each
shall use all reasonable efforts to cause its representations and
warranties in this Agreement to be true and correct as of the
Closing Date, and to cause each condition to Closing which is
reasonably within its control to be satisfied.
Section 5.4. Tax Provisions.
(a) All transfer, documentary, sales, use, stamp,
registration, value added and other such taxes and fees
(including any penalties and interest) incurred by Group or the
Consolidated Companies in connection with the sale of the Share
by Group (including any New York State Gains Tax, New York City
Transfer Tax and any similar Tax imposed in other states or
subdivisions) shall be paid by Group, and Group will, at its own
expense, file all necessary tax returns and other documentation
with respect to all such transfer, documentary, sales, use,
stamp, registration, value added and other Taxes and fees, and,
if required by applicable law, Buyer will join in the execution
of any such tax returns and other documentation.
(b) Buyer covenants that, without the written
consent of Group, it will not, nor will it cause or permit the
Consolidated Companies or any affiliate of Buyer (i) to take any
action on the Closing Date other than in the ordinary course of
business, including but not limited to the distribution of any
dividend or the effectuation of any redemption that would give
rise to additional liability of Group under Section 5.6 of this
Agreement, (ii) to make any election or deemed election under
Section 338 of the Code, or (iii) to make or change any Tax
election, amend any Tax Return or take any Tax position on any
Tax Return or take any other action (other than in the defense of
any audit or assessment), to the extent any of the foregoing
results in any increased Tax liability or reduction of any Tax
credits or other favorable Tax attributes of Group in respect of
any Tax period commencing on or before the Closing Date. Buyer
agrees that Group is to have no liability for any Tax (i)
resulting from any action, referred to in the preceding sentence,
of the Consolidated Companies, Buyer or any affiliate of Buyer on
<PAGE>
or after the Closing Date, or (ii) in respect of (a) any
combined, unitary or consolidated Company Return filed or
required to be filed by any Consolidated Company (or any
predecessor thereof (other than Mayflower Group, Inc. [EIN: 35-
1291852])) that includes only the Consolidated Companies (or any
predecessor thereof (other than Mayflower Group, Inc. [EIN: 35-
1291852])), or (b) for any Company Return (other than any
combined, unitary or consolidated Company Return) filed or
required to be filed by any of the Consolidated Companies (or any
predecessor thereof (other than Mayflower Group, Inc. [EIN: 35-
1291852])), and agrees to indemnify and hold harmless Group
against any such Tax. Group agrees to give prompt notice to
Buyer of the assertion of any claim, or the commencement of any
action or proceeding, in respect of which indemnity may be sought
under this section. Buyer may participate in and assume the
defense of any such suit, action or proceeding at its own
expense. If Buyer assumes such defense, Group shall have the
right (but not the duty) to participate in the defense thereof
and to employ counsel, at its own expense, separate from the
counsel employed by Buyer. Whether or not Group chooses to
defend or prosecute the claim, the parties hereto shall cooperate
in the defense or prosecution thereof. Except with regard to
claims and potential claims of which Buyer has received notice
hereunder, this Section 5.4(b) shall be of no further force or
effect after the third anniversary of the later of (i) the date
on which Group files its federal income tax return for the period
that includes the Closing Date, and (ii) the date on which such
return was required to be filed (determined without regard to
extensions).
(c) Group covenants that neither it nor any Group
Affiliate will, without the written consent of Buyer (except for
the election to retain net operating loss carryovers as
contemplated by Section 5.6(f) hereof), (i) take any action on or
before the Closing Date (except any action required under this
Agreement) other than in the ordinary course of business that
would give rise to additional liability of the Consolidated
Companies under Section 5.6 of this Agreement, (ii) take any
action required to be taken under this Agreement in a manner that
would give rise to additional liability of the Consolidated
Companies under Section 5.6 of this Agreement (including the
settlement of intercompany accounts, as described in Section
5.10, in a manner that results in Taxable income), or (iii) make
or change any Tax election, amend any Tax Return or take any Tax
position on any Tax Return or take any other action (other than
in the defense of any audit or assessment), to the extent any of
the foregoing results in increased Tax liability or reduction of
any Tax credits or other favorable Tax attributes of the
Consolidated Companies in respect of any Tax period, or suffer or
permit any of the Consolidated Companies to undertake (on or
before the Closing Date) any of the actions set forth in this
clause (iii). Group agrees that neither Buyer, any affiliate of
Buyer, nor any of the Consolidated Companies is to have any
liability for any Tax (i) resulting from any action, referred to
in the preceding sentence, of Group, any Group Affiliate, or any
<PAGE>
of the Consolidated Companies, or (ii) in respect of (a) any
combined, unitary or consolidated Tax Return (other than a
Company Return filed or required to be filed by any Consolidated
Company (or any predecessor thereof other than Mayflower Group,
Inc. [EIN: 35-1291852]) that includes only the Consolidated
Companies (or any predecessor thereof other than Mayflower Group,
Inc. [EIN: 35-1291852])), or (b) any Tax Return (other than any
combined, unitary, or consolidated Tax Return) filed or required
to be filed by Group (or any predecessor thereof), any Group
Affiliate (or any predecessor thereof) or Mayflower Group, Inc.
[EIN: 35-1291852] (or any predecessor thereof). On or before the
Closing Date, Group shall enter into, and shall cause Contract
Services to enter into, separate agreements pursuant to which
each shall undertake (jointly and severally) to indemnify and
hold Buyer, its affiliates and the Consolidated Companies
harmless against any Tax described in the preceding sentence.
The indemnification agreements (i) shall have a duration
coextensive with this Section 5.4(c), (ii) shall provide that
Buyer will be notified of any proposed liquidation, (iii) shall
provide that Buyer will be provided a copy of any plan of
liquidation before it is adopted and will be provided a copy of
any such plan that is adopted, and (iv) Contract Services'
indemnification agreement (but not Group's) shall provide that
any such plan of liquidation shall require (and be contingent
upon) the prompt filing of a request for prompt assessment
pursuant to Section 6501(d) of the Code (with a copy to Buyer).
Buyer agrees to give prompt notice to Group of the assertion of
any claim, or the commencement of any action or proceeding, in
respect of which indemnity may be sought under this section.
Group may participate in and assume the defense of any such suit,
action or proceeding at its own expense. If Group assumes such
defense, Buyer shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by Group.
Whether or not Buyer chooses to defend or prosecute the claim,
the parties hereto shall cooperate in the defense or prosecution
thereof. Except with regard to claims and potential claims of
which Group has received notice hereunder, this Section 5.4(c)
shall be of no further force or effect after the third
anniversary of the later of (i) the date on which Group files its
federal income tax return for the period that includes the
Closing Date, and (ii) the date on which such return was required
to be filed (determined without regard to extensions). Neither
Group nor any Group Affiliate shall waive or extend any statutory
period for assessment or collection of any Tax shown (or required
to be shown) on any Tax Return for the Tax period that includes
the Closing Date.
Section 5.5. Cooperation on Tax Matters. Buyer and
Group agree to furnish or cause to be furnished to each other,
upon request, as promptly as practicable, such information
(including access to books and records) and assistance relating
to the Consolidated Companies as is reasonably necessary for the
filing of any return, for the preparation for any audit, for the
calculation of payments required pursuant to Section 5.6, and for
<PAGE>
the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment. Buyer and Group agree to
retain or cause to be retained all books and records pertinent to
the Consolidated Companies until the applicable period for
assessment under applicable law (giving effect to any and all
extensions or waivers) has expired, and to abide by or cause the
observance of all record retention agreements entered into with
any Taxing Authority. Buyer and Group agree to cause the
Consolidated Companies to give Buyer and Group reasonable notice
prior to discarding or destroying any such books and records
relating to Tax matters for the Consolidated Companies and, if
Buyer or Group so requests, the Consolidated Companies shall
allow Buyer or Group to take possession of such books and
records. Buyer and Group shall cooperate with each other in the
conduct of any audit or other proceedings involving the
Consolidated Companies for any Tax purposes and each shall
execute and deliver such powers of attorney and other documents
as are necessary to carry out the intent of this Section 5.5.
Section 5.6. Tax Sharing.
(a) On the later of September 30, 1995 or one
hundred twenty (120) days after the Closing Date, Buyer shall
deliver to Group a pro forma Federal Tax return (the "Pro Forma
Federal Return") and, with regard to each state or local Tax
described in Section 3 of the Tax Sharing Agreement, a pro forma
Combined State Return (in each case, a "Pro Forma Combined State
Return"), for the period beginning January 1, 1995 and ending on
the close of business on the Closing Date (such period, the
"Short Period"). Unless Group timely objects as specified in
Section 5.6(b) hereof, the Pro Forma Federal Return shall be the
Final Pro Forma Federal Return and each Pro Forma Combined State
Return shall be the Final Pro Forma Combined State Return,
binding on the parties without further adjustment.
(b) Group shall have the right to review all work
papers and procedures used to prepare the Pro Forma Returns. If
Group, within 30 days after delivery of the Pro Forma Returns,
notifies Buyer that it objects to any items on (i) the Pro Forma
Federal Return, or (ii) any Pro Forma Combined State Return,
Buyer and Group shall negotiate in good faith and use reasonable
efforts to resolve such items. Upon resolution of all such
items, the relevant return shall be adjusted to reflect such
resolution, and as so adjusted shall be (i) with respect to the
Pro Forma Federal Return, the corresponding Final Pro Forma
Federal Return, and (ii) with respect to the relevant Pro Forma
Combined State Return, the corresponding Final Pro Forma Combined
State Return, binding on the parties without further adjustment.
(c) Within forty (40) days after delivery of the
Pro Forma Returns, Buyer shall cause the Consolidated Companies
to pay Group, or Group shall pay the Consolidated Companies, as
appropriate, an amount reflecting the difference between (i) the
sum of the Tax liabilities determined with respect to the Final
Pro Forma Federal Return and each Final Pro Forma Combined State
<PAGE>
Return, and (ii) the aggregate of all amounts previously paid by
the Consolidated Companies to Group with respect thereto.
(d) The calculation of the amount of Taxable
income(s) set forth on each Pro Forma Return (and on each Final
Pro Forma Return) shall be made in a manner consistent with the
principles set forth in Section 1(vi) of the Tax Sharing
Agreement and past practices; provided that for all purposes of
each Pro Forma Return (and each Final Pro Forma Return) (i) only
those Consolidated Companies which are members of the "Transit
Group" (as the quoted term is defined in the Tax Sharing
Agreement) shall be taken into account in the calculation of such
Taxable income; (ii) the Short Period shall be treated as one
complete Taxable year; (iii) items shall be allocated to the
Short Period in the manner set forth in Treasury Regulation
Section 1.1502-76(b)(2)(i) and not on the basis of ratable
allocation pursuant to either (A) Treasury Regulation Section
1.1502-76(b)(2)(ii) or (B) Treasury Regulation Section 1.1502-
76(b)(2)(iii); (iv) items and limitations attributable to, or
resulting from, the Stock Purchase shall not be taken into
account (including without limitation, the restoration of
deferred intercompany gain or loss, loss utilization limitations,
and the elections described in Section 5.6(f) hereof), and (v)
deductions attributable to payments made by Group or any Group
Affiliate with its own funds (i.e., payments that, for tax
purposes, are treated as if made by the Company) shall not be
taken into account, but only to the extent such deductions are
attributable to payments required to be made by this Agreement or
by the employment and termination benefits agreements for senior
executives (including without limitation, deductions attributable
to the prepayment of the Insurance Company Indebtedness--Company
Portion). The calculation of the amount of Tax liability with
respect to each Taxable income determined under the preceding
sentence shall be made as if the applicable Tax described in
Sections 1(a)(i), 1(a)(iii) and 3 of the Tax Sharing Agreement
were imposed at the marginal rate applicable to the first dollar
of Taxable income in excess of $8,000,000 (determined without
regard to any surtax exemption recapture, including without
limitation, that imposed by the flush language of Section
11(b)(1)(D) of the Code as in effect on the date hereof). If the
Taxable income (as determined hereunder) on any Final Pro Forma
Return is a net operating loss, the amount of such loss which
Group is permitted to absorb under applicable Tax law in the
taxable year in which the Closing Date occurs (determined without
regard to Group's tax attributes or Group's actual ability to
absorb) shall be a "Net Loss" (for example and without
limitation, a Short Period net operating loss for federal income
Tax purposes would be a "Net Loss" in its entirety); the value of
such Net Loss shall be the product of such Net Loss and the
appropriate rate of Tax described in the preceding sentence
(which in the case of a net operating loss for federal income tax
purposes would be the highest marginal rate specified in Section
1(a)(iii) of the Tax Sharing Agreement); and the value so
determined shall be an "amount previously paid by the
<PAGE>
Consolidated Companies to Group with respect thereto" for
purposes of Section 5.6(c) hereof. The preceding sentence shall
not apply to capital losses, Tax credits or federal alternative
minimum Tax loss.
(e) Group will immediately pay to Buyer an amount
equal to any Tax refund (or reduction in Group's Tax liability)
resulting from a carryback of a post-acquisition Tax attribute of
any of the Consolidated Companies into the Group consolidated tax
return, when such refund or reduction is realized by Group.
Group will cooperate with the Consolidated Companies in obtaining
such refunds (or reduction in Tax liability), including through
the filing of amended Tax returns or refund claims. Buyer agrees
to indemnify Group for any Taxes resulting from the disallowance
of such post acquisition Tax attribute on audit or otherwise (but
such indemnity shall not exceed the amount paid by Group to Buyer
plus interest, penalties and additions attributable to such
disallowance) and any costs incurred by Group in defending such
audit.
For purposes of this Section 5.6(e), (i) the
obligations of Group under this Section 5.6(e) are limited to
post-acquisition Tax attributes with respect to which the
Consolidated Companies cannot elect to waive a carryback, and
(ii) post-acquisition Tax attributes carried back by the
Consolidated Companies shall be considered to produce a refund
(or reduce liability) only after all Tax attributes of Group and
the Group Affiliates have been used or deemed used (in the case
of any such Group or Group Affiliate Tax attribute which could
have been used in the absence of the carryback).
(f) Group may elect to retain any net operating
loss carryovers of the Consolidated Companies to the extent
permitted under Treasury Regulation Section 1.1502-20(g) or under
any similar provision applicable with respect to any state or
local Tax described in Section 3 of the Tax Sharing Agreement.
At Group's request, the Buyer will cause any of the Consolidated
Companies to join with Group in filing any necessary elections
under Treasury Regulation Section 1.1502-20(g) or under any such
similar provision.
(g) With respect to the 1994 Taxable year and
simultaneously with the payment described in Section 5.6(c),
Buyer shall cause the Consolidated Companies to pay Group, or
Group shall pay the Consolidated Companies, as appropriate, an
amount calculated in a manner consistent with the principles of
Section 2(d) of the Tax Sharing Agreement (relating to the final
adjustments for Federal and state income tax purposes) and past
practices, but determined without regard to payments or
adjustments attributable to any other Tax year or Taxes
attributable to transactions contemplated by this Agreement.
(h) Any payment required under this Section 5.6
and not made when due shall bear interest at the rate per annum
<PAGE>
determined, from time to time, under the provisions of Section
6621 (a)(2) of the Code for each day until paid.
Section 5.7. Termination of Existing Tax Sharing
Agreements. Any and all existing Tax sharing agreements between
the Consolidated Companies and Group or any Group Affiliate
(including the Tax Sharing Agreement) shall be terminated as of
the Closing Date. After such date neither the Consolidated
Companies nor Group and Group Affiliates shall have any further
rights or liabilities thereunder and this Agreement shall be
deemed to be the sole Tax sharing agreement relating to the
Consolidated Companies for all Tax periods. Notwithstanding the
termination of the Tax Sharing Agreement, the principles of such
agreement shall be applicable as and to the extent set forth in
Section 5.6 hereof.
Section 5.8. Access and Investigation. During the
period from the date of this Agreement to the Closing Date, Group
shall, and shall cause each Consolidated Company and its
officers, employees, agents and representatives to, afford Buyer
and its representatives (including legal counsel, financial and
other advisors, consultants and independent accountants) full
access during normal business hours to such Consolidated
Company's personnel, properties, contracts, books and records and
other documents and data, including tax returns and records of or
relating to such Consolidated Company maintained by Group, any of
the Consolidated Companies and their present and former
accounting firms, and shall furnish Buyer with copies of all
documents and with such additional financial and operating data
and other information as Buyer shall, from time to time,
reasonably request, provided, that all such access and
information shall be supplied in such a way to minimize
disruption of the businesses of the Consolidated Companies.
During such investigation Buyer and its representatives shall
have the right to make copies of such contracts, books and
records, tax returns and other documents and data as it may deem
advisable. Without limiting the generality of the foregoing,
Buyer shall have the right at Buyer's expense to conduct such
environmental assessments as Buyer, in its sole and absolute
discretion, may deem appropriate pertaining to all facilities and
properties owned, leased or otherwise operated by any of the
Consolidated Companies. Buyer's right to conduct environmental
assessments shall include the right to perform such sampling as
Buyer deems appropriate and Group agrees to provide all necessary
access for such assessments and further agrees to make facility
personnel available for interviews by Buyer and/or its
consultants in connection with such assessments. Group
specifically consents to authorized representatives of Buyer, in
the presence of a representative of the Company (which
representative of the Company should be reasonably available at
the request of Buyer), to meet at any time or times following the
execution of this Agreement with one or more of the Company's
agents to discuss Buyer's business plans, opportunities available
to the Company's agents following Buyer's completion of the Stock
Purchase, and matters reasonably related thereto. Buyer agrees
<PAGE>
that from the date of this Agreement to the earlier of (i) the
Closing or (ii) if the Closing does not occur, twelve months
following the date of termination of this Agreement, neither the
Buyer nor any of its affiliates will enter into any agency
agreement with any agent of Company. Group agrees that from the
date of this Agreement to the earlier of (i) the Closing or (ii)
if the Closing does not occur, twelve months following the
termination of this Agreement, neither Group nor any of the
Consolidated Companies will enter into any agency agreement with
any agent of United Van Lines, Inc.
Section 5.9. Further Assurances. Group and Buyer
agree that, from time to time, whether at or after the Closing
Date, each of them will execute and deliver such further
instruments of conveyance and transfer and take such other action
as may be reasonably appropriate to carry out the terms of this
Agreement. Group and Buyer further agree that they will not take
any action that will materially impede or delay the consummation
of the Stock Purchase or the ability of Buyer to obtain requisite
regulatory approval.
Section 5.10. Intercompany Accounts. Except as
otherwise expressly provided in this Agreement, Group covenants
to Buyer that all intercompany transactions between Group and any
Group Affiliates (on the one hand) and each of the Consolidated
Companies (on the other hand) shall terminate no later than the
Closing. At or immediately prior to the Closing, Group shall
cause the Consolidated Companies to repay in full all
indebtedness owed by them to Group and Group Affiliates, and
Group and the Group Affiliates will repay in full all
indebtedness owed to the Consolidated Companies, so that as of
the Closing Date there shall be no Intercompany Receivables or
Intercompany Debt.
Section 5.11. Negotiations with Others. During the
period from the date of this Agreement to the Closing Date, or
until such date as this Agreement may be terminated in accordance
with Article VIII, neither Group nor any Group Affiliate nor any
of their directors, officers, agents or associates nor any
investment banking firm or financial advisor retained by or
acting on behalf of Group or any Group Affiliate shall, directly
or indirectly, solicit or initiate discussions with, or agree
with, any corporation, partnership, person or other entity (other
than Buyer) concerning any possible proposal regarding a sale or
purchase of the Share or a merger, consolidation, sale or
purchase of assets or other similar transaction directly or
indirectly involving any Consolidated Company or any subsidiary,
division or major asset of such Consolidated Company (each, an
"Acquisition Proposal"). Further, during such period and subject
to the fiduciary duties of the directors of Group, neither Group
nor any of its subsidiaries nor any of their directors, officers,
agents or associates nor any investment banking firm or financial
advisor retained by or acting on behalf of Group, or any Group
Affiliate shall, directly or indirectly, without the prior
written consent of Buyer, engage in negotiations with, or provide
<PAGE>
any information (other than publicly available information) to,
any corporation, partnership, person or other entity (other than
Buyer) concerning any Acquisition Proposal. In the event that
Group receives any request for information or any unsolicited
Acquisition Proposal, Group shall promptly notify Buyer and
furnish Buyer a copy of any written communications with respect
thereto.
Nothing contained herein or in the Confidentiality
Agreement shall be construed to prohibit Group from making any
disclosure which, in the judgment of its Board of Directors, on
advice of its counsel, is required by law.
Nothing contained herein or in the Confidentiality
Agreement shall be construed to prohibit Buyer from making any
disclosure which, in the judgment of its Board of Directors, on
advice of its counsel, is required by law.
Section 5.12. Termination of Group Guaranties. Prior
to the Closing Date, Group, the Company and Buyer will cooperate
to cause any guaranties of any contracts or obligations of the
Consolidated Companies by Group to be terminated or replaced by a
comparable guaranty of Buyer as of the Closing Date.
Section 5.13. Notification and Remedies. Between the
date of this Agreement and the Closing Date, each party hereto
shall promptly notify the other party if it becomes aware of any
fact or condition which makes materially untrue any
representation or materially breaches any warranty made by the
notifying or the notified party in this Agreement or if it
becomes aware of the occurrence after the date of this Agreement,
but prior to Closing, of any fact or condition that would (except
as expressly contemplated by this Agreement) make materially
untrue any such representation or materially breach any such
warranty had such representation or warranty been made as of the
time of such occurrence or discovery of such fact or condition.
The party making such representations and warranties shall
promptly commence using its best efforts to remedy any such
misrepresentation or breach as soon as possible, and shall keep
the other party apprised of the progress of all remedial actions.
Section 5.14. Confidentiality. Buyer and Group hereby
acknowledge that they are parties to a Confidentiality Agreement
dated as of August 18, 1994 and that, except as otherwise
provided herein, such agreement remains a binding obligation of
each of Buyer and Group notwithstanding the execution of this
Agreement. Notwithstanding the terms of the Confidentiality
Agreement, the Confidentiality Agreement shall automatically
terminate simultaneously with the Closing as it relates to Group
and Buyer.
Section 5.15. Letters of Credit. The Buyer, Group and
the Company will cooperate to complete as of the Closing Date
either (at Buyer's option) the substitution of letters of credit
issued on behalf of the Buyer for (and return of the substituted
<PAGE>
letters of credit to Group), or the release of Group and the
Group Affiliates from any liability with respect to, letters of
credit posted by Group and/or any Consolidated Company which
secure any Consolidated Company's obligations to insurance
companies under its insurance program and to providers of surety
and performance bonds issued for the benefit of such Consolidated
Company in the ordinary course of its business.
Section 5.16. Provision for Claims. Except as
disclosed in Schedule 5.16, to the knowledge of Group, Group
shall make, in accordance with GAAP, provision for self-insured
claims, indemnified claims, cargo claims, loss adjustment expense
and other losses on each balance sheet of the Consolidated
Companies furnished pursuant to Section 5.17 which will be
sufficient for the payment of all such reasonably anticipated
losses, claims and damages incurred prior to the date of such
balance sheet, together with premium adjustments for actual and
anticipated losses, claims and damages.
Section 5.17. Filings and Other Information. Group
shall provide Buyer with true, correct and complete copies of all
of the following documents which relate to any date following, or
any periods ending after, the date of this Agreement through the
earlier of Closing or the date of termination of this Agreement
(i) all filings made by Group with the SEC, (ii) any monthly,
quarterly and annual financial statements (including without
limitation balance sheet, income statement and statement of cash
flows) for each of the Consolidated Companies and for the
Consolidated Companies on a consolidated basis, and (iii) all
notices and other documents mailed or otherwise distributed by
Group to its shareholders; all within three (3) days after the
date of filing, preparation, mailing or distribution thereof.
Section 5.18. Group's Special Meeting of Shareholders.
Group's board of directors shall call a special meeting of
shareholders as soon as practicable in accordance with applicable
law and Group's articles of incorporation and bylaws to permit
its shareholders to act upon the Stock Purchase by Buyer.
Subject to Section 8.1(g), Group's board of directors shall
recommend that the shareholders of Group approve the Stock
Purchase by Buyer.
Section 5.19. Covenant of TCW. Subject to
Section 8.1(g) and Indiana law, TCW shall continue to
beneficially own (within the meaning of Rule 13e-3 under the
Exchange Act) all shares of common stock of Group owned as of the
date hereof (except for sales permitted under Rule 144 of the
Securities Act) and shall vote all such shares beneficially owned
by TCW to approve the Stock Purchase by Buyer at the special
meeting of shareholders of Group called by Group's board of
directors in accordance with Section 5.18.
<PAGE>
ARTICLE VI
Conditions of Buyer's Obligation to Close
The obligation of Buyer to consummate the Stock
Purchase is subject to the satisfaction on or prior to the
Closing Date of all of the following conditions (any of which may
be waived by Buyer):
Section 6.1. Representations, Warranties and
Covenants of Group. Each of the representations and warranties
of Group contained in this Agreement shall be true in all
material respects on and as of the Closing Date with the same
effect (and taking into account standards of materiality, where
applicable) as though such representations and warranties had
been made on and as of such date, each of the covenants and
agreements of Group to be performed on or before the Closing Date
shall have been duly performed in all material respects, and
Buyer shall have received at the Closing a certificate to that
effect dated the Closing Date and executed on behalf of Group by
an authorized officer of Group.
Section 6.2. Filings, Consents, Waiting Periods.
All registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other
actions of any kind required with or from the Interstate Commerce
Commission, State Regulatory Authorities, the FTC and the
Antitrust Division, in connection with the consummation of the
Stock Purchase shall have been filed, made or obtained and all
applicable waiting periods shall have expired or been terminated,
including but not limited to, any applicable waiting period under
the Antitrust Improvements Act.
Section 6.3. No Pending or Certain Threatened
Litigation. At the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or
governmental agency or body which restrains or prohibits the
consummation of the Stock Purchase and no Federal or state agency
or governmental body shall be threatening action of a substantial
nature to restrain or prohibit the Stock Purchase.
Section 6.4. Casualty Loss. There shall not have
occurred from the date of this Agreement to the Closing Date any
uninsured destructions or any uninsured or unreserved damages or
other casualty losses with respect to the Consolidated Companies
exceeding $4,000,000 in the aggregate.
Section 6.5. Closing Documents. In addition to any
other documents required by this Agreement, Group shall deliver
to Buyer and the Consolidated Companies (either at the Closing
or, if Buyer permits, upon surrender of the premises where such
materials are kept upon Closing):
<PAGE>
(a) copies of the Articles of Incorporation of
the Company and each of the Company Subsidiaries certified as of
recent date by the Secretary of State of their respective states
of incorporation;
(b) the original Bylaws and the original minute
books of the Company and of the Company Subsidiaries, certified
as of the Closing Date by their respective secretaries to be true
and complete in all material respects;
(c) the certificate for the Share, with an
appropriate stock power attached, properly signed, with the
signature or signatures thereon guaranteed, together with
evidence of payment of any applicable stock transfer taxes and
together with the related stock books and stock transfer records;
(d) the Consolidated Companies' stock record
books and all other books, records and documents relating to the
Consolidated Companies;
(e) all customer lists, books of account,
personnel records, Tax returns, computer records and other books
and records maintained by the Consolidated Companies or Group in
connection with the business of the Consolidated Companies to the
extent they relate to the business of the Consolidated Companies;
(f) a legal opinion of Barnes & Thornburg,
counsel to Group, dated the Closing Date, in form reasonably
satisfactory to Buyer and its counsel, to the effect that: Group
has duly authorized, executed and delivered the Agreement, which
is a legal, valid and binding agreement enforceable in accordance
with its terms; and, to its knowledge, the delivery of the
certificate for the Share of the Company to Buyer, against
payment therefor as provided in this Agreement, will pass good
and marketable title to such Share to Buyer free and clear of all
liens, encumbrances, security interests, equities and other
claims and restrictions;
(g) a certificate signed by the president and the
chief financial officer of Group, certifying that the aggregate
receivables of the Consolidated Companies arising from and after
the date of this Agreement arose in the ordinary course of
business and have been collected or will be collectible in the
ordinary course of business, consistent with past practice of the
Consolidated Companies, in the aggregate book amount of all such
receivables, less an aggregate allowance for doubtful accounts
which shall be an amount determined in accordance with generally
accepted accounting principles consistently applied; and
(h) such documents and other evidence as Buyer
shall reasonably request to verify that the conditions to Closing
set forth in this Agreement have been fulfilled and that the
obligations of Group required to be performed on or before the
Closing Date have been performed (including without limitation
the termination of Tax sharing agreements required under Section
<PAGE>
5.7), such documents or evidence to be reasonably satisfactory to
Buyer.
Section 6.6. Termination of Guaranties. Any
guaranties of any contracts or obligations of Group or any Group
Affiliate by any of the Consolidated Companies or letters of
credit provided by any of the Consolidated Companies for the
benefit of Group or any Group Affiliate shall be terminated and
released as of the Closing Date.
Section 6.7. Satisfaction of Indebtedness. Buyer
shall be satisfied that, as of the Closing of the Stock Purchase,
Group has repaid or otherwise satisfied out of funds not obtained
from any Consolidated Company (except net proceeds of any sale
and leaseback of property in Alexandria, Virginia on commercially
reasonable terms may be so utilized) all indebtedness for
borrowed money (principal and any premium, prepayment penalties
and make-whole amounts) on which any Consolidated Company is an
obligor, including without limitation all obligations under (a)
the Credit Agreement, (b) the Insurance Company Note Agreement
for the Insurance Company Indebtedness--Company Portion (with
Company and the other Consolidated Companies also being released
at Closing from any liability for the Insurance Company
Indebtedness--Contract Services Portion), and (c) any notes
secured by mortgages or deeds of trust on real property in favor
of any person (including without limitation Westinghouse
Corporation), and that all mortgages, deeds of trust, liens and
encumbrances on the assets of the Consolidated Companies and
shares of stock in the Consolidated Companies relating to such
financing transactions or any other indebtedness for borrowed
money of any person are terminated and released; provided,
however, that at Buyer's option, Buyer shall have the right to
assume the Insurance Company Indebtedness--Company Portion in
lieu of requiring that the Insurance Company Indebtedness--
Company Portion be repaid, in which event the Purchase Price
shall be adjusted pursuant to the proviso contained in Section
2.1. If Buyer exercises the option set forth in the immediately
preceding proviso, Group shall still be required to cause the
Consolidated Companies to be released at Closing from any
liability for the Insurance Company Indebtedness--Contract
Services Portion. Notwithstanding the foregoing, the provisions
of this Section 6.7 shall not apply to the following:
(i) outstanding balances under the Chattel
Paper Facilities;
(ii) purchase money indebtedness incurred
(A) to finance the purchase of the items set forth on
Schedule 5.1 or (B) in accordance with the 1995 capital
budget of the Consolidated Companies following approval
of such budget by Buyer pursuant to Section
5.1(b)(iii)(D);
(iii) draws under the Credit Agreement the
proceeds of which are utilized to fund reimbursement
<PAGE>
obligations under letters of credit numbered STO4593,
STO4591 and STO4592 identified on Schedule 3.14D
following a draw by the beneficiary under such letters
of credit, to the extent such draws do not exceed
$6,552,000 plus any additional amounts accrued on the
underlying payable in the ordinary course of business
consistent with past practice;
(iv) other bona fide short-term borrowings in
the ordinary course of business for working capital
needs of the Consolidated Companies under the Credit
Agreement;
(v) loans against insurance policies owned
by the Company on the life of John B. Smith; and
(vi) in the event the sale-leaseback of the
Alexandria, Virginia property does not occur on or
prior to the Closing, a portion of the mortgage note in
favor of Mellon Bank, N.A. secured by such property
equal to the fair market value of such property (less
estimated expenses of sale) as agreed upon in good
faith by Group and Buyer.
Section 6.8. Diligence Investigation. By January 31,
1995, Buyer and its representatives shall have completed its
special "due diligence" investigation of the Consolidated
Companies, for the purpose of validating the representations and
warranties contained in Article III hereof (including but not
limited to the Consolidated Companies' self-insurance program,
Group's Tax Returns and Tax Sharing Agreement, the Consolidated
Companies' compliance with environmental laws and other matters
described in Article III).
ARTICLE VII
Conditions to Group's Obligation to Close
The obligation of Group to consummate the Stock
Purchase is subject to the satisfaction on or prior to the
Closing Date of all of the following conditions (any of which may
be waived by Group):
Section 7.1. Representations, Warranties and
Covenants. Each of the representations and warranties of Buyer
contained in this Agreement shall be true in all material
respects on and as of the Closing Date with the same effect (and
taking into account standards of materiality, where applicable)
as though such representations and warranties had been made on
and as of such date, each of the covenants and agreements of
Buyer to be performed on or before the Closing Date shall have
been duly performed in all material respects, and Group shall
have received at the Closing Date a certificate to that effect
dated the Closing Date and executed on behalf of Buyer by an
authorized officer of Buyer.
<PAGE>
Section 7.2. Filings, Consents, Waiting Periods. All
registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other
actions of any kind required with or from the SEC, Interstate
Commerce Commission, State Regulatory Authorities, the FTC and
the Antitrust Division in connection with the consummation of the
Stock Purchase shall have been filed, made or obtained and all
applicable waiting periods shall have expired or been terminated,
including but not limited to, any applicable waiting period under
the Antitrust Improvements Act.
Section 7.3. No Pending or Certain Threatened
Litigation. At the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or
governmental agency or body which restrains or prohibits the
consummation of the Stock Purchase, and no Federal or state
agency or governmental body shall be threatening action of a
substantial nature to restrain or prohibit the Stock Purchase.
Section 7.4. Letters of Credit. Group shall be
reasonably satisfied that, simultaneous with the Stock Purchase,
Buyer will either (at Buyer's option) complete the substitution
of letters of credit issued on behalf of the Buyer for (and cause
the substituted letters of credit to be returned to Group), or
cause the issuing banks to release Group and each Group Affiliate
from any liability with respect to, letters of credit posted by
Group and/or any Group Affiliate which secure a Consolidated
Company's obligations to insurance companies under its insurance
program and to providers of surety and performance bonds issued
for the benefit of the Consolidated Companies in the ordinary
course of their businesses.
Section 7.5. License Agreements. Buyer shall have
entered into license agreements with Group and Contract Services
in the form attached hereto as Exhibit B.
Section 7.6. Termination of Guaranties. Any
guaranties of any contracts or obligations of the Consolidated
Companies by Group or any Group Affiliate or letters of credit
provided by Group or any Group Affiliate for the benefit of any
of the Consolidated Companies shall be terminated and released
as of the Closing Date.
Section 7.7. Working Capital. Group shall be
reasonably satisfied that, upon the completion of the Stock
Purchase, Buyer shall provide each Consolidated Company with
access to sufficient working capital to enable each Consolidated
Company to continue to operate its business in the ordinary
course and to meet its contractual obligations.
Section 7.8. Shareholder Approval. The Stock
Purchase by Buyer shall have been approved by the affirmative
vote of the holders of a majority of the outstanding shares of
common stock of Group present in person or by proxy at a duly
<PAGE>
convened special meeting of shareholders called pursuant to
Section 5.18.
ARTICLE VIII
Termination, Amendment and Extension
Section 8.1. Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual written consent of Group and Buyer;
(b) by either Group or Buyer if the Closing shall
not have occurred on or before July 31, 1995, unless the party
seeking to terminate has been responsible for delaying the
Closing;
(c) by Group if Buyer breaches, in any material
respect, any of the material representations and warranties or
covenants of Buyer set forth herein, and such breach has not been
remedied to the reasonable satisfaction of Group within 30 days
after written notice of breach is delivered to Buyer by Group, or
such breach is not capable of remedy even with Buyer's best
efforts;
(d) by Buyer if Group breaches, in any material
respect, any material representation, warranty or covenant of
Group set forth herein, after taking into consideration any
Material Adverse Effect limitation contained in the Agreement
with respect to such representation, warranty or covenant, and
such breach has not been remedied to the reasonable satisfaction
of Buyer within 30 days after written notice of breach is
delivered to Group by Buyer, or such breach is not capable of
remedy even with Group's best efforts;
(e) by Buyer or Group, if (i) the Stock Purchase
shall violate any non-appealable final order, decree or judgment
of the Interstate Commerce Commission or any court or
governmental body having competent jurisdiction or (ii) there
shall be a statute, rule or regulation which makes the proposed
Stock Purchase illegal or otherwise prohibited;
(f) by Buyer by written notice to Group on or
before January 31, 1995 following completion of Buyer's special
"due diligence" investigation pursuant to Section 6.8, if Group
has breached, in any material respect, one or more of its
material representations or warranties set forth in Article III,
after taking into consideration any Material Adverse Effect
limitations contained in such representations and warranties but
without giving effect to any knowledge qualifiers contained in
such representations and warranties, and the cumulation of such
breaches on such date has resulted, or would result, if recorded
on the books of the Consolidated Companies in accordance with
GAAP, in a reduction of the shareholder's investment on such date
from that reflected on the Balance Sheet, that is of the net
worth of the Consolidated Companies (calculated in accordance
<PAGE>
with GAAP), of Four Million Dollars ($4,000,000) or more;
provided, however, that (A) normal recurring variations in
operating results, (B) usual and ordinary course of business
changes recorded in a customary manner on the books and records
of the Consolidated Companies consistent with past practice, (C)
transactions specifically allowable under this Agreement,
including those matters set forth on Schedule 5.1, and (D)
terminations by less than a "significant number of the Company's
agents" (as defined in Section 8.1(h)) of their agency
relationships with the Company and the consequences thereof,
shall not be taken into account for purposes of calculating the
shareholder's investment on such date;
(g) Subject to Section 9.4, by Buyer if either
(i) Group's board of directors withdraws or changes its
recommendation to Group's shareholders to approve the Stock
Purchase pursuant to Section 5.18, or (ii) Group or TCW accepts a
superior Acquisition Proposal from any corporation, partnership,
person or other entity (other than Buyer) which in its good faith
judgment, in the exercise of its fiduciary duties and after
consultation with qualified advisors, affords Group's
shareholders substantially more valuable economic benefit than is
afforded to them in the Stock Purchase, taking into account the
nature of the consideration offered, the certainty of closure and
the financial strength of the entity making the Acquisition
Proposal;
(h) By Buyer, if either (i) Group, any of the
Consolidated Companies or the Buyer shall have received notices
from or been advised by a significant number of the Company's
agents (as defined below) that such agents are terminating their
agency relationships with the Company, or (ii) facts have come to
the attention of Group, any of the Consolidated Companies or
Buyer that causes Buyer reasonably to believe that a significant
number of such agents shall terminate such relationships within
the first year following the Closing Date. Group agrees to
promptly advise Buyer of any facts that come to the attention of
Group or any of the Consolidated Companies that causes Group to
reasonably believe that a significant number of the Company's
agents shall terminate such relationships within the first year
following the Closing Date. For purposes of this Section 8.1(h),
a "significant number of the Company's agents" shall consist of
any number of agents which, in the aggregate, generated 20% or
more of the aggregate revenues of the Consolidated Companies
during 1994; or
(i) by Buyer, if there shall have occurred since
September 30, 1994, one or more change(s) in or effect(s) on the
business of the Consolidated Companies or any occurrence(s),
development(s) or event(s) of any nature on the date of such
determination that has resulted, or would result, if recorded on
the books of the Consolidated Companies in accordance with GAAP,
in a reduction of the shareholder's investment on such
determination date from that reflected on the Balance Sheet, that
is of the net worth of the Consolidated Companies (calculated in
<PAGE>
accordance with GAAP), of Four Million Dollars ($4,000,000) or
more; provided, however, that (A) normal recurring variations in
operating results, (B) usual and ordinary course of business
changes recorded in a customary manner on the books and records
of the Consolidated Companies consistent with past practice, (C)
transactions specifically allowable under this Agreement,
including those matters set forth on Schedule 5.1, and (D)
terminations by less than a "significant number of the Company's
agents" (as defined in Section 8.1(h)) of their agency
relationships with the Company and the consequences thereof,
shall not be deemed to be such a change, effect, occurrence,
development or event.
Section 8.2. Effect of Termination. In the event
this Agreement is validly terminated in accordance with the
provisions of Section 8.1 hereof, all further obligations of the
parties hereunder (except as set forth below) shall terminate;
provided, however, that if this Agreement is so terminated by a
party because one or more of the conditions to such party's
obligations hereunder is not satisfied as a result of a
misrepresentation or breach of warranty by another party or
another party's failure to comply with its covenants or
obligations under this Agreement, the party's right to pursue all
legal remedies for breach of contract or otherwise, including,
without limitation, indemnification for damages relating thereto,
shall survive such termination unimpaired. Notwithstanding the
foregoing provisions of this Section, the obligations of the
parties hereto under the Confidentiality Agreement, the last two
sentences of Section 5.8, this Section 8.2, Section 8.3 and
Article IX, shall survive the termination of this Agreement.
Section 8.3. Amendment and Modification. This
Agreement may be amended, modified or supplemented only by
written agreement of Group and Buyer.
ARTICLE IX
Miscellaneous
Section 9.1. Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become effective
when one or more counterparts have been signed by each of the
parties and delivered to the other party.
Section 9.2. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Missouri without reference to the choice of law
principles thereof.
Section 9.3. Entire Agreement. This Agreement and
the Schedules and Exhibits hereto, and the Confidentiality
Agreement, contain the entire agreement between the parties with
respect to the subject matter hereof and there are no agreements,
<PAGE>
understandings, representations or warranties between the parties
other than those set forth or referred to therein or herein.
Section 9.4. Expenses. Except as otherwise set forth
in this Agreement, all legal and other costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid (a) by Group, if incurred by or
on behalf of Group, the Group Affiliates or the Consolidated
Companies, (b) by Buyer, if incurred by Buyer, or (c) by TCW, if
incurred by it. In the event this Agreement is validly
terminated by Buyer in accordance with the provisions of Section
8.1(g), Group shall promptly pay to Buyer upon demand, in cash,
an amount equal to the sum of (i) all reasonable documented out-
of-pocket expenses and fees incurred by Buyer and its affiliates
in negotiating, preparing, executing and performing this
Agreement and in preparing for the Stock Purchase, plus (ii)
$6,000,000. In the event that either (i) both (A) this Agreement
is validly terminated by Group in accordance with the provisions
of Section 8.1(b) and (B) the ICC has not granted its approval to
Buyer's application for a permanent ICC exemption for Buyer's
acquisition and such application has not become automatically
effective by passage of time, or (ii) a final non-appealable
order is issued by the ICC or a court of competent jurisdiction
disallowing the Stock Purchase, Buyer shall promptly pay to Group
in cash $2,000,000.
Section 9.5. Survival of Representations and
Warranties. Except for the representations, warranties,
covenants and agreements contained in Sections 3.1(b), 3.1(c)
(excluding clause (ii) of the first sentence thereof), 3.2, 5.4,
5.5, 5.6, 5.7, 5.9, 5.14, and Article IX of this Agreement (which
shall survive the Closing Date), the representations, warranties,
covenants and agreements of the parties included or provided for
herein shall not survive the consummation of the Stock Purchase
at the Closing.
Section 9.6. Notices. All notices hereunder shall be
sufficiently given for all purposes hereunder if in writing and
delivered personally or sent by registered mail or certified
mail, postage prepaid, to the appropriate address as set forth
below. Notice to Group or any Group Affiliate shall be addressed
to:
Mayflower Group, Inc.
9998 North Michigan Road
Carmel, Indiana 46032
Attn: Michael L. Smith
Chairman of the Board and President
<PAGE>
with a copy to:
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Attn: James A. Strain, Esquire
or at such other address and to the attention of such other
person as Group may designate by written notice to Buyer.
Notices to Buyer or (after Closing to the Consolidated Companies)
shall be addressed to:
UniGroup, Inc.
One United Drive
Fenton, Missouri 63026
Attn: Robert J. Baer, President
with a copy to:
UniGroup, Inc.
One United Drive
Fenton, Missouri 63026
Attn: Gary M. Cunningham, General Counsel
and a copy to:
Thompson & Mitchell
One Mercantile Center
St. Louis, Missouri 63101
Attn: Paul F. Pautler, Esquire
or to such other address and to the attention of such other
person as Buyer may designate by written notice to Group.
Notices to TCW shall be addressed to:
TCW Asset Management Company
865 South Figueroa Street
18th Floor
Los Angeles, California 90017
Attention: Sheldon Stone
with a copy to:
Kenneth Liang, Esq.
TCW Asset Management Company
865 South Figueroa Street
18th Floor
Los Angeles, California 90017
Notices shall be deemed given when received, if sent by telegram,
telex, telecopy or similar facsimile means (confirmation of
facsimile transmission being deemed receipt of communication sent
by telex, telecopy or other facsimile means); when delivered and
receipted for (or upon the date of attempted delivery where
<PAGE>
delivery is refused), if hand delivered; when sent by express
courier or delivery service; or when sent by certified or
registered mail, return receipt requested.
Section 9.7. Successors and Assigns. The rights and
obligations of any party to this Agreement shall not be
assignable by such party on or prior to the Closing Date without
the prior written consent of all other parties to this Agreement;
provided, however, that without the prior written consent of
Group, Buyer may at its option assign its right to purchase the
Share under this Agreement, but not any of its obligations under
this Agreement, to a voting trust or to a wholly-owned subsidiary
of Buyer. This Agreement shall inure to the benefit and shall be
binding upon the respective successors and permitted assigns of
the parties hereto. Nothing herein expressed or implied is
intended to confer upon any person, other than to the parties
hereto or their respective successors or permitted assigns, any
rights, remedies, obligations or liabilities under or by reason
of this Agreement.
Section 9.8. Headings. The headings in this
Agreement are solely for convenience of reference and shall not
affect is interpretation.
Section 9.9. Severable. The provisions of this
Agreement (its sections and paragraphs) are severable and the
invalidity of any one or more provisions does not affect or limit
the enforceability of the remaining provisions.
Section 9.10. Gender. Whenever in this Agreement
any masculine, feminine or neuter pronoun is used, such pronouns
shall also include the other genders whenever required by the
context.
Section 9.11. Further Assurances. Group and Buyer
will each execute and deliver instruments and take such other
actions as may be reasonably required in order to carry out the
intent of this Agreement.
Section 9.12. Public Announcement. Prior to
Closing, neither Group nor Buyer shall make any announcement or
issue any press release relating to this Agreement or the
transactions contemplated hereby without the consent of the other
party to this Agreement; provided, however, that without such
consent, Group or Buyer may make any announcement, press release
or filing, which counsel to Group or Buyer advises is required by
law.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by
or on behalf of each of the parties as of the day and year first
above written.
UNIGROUP, INC.
By: /s/ Robert J. Baer
Robert J. Baer, President
ATTEST:
By: /s/ Gary M. Cunningham
Secretary
MAYFLOWER GROUP, INC.
By: /s/ Michael L. Smith
Michael L. Smith, President
ATTEST:
By: /s/ Robert H. Irvin
Robert H. Irvin, Secretary
The undersigned joins in the foregoing Agreement for the
sole purposes of Sections 5.19, 8.1(g), 8.2, 9.4(c) and 9.6.
TCW ASSET MANAGEMENT COMPANY, as
investment manager of certain funds
and accounts
By: /s/ Sheldon Stone
Name: Sheldon Stone
Title: Managing Director
By: /s/ Kenneth Liang
Name: Kenneth Liang
Title: Senior Vice President
<PAGE>
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
This First Amendment, dated March 10, 1995, is by and among
UniGroup, Inc., a Missouri corporation ("Buyer"), TCW Asset
Management Company, as investment manager of funds and accounts
which hold stock of Mayflower Group, Inc. ("TCW"), and Mayflower
Group, Inc., an Indiana corporation ("Group"), which is the sole
owner of the only issued and outstanding share of common stock of
Mayflower Transit, Inc., an Indiana corporation (the "Company").
WHEREAS, Buyer, TCW and Group have entered into a certain
Stock Purchase Agreement dated December 4, 1994 (the
"Agreement"); and
WHEREAS, Buyer, TCW and Group desire to amend the Agreement
as set forth herein.
NOW, THEREFORE, in consideration of the premises and their
mutual undertakings, Buyer, TCW and Group hereby agree as
follows:
1. Addition of Definitions. Article I of the Agreement is
hereby amended to include the following definitions (such
definitions to be inserted in Article I in the appropriate
locations to maintain the alphabetical order of all definitions):
"Insurance Company Indebtedness - Prudential
Portion" shall mean the portion of the Insurance
Company Indebtedness which is reflected in the Notes
issued to Prudential by the Company and Contract
Services under the terms of the Insurance Company Note
Agreement.
"Prudential" shall mean The Prudential Insurance
Company of America.
2. Amendment of Section 2.1. Section 2.1 of the Agreement
is hereby amended and restated in its entirety as follows:
Section 2.1. Purchase and Sale. On the basis of
the representations, warranties, covenants and
agreements and subject to the satisfaction or waiver of
the conditions set forth herein, on the Closing Date,
Group shall sell and Buyer shall purchase the Share.
In full payment for the Share, Buyer will pay Group
$90,000,000.00 (the "Purchase Price") at the Closing by
wire transfer of immediately available funds to such
account as Group shall designate in writing on or
before the Closing; provided, however, that if the
Insurance Company Indebtedness - Prudential Portion is
assumed by the Buyer at Closing, and if the Company,
Group and Contract Services are released from their
obligations to pay the Insurance Company Indebtedness -
<PAGE>
Prudential Portion, together with any prepayment
penalties that would otherwise be attributable to the
satisfaction of the Insurance Company Indebtedness -
Prudential Portion, (other than by reason of the
payment thereof by the Company, Group and Contract
Services) the Purchase Price shall be reduced by (i)
the principal amount of the Insurance Company
Indebtedness - Prudential Portion so assumed, and (ii)
Two Million Two Hundred Fifty Thousand Dollars
($2,250,000).
3. Amendment of Section 6.7. Section 6.7 of the Agreement
is hereby amended by (i) deleting all references therein to the
"Insurance Company Indebtedness - Company Portion" and
substituting therefor references to the "Insurance Company
Indebtedness - Prudential Portion," and (ii) deleting all
references therein to the "Insurance Company Indebtedness -
Contract Services Portion" and substituting therefor references
to the "portion of the Insurance Company Indebtedness other than
the Insurance Company Indebtedness - Prudential Portion."
Except as amended or otherwise modified, the Agreement shall
remain in full force and effect and is hereby ratified and
confirmed in all respects. This First Amendment may be executed
in any number of counterparts and by the different parties on
separate counterparts, and each such counterpart shall be deemed
to be an original, but all such counterparts shall together
constitute one and the same document. This First Amendment shall
be governed by and construed in accordance with the laws of the
State of Missouri without reference to the choice of law
principles thereof.
IN WITNESS WHEREOF, this First Amendment has been signed by
or on behalf of each of the parties as of the day and year first
above written.
UNIGROUP, INC.
By: /s/ Robert J. Baer
Robert J. Baer, President
ATTEST:
By: /s/ Gary M. Cunningham
Gary M. Cunningham
Assistant Secretary
MAYFLOWER GROUP, INC.
By: /s/ Robert H. Irvin
Robert H. Irvin
Senior Vice-President
and Secretary
ATTEST:
By: /s/ James P. Reichert
James P. Reichert
Assistant Secretary
<PAGE>
TCW ASSET MANAGEMENT
COMPANY, as Investment Manager
of Certain Funds and Accounts
By: /s/ Sheldon Stone
Sheldon Stone,
Managing Director
By: /s/ Kenneth Laing
Kenneth Laing,
Senior Vice President
<PAGE>
Appendix B to
Mayflower Group, Inc.
Proxy Statement
Mayflower Group, Inc.
Pro Forma Condensed Consolidated Financial Statements (Unaudited)
The following pro forma condensed consolidated balance sheet as
of September 30, 1994, and the pro forma condensed consolidated
statements of operations for the year ended December 31, 1993,
and nine months ended September 30, 1994, are presented in order
to illustrate the estimated effects of the sale of all the
outstanding shares of Transit to UniGroup pursuant to the Stock
Purchase Agreement as if the sale had occurred as of September
30, 1994, in the case of the balance sheet and as of January 1,
1993, in the case of the statements of operations. These pro
forma statements indicate the pro forma effect on the financial
statements of the Company in the event that the Transit sale
occurs as described herein, as a distinct and stand alone
transaction. These pro forma financial statements therefore do
not include the effects of the Merger, or the sale of Contract
Services in accordance with the Contract Services Option. The
pro forma condensed consolidated statements of operations for the
years ended December 31, 1992 and 1991 are presented in order to
illustrate the Company s results of operations exclusive of
Transit. For these years, the statements of operations for the
Company are presented assuming Transit is a discontinued
operation. The pro forma information is based on the historical
financial statements of the Company giving effect to the sale
under the assumptions and the adjustments set forth in the
accompanying notes to the pro forma condensed consolidated
financial statements.
The pro forma condensed consolidated financial statements have
been prepared by the Company s management based upon the
Company s consolidated financial statements included elsewhere
herein. These pro forma condensed consolidated financial
statements may not be indicative of the results that actually
would have occurred if these transactions had been consummated on
the dates indicated or which may be obtained in the future. The
pro forma condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial
statements and notes thereto contained elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
HISTORICAL & PRO FORMA SELECTED FINANCIAL INFORMATION
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER TRANSIT, INC.
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended Year Ended Year Ended Year Ended
September 30, 1994 December 31, 1993 December 31, 1992 December 31, 1991
--------------------- --------------------- ----------------- --------------------
Historical Pro Forma Historical Pro Forma Historical Pro Forma Historical Pro Forma
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data: (Notes B&C) (Notes B&C) (Notes B&C) (Notes B&C)
Operating Revenues:
Contract Services $194,047 $194,047 $235,918 $235,918 $209,411 $209,411 $193,442 $193,442
Transit 352,784 0 441,575 0 426,444 0 405,600 0
-------- -------- -------- -------- -------- -------- -------- --------
Total $546,831 $194,047 $677,493 $235,918 $635,855 $209,411 $599,042 $193,442
======== ======== ======== ======== ======== ======== ======== ========
Operating Profit:
Contract Services $ 4,382 $ 4,382 $ 7,471 $ 7,471 $ 10,840 $ 10,840 $ 4,829 $ 4,829
Transit 7,177 0 5,738 0 13,208 0 (58,221) 0
Corporate Expenses (603) (603) (1,089) (1,089) (1,142) (1,142) ( 3,774) ( 3,774)
-------- -------- -------- -------- -------- -------- -------- --------
10,956 3,779 12,120 6,382 22,906 9,698 (57,166) 1,055
Interest income
(expense), net (6,035) (183) (6,736) (143) (9,661) (6,390) (31,306) (26,792)
Other, net (123) (128) 32 117 234 234 (161) 95
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before
federal income taxes $ 4,798 $ 3,468 $ 5,416 $ 6,356 $ 13,479 $ 3,542 $(88,633) $(25,642)
======== ======== ======== ======== ======== ======== ======== ========
Income from continuing
operations $ 3,013 $ 1,997 $ 2,435 $ 2,813 $ 7,835 $ 1,791 $(88,633) $(22,163)
======== ======== ======== ======== ======== ======== ======== ========
<PAGE>
Income (loss) per share
from continuing
operations (Note D) $ .24 $ .16 $ .19 $ .22 $ .66 $ .14 $ (7.01) $ (1.75)
======== ======== ======== ======== ======== ======== ======== =========
As of September 30, 1994
-------------------------
Historical Pro Forma
----------- ------------
Balance Sheet Data: (Note A)
Working capital $ 37,726 $ 9,468
Net property and equipment 133,433 101,472
Total assets 356,559 179,263
Short-term debt 4,706 4,681
Long-term obligations 102,679 17,024
Shareholders' investment 85,733 94,223
Book value per share $ 6.77 $ 7.44
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
are an integral part of this unaudited pro forma selected financial information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER TRANSIT, INC.
AS OF SEPTEMBER 30, 1994
(Unaudited) (In thousands) Adjustments
Historical to Reflect Pro Forma
Mayflower Carrying Value Pro Forma Mayflower
Group, Inc. of Mayflower Proposed Sale Group, Inc.
Consolidated Transit, Inc. Adjustments Consolidated
------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets : (Note A)
Current assets:
Cash $ 1,333 $ 1,076 $ 1,090 $ 1,347
Receivables, net 96,683 60,923 0 35,760
Accrued unbilled accounts receivable 28,020 28,020 0 0
Other current assets 28,989 14,899 0 14,090
---------- ---------- ---------- ----------
Total current assets 155,025 104,918 1,090 51,197
Property and equipment, net 133,433 31,961 0 101,472
Intangible assets 50,469 33,003 0 17,466
Other assets 17,632 8,504 0 9,128
Investment in Mayflower Transit, Inc. 0 (40,600) (40,600) 0
---------- ---------- ---------- ----------
$ 356,559 $ 137,786 $ (39,510) $ 179,263
========== ========== ========== ==========
Liabilities and shareholders' investment:
Current liabilities:
Current maturities of long-term debt $ 4,706 $ 25 $ 0 $ 4,681
Short-term borrowings 4,500 2,500 (2,000) 0
Trade accounts payable 45,589 32,448 0 13,141
Accrued expenses and other liabilities 62,504 38,597 0 23,907
---------- ---------- ---------- ----------
Total current liabilities 117,299 73,570 (2,000) 41,729
---------- ---------- ---------- ----------
Noncurrent liabilities:
Long-term debt, less current maturities 102,679 39,655(1) (46,000) 17,024
Other non-current liabilities 50,848 24,561 0 26,287
<PAGE>
Shareholders' investment:
Common shares 73,914 0 0 73,914
Retained earnings 11,819 0 8,490 20,309
---------- ---------- ---------- ----------
Total shareholders' investment 85,733 0 8,490 94,223
---------- ---------- ---------- ----------
$ 356,559 $ 137,786 $ (39,510) $ 179,263
========== ========== ========== ==========
<FN>
(1) Includes $34,000 of term debt retired with the proceeds of proposed Transit Sale (See Note A).
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
are an integral part of this unaudited pro forma selected financial information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER TRANSIT, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(Unaudited)
(In thousands, except per share amounts) Adjustments
to Reflect
Historical Carrying Pro Forma
Mayflower Value of Pro Forma Mayflower
Group, Inc. Mayflower Proposed Sale Group, Inc.
Consolidated Transit, Inc. Adjustments Consolidated
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating revenues: (Notes B&C)
Contract Services $ 194,047 $ 0 $ 0 $ 194,047
Transit 352,784 352,784 0 0
----------- ----------- ----------- -----------
546,831 352,784 0 194,047
Operating expenses:
Contract Services 189,665 0 0 189,665
Transit 345,607 345,607 0 0
Corporate expenses 603 0 0 603
----------- ----------- ----------- -----------
Operating profit 10,956 7,177 0 3,779
Other income (expense):
Interest income 802 802 0 0
Interest expense (6,837) (3,066) 3,588 (183)
Other, net (123) 5 0 (128)
----------- ----------- ----------- -----------
Income from continuing operations before
federal income taxes 4,798 4,918 3,588 3,468
Provision for federal income taxes 1,785 1,749 1,435 1,471
----------- ----------- ----------- -----------
Income from continuing operations $ 3,013 $ 3,169 $ 2,153 $ 1,997
=========== =========== =========== ===========
Weighted average shares outstanding 12,755 12,755
Income per share from
continuing operations $ .24 $ 0.16
<PAGE>
=========== ===========
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
are an integral part of this unaudited pro forma selected financial information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER TRANSIT, INC.
FOR THE YEAR ENDED DECEMBER 31, 1993
(Unaudited)
(In thousands, except per share amounts) Adjustments
Historical to Reflect Pro Forma
Mayflower Carrying Value Pro Forma Mayflower
Group of Mayflower Proposed Sale Group, Inc.
Consolidated Transit, Inc. Adjustments Consolidated
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Operating revenues: (Notes B&C)
Contract Services $ 235,918 $ 0 $ 0 $ 235,918
Transit 441,575 441,575 0 0
------------- -------------- ------------ -------------
677,493 441,575 0 235,918
Operating expenses:
Contract Services 228,447 0 0 228,447
Transit 435,837 435,837 0 0
Corporate expenses 1,089 0 0 1,089
------------- -------------- ------------ -------------
Operating profit 12,120 5,738 0 6,382
Other income (expense):
Interest income 2,862 2,855 0 7
Interest expense (9,598) (5,364) 4,084 (150)
Other, net 32 (85) 0 117
------------- -------------- ------------ -------------
Income from continuing operations before
federal income taxes 5,416 3,144 4,084 6,356
Provision for federal income taxes 2,981 1,072 1,634 3,543
------------- -------------- ------------ -------------
Income from continuing operations $ 2,435 $ 2,072 $ 2,450 $ 2,813
============= ============== ============ =============
Weighted average shares outstanding 12,740 12,740
Income per share from continuing
operations $ 0.19 $ 0.22
============= =============
<PAGE>
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
are an integral part of this unaudited pro forma selected financial information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER TRANSIT, INC.
FOR THE YEAR ENDED DECEMBER 31, 1992
(Unaudited)
(In thousands, except per share amounts) Adjustments
Historical to Reflect Pro Forma
Mayflower Carrying Value Mayflower
Group of Mayflower Group, Inc.
Consolidated Transit, Inc. Consolidated
------------- ------------- -----------
<S> <C> <C> <C>
Operating revenues:
Contract Services $ 209,411 $ 0 $ 209,411
Transit 426,444 426,444 0
------------ ------------ -----------
635,855 426,444 209,411
Operating expenses:
Contract Services 198,571 0 198,571
Transit 413,236 413,236 0
Corporate expenses 1,142 0 1,142
------------ ------------ -----------
612,949 413,236 199,713
Operating profit 22,906 13,208 9,698
Other income (expense):
Interest income 1,995 1,995 0
Interest expense (11,656) (5,266) (6,390)
Other, net 234 0 234
------------ ------------ ------------
Income from continuing operations
before federal income taxes 13,479 9,937 3,542
Provision for federal income taxes 5,644 3,893 1,751
------------ ------------ -----------
Income from continuing operations $ 7,835 $ 6,044 $ 1,791
============ ============ ===========
Weighted average shares outstanding
(Note D) 12,646 12,646
Income per share from continuing $ 0.66 $ 0.14
operations (Note D) ============ ============
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements are an
integral part of this unaudited pro forma condensed consolidated statement of operations.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER TRANSIT, INC.
FOR THE YEAR ENDED DECEMBER 31, 1991
(Unaudited)
(In thousands, except per share amounts)
Adjustments
Historical to Reflect Pro Forma
Mayflower Carrying Value Mayflower
Group of Mayflower Group, Inc.
Consolidated Transit, Inc. Consolidated
------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues:
Contract Services $ 193,442 $ 0 $ 193,442
Transit 405,600 405,600 0
------------- ------------- ------------
599,042 405,600 193,442
Operating expenses:
Contract Services 188,613 0 188,613
Transit 394,802 394,802 0
Corporate expenses 3,774 0 3,774
Revaluation of intangible assets 69,019 69,019 0
------------- ------------- ------------
656,208 463,821 192,387
Operating profit (57,166) (58,221) 1,055
Other income (expense):
Interest income 903 903 0
Interest expense (32,209) (5,417) (26,792)
Other, net (161) (256) 95
Income from continuing operations before (88,633) (62,991) (25,642)
federal income taxes
Provision for federal income taxes 0 3,479 (3,479)
------------- ------------- ------------
Income from continuing operations $ (88,633) $ (66,470) $ (22,163)
============= ============= ============
Weighted average shares outstanding
(Note D) 12,646 12,646
Income (loss) per share from continuing
operations (Note D) $ (7.01) $ (1.75)
============= ============
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements are an
integral part of this unaudited pro forma condensed consolidated statement of operations.
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Consolidated Financial Statements
Note A
The estimated proceeds from the Transit Sale as if the
transaction occurred as of September 30, 1994, are (in
thousands):
Gross sales price $90,000
Less costs of sale, net
of $1,337 of tax benefit ( 3,873)
Less debt assumed by UniGroup and
reduction in purchase price due to
elimination of prepayment penalty (42,250)
--------
Net cash proceeds 43,877
Portion of debt assumed by UniGroup
attributable to the Company and
its subsidiary, Contract Services 6,000
Less carrying value of Transit (40,600)
--------
Gain on Transit Sale 9,277
Less prepayment penalty on Contract
Services term debt, net of
$525 of tax benefit (see below) (787)
--------
Pro forma increase in Retained
Earnings due to Transit Sale as of
September 30, 1994 $ 8,490
=======
The costs of sale include prepayment penalties on early
retirement of debt, financial and other professional advisor
fees, obligations under employment and termination benefit
agreements, state tax liabilities and transaction expenses.
The net cash proceeds to the Company from the Transit Sale are
assumed, as of September 30, 1994, to be applied as follows (in
thousands):
Retirement of remainder of
Contract Services term debt $40,000
Prepayment penalty on Contract
Services term debt,
net of $525 of tax benefit 787
Reduction in Contract Services
short-term borrowings 2,000
Increase in cash 1,090
-------
$43,877
=======
Note B
<PAGE>
The estimated proceeds from the Transit Sale as if the
transaction occurred as of January 1, 1993, are as follows (in
thousands):
Gross sales price $ 90,000
Less costs of sale, net of $1,337
of tax benefit (3,873)
Less payment of term debt and
reduction in purchase price due
to elimination of prepayment penalty (31,450)
--------
Net cash proceeds 54,677
Less carrying value of Transit (33,424)
--------
Gain on sale $ 21,253
========
The net cash proceeds to the Company from the Transit Sale are
assumed, as of January 1, 1993, to be applied as follows (in
thousands):
Retirement of Contract Services
term debt $ 37,312
Reduction in Contract Services
short-term borrowings 9,470
Assumed prepayment penalty on
Contract Services debt,
net of $525 of tax benefit 787
Increase in cash 7,108
--------
$ 54,677
========
The gain on the Transit Sale will be included in net income of
the Company within the 12 months succeeding the transaction.
This gain has not been considered in the pro forma condensed
consolidated statements of operations.
Note C
For purposes of determining the pro forma effect of the above
transaction on the pro forma condensed consolidated statements of
operations, the following pro forma adjustments have been made
(in thousands):
Nine
Year Ended Months Ended
December 31, September 30,
1993 1994
------------- -------------
Reduction in interest expense
due to use of proceeds of
sale to reduce debt $ 4,084 $ 3,588
Increase in federal and state
income tax provision at
<PAGE>
statutory rates (40%)
associated with the above item (1,634) (1,435)
---------- -----------
Increase in net income $ 2,450 $ 2,153
========== ===========
The proceeds from the Transit Sale of $54,677, as described
above, would have allowed the Company to reduce its debt during
1993 and 1994 by up to that amount less the prepayment penalty of
$787. During certain months included in the period, Contract
Services debt was less than the total proceeds. These pro forma
adjustments do not include interest income in months when the
Company would have had excess cash from the proceeds from the
Transit Sale. The average amount of debt reduced during 1993 and
1994 was $46.6 million and $54.0 million, respectively. The
interest rates on the retired debt were approximately 9.1% and
9.3% for 1993 and 1994, respectively, based upon the actual
interest rates paid on the debt outstanding.
Note D
As described in Notes 1b, 2, and 3 to the financial statements of
the Company in Form 10-K for the periods ended December 31, 1993,
(included as an exhibit to this proxy statement), the historical
capital structure of the Company is not indicative of the
Company s capital structure following its Plan of Reorganization
in 1992. As a result, earnings per share are presented in the
statements of operations for 1992 and 1991 on a pro forma basis.
<PAGE>
Appendix C to
Mayflower Group, Inc.
Proxy Statement
Consolidated Financial Statements
Mayflower Transit, Inc.
The attached financial statements for Mayflower Transit, Inc. and
its subsidiaries have not been audited, but have been prepared by
management in accordance with generally accepted accounting
principles. Certain information and footnote disclosures
regarding the interim financial statements as of September 30,
1994 and 1993, normally included in annual financial statements
in accordance with generally accepted accounting principles, are
incorporated by reference to the annual financial statements for
the fiscal years ended December 31, 1993, 1992 and 1991.
Management believes the interim financial statements include all
adjustments, including normal recurring adjustments, necessary
for a fair presentation of the financial condition and results of
operations for the interim periods presented.
Peak business levels for Transit occur during the summer months.
During 1993, for example, approximately 45% of the Household
Goods division s revenues were generated during the months of
June through September. Due to the seasonal impact of revenue
being generated by Transit, higher net income is generated during
the third quarter than the other three quarters of the year.
<PAGE>
Consolidated Statements of Income
Mayflower Transit, Inc.
Nine months ended Sept. 30,
(In thousands) 1994 1993
---------- ----------
Operating revenues $ 352,784 $ 335,786
Operating expenses:
Direct expenses 287,376 275,256
General and administrative 58,231 53,820
---------- ---------
Operating profit 7,177 6,710
Other income and expense:
Interest income 802 2,042
Interest expense (3,065) (3,913)
Miscellaneous, net 4 (186)
---------- ---------
Income before federal income taxes 4,918 4,653
---------- ---------
Provision for federal income taxes 1,749 1,838
---------- ---------
Net income $ 3,169 $ 2,815
========== =========
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Mayflower Transit, Inc.
September 30
(In thousands) 1994 1993
-------- --------
<S> <C> <C>
Assets :
Current assets:
Cash $ 1,076 $ 2,263
Receivables:
Trade receivables 52,471 54,851
Accrued unbilled accounts receivable 28,020 21,542
Other 14,846 15,988
Less allowance for possible
collection losses (6,394) (5,783)
-------- --------
Total receivables 88,943 86,598
Equipment and inventory held for resale 3,538 8,026
Deferred income taxes 7,099 5,121
Prepaid expenses and deposits 4,262 3,626
-------- --------
Total current assets 104,918 105,634
Property and equipment:
Land 1,356 1,336
Buildings and improvements 14,152 13,904
Revenue equipment 21,369 15,484
Other operating equipment and
improvements 4,426 4,094
Less accumulated depreciation (9,342) (5,944)
-------- --------
Net property and equipment 31,961 28,874
Intangible assets 33,003 35,757
Other assets 8,504 19,740
-------- --------
$178,386 $190,005
======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Mayflower Transit, Inc.
September 30
(In thousands) 1994 1993
--------- ---------
<S> <C> <C>
Liabilities and Shareholder's Investment:
Current liabilities:
Current maturities of long-term debt $ 25 $ 7,475
Short-term borrowings 2,500 0
Trade accounts payable 32,449 25,800
Accrued expenses and deposits:
Liabilities on unbilled shipments 14,748 11,879
Reserve for self-insured claims 15,196 18,221
Salaries and withholding taxes 1,979 2,146
Other 6,673 8,998
--------- -------
73,570 74,519
Noncurrent liabilities:
Reserve for self-insured claims,
less current portion 8,125 4,995
Accrued postretirement benefits cost 4,315 4,268
Long-term debt, less current maturities 39,654 57,716
Deferred income taxes 12,122 11,785
Commitments and contingencies
Shareholder's investment :
Common shares; no par value;
1,000 shares authorized;
1 share issued and outstanding 1 1
Additional paid in capital 29,336 27,335
Retained earnings 11,263 9,386
--------- -------
40,600 36,722
--------- -------
$ 178,386 $190,005
========= ========
</TABLE>
<PAGE>
Consolidated Statements of Shareholder's Investment
Mayflower Transit, Inc.
Additional
Common Paid In Retained
(In thousands) Stock Capital Earnings
-------- ---------- --------
Balance, December 31, 1993 $ 1 $ 28,232 $ 8,619
Net income, nine months
ended September 30, 1994 0 0 3,169
Dividend to Parent for
corporate expenses 0 0 (525)
Tax benefit from Parent 0 1,104 0
------- -------- -------
Balance, September 30, 1994 $ 1 $29,336 $11,263
======= ======== =======
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Mayflower Transit, Inc.
Nine months ended Sept. 30,
(In thousands) 1994 1993
---------- ----------
<S> <C> <C>
Net cash provided by (used in):
Operating activities $ 4,010 $ (4,897)
Investing activities (5,618) (13,562)
Financing activities 2,061 11,416
------- ---------
453 (7,043)
Cash and cash equivalents-
beginning of period 623 9,306
------- ---------
Cash and cash equivalents-
end of period $ 1,076 $ 2,263
======= =========
Operating activities:
Net income $ 3,169 $ 2,815
Add items not affecting cash:
Depreciation 3,302 3,121
Amortization and other 2,527 3,272
Deferred income taxes 0 192
Changes in certain working capital items:
Receivables (19,022) (21,527)
Equipment and inventory held
for resale 3,295 (4,167)
Prepaid expenses and deposits (999) 280
Trade accounts payable 6,353 4,508
Reserve for self-insured claims (556) 1,751
Other accrued expenses
and deposits 5,941 4,858
------- ---------
Net cash provided by (used in)
operating activities $ 4,010 $ (4,897)
======= =========
Investing activities:
Purchases of property and equipment $(6,302) $ (6,781)
Proceeds from disposal of property and
equipment, less gains included in net
income 692 315
Purchase acquisition (1,509) 0
Finance notes receivable- long-term 0 (4,807)
(Increase) decrease in other
noncurrent assets 1,501 (2,289)
------- ---------
Net cash (used in) investing
activities $(5,618) $ (13,562)
======= =========
Financing activities:
<PAGE>
Proceeds from long-term debt:
Term loan $ 0 $ 34,000
Equipment financing and other 99 7,798
Payment of long-term debt (13) (30,052)
Dividend to Parent (525) (330)
Net change in revolving credit
agreements 2,500 0
------- ---------
Net cash provided by financing
activities $ 2,061 $ 11,416
======= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Mayflower Transit, Inc.
Years ended December 31
(In thousands) 1993 1992 1991
------------------------------------
<S> <C> <C> <C>
Operating revenues $441,575 $426,444 $405,600
Operating expenses:
Direct expenses 365,144 348,658 331,175
General and administrative 70,693 64,578 63,627
-------- -------- --------
Operating profit before revaluation
of intangible assets 5,738 13,208 10,798
Revaluation of intangible assets (Note 3) 0 0 69,019
-------- -------- --------
Operating profit (loss) 5,738 13,208 (58,221)
Other income and expense:
Interest income 2,855 1,995 903
Interest expense and purchase fee
on receivables sold (5,364) (5,266) (5,417)
Miscellaneous, net (84) 0 (256)
-------- -------- --------
Income (loss) before federal income taxes 3,145 9,937 (62,991)
-------- -------- --------
Provision (credit) for federal income
taxes (Note 5):
Current 2,973 4,326 4,458
Deferred (1,900) (433) (979)
-------- -------- --------
1,073 3,893 3,479
-------- -------- --------
Net income (loss) $ 2,072 $ 6,044 $(66,470)
======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Mayflower Transit, Inc.
December 31
(In thousands) 1993 1992
-------------------------
<S> <C> <C>
Assets (Note 2):
Current assets:
Cash (including cash equivalents at
market value of $472 in 1993 and
$9,141 in 1992) $ 623 $ 9,306
Receivables:
Trade receivables 43,345 40,285
Accrued unbilled accounts receivable 16,845 16,012
Other 15,813 14,847
Less allowance for possible collection losses (6,082) (6,072)
-------- ---------
Total receivables 69,921 65,072
Equipment and inventory held for resale 6,833 3,859
Deferred income taxes (Note 5) 7,099 4,980
Prepaid expenses and deposits 3,249 3,907
-------- ---------
Total current assets 87,725 87,124
Property and equipment:
Land 1,356 1,336
Buildings and improvements 13,959 13,736
Revenue equipment 16,149 9,880
Other operating equipment and improvements 3,553 3,386
Less accumulated depreciation (6,332) (2,999)
-------- ---------
Net property and equipment 28,685 25,339
Intangible assets (less accumulated amortization
of $4,461 in 1993 and $1,411 in 1992) (Note 1(D)) 34,995 38,045
Other assets 9,964 13,672
-------- ---------
$161,369 $164,180
======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Mayflower Transit, Inc.
December 31
(In thousands) 1993 1992
------------------------
<S> <C> <C>
Liabilities and Shareholder's Investment:
Current liabilities:
Current maturities of long-term debt $ --- $ 7,310
Trade accounts payable 26,096 21,164
Accrued expenses and deposits:
Liabilities on unbilled shipments 9,026 8,961
Reserve for self-insured claims 17,666 16,597
Salaries and withholding taxes 2,421 3,113
Other 7,103 6,905
---------- ----------
62,312 64,050
Noncurrent liabilities:
Reserve for self-insured claims,
less current portion 6,210 4,995
Accrued postretirement benefits cost (Note 6) 4,331 4,123
Long-term debt, less current maturities (Note 2) 39,543 46,136
Deferred income taxes (Note 5) 12,121 11,452
Commitments and contingencies (Note 4)
Shareholder's investment (Note 2):
Common shares; no par value; 1,000 shares authorized;
1 share issued and outstanding 1 1
Additional paid in capital 28,232 26,522
Retained earnings 8,619 6,901
---------- ----------
36,852 33,424
---------- ----------
$ 161,369 $ 164,180
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholder's Investment
Mayflower Transit, Inc.
Additional Retained Receivable
Common Paid In Earnings from
(In thousands) Stock Capital (Deficit) Parent
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1991 $ 1 $ 188,022 $ 24,442 $(106,446)
Net loss 0 0 (66,470) 0
Net change in Receivable
from Parent 0 0 0 4,787
--------- --------- --------- ---------
Balance, December 31, 1991 1 188,022 (42,028) (101,659)
Net loss- three months
ended March 31, 1992 0 0 (1,556) 0
Dividend to Parent in March,
1992, in connection with the Plan
of Reorganization (Note 7) 0 (101,659) 0 101,659
--------- --------- ---------- ----------
Balance, March 31, 1992 1 86,363 (43,584) 0
Adoption of fresh start
reporting (Note 1(A)):
Cumulative effect of
adopting SFAS 109 (Note 5) 0 (13,742) 0 0
Cumulative effect of
adopting SFAS 106 (Note 6) 0 (2,515) 0 0
Reclassification of Retained
Earnings (Deficit) 0 (43,584) 43,584 0
--------- --------- --------- ----------
Balance, April 1, 1992 1 26,522 0 0
Net income- nine months
ended December 31, 1992 0 0 7,600 0
Dividend to Parent for
corporate expenses (Note 7) 0 0 (699) 0
--------- --------- --------- ----------
Balance, December 31, 1992 1 26,522 6,901 0
Net income 0 0 2,072 0
Dividend to Parent for
corporate expenses (Note 7) 0 0 (354) 0
Tax benefit from Parent (Note 1(B)) 0 1,710 0 0
--------- --------- --------- ----------
Balance, December 31, 1993 $ 1 $ 28,232 $ 8,619 $ 0
========= ========= ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Mayflower Transit, Inc.
Years ended December 31
(In thousands) 1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities $ 5,488 $ 14,088 $(36,066)
Investing activities 86 (8,200) (3,458)
Financing activities (14,257) (1,646) 39,547
-------- -------- --------
(8,683) 4,242 23
Cash and cash equivalents-
beginning of year 9,306 5,064 5,041
-------- -------- --------
Cash and cash equivalents-end of year $ 623 $ 9,306 $ 5,064
======== ======== ========
Operating activities:
Net income (loss) $ 2,072 $ 6,044 $(66,470)
Add items not affecting cash:
Revaluation of intangible assets (Note 3) 0 0 69,019
Depreciation 4,152 4,185 4,465
Amortization and other 4,108 3,082 3,946
Changes in certain working capital items:
Receivables (8,359) (3,074) (3,662)
Equipment and inventory held for resale (2,974) 2,706 1,372
Prepaid expenses and deposits 23 118 (1,097)
Trade accounts payable 4,931 1,843 (1,303)
Reserve for self-insured claims 1,068 (241) 1,958
Other accrued expenses and deposits 467 (575) 704
Repurchase of sold receivables 0 0 (39,675)
Payments on receivables purchase facility 0 0 (5,323)
-------- -------- --------
Net cash provided by (used in)
operating activities $ 5,488 $ 14,088 $(36,066)
======== ======== ========
Investing activities:
Purchases of property and equipment $ (7,657) $ (2,865) $ (1,359)
Proceeds from disposal of property and
equipment, less gains included in
net income (loss) 415 206 994
Proceeds from sale of notes receivable (Note 2) 13,913 0 0
Increase in other noncurrent assets (liabilities) (6,585) (5,541) (3,093)
-------- -------- --------
Net cash provided by (used in)
investing activities $ 86 $ (8,200) $ (3,458)
======== ======== ========
Financing activities:
Proceeds from long-term debt:
Term loan $ 34,000 $ 0 $ 38,000
Equipment financing and other 8,068 8,941 1,722
Payment of long-term debt (55,971) (9,888) (4,962)
Dividend to Parent (354) (699) 0
<PAGE>
Changes in Receivable from Parent (Note 7) 0 0 4,787
-------- -------- --------
Net cash provided by (used in)
financing activities $(14,257) $ (1,646) $ 39,547
======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Note 1 - Summary of Significant Accounting Policies
A. Principles of Consolidation
The accompanying audited financial statements present the
financial position, results of operations and cash flows of
Mayflower Transit, Inc. (the "Company") and its subsidiaries.
All significant intercompany transactions and balances have been
eliminated.
The Company is a wholly owned subsidiary of Mayflower Group,
Inc. ("Parent"). The Parent owns two operating subsidiaries, the
Company and Mayflower Contract Services, Inc. ("Contract
Services").
On December 18, 1986, the Parent and its operating
subsidiaries, including the Company, were purchased by management
of the Parent and certain other investors (the "Merger"). This
transaction was accounted for as a purchase and, accordingly, the
assets and liabilities of the Parent were adjusted to their fair
value. The fair value adjustments attributable to the Company
and an allocable share of the excess purchase price over net
assets acquired (goodwill) were recorded by the Company in
accordance with "push down" accounting, with a corresponding
amount recorded as an increase to Additional Paid in Capital.
The subordinated debt issued by the Parent, as well as related
interest expense, deferred debt costs and amortization, incurred
in connection with the Merger were not reflected in the financial
statements of any of the Parent's operating subsidiaries,
including the Company.
From 1987 through 1991, the Company and the other operating
subsidiary of the Parent did not generate sufficient cash flow to
pay significant amounts of principal on debt of the subsidiaries,
including the Company. In order to reduce the debt of the Parent
and generate cash flow to pay senior debt principal, the Parent
considered various restructuring proposals. In late 1991, the
Parent reached agreement with various creditors for a
restructuring of the Parent whereby the holders of the
subordinated debt of the Parent would exchange all of their
debentures for approximately 94% of the common stock of the
Parent. In order to facilitate the corporate reorganization, a
Prepackaged Plan of Reorganization under chapter 11 of the
Bankruptcy Code was filed by the Parent on January 27, 1992 and
became effective on March 24, 1992. The Company was not involved
in the bankruptcy proceedings, and having no obligation regarding
the Parent's indebtedness, was not affected by the Plan of
Reorganization of the Parent.
The Parent accounted for the Reorganization using Fresh
Start Reporting, in accordance with Statement of Position (SOP)
90 7 (Financial Reporting by Entities in Reorganization under the
Bankruptcy Code) issued by the AICPA and "pushed down" certain
accounting entries to the Company. Accordingly, all assets and
liabilities of the Company were adjusted to reflect their
estimated reorganization values, which approximated their book
<PAGE>
values less liabilities at the date of reorganization. For
accounting purposes, the date of reorganization was March 31,
1992. This resulted in reorganization value in excess of amounts
allocated to assets of $2.8 million. In addition, in accordance
with SOP 90 7, the Company recognized the cumulative effects of
adopting Financial Accounting Standards Board Statements No. 109
"Accounting for Income Taxes" ("SFAS 109") and No. 106
"Employers' Accounting for Postretirement Benefits other than
Pensions" ("SFAS 106") as a $13.7 million and $2.5 million
reduction, respectively, in shareholder's investment. Also, the
Company's retained deficit totaling $43.6 million prior to the
Reorganization was eliminated reducing additional paid in capital
by the same amount.
B. Federal Income Taxes
The Parent and its U.S. subsidiaries (including the Company)
file a consolidated federal income tax return. The federal
income tax provisions reflected in the accompanying statements of
operations were calculated on a separate return basis. As
provided by a tax sharing agreement between the Parent and the
Company, each of the Parent's subsidiaries (including the
Company) remit federal income taxes currently payable based on
the separate liability of each, but limited to the consolidated
liability. The benefit of consolidation, if any, upon the
current liability is shared ratably between the Company and the
Parent's other operating subsidiary and is recorded as additional
paid in capital. In 1993, the Company remitted cash to the Parent
equal to its tax liability, net of $1.7 million recognized as
the benefit of consolidation. In 1992, cash payments equal to
the Company's cash tax liability were remitted to the Parent.
During 1991, income taxes currently payable were recorded as a
reduction to the portion of the Receivable from Parent in the
shareholder's investment section of the Company's balance sheet.
Effective April 1, 1992, the Company adopted SFAS 109. SFAS
109 requires a significantly different approach to the financial
accounting and reporting of income taxes than had been previously
used, and in accordance with SFAS 109, the Company has chosen not
to restate prior year financial statements. Refer to Note 5 for
further discussion of SFAS 109. Prior to April 1, 1992, the
Company computed income taxes in accordance with Accounting
Principles Board Opinion No. 11.
C. Postretirement Benefits Other Than Pensions
Effective April 1, 1992, the Company adopted SFAS 106. SFAS
106 requires the Company to accrue for the expected cost of
postretirement benefits during the years an employee renders
service rather than the previous practice of expensing such costs
as incurred. Refer to Note 6 for further discussion of SFAS 106.
D. Intangible Assets
Intangible assets consist of amounts attributable to the
Company's customer base and agency network, reorganization value
in excess of amounts allocated to assets (Note 1A) and certain
<PAGE>
other intangible assets. Intangible assets are amortized by the
straight-line basis over periods ranging from 5 to 35 years.
E. Reserve for Self-insured Claims
The Company is self-insured for certain risks and is covered
by insurance policies for other risks. The Company maintains
reserves for losses and premium adjustments using case basis
evaluations and other analyses. Reserve and premium adjustment
estimates are continually reviewed and adjustments are reflected
in current operations. The Company recognizes the noncurrent
nature of the self insured claims reserves by classifying a
portion of these reserves as a noncurrent liability.
F. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. The carrying amount reported on the balance sheet
for cash equivalents approximates fair value.
G. Inventories
Inventories are stated at the lower of cost or market as
determined for each specific unit.
H. Property and Equipment
Property and equipment are stated on a cost basis.
Depreciation is provided primarily by the straight-line method at
annual rates considered adequate to amortize the costs over the
estimated useful lives of the assets. The lives used in
computing depreciation during the periods were:
Buildings and improvements 3 to 40 years
Revenue equipment 3 to 10 years
Other operating equipment and
improvements 2 to 10 years
I. Recognition of Operating Revenues
The Company, which is primarily involved in the shipment of
household goods and electronic and trade show products,
recognizes revenue and associated transportation costs when the
order has been unloaded at the destination. The Company's
equipment financing subsidiary sells transportation equipment to
certain of its owner-operators and agents. Beginning in 1993,
revenues associated with these installment sales are recorded net
of the related cost of goods sold as an operating expense, with
the related gain on the sale being recognized on the installment
basis. Revenues and operating expenses for 1992 and 1991 have
been reclassified to conform with this presentation.
J. Reclassification
Certain amounts within the 1992 and 1991 Consolidated
Financial Statements have been reclassified to conform with the
1993 presentation.
Note 2 - Financing Agreements
<PAGE>
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
1993 1992
---------- ----------
(In thousands)
<S> <C> <C>
Collateralized Debt:
Senior secured term loans, interest rates and terms
vary through April 2003, as discussed below,
collateralized by substantially all of the assets
of the Company and its affiliate, Contract Services,
and guaranteed by the Parent $ 34,000 $ 0
Mortgage note payable, 11%, interest only payable
in monthly installments to 1997, collateralized
by land and buildings 5,000 14,960
Senior secured term loan, interest at 7.75%,
refinanced in 1993 as discussed below 0 29,200
Notes payable, interest varying between 7% and 7.5%,
repaid in 1993 as discussed below 0 8,841
Uncollateralized Debt:
Other notes payable, various interest rates, payable
in variable installments 543 445
---------- ----------
39,543 53,446
Less current maturities 0 (7,310)
---------- --------
$ 39,543 $ 46,136
========== =========
</TABLE>
Maturities on long term debt during each of the next five
years ending December 31, are expected to be as follows (in
thousands):
1994 $ 0
1995 0
1996 0
1997 8,946
1998 5,540
Thereafter 25,057
------
$39,543
=======
Effective May 27, 1993, the Parent consummated two separate
agreements involving the Company for refinancing certain of its
debt facilities which were scheduled to expire in 1993.
The first agreement was for an $80 million term loan from a
group of lenders, the proceeds of which were used both to
<PAGE>
refinance existing obligations to secured lenders of the Company
and its affiliate, Contract Services, and for working capital
purposes. The term loan has two separate facilities. The first
facility is for $65 million and has a ten-year maturity with
interest only payments required in the initial three years.
Amortization of principal begins in year four with equal annual
installments through April 2003. Interest on this facility is to
be paid quarterly, and is fixed at 9.5% per annum. At December
31, 1993, the Company has borrowed $27.6 million under this
facility. The second facility is for $15 million and has a seven-
year maturity with repayment of principal occurring in eight
equal quarterly installments during years six and seven through
April 2000. Interest on this facility is to be paid quarterly,
and is computed using LIBOR plus 2.8% per annum, which was 6.3%
at December 31, 1993. At December 31, 1993, the Company has
borrowed $6.4 million under this facility.
Through the second agreement, a group of banks provide the
Company and Contract Services with a $70 million revolving credit
facility. The facility, which has a maturity date of June 1995,
will be used for letters of credit and seasonal working capital
purposes. At December 31, 1993, the Company has letters of credit
totaling $26.2 million, and no borrowings outstanding under its
line of credit. Interest is to be paid monthly, and is computed
using the prime rate plus 1.5% per annum which was 7.5% at
December 31, 1993. The facility does not require compensating
balances but does require the payment of a commitment fee at an
annual rate of .375% of the unused portion of the facility and a
fee of 2% per annum of the amount of letters of credit
outstanding.
The financing facilities discussed above are collateralized
by substantially all of the assets of the Company and Contract
Services and guaranteed by the Parent.
Effective December 31, 1993, the Company entered into two
new agreements to sell $13.9 million of installment notes
receivable of the Company's equipment sales and financing
subsidiary to the same creditors which had previously financed
such notes receivable. The Company recognized no gain or loss on
the sale of the notes receivable and proceeds were used to fully
repay amounts outstanding under the related notes payable.
Financial Covenants and Restrictions
Under terms of the financing agreements with senior lenders,
the ability of the Company and Contract Services to pay dividends
or otherwise transfer cash to the Parent is limited to required
income tax payments and $1.5 million annually for on-going cash
expenses. The financing agreements also contain various
restrictive financial covenants that, among other things,
restrict property and equipment additions, restrict certain
additional indebtedness, and require the maintenance of certain
financial ratios.
<PAGE>
Other
Interest paid during 1993, 1992 and 1991 totaled $4.8
million, $5.3 million, and $3.9 million, respectively.
The carrying value of the Company's borrowings does not
significantly differ from its fair value. The fair value of the
Company's long- term debt is estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements.
Note 3 - Revaluation of Intangible Assets
The revaluation of intangible assets in 1991 represents a
non-cash charge to operations which does not relate directly to
normal ongoing business activity and, in the opinion of
management, is nonrecurring. In 1986, the Merger (Note 1A) was
accounted for as a purchase and, accordingly, the assets and
liabilities were adjusted to their estimated fair values based
upon independent appraisals and business conditions at that time.
During the final analysis and evaluation of various restructuring
proposals considered by the Parent (Note 1A), which were
completed in 1991, the Company determined that the recorded value
of its goodwill and intangible assets were stated in excess of
current market value. Accordingly, during 1991, goodwill and
intangible assets were adjusted to reflect a write-down of $37.8
million and $31.2 million, respectively.
Note 4 - Commitments and Contingent Liabilities
The Company has guaranteed aggregate rental and certain
residual values under various leasing arrangements entered into
by the Company and its subsidiaries. It also has guaranteed the
collection of certain installment notes receivable, which were
sold by the Company's equipment sales and financing subsidiary.
The contingent liability resulting from these guarantees totaled
approximately $21.7 million at December 31, 1993. The Company
has a right to property and equipment which serves as collateral
against these contingent obligations that, the Company believes,
would substantially offset any potential obligation.
The Company and its subsidiaries lease certain
transportation equipment and warehouse facilities, as well as
data processing and other office equipment. Generally, these
leases require the Company and its subsidiaries to pay
maintenance and insurance costs. There are no significant
capital leases. Total rent expense was $6.7 million, $5.8
million, and $5.9 million for 1993, 1992, and 1991, respectively.
Future minimum lease payments on noncancellable operating leases
are as follows (in thousands):
<PAGE>
1994 $ 4,378
1995 3,407
1996 2,187
1997 1,492
1998 826
Thereafter 799
---------
$ 13,089
=========
Note 5 - Federal Income Taxes
Effective April 1, 1992, the Company changed its method of
accounting for income taxes from the deferred to the liability
method required by SFAS 109. As provided by SFAS 109, financial
statements for the prior years have not been restated. The
cumulative effect of adopting SFAS 109 as of April 1, 1992 was to
decrease shareholder's investment by $13.7 million.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for federal income tax purposes. The Company has a capital loss
carryforward of $2.6 million. The capital loss carryforward will
expire in 1994. Because of the uncertainty of the ability to
generate sufficient capital gains against which to utilize the
capital loss, this carryforward has been fully provided for in
the valuation allowance. Significant components of the Company's
noncurrent and current deferred taxes as of December 31, 1993 are
as follows (in thousands):
<TABLE>
<S> <C>
Net noncurrent deferred tax liabilities:
Intangible assets $ 12,959
Excess tax depreciation 3,209
Fair value of assets in excess of book value 814
Postretirement benefits (1,813)
Noncurrent portion of reserve for self-insured claims (1,736)
Capital loss carryforward (1,001)
Noncurrent portion of valuation allowance for
deferred tax assets 353
Other, net (652)
----------
Total net noncurrent deferred tax liabilities 12,133
----------
Net current deferred tax assets:
Current portion of reserve for self-insured claims 4,552
Allowance for possible collection losses 2,343
Current portion of valuation allowance for
deferred tax assets (648)
Other, net 864
----------
Total net current deferred tax assets 7,111
<PAGE>
----------
Net deferred tax liabilities $ 5,022
==========
</TABLE>
For 1993, 1992, and 1991, effective rates that differed from
the U.S. federal statutory rates were used in recording federal
tax expense. The primary reasons for these differences are as
follows: For 1993, the Company recorded additional income tax
expense to reflect the cumulative effect on the net deferred
income tax liability of tax rate increases, as required by SFAS
No. 109, primarily as a result of the enactment in August 1993 of
Omnibus Budget Reconciliation Act. In 1993 and 1992, the Company
recorded additional income tax expense (benefit) related to
deferred state income taxes, as required by SFAS 109. In 1993,
1992 and 1991, a difference in rates was created as a result of
the nondeductibility of amortization of intangible assets. These
intangible assets were created at the time of the Parent's
formation in 1986 and were also generated by the excess
reorganization value resulting from the Plan of Reorganization
for 1992. The following table summarizes the differences between
the statuary federal income tax rate and the effective tax rate
provided in the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Years ended December 31
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Statutory rate (credit) 35.0% 34.0% (34.0)%
Increase (decrease) in rate due to:
Cumulative effect of tax rate increase 4.2 --- ---
Amortization of non-deductible acquisition costs 1.7 1.9 2.2
Effect of revaluation of intangible assets --- --- 37.3
Effect of recording deferred state income taxes (6.4) 2.8 ---
Other, net ( .4) .5 ---
------ ------ -------
34.1% 39.2% 5.5%
====== ====== =======
</TABLE>
Note 6 - Pension Plan and Other Postretirement Benefits
Pension Plan
The Company sponsors a noncontributory defined benefit
pension plan that covers full-time employees. Benefits are based
on years of service and compensation during the five highest
consecutive years of earnings before retirement. The Company's
policy is to fund actuarially determined amounts adequate to meet
future benefit payment requirements.
<PAGE>
At December 31, 1993, plan assets consisted of U.S.
government and corporate bonds, listed stocks, and cash
equivalents.
Net pension cost for the Company's defined benefit pension
plan included the following components:
1993 1992 1991
(In thousands)
---------------------------
Service cost-benefits earned
during the year $ 583 $ 503 $ 608
Interest cost on projected
benefit obligation 1,467 1,355 1,363
Actual return on plan assets (1,521) (1,396) (3,107)
Net amortization and deferral (519) (565) 1,237
Lump-sum settlement 0 0 82
------ ------- -------
$ 10 $ (103) $ 183
====== ======= =======
The funded status and amount recognized in the consolidated
balance sheet at December 31, 1993 and 1992 were as follows (in
thousands):
<TABLE>
1993 1992
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation (including
vested benefits of $17,708 in
1993 and $14,793 in 1992) $(18,150) $(15,154)
Effect of projected future compensation
increases (2,533) (2,159)
-------- --------
Projected benefit obligation for service
rendered through December 31 (20,683) (17,313)
Plan assets at fair value 20,553 19,912
-------- --------
Plan assets in excess of (less than)
projected benefit obligation (130) 2,599
Unrecognized net loss 2,887 208
Unrecognized net assets at December 31 (1,360) (1,632)
Unrecognized prior service cost
(reduction) (306) (295)
-------- --------
Prepaid pension cost $ 1,091 $ 880
======== ========
</TABLE>
The discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.5% and 8.5% at
December 31, 1993 and 1992, respectively. The rate of future
<PAGE>
compensation increases used was 5% and 6% at December 31, 1993
and 1992, respectively. The weighted average expected long-term
rate of return on plan assets in 1993, 1992 and 1991 was 9.0%.
Other Postretirement Benefit Plan
Effective April 1, 1992, the Company adopted SFAS 106. In
accordance with SOP 90-7, the cumulative effect of the accounting
change was recognized as a $2.5 million reduction in
shareholder's investment. In prior years, the Company had
recognized the expense related to these benefits as they were
paid. As the effect on net income of adopting SFAS 106 was not
significant, postretirement benefit cost for prior periods has
not been restated.
The Company's contributory defined benefit postretirement
plan makes available health and life insurance benefits to the
majority of the Company's retirees and their eligible dependents.
The postretirement plan is contributory, with retiree
contributions adjusted annually, and contains other cost-sharing
features such as deductibles and co insurance. Eligibility for
these benefits is based upon retirement from the Company as well
as those retirees having met certain age and vesting service
requirements.
The Company provides contributions to the plan as necessary
to fund the plan's current benefits and expenses.
Net postretirement benefit expense for the Company included
the following components for the year ended December 31, 1993 and
the nine months ended December 31, 1992 (in thousands):
1993 1992
------- -------
Service cost benefits earned
during the year $ 94 $ 39
Interest cost on accumulated
postretirement benefit obligation 333 252
------ ------
Net periodic postretirement benefit cost $ 427 $ 291
====== ======
The funded status and amounts recognized in the Consolidated
Balance Sheet for the Company's defined benefit postretirement
plans at December 31, 1993 and 1992, were as follows (in
thousands):
Accumulated postretirement benefit 1993 1992
obligation: ------- -------
Retirees $ 3,591 $ 3,574
Fully eligible active plan
participants 339 247
<PAGE>
Other active plan participants 663 302
------- -------
4,593 4,123
Unrecognized net loss (262) 0
Plan assets at fair value 0 0
------- -------
Accumulated postretirement benefit
obligation in excess of plan assets $ 4,331 $ 4,123
======= =======
For measurement purposes, the weighted average discount rate
used in determining the accumulated postretirement benefit
obligation was 7.5% in 1993 and 8.5% in 1992. The Company's
health care cost trend rate is 11% for 1994 and is assumed to
gradually decrease to 8% by the year 2000 and remain at that
level thereafter. If these trend rates were to be increased by 1
percent each year, the December 31, 1993, accumulated
postretirement benefit obligation would increase by $521,000 and
the aggregate of the service and interest cost components of 1993
annual expenses would increase by $49,000.
Note 7 - Related Party Transactions
The Company's tax sharing agreement with its Parent requires
the Company to remit its portion of the consolidated tax
liability (see Note 1B for further discussion) to the Parent.
The Company remitted $2.0 million and $2.9 million to the Parent
related to this liability in 1993 and 1992, respectively. The
Company also is obligated to make payments for certain defined
corporate expenses to the Parent (Note 2). The Company remitted
$354,000 and $699,000 in the form of a dividend for such expenses
in 1993 and 1992, respectively.
The receivable from Parent in 1991 represented net balances
with the Parent as a result of the Company remitting its excess
cash flow to the Parent and various other transactions. These
transactions included current income tax liabilities (Note 1B),
advances for capital expenditures, miscellaneous direct expenses
paid by the Parent for the Company and allocated expenses
(management fees) of various Parent staff departments. The
ultimate settlement of the receivable from Parent was through the
declaration of a dividend to the Parent in March 1992, in
connection with the Plan of Reorganization.
<PAGE>
Appendix D
To Mayflower Group, Inc.
Proxy Statement
[LETTERHEAD OF SMITH BARNEY]
CONFIDENTIAL
December 4, 1994
The Board of Directors
Mayflower Group, Inc.
9998 N. Michigan Road
Carmel, Indiana 46032
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to Mayflower Group, Inc. ("Group") of
the consideration to be received by Group in connection with its
sale of all of the outstanding capital stock of its wholly-owned
subsidiary Mayflower Transit, Inc. ("Transit") to UniGroup, Inc.
("UniGroup") pursuant to the Stock Purchase Agreement dated
December 4, 1994 (the "Agreement") by and between Group and
UniGroup (the "Sale"). Pursuant to the Agreement, and subject to
the terms and conditions set forth therein, we understand that,
among other things, Group will receive $90 million in cash at
the closing of the Sale (subject to adjustment under certain
circumstances) (the "Consideration") in return for all of the
outstanding capital stock of Transit subject, among other things,
to Group having caused Transit's funded debt to be repaid, or
otherwise satisfied, in full.
In arriving at our opinion, we have (i) reviewed the Agreement;
(ii) met with certain senior officers, directors and other
representatives and advisors of Group and Transit to discuss the
business, operations and prospects of Group and Transit; (iii)
examined certain publicly available business and financial
information relating to Group and Transit as well as certain
financial analyses, forecasts and other data for Group and
Transit that were provided to us by Group's senior management,
which information is not publicly available, including financial
forecasts provided to us for Transmit; (iv) reviewed the
financial terms of the Sale as set forth in the Agreement in
relation to historical and projected earnings and operating data
for Transit; (v) considered the potential pro forma impact of the
Sale on Group; and (vi) considered, to the extent publicly
available, the financial terms of certain other transactions we
deemed relevant and analyzed certain financial, stock market and
other publicly available information relating to the businesses
of other companies which operate in the trucking industry, and
further considered to what extent these companies were comparable
to Transit. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other
<PAGE>
financial, economic and market criteria as we deemed necessary in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without
independent verification, upon the accuracy and completeness of
all financial and other information publicly available, or
furnished to, or otherwise discussed with us. Except as
described above, we have not conducted any review or
investigation of Group or Transit. With respect to financial
forecasts and other information provided or otherwise discussed
with us, we assumed, and we have been advised by senior
management, that such forecasts and other information were
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior management of
Group and Transit. We have assumed the correctness of and relied
upon representations and warranties of UniGroup and Group
pursuant to the Agreement and have not attempted to independently
verify any such information. We express no opinion as to the
price at which Group's common stock will trade subsequent to the
Sale. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Group of Transmit nor have we made any physical
inspection of the properties or assets of Group or Transmit. Our
opinion does not address the relative merits of the Sale as
compared to any alternative business strategies that might exist
for Group or the effect of any other transaction in which Group
might engage. Our opinion herein is necessarily based upon
financial, stock market and other conditions and circumstances
existing and disclosed to us as to the date hereof.
Smith Barney Inc. has been engaged to render financial advisory
services to Group in connection with the Sale and will receive a
fee for our services, a significant portion of which is
contingent upon consummation of the Sale. In the ordinary
course of business, we and our affiliates may actively trade the
equity and debt securities of Group for our own account or for
the account of our customers and, accordingly, may at any time
hold a long or short position in such securities. We have in the
past provided financial advisory and investment banking services
to Group and its affiliates unrelated to the Sale and have
received, and will receive, fees for the rendering of such
services. In addition, we and our affiliates (including The
Travelers Inc. and its affiliates) may maintain business
relationships with Group and UniGroup.
Smith Barney's opinion may not be published, quoted, or otherwise
used or referred to, nor shall any public reference to Smith
Barney Inc. be made, without our prior written consent.
Based upon and subject to the foregoing, our experience as
investment bankers, and other factors we deemed relevant, we are
of the opinion that, as of the date hereof, the Consideration to
be received by Group in the Sale is fair, from a financial point
of view, to Group.
<PAGE>
Very truly yours,
/s/ Smith Barney Inc.
<PAGE>
Appendix E
To Mayflower Group, Inc.
Proxy Statement
AGREEMENT AND PLAN
OF
MERGER
AMONG
MAYFLOWER GROUP, INC.
TCW ASSET MANAGEMENT COMPANY, as investment manager
of funds and accounts which hold shares of Mayflower Group, Inc.,
LAIDLAW TRANSIT, INC.
AND
MCS TRANSIT, INC.
DATED AS OF JANUARY 20, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I - Certain Definitions . . . . . . . . . . . . 2
ARTICLE II - The Merger . . . . . . . . . . . . . . . . 5
Section 2.1. Surviving Corporation . . . . . . . . 5
Section 2.2. Closing; Filing; etc. . . . . . . . . 5
Section 2.3. Effective Date of the Merger. . . . . 5
Section 2.4. Effects of the Merger . . . . . . . . 5
Section 2.5. Further Assurances . . . . . . . . . 5
ARTICLE III - Articles of Incorporation and By-Laws;
Directors and Officers . . . . . . . . 6
Section 3.1. Articles of Incorporation; By-Laws . . 6
Section 3.2. Directors . . . . . . . . . . . . . . . 6
Section 3.3. Officers . . . . . . . . . . . . . . . 6
ARTICLE IV - Conversion of Shares . . . . . . . . . . . . 6
Section 4.1. Conversion of Outstanding Shares . . . 6
Section 4.2. Paying Agent . . . . . . . . . . . . . 7
Section 4.3. Surrender and Payment . . . . . . . . . 7
Section 4.4. No Further Transfers . . . . . . . . . 7
ARTICLE V - Representations and Warranties . . . . . . . 8
Section 5.1. Representations and Warranties
by Group . . . . . . . . . . . . . . . 8
Section 5.2. Representations and Warranties
by Parent and Newco . . . . . . .. . . 20
ARTICLE VI - Covenants of Parties . . . . . . . . . . . . 21
Section 6.1. Conduct of Group and Group
Subsidiaries . . . . . . . . . . . . . . 21
Section 6.2. Group's Special Meeting of Shareholders;
Proxy Materials . . . . . . . . . . . . 23
Section 6.3. Obtaining Consents and Conditions
to Closing . . . . . . . . . . . . . . . 24
Section 6.4. Access and Investigation. . . . . . . . . 24
Section 6.5. Negotiations with Others . . . . . . . . 25
Section 6.6. Confidentiality . . . . . . . . . . . . . 25
Section 6.7. Continuation of Insurance . . . . . . . . 25
Section 6.8. Letters of Credit . . . . . . . . . . . . 26
Section 6.9. Group Stock Plans . . . . . . . . . . . . 26
Section 6.10. Intercompany Accounts . . . . . . . . . . 26
Section 6.11. Termination of Group Guaranties . . . . . 26
Section 6.12. Notification and Remedies . . . . . . . . 26
Section 6.13. Provision for Claims . . . . . . . . . . 26
Section 6.14. Filings and Other Information . . . . . . 27
Section 6.15 Guarantee by Laidlaw Inc. . . . . . . . . 27
Section 6.16. Representations, Warranties and
<PAGE>
Covenants of TCW . . . . . . . . . . . . 27
Section 6.17. Further Assurances. . . . . . . . . . . . 27
Section 6.18. Tax Provisions. . . . . . . . . . . . . . 27
ARTICLE VII - Conditions to the Merger. . . . . . . . . . . 27
Section 7.1. Conditions to the Obligations of
Parent and Newco . . . . . . . . . . . . 27
Section 7.2. Conditions to Obligations of Group . . . . 31
ARTICLE VIII - Termination, Amendment and Extension . . . . 32
Section 8.1. Termination . . . . . . . . . . . . . . . . 32
Section 8.2. Effect of Termination . . . . . . . . . . . 33
Section 8.3. Amendment and Modification. . . . . . . . . 34
ARTICLE IX - Miscellaneous . . . . . . . . . . . . . . . . . 34
Section 9.1. Counterparts . . . . . . . . . . . . . . . . 34
Section 9.2. Governing Law . . . . . . . . . . . . . . . 34
Section 9.3. Entire Agreement . . . . . . . . . . . . . . 34
Section 9.4. Expenses . . . . . . . . . . . . . . . . . . 34
Section 9.5. Survival of Representations and
Warranties . . . . . . . . . . . . . . . . 34
Section 9.6. Notices . . . . . . . . . . . . . . . . . . 34
Section 9.7. Successors and Assigns . . . . . . . . . . . 36
Section 9.8. Headings . . . . . . . . . . . . . . . . . . 36
Section 9.9. Severability . . . . . . . . . . . . . . . . 36
Section 9.10. Gender . . . . . . . . . . . . . . . . . . . 36
Section 9.11. Indemnification . . . . . . . . . . . . . . 36
Section 9.12. Public Announcement . . . . . . . . . . . . 36
Section 9.13 Further Assurances . . . . . . . . . . . . . 37
Exhibit A - Financial Projections
Exhibit B - Interim Balance Sheet
Exhibit C - License Agreements
Schedules to Agreement
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger dated as of January 20,
1995 (the "Agreement"), by and among Laidlaw Transit, Inc., a
Delaware corporation ("Parent"), MCS Transit, Inc., an Indiana
corporation, and a wholly-owned subsidiary of Parent ("Newco"),
Mayflower Group, Inc., an Indiana corporation ("Group"), and TCW
Asset Management Company ("TCW"), as investment manager of funds
and accounts which hold shares of Group and for the sole
purposes of Sections 6.16, 8.1(d), 8.2(a), 9.4(c), 9.5 and 9.6.
W I T N E S S E T H
WHEREAS, Group has entered into that certain Stock Purchase
Agreement dated as of December 4, 1994 (the "Stock Purchase
Agreement") pursuant to which Group has agreed to sell all of the
outstanding common stock of its wholly owned subsidiary Mayflower
Transit, Inc., an Indiana corporation ("Transit") to UniGroup,
Inc., a Missouri corporation ("UniGroup"); and
WHEREAS, the respective Boards of Directors of Parent, Newco
and Group deem it advisable and in the best interests of their
respective shareholders that, upon completion of the transactions
contemplated by the Stock Purchase Agreement, Newco merge with
and into Group (the "Merger") on the terms and conditions set
forth herein in accordance with the Indiana Business Corporation
Law (the "Indiana Act") (Newco and Group being hereinafter
sometimes referred to as the "Constituent Corporations" and
Group, following the effectiveness of the Merger, as the
"Surviving Corporation"); and
WHEREAS, as an inducement for Parent and Newco to enter into
this Agreement, upon the specific request of Parent and Newco,
TCW is a party to this Agreement for the sole purposes of
Sections 6.16, 8.1(d), 8.2(a), 9.4(c), 9.5 and 9.6; and
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants, agreements and conditions
contained herein and in order to set forth the terms and
conditions of the Merger and the manner of carrying the same into
effect, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
As used in this Agreement the following terms shall have the
following respective meanings:
"Acquisition Proposal" shall have the meaning set forth in
Section 6.5 hereof.
"Affiliated Group" shall have the meaning set forth in
Section 5.1(j) hereof.
<PAGE>
"Agreement" shall have the meaning set forth in the
introductory paragraph of this Agreement.
"Antitrust Division" shall have the meaning set forth in
Section 5.1(i) hereof.
"Antitrust Improvements Act" shall have the meaning set
forth in Section 5.1(i) hereof.
"Articles of Merger" shall have the meaning set forth in
Section 2.2 hereof.
"Audited Balance Sheet" shall have the meaning set forth in
Section 5.1(n) hereof.
"CERCLA" shall have the meaning set forth in Section 5.1(w)
hereof.
"Certificate" shall have the meaning set forth in Section
4.1(a) hereof.
"Closing" shall have the meaning set forth in Section 2.2
hereof.
"Closing Date" shall mean the fifth business day following
the date on which the requirements of Sections 7.1 and 7.2 have
been satisfied, or such other date as the parties may agree to in
writing have the meaning set forth in Section 2.2 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended. All citations to the Code or to the regulations
promulgated thereunder shall include any amendments or any
substitute or successor provisions thereto.
"Company Returns" shall have the meaning set forth in
Section 5.1(u).
"Confidentiality Agreement" shall have the meaning set forth
in Section 6.6 hereof.
"Consents" shall have the meaning set forth in Section
5.1(i) hereof.
"Consolidated Company" and "Consolidated Companies" shall
have the meanings set forth in Section 5.1(a) hereof.
"Constituent Corporations" shall have the meaning set forth
in the recitals to this Agreement.
"Contract Services" shall mean Mayflower Contract Services,
Inc., an Indiana corporation.
"EBIT" means, for any period, the following, each calculated
for such period: (a) net income determined in accordance with
GAAP; plus (b) Interest Expenses paid or accrued in determining
<PAGE>
net income; and (c) income and franchise taxes paid or accrued in
determining net income.
"Effective Date" shall have the meaning set forth in Section
2.3 hereof.
"Employee Plans" shall have the meaning set forth in Section
5.1(j) hereof.
"Environmental Matters" shall have the meaning set forth in
Section 5.1(w)(xvii) hereof.
"Environmental Laws" shall have the meaning set forth in
Section 5.1(w) hereof.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Fiduciary" shall have the meaning set forth in Section
5.1(j) hereof.
"Financial Projections" shall mean the forecasted
consolidated monthly profit and loss statements for Group's
Subsidiaries for each month ended July 1, 1994 through June 30,
1995, attached hereto as Exhibit A.
"FTC" means the Federal Trade Commission as set forth in
Section 5.1(i) hereof.
"GAAP" shall mean generally accepted accounting principles,
applied consistently for all relevant dates and periods.
"Group" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Group Affiliate" means any subsidiary of Group other than
the Consolidated Companies.
"Group Common Stock" shall have the meaning set forth in
Section 4.1 hereof.
"Group Directors" shall have the meaning set forth in
Section 6.7 hereof.
"Group Stock Plans" shall have the meaning set forth in
Section 5.1(d) hereof.
"Group Subsidiary" or "Group Subsidiaries" shall have the
meanings set forth in Section 5.1(d) hereof.
"Group's knowledge," "to the knowledge of Group," or words
of similar import, shall mean the knowledge, after reasonable
<PAGE>
investigation, of the officers of Group and the officers of each
Consolidated Company.
"Group's SEC Documents " shall have the meaning set forth in
Section 5.1(n) hereof.
"Hazardous Materials" shall have the meaning set forth in
Section 5.1(w) hereof.
"Intercompany Debt" means all debt of the Consolidated
Companies to Group or any Group Affiliate.
"Intercompany Receivables" means all debt of Group or any
Group Affiliate to the Consolidated Companies.
"Interstate Commerce Act" means the Interstate Commerce Act,
as amended, and all regulations promulgated thereunder.
"Interstate Commerce Commission" means the Interstate
Commerce Commission of the United States of America and any
successor agency thereto.
"IRS" shall mean the Internal Revenue Service.
"Indemnified Parties" shall have the meaning set forth in
Section 9.11 hereof.
"Indiana Act" shall have the meaning set forth in the
recitals to this Agreement.
"Interim Balance Sheet" shall mean the consolidated and
consolidating unaudited balance sheets of Group and the Group
Subsidiaries, attached hereto as Exhibit B, which Interim Balance
Sheet was prepared as of December 31, 1994.
"Material Agreements" shall have the meaning set forth in
Section 5.1(p)(viii) hereof.
"Merger" shall have the meaning set forth in the recitals to
this Agreement.
"Merger Consideration" shall have the meaning set forth in
Section 4.1(a) hereof.
"Multiple Employer Pension Plan" shall have the meaning set
forth in Section 5.1(j) hereof.
"Newco" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Newco Common Stock" shall have the meaning set forth in
Section 4.1(d) hereof.
"1994 10-Q's" shall have the meaning set forth in Section
5.1(n) hereof.
<PAGE>
"Parent" shall have the meaning set forth in the
introductory paragraph of this Agreement.
"Paying Agent" shall have the meaning set forth in Section
4.2. hereof.
"PBGC" shall have the meaning set forth in Section 5.1(j)
hereof.
"PCB's" shall have the meaning set forth in Section 5.1(w)
hereof.
"Pension Plan" shall have the meaning set forth in Section
5.1(j) hereof.
"Proxy Statement " shall have the meaning set forth in
Section 5.1(z) hereof.
"Restricted Stock Plans" shall have the meaning set forth in
Section 5.1(d) hereof.
"SEC" means the Securities and Exchange Commission.
"State Transportation Authorities" shall have the meaning
set forth in Section 5.1(i) hereof.
"Stock Purchase Agreement" shall have the meaning set forth
in the recitals to this Agreement.
"Subsidiary Shares" shall have the meaning set forth in
Section 5.1(d) hereof.
"Surviving Corporation" shall have the meaning set forth in
the recitals to this Agreement.
"Surviving Corporation Common Stock" shall have the meaning
set forth in Section 4.1 hereof.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means (a) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, fuel, third structure,
ad valorem, franchise, profits, license, lease, use, withholding,
payroll, employment, excise, severance, property, transfer,
documentary, mortgage, registration, stamp, occupation,
environmental, premium, customs, duties, or other tax of any kind
whatsoever, together with any interest or any penalty, addition
to tax or additional amount imposed by any domestic or foreign
governmental authority (a "Taxing Authority"); any penalties,
interest, or other additions for the failure to collect, withhold
or pay over any of the foregoing, or to accurately file any
return (including without limitation, any information return,
declaration or estimate) with respect to the foregoing; and
liability for the payment of any Tax of an affiliated,
consolidated, combined or unitary group.
<PAGE>
"Tax Consolidated Companies" shall have the meaning set
forth in Section 5.1(u) hereof.
"Tax Returns" shall mean collectively, all reports,
declarations, estimates, returns, information statements, and
similar documents relating to, or required to be filed in respect
of any Taxes; and any statements, returns, reports, or similar
documents required to be filed pursuant to Part III of Subchapter
A of Chapter 61 of the Code or pursuant to any similar income,
excise, or other Tax provision of federal, territorial, state,
local, or foreign law; and the term "Tax Return" means any one of
the foregoing Tax Returns.
"Tax Sharing Agreement" shall have the meaning set forth in
Section 6.1(b) hereof.
"TCW" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"10-K Report " shall have the meaning set forth in Section
5.1(n) hereof.
"Transit" shall have the meaning set forth in the recitals
to this Agreement.
"Unaudited Balance Sheet" shall have the meaning set forth
in Section 5.1(n) hereof.
"UniGroup" shall have the meaning set forth in the recitals
to this Agreement.
ARTICLE II
The Merger
Section 2.1. Surviving Corporation. In accordance with
the provisions of this Agreement and the Indiana Act, on the
Effective Date (as hereinafter defined), Newco shall be merged
with and into Group, the separate corporate existence of Newco
shall cease and Group shall be the Surviving Corporation and
shall continue its corporate existence under the laws of the
State of Indiana.
Section 2.2. Closing; Filing; etc. The Closing of the
Merger (the "Closing") shall take place at the offices of Barnes
& Thornburg, 11 South Meridian Street, Indianapolis, Indiana
46204, as soon as practicable after all of the conditions
precedent contained in Article VII hereof have been fulfilled or
waived. The date on which the Closing actually occurs is herein
referred to as the "Closing Date." As soon as practicable
following the Closing, Parent, Newco and Group shall (a) cause
Articles of Merger, which comply with the requirements of the
Indiana Act (the "Articles of Merger"), to be executed and filed
with the Indiana Secretary of State of the State of Indiana (the
"Indiana Secretary of State") as provided by the Indiana Act, (b)
cause the Indiana Secretary of State promptly to issue a
<PAGE>
Certificate of Merger relating to the Merger, and (c) take any
and all other lawful actions and do any and all other lawful
things necessary to cause the Merger to become effective.
Section 2.3. Effective Date of the Merger. The Merger
shall become effective immediately upon the filing of the
Articles of Merger with the Secretary of State of Indiana. The
date and time of such filing is herein referred to as the
"Effective Date."
Section 2.4. Effects of the Merger. On and after the
Effective Date, the Surviving Corporation will possess all the
rights, privileges, powers and franchises and be subject to all
the restrictions, disabilities and duties of each of the
Constituent Corporations; all debts due to either of the
Constituent Corporations on whatever account as well as all other
claims and causes of action of either of the Constituent
Corporations shall be vested in the Surviving Corporation; all
properties, rights, privileges, powers and franchises and all and
every other interest shall thereafter be as effectually the
property of the Surviving Corporation as they were of the
Constituent Corporations; and the title to any real estate vested
by deed or otherwise in either of the Constituent Corporations
shall be vested in the Surviving Corporation.
Section 2.5. Further Assurances. If at any time after the
Effective Date, the Surviving Corporation shall consider or be
advised that any further deeds, assignments or assurances of law
or any other acts are necessary, desirable or proper (a) to vest,
perfect or confirm of record or otherwise in the Surviving
Corporation the title to any property or right of the Constituent
Corporations acquired or to be acquired by reason of or as a
result of, the Merger, and (b) otherwise to carry out the
purposes of this Agreement, the Constituent Corporations agree
that the proper officers and directors of the Surviving
Corporation shall and will execute and deliver all such property,
deeds, assignments and assurances in law and do all acts
necessary, desirable or proper to vest, protect, confirm title to
such property or right in the Surviving Corporation and otherwise
to carry out the purposes of this Agreement and the proper
officers and directors of the Surviving Corporation are fully
authorized in the name of the Constituent Corporations to take
any and all such action.
ARTICLE III
Articles of Incorporation and By-Laws; Directors and Officers
Section 3.1. Articles of Incorporation; By-Laws. On the
Effective Date, the Articles of Incorporation of Newco, as in
effect immediately prior to the Effective Date, shall be the
Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law. On the Effective Date, the
By-Laws of Newco, as in effect immediately prior to the Effective
Date, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law.
<PAGE>
Section 3.2. Directors. From and after the Effective
Date, the members of the Board of Directors of the Surviving
Corporation shall consist of the persons who are members of the
Board of Directors of Newco immediately prior to the Effective
Date, each to serve until his successor is duly elected and
qualified or as otherwise provided by law or by the Surviving
Corporation's Articles of Incorporation or By-laws.
Section 3.3. Officers. From and after the Effective Date,
the officers of the Surviving Corporation shall be the persons
holding such offices with Newco immediately prior to the
Effective Date until his or her successor is duly elected and
qualified or as otherwise provided in the Surviving Corporation's
Articles of Incorporation or By-laws.
ARTICLE IV
Conversion of Shares
Section 4.1. Conversion of Outstanding Shares. On the
Effective Date, by virtue of the Merger and without any further
action on the part of Parent, Newco, Group, or any holders of the
shares of the common stock, no par value, of Group (the "Group
Common Stock"):
(a) each share of Group Common Stock issued
and outstanding immediately prior to the Effective Date
(excluding any shares held by Newco or Parent or any of their
subsidiaries, but including shares issued pursuant to the
Restricted Stock Plans (as hereafter defined)) shall be canceled
and retired, cease to exist and be converted automatically into
and represent the right to receive a pro rata share of the gross
amount of $157,000,000 in cash less all of the obligations
required to be satisfied by Group upon the Closing of the Merger
pursuant to Section 7.1(j) hereof and less all expenses and costs
of the Consolidated Companies paid prior to the Closing Date in
connection with the transaction contemplated in this Agreement or
the Stock Purchase Agreement (to the extent not otherwise paid
out of proceeds of the Purchase Price under the Stock Purchase
Agreement) (such remaining amount to be computed on a per share
basis), without interest (the "Merger Consideration") payable in
United States Dollars to the record holder of such share only
upon the surrender of the certificate representing such share (a
"Certificate") in accordance with Section 4.3 hereof (less any
required withholding taxes);
(b) each share of Group Common Stock, if any,
then held in the treasury of Group or by any Group Subsidiary or
held by Newco or Parent or any of their subsidiaries shall be
canceled and retired and cease to exist, without any conversion
or payment made in respect thereof; and
(c) each share of Newco Common Stock (the
"Newco Common Stock"), issued and outstanding immediately prior
to the Effective Date, shall be converted into and exchanged for
one fully paid and non-assessable share of common stock, without
<PAGE>
par value, of the Surviving Corporation ("Surviving Corporation
Common Stock"). From and after the Effective Date, each
outstanding certificate theretofore representing shares of Newco
Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the number of shares of Surviving
Corporation Common Stock into which such shares of Newco Common
Stock shall have been converted. Promptly after the Effective
Date, the Surviving Corporation shall issue to the Parent a stock
certificate or certificates representing such shares of Surviving
Corporation Common Stock in exchange for the certificate or
certificates which formerly represented shares of Newco Common
Stock, which shall be canceled.
Section 4.2. Paying Agent. On or before the Effective Date,
Parent shall appoint Bank One, Indianapolis, National
Association, to act as paying agent (the "Paying Agent") to
receive the funds to which holders of record of shares of Group
Common Stock shall become entitled pursuant to Section 4.1(a) of
this Agreement. Parent shall transmit, or shall cause Newco or
the Surviving Corporation to transmit, by wire, or other
acceptable means, to the Paying Agent, from time to time at and
after the Effective Date, funds when and as required for
exchanges in accordance with this Agreement. The Paying Agent
shall estimate its need for funds for each business day and shall
communicate such requirements for each such business day to
Parent not later than 1:00 p.m., Chicago time, on the immediately
preceding business day. Parent shall transmit, or shall cause to
be transmitted, such funds to the Paying Agent by noon, Chicago
time, on the business day following such communication. The
Paying Agent shall agree to hold such funds in trust and deliver
such funds (in the form of checks of the Paying Agent) in
accordance with Section 4.3 and such additional terms as may be
agreed upon by the Paying Agent and Parent. Any portion of such
funds which has not been paid pursuant to Section 4.3 within six
months after the Effective Date shall promptly be paid to the
Surviving Corporation, and thereafter any shareholders of Group
who have not theretofore complied with Section 4.3 shall look
only to the Surviving Corporation for payment of the amount of
cash to which they are entitled pursuant to this Agreement.
Section 4.3. Surrender and Payment. As soon as practicable
after the Effective Date, the Paying Agent shall mail a
transmittal form to each holder of a Certificate advising such
holder of the procedure for surrendering the Certificate to the
Paying Agent. As of the Effective Date, each record holder of a
Certificate shall be entitled upon surrender thereof, together
with a duly completed and validly executed letter of transmittal
as described below, to the Paying Agent to receive payment
therefor in cash in the amount set forth in Section 4.1(a).
Promptly after the Effective Date, the Paying Agent shall mail to
each person who was immediately prior to the Effective Date a
holder of record of issued and outstanding shares of the Group
Common Stock the form (by Parent and Group) of letter of
transmittal and instructions attached hereto as Schedule 4.3 for
use in effecting the surrender of the Certificates therefor. If
<PAGE>
payment of the Merger Consideration is to be made in the name of
a person other than the person in whose name such Certificate is
registered, it shall be a condition of the exchange that the
person requesting such exchange shall pay to the Paying Agent any
transfer or other taxes required by reason of the issuance of
such check in the name of a person other than the registered
owner of the Certificate surrendered, or shall establish to the
satisfaction of the Paying Agent that such tax has been paid or
is not applicable. Notwithstanding the foregoing, neither the
Paying Agent nor any party hereto shall be liable to a holder of
a Certificate for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
Upon the surrender and exchange of a Certificate, the holder
shall by paid by check, without interest thereon, the amount of
cash to which he is entitled hereunder, and the Certificate shall
forthwith be canceled. Until so surrendered and exchanged, each
Certificate shall represent solely the right to receive the cash
into which the shares of Group Common Stock it theretofore
represented shall have been converted pursuant to Section 4.1,
without interest, and the Surviving Corporation shall not be
required to pay the holder thereof the cash into which such
Shares shall have been converted; provided that procedures
allowing for payment with respect to lost or destroyed
Certificates against receipt of customary and appropriate
certifications and indemnities shall be provided. The Surviving
Corporation shall establish reasonable procedures for the payment
of cash to holders of Group Common Stock who have lost their
Certificates or have mutilated Certificates or have had their
Certificates destroyed.
Section 4.4. No Further Transfers. After the Effective Date,
the stock transfer books of Group shall be closed, and no further
transfer of shares of Group Common Stock shall be made. If,
after the Effective Date, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for
cash as provided in Section 4.2 or Section 4.3, as applicable.
ARTICLE V
Representations and Warranties
Section 5.1. Representations and Warranties by Group. Group
represents and warrants to Parent and Newco as follows:
(a) Incorporation; Authorization; etc. Group
is a corporation duly incorporated and validly existing under the
laws of the State of Indiana. Each Group Subsidiary is a
corporation duly incorporated, validly existing and, if
applicable, in good standing under the laws of the jurisdiction
of its incorporation. Each of Group and the Group Subsidiaries
(individually, a "Consolidated Company," and collectively, the
"Consolidated Companies") (i) has all requisite corporate power
and authority to own, lease and operate all of its properties and
assets and to carry on its business as it is now being conducted;
and (ii) is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the ownership or
<PAGE>
lease of real property or the conduct of its business requires it
to be so qualified or licensed.
(b) Corporate Authority. Group has the
requisite corporate power and authority to execute and deliver
this Agreement and, subject to the shareholder approval referred
to herein, to consummate the transactions contemplated on its
part hereby. The execution, delivery and performance by Group of
this Agreement and the consummation by Group of the transactions
contemplated on its part hereby have been duly authorized and
approved by all necessary action of its Board of Directors.
Except for the approval of the Merger by the shareholders of
Group, no other corporate proceedings on the part of Group or the
Group Subsidiaries are necessary to authorize the execution and
delivery of this Agreement and the consummation by Group of the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by Group and constitutes a legal, valid
and binding agreement of Group, enforceable against Group in
accordance with its terms, except as the enforceability thereof
may be limited by the Interstate Commerce Act or bankruptcy,
insolvency, moratorium or other similar laws affecting creditors'
rights generally and except as the availability of equitable
remedies may be limited by equitable principles of general
applicability.
(c) No Violation. Except as set forth in
Schedule 5.1(c) with respect to clause (ii) below, the execution,
delivery and performance of this Agreement does not, and the
consummation of the transactions contemplated hereby will not,
(i) violate any provision of Group's or any Group Subsidiaries'
Articles of Incorporation or Bylaws, or (ii) violate any
provision of, or be an event that is, or with the passage of time
will result in, a violation of, or result in the acceleration of
or entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any obligation under, or result
in the creation or imposition of any lien, security interest or
encumbrance upon any of the Group Common Stock or any of the
Consolidated Companies' assets or properties pursuant to any
provision of, or create any right on the part of any party to
modify, amend or terminate, any mortgage, lien, lease, agreement,
license, instrument, indenture, order, ordinance, arbitration
award, judgment or decree to which any of the Consolidated
Companies is a party or by which any of them or their respective
properties are bound. Upon consummation of the Merger at the
Closing, Parent will, unless otherwise prohibited by law, acquire
title to the Group Common Stock free and clear of any liens,
claims, charges, security interests, options or other legal or
equitable encumbrances or rights of any third parties.
(d) Capitalization. The authorized capital
stock of Group consists of (i) 30,000,000 shares of Group Common
Stock, without par value, of which, as of the date hereof,
12,661,671 shares are validly issued and outstanding, fully paid
and nonassessable (of which 16,000 shares are restricted shares
issued pursuant to the 1993 Restricted Stock Plan and 1994
<PAGE>
Restricted Stock Plan (the "Restricted Stock Plans")), and (ii)
5,000,000 shares of preferred stock of which, as of the date
hereof, zero (0) shares are outstanding. As of the date hereof,
Group has reserved and unissued 560,000 shares of Group Common
Stock for issuance in connection with Group's 1992 Director Stock
Option Plan and Group's 1992 Stock Option Plan (the "Group Stock
Plans"), 509,000 shares for issuance in connection with Group's
Restricted Stock Plans, and 161 shares for issuance in connection
with Group's 1992 Plan of Reorganization. The Group Common Stock
is validly issued, fully paid and nonassessable, and except for
the items set forth or in Schedule 5.1(d) (all of which Group
will cause to be released at Closing), there are no outstanding
obligations, options, warrants or other rights of any kind to
acquire from Group, any Group Subsidiary or any Group Affiliate,
shares of capital stock of any class or other equity securities
of the Group Subsidiary, or securities convertible into or
exchangeable for such capital stock or other equity securities of
Group or any Group Subsidiary. Schedule 5.1(d) sets forth the
name, jurisdiction of incorporation or formation and percentage
ownership of each corporation or other entity in which Group
owns, directly or indirectly, 50% or more of the outstanding
capital stock or other equity interests, excluding Transit and
its subsidiaries (individually, a "Group Subsidiary," and
collectively, the "Group Subsidiaries"). All of the issued and
outstanding shares of capital stock or other equity interests of
the Group Subsidiaries (the "Subsidiary Shares") are validly
issued, fully paid and nonassessable. There are no outstanding
obligations, options, warrants or other rights of any kind to
acquire Subsidiary Shares from Group, any Group Subsidiary or any
Group Affiliate, except for the items set forth on Schedule
5.1(d). The Subsidiary Shares are owned, directly or indirectly,
by Group free and clear of any liens, claims, charges, security
interests, options or other legal or equitable encumbrances or
rights of any third parties, except for the items set forth on
Schedule 5.1(d) (all of which Group shall cause to be released at
Closing). Group has no direct or indirect equity investment in
any corporation, association, partnership, joint venture or other
entity except as set forth in the Schedule 5.1(d), and all of
such investments are owned free and clear of any liens, claims,
charges, encumbrances, restrictions on voting or alienation or
any other limitation or rights of any third parties except as
disclosed on Schedule 5.1(d).
(e) Properties. Except for (i) leased
property, (ii) encumbrances for current Taxes not delinquent or
being contested in good faith, (iii) mechanics', carriers',
workers', repairers' and other similar liens arising or incurred
in the ordinary course of business, (iv) for matters set forth in
Schedule 5.1(e), (v) imperfections of title, if any, which do not
interfere with the Consolidated Companies' use of such property
or impair the marketability of title to such property, and (vi)
for purchase money security interests on personal property which
secure only the purchase price of the relevant property, Group or
a Group Subsidiary has good and marketable title, free and clear
of any liens, mortgages, security interests, claims, charges,
<PAGE>
options or other title defects or encumbrances, to each piece of
real and personal property reflected on or included in the
Interim Balance Sheet and to each piece of real and personal
property acquired by Group or a Group Subsidiary since the date
of the Interim Balance Sheet (except such properties as have been
disposed of, in accordance with this Agreement since the date of
the Interim Balance Sheet in the ordinary course of business and
property purchased, in accordance with this Agreement since the
date of the Interim Balance Sheet in the ordinary course of
business and subject to a purchase money security interest).
(f) Litigation; Orders. Except as disclosed
in Schedule 5.1(f), there are no lawsuits, claims, actions,
administrative or arbitration or other proceedings or
governmental investigations pending or, to Group's knowledge,
threatened in writing against Group or any Group Subsidiary or
any of their properties or assets or seeking to prevent or
invalidate the transactions contemplated by this Agreement.
There are no judgments or outstanding orders, rulings,
injunctions, decrees, stipulations or awards (whether rendered by
a court or administrative agency, or by arbitration) against
Group or any Group Subsidiary or any of their properties or
businesses.
(g) Compliance with Laws. Except as set
forth in Schedule 5.1(g), the conduct of the business of the
Consolidated Companies complies with all laws and regulations
applicable to the business of the Consolidated Companies. The
Consolidated Companies have obtained all permits, certificates,
licenses, approvals and other authorizations required in
connection with the operation of their businesses.
(h) Labor Matters. Schedule 5.1(h) contains
a listing of each presently existing collective bargaining or
other labor agreement or employment contract, consulting contract
or executive compensation agreement (whether written or
otherwise) to which any of the Consolidated Companies is a party.
Except as set forth on Schedule 5.1(h), no Consolidated Company
is a party to or negotiating any collective bargaining agreement.
The Consolidated Companies are not involved in, or to Group's
knowledge, threatened with, any labor dispute, arbitration,
lawsuit or administrative proceeding relating to labor matters
involving the employees of the Consolidated Companies (including
without limitation occupational safety and health standards).
Except as disclosed in Schedule 5.1(h), no Consolidated Company
has materially breached or otherwise failed to comply with any
provision of any collective bargaining or other labor agreement
listed in Schedule 5.1(h) and there are no significant grievances
outstanding against any Consolidated Company under any such
agreement. Except as disclosed in Schedule 5.1(h), Group knows
of no activities or proceedings of any labor union (or
representatives thereof) to organize any unorganized employees of
any Consolidated Company, or any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to
any of the employees of any Consolidated Company. Except as
<PAGE>
disclosed in Schedule 5.1(h), no present or former employee of
any Consolidated Company has given notice to any Consolidated
Company of, or to the knowledge of Group threatened to file, any
significant claim against any Consolidated Company (whether under
federal or state law, under any employment agreement or
otherwise) on account of or for (i) overtime pay, (ii) wages or
salary, (iii) vacation time or pay in lieu of vacation time off
or (iv) any violation of any statute, ordinance or regulation
relating to minimum wages or maximum hours of work. Except as
disclosed in Schedule 5.1(h), no person or party (including
without limitation government agencies of any kind) has given
notice to Group or any Consolidated Company of, or to the
knowledge of Group threatened to file, any claim against any
Consolidated Company under or arising out of any statute,
ordinance or regulation relating to employer-employee
relationships, employee entitlements, discrimination in
employment or employment practices, immigration or plant closing
laws. No employee of any Consolidated Company or Transit has
experienced any "employment loss," nor has any other event
occurred, which would subject Group, any Group Subsidiary, Newco
or Parent to any liability under the Workers Adjustment and
Retraining Notification Act. Except as disclosed in Schedule
5.1(h), the consent of any labor union which is a party to one or
more of the collective bargaining or labor agreements listed in
Schedule 5.1(h) is not required to enter into this Agreement or
to consummate the Merger or any other transaction contemplated by
this Agreement.
(i) Governmental and Third Party Consents.
Except as set forth in Schedule 5.1(i) and except for filings (i)
with the SEC of a proxy statement and form of proxy pursuant to
the Exchange Act, (ii) such filings as may be required to be
filed with the Federal Trade Commission ("FTC") and the Antitrust
Division of the United States Department of Justice ("Antitrust
Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 or any comparable, similar, successor or
other law (the "Antitrust Improvements Act") and (iii) any state
authorities regulating the provision of transportation services
("State Transportation Authorities"), Group is not required to
make, file, give or obtain any registrations, filings,
applications, notices, transfers, consents, approvals, orders,
qualifications, waivers and other actions of any kind
(collectively, "Consents") with, to or from any foreign, federal
or state governmental commission, board or other regulatory body
in connection with the consummation of the Merger; provided,
however, that Group makes no representation or warranty as to the
requirement of any approval by the Interstate Commerce
Commission, or the validity or enforceability of this Agreement,
and the transactions contemplated herein, under the Interstate
Commerce Act. Except as set forth in Schedule 5.1(i), or
otherwise in this Agreement, no consent of any other person or
entity is required to be obtained by Group, any Group Subsidiary
or any Group Affiliate for the execution, delivery and
performance of this Agreement or the consummation of the
transactions contemplated hereby.
<PAGE>
(j) Employee Benefit Plans. (i) Schedule
5.1(j) lists all pension, retirement, supplemental retirement,
stock option, stock purchase, stock ownership, savings, stock
appreciation right, profit sharing, deferred compensation,
consulting, bonus, medical, disability, workers' compensation,
vacation, group insurance, severance, employee welfare benefit
plans (as defined in ERISA), employee pension benefit plans (as
defined in ERISA) and other employee benefit, incentive and
welfare policies, contracts, plans and arrangements, and all
trust agreements related thereto, maintained by or contributed to
by any of the Consolidated Companies in respect of any of the
present or former directors, officers, other employees and/or
consultants of or to any of the Consolidated Companies, or in
which any of such directors, officers, employees or consultants
participates (collectively, "Employee Plans"). Group has
furnished Parent with the following documents with respect to
each Employee Plan: (A) a true and complete copy of all written
documents comprising such Employee Plan (including but not
limited to amendments, insurance contracts, and individual
agreements relating thereto) or, if there is no such written
document, an accurate and complete description of the Employee
Plan; (B) the most recent Form 5500 (or such other applicable
Form 5500), including all schedules thereto, if applicable; (C)
the most recent financial statements and actuarial reports, if
any; (D) the summary plan description currently in effect and all
modifications thereof, if any; and (v) the most recent Internal
Revenue Service determination letter, if any.
(ii) Except as provided in Schedule 5.1(j),
all Employee Plans have been maintained and operated in
accordance with both their terms and with the requirements of all
applicable statutes, orders, rules and regulations, including
without limitation ERISA and the Code. All contributions
required to be made to Employee Plans have been made. No claims
are pending or, to the knowledge of Group, threatened involving
any Employee Plan against any of the Consolidated Companies or
any fiduciary (as defined in ERISA) ("Fiduciary") of an Employee
Plan.
(iii) With respect to each of the Employee
Plans which is an employee pension benefit plan (as defined in
Section 3(2) of ERISA) (the "Pension Plans"), to the knowledge of
Group: (A) each Pension Plan which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has been
determined to be so qualified by the Internal Revenue Service and
such determination letter may still be relied upon, and each
related trust is exempt from taxation under Section 501(a) of the
Code; provided, that a determination letter request is pending
with respect to each Pension Plan for changes made under the Tax
Reform Act of 1986; (B) the projected value of all benefits
vested and all benefits accrued under each Pension Plan which is
subject to Title IV of ERISA, valued using the assumptions in the
most recent actuarial report, did not, in each case, as of the
last applicable annual valuation date (as indicated on Schedule
5.1(j), exceed the value of the assets of the Pension Plan
<PAGE>
allocable to such vested or accrued benefits and there has been
no material change in such assets or benefit liabilities since
the last applicable annual valuation date; (C) except as provided
in Schedule 5.1(j), there has been no "prohibited transaction,"
as such term is defined in Section 4975 of the Code or Section
406 of ERISA, which could subject any Employee Plan, or
associated trust, any Fiduciary of such Pension Plan, or any of
the Consolidated Companies, to any tax or penalty; (D) no Pension
Plan or any trust created thereunder has been terminated, nor
have there been any "reportable events" with respect to any
Pension Plan, as that term is defined in Section 4043 of ERISA,
which would require the filing of a notice with the Pension
Benefit Guaranty Corporation ("PBGC"); (E) no Pension Plan or any
trust created thereunder has incurred any "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA
(whether or not waived), and (F) no Consolidated Company has
incurred any liability to the PBGC that has not been satisfied,
other than liability for premiums. With respect to each Pension
Plan that is referred to in Section 413(c) of the Code (a
"Multiple Employer Pension Plan"): (1) none of the Consolidated
Companies would have any liability or obligation to post a bond
under Section 4063 of ERISA if any Consolidated Company were to
withdraw from such Multiple Employer Pension Plan; and (2) none
of the Consolidated Companies would have any liability under
Section 4064 of ERISA if such Multiple Employer Pension Plan were
to terminate. None of the Consolidated Companies is or has been,
within the immediately preceding six years, a member of
controlled group or corporations or a group of trades or
businesses under common control ("Affiliated Group") in which any
member of the Affiliated Group maintained of pension plan subject
to Title IV of ERISA under which assets were less than
liabilities or under which there would be a liability to a
Consolidated Company under Section 4062 of ERISA if such pension
plan were to terminate.
(iv) No Consolidated Company has any liability
for any post-retirement health, medical or similar benefit of any
kind whatsoever, except as set forth in Schedule 5.1(j) or as
required by Section 4980B of the Internal Revenue Code.
(v) With respect to each Pension Plan, all
contributions which are due (including all employer contributions
and employee salary reduction contributions) have been paid to
such Pension Plan, all contributions for prior plan years which
are not yet due and with respect to the current plan year for the
period ending on the Closing Date have been (or as of the Closing
Date will be) accrued on the books and records of the
Consolidated Companies. With respect to all other Employee
Plans, all premiums and other payments which are due have been
paid.
(vi) Except as set forth on Schedule 5.1(j),
neither the execution nor delivery of this Agreement, nor the
consummation of the Merger or any other transaction contemplated
hereby, will (A) result in any payment (including without
<PAGE>
limitation any severance, unemployment compensation or golden
parachute payment) becoming due to any director or employee of
any Consolidated Company from any of such entities, (B) increase
the level of benefits otherwise payable under any of the Employee
Plans (including any substantial increase in claims experience on
health, medical, dental and vision group plans and programs
incurred between the date hereof and Closing, which shall be
deemed to be a result of the Merger) or (C) result in the
acceleration of vesting or the time of payment of any such
benefit.
(vii) Except as set forth on Schedule 5.1(j),
no Consolidated Company has any liability, jointly or otherwise,
for any withdrawal liability under Title IV of ERISA for a
complete or partial withdrawal from any Multiemployer Plan as
defined in Section 3(37) of ERISA by any member of a controlled
group of employees (as used in ERISA) or which any of the
Consolidated Companies is or was a member, which liability has
not been fully paid as of the date hereof.
(k) Brokers, Finders, etc. Except for Smith
Barney, Inc., Group nor any of the Consolidated Companies has
employed, and is not subject to lien or claim from, or otherwise
made arrangements with, any broker, finder, consultant or
intermediary in connection with the transactions contemplated by
this Agreement who might be entitled to a fee or commission from
Newco, Parent or any of the Consolidated Companies upon the
consummation of the transactions contemplated hereby.
(l) Intellectual Properties. Schedule 5.1(l)
contains a listing of all software, data bases, patents, patent
applications, trademarks, trademark registrations and
applications therefor, trade names, trade dress, service marks,
copyright registrations and applications therefor, patent,
trademark or trade name licenses, contracts with employees or
others relating in whole or in part to disclosure, assignment or
patenting of any inventions, discoveries, improvements,
processes, formulae or other know-how of any of the Consolidated
Companies and all patent, trademark or trade name licenses
granted by any of the Consolidated Companies to others which are
in force. Upon the consummation of the transactions contemplated
by the Stock Purchase Agreement, Group and the Group Subsidiaries
will have the right to continue to use the Mayflower name and the
"Mayflower" stylized trademark, pursuant and subject to the
license agreements provided for in Section 7.1(c) of this
Agreement. The Consolidated Companies have registered or applied
to register certain of their respective trademarks, trade names
or service marks identified on Schedule 5.1(l). All of the
patents, trademarks, trade names, service marks, or copyrights
shown as registered on Schedule 5.1(l) and owned by or licensed
to any of the Consolidated Companies are properly registered in
the respective countries shown on Schedule 5.1(l) and all such
registrations are in full force and effect; and, in order to
conduct its business as such business is currently being
conducted, none of the Consolidated Companies requires any rights
<PAGE>
under any patent, trademark, trade name, copyright (or any
application or registration respecting any thereof), process or
know-how that it does not already own or license except for the
license agreements provided for in Section 7.1(c) of this
Agreement. Except as disclosed in Schedule 5.1(l), neither Group
nor any of the Consolidated Companies have received any notice
of, nor to Group's knowledge is there, any conflict with the
asserted rights of others with respect to any intellectual
property right used in, or useful to, the operation of the assets
or the conduct of the business of the Consolidated Companies, or
with respect to any license (whether oral or in writing) related
to the assets or the business under which any Consolidated
Company is licensor or licensee. Except as disclosed in Schedule
5.1(l), none of the Consolidated Companies has granted any
outstanding licenses or other rights, either orally or in writing
in the United States or elsewhere, and except as set forth on
Schedule 5.1(l), none has any obligations to grant licenses or
other rights under any of the intellectual property rights owned
by it or licensed to such company. To the knowledge of Group,
none of the Consolidated Companies is infringing any intellectual
property right of any other person in any significant manner and,
to Group's knowledge, no other person is infringing any
intellectual property right of any Consolidated Company in any
significant manner.
(m) Adequacy of Insurance and other Reserves.
The provision made by Group and each Group Subsidiary for their
self-insured claims, indemnified claims, loss adjustment
expenses, retrospective insurance premium adjustments and other
losses on the Interim Balance Sheet not otherwise insured,
reserved or indemnified against, is sufficient for the payment of
all such losses, claims and damages incurred prior to the date
thereof and premium adjustments for actual and anticipated future
losses, claims and damages relating to occurrences or experiences
in the periods prior to the date thereof.
(n) Group Reports and Consolidated Companies
Financial Statements. Group has heretofore filed with the SEC
pursuant to the Exchange Act, an Annual Report on Form 10-K for
its fiscal year ended December 31, 1993 and all prior periods
where such a filing was required by the Exchange Act (the "10-K
Report") and Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, June 30 and September 30, 1994 (the
"1994 10-Q's"). Group has made available to Parent a true and
complete copy of each report (including the 10 K Report and the
1994 10-Q's), schedule, and definitive proxy statement filed by
Group since January 1, 1993 in substantially the form filed with
the SEC (the "Group's SEC Documents"). Group's SEC Documents, as
of their respective dates, complied in all material respects with
the requirements of the Exchange Act, and the rules and
regulations thereunder. The information pertaining to the
Consolidated Companies in Group's SEC Documents, as of their
respective dates, did not contain any untrue statement of any
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
<PAGE>
light of the circumstances under which they were made, not
misleading. Group has delivered to Parent: (i) the audited
consolidated balance sheet of Group and its consolidated
subsidiaries (including Transit) as of December 31, 1993
(including the notes thereto, the "Audited Balance Sheet") and
the related audited consolidated statements of income, changes in
shareholders' equity and cash flow for the fiscal year then
ended, together with the report thereon of Coopers & Lybrand,
independent certified public accountants, (ii) the unaudited
consolidated balance sheet of the Consolidated Companies as of
December 31, 1993 (the "Unaudited Balance Sheet") and the related
unaudited consolidated statements of income, changes in
shareholders' equity and cash flow for the fiscal year then
ended, and (iii) the Interim Balance Sheet, including in each
case the notes, if any, thereto. Such financial statements and
notes are in accordance with the books and records of the
Consolidated Companies and fairly present in all respects the
financial condition and results of operations of the Consolidated
Companies as of the respective dates thereof and for the periods
therein referred to, all in accordance with GAAP, subject, in the
case of interim financial statements, to normal recurring year-
end adjustments and adjustments related to the matters identified
in Schedules 5.1(o) and 6.1, and may omit, incorporate by
reference or contain condensed versions of certain information
which might be set forth in full or in footnote disclosures if
such interim financial statements were prepared in full
accordance with GAAP. The Consolidated Companies have maintained
a system of internal accounting controls sufficient to provide
reasonable assurances that: (A) transactions have been executed
in accordance with the general or specific authorization of
management of the Consolidated Companies; (B) transactions have
been recorded as necessary to permit preparation of financial
statements and to maintain accountability for assets; and (C)
access to assets is permitted only in accordance with the general
or specific authorization of management of the Consolidated
Companies.
(o) Absence of Certain Changes or Events.
From the date of the Interim Balance Sheet to the date of this
Agreement and except as otherwise disclosed in Schedule 5.1(o),
there has not been (i) any adverse change or changes in the
assets, properties, financial condition or results of operations
of the Consolidated Companies which has individually or in the
aggregate resulted in a reduction of the shareholder's net worth
from that reflected on the Interim Balance Sheet (calculated in
accordance with GAAP); provided, however, that (A) normal
recurring variations in operating results, (B) charges or
expenses incurred in the ordinary course of business reflected in
the Financial Projections, and (C) transactions specifically
allowable under this Agreement, including those matters set forth
on Schedule 5.1(o), shall not be deemed to be such a change; (ii)
any action by the Consolidated Companies which, if taken on or
after the date of this Agreement, would require the consent or
approval of Parent pursuant to Section 6.1(b), except for actions
as to which consent or approval has been given as provided
<PAGE>
therein; (iii) any new borrowing or capital expenditure or
commitment by the Consolidated Companies, (other than borrowings
and capital expenditures or commitments through the date hereof
in the ordinary course of business and consistent with past
practice); (iv) any material change in the accounting methods or
principles used for financial reporting purposes by the
Consolidated Companies, except as may have been required by a
change in GAAP or as may have been concurred with by Group's
independent public accountants and disclosed in their report or
the notes to the financial statements; or (v) any agreement,
whether in writing or otherwise, to take any action described in
this Section 5.1(o).
(p) List of Properties, Contracts and Other
Data. Group or Group Subsidiaries heretofore has delivered or
made available to Parent true and correct lists, certified as
true, accurate and correct by the President of Group, or a Vice
President of Group or Group Subsidiaries (having authority over
or responsibility for such) of the matters set forth in the
following subsections (i) through (viii):
(i) Real Property. All real property owned,
leased (as lessor or lessee) or subject to option (as
optionee), of record or beneficially by any of the
Consolidated Companies ("Schedule 5.1(p)(i)");
(ii) Insurance Policies. All policies of
insurance maintained by any of the Consolidated Companies
with respect to any of them and covering any of such
company's officers and directors, employees and agents,
properties, buildings, machinery, equipment, furniture,
fixtures and operations, and all reinsurance agreements and
fronting agreements with any person, including any domestic
and foreign carriers ("Schedule 5.1(p)(ii)");
(iii) Customer Contracts. Each customer
contract or other commitment or document evidencing or
relating to existing or pending service contracts resulting
in annual payments to any of the Consolidated Companies in
excess of $100,000 or cumulative payments to any of the
Consolidated Companies in excess of $500,000, together with
the name of each customer, the estimated annual revenues for
each customer contract, the number of vehicles required to
perform each customer contract and the first expiration date
of each customer contract ("Schedule 5.1(p)(iii)");
(iv) Leases. Each real or personal property
lease, whether as lessor or lessee, to which any of the
Consolidated Companies is a party resulting in annual
payments in excess of $50,000 or cumulative payments in
excess of $500,000 ("Schedule 5.1(p)(iv)");
(v) Loans and Credit Agreements, etc. Any
mortgages, promissory notes, evidences of indebtedness, deeds
of trusts, indentures, loan or credit agreements, guarantees,
<PAGE>
letters of credit, letter of credit applications and
reimbursement agreements or similar instruments for money
borrowed or credit obtained or guaranteed, in an amount in
excess of $100,000, to which any of the Consolidated
Companies is a party, and all amendments or modifications, if
any, thereof ("Schedule 5.1(p)(v)");
(vi) Litigation. A listing of each lawsuit,
administrative proceeding, governmental investigation or
arbitration to which any of the Consolidated Companies is a
party and of which process or other notice has been served
upon such party, whether insured or uninsured and including
but not limited to matters with respect to which the
Consolidated Company is represented by an insurer or
reinsurer ("Schedule 5.1(p)(vi)") excluding lawsuits,
administrative proceedings, governmental investigations and
arbitrations in which the damage or relief sought is less
than $100,000;
(vii) Permits, Licenses, etc. A list of any
permits, licenses (including, without limitation, radio
licenses), operating authorities, fictitious name
registrations or similar permissions held by each of the
Consolidated Companies and required under any state or
federal laws or regulations for the operation of the current
business of such company ("Schedule 5.1(p)(vii)"); and
(viii) every other contract to which any
Consolidated Company is a party which could reasonably be
expected to result in annual payments by or to any
Consolidated Company in excess of $50,000 or cumulative
payments by or to any Consolidated Company in excess of
$500,000 (collectively with each document, agreement or
contract described in subsections (i)-(vii) of this Section
5.1(p), the "Material Agreements") ("Schedule 5.1(p)(viii)").
(q) Books and Records. The books of account,
minute books, stock record books and other records of the
Consolidated Companies, all of which have been made available to
Parent, are complete and correct in all material respects and
have been maintained in accordance with sound business practices.
The minute books of the Consolidated Companies contain accurate
and complete records of all meetings held of, and corporate
action taken by, the shareholders, the Boards of Directors and
committees of the Board of Directors of the Consolidated
Companies and no meetings of any such shareholders, Board of
Directors or committees has been held for which minutes have not
been prepared and are not contained in such minute books. Except
as set forth in Schedule 5.1(q), the stock record books of the
Consolidated Companies accurately reflect all transactions
involving equity securities of the Consolidated Companies and any
options, warrants and other securities excisable for or
convertible into equity securities of the Consolidated Companies.
At the Closing, all of those books and records will be in the
possession of the Consolidated Companies.
<PAGE>
(r) Material Agreements. Except as noted on
Schedule 5.1(r), (i) each Material Agreement is in full force and
effect on the date hereof, and is legal, valid and binding and
enforceable in accordance with its terms; and (ii) there has not
been any event of default (or, to the knowledge of Group, any
event or condition which with notice or the lapse of time, or
both, would constitute an event of default or facts or
circumstances which make such an event of default likely to occur
subsequent to the date hereof) on the part of any of the
Consolidated Companies or such other parties to any such Material
Agreement.
(s) Equipment. The fixtures, equipment
(including automobiles, trucks, trailers and buses), plants,
service stations and operating assets used in the operation of
the Consolidated Companies taken as a whole are generally
suitable for the uses for which intended and are in good
operating condition and repair (ordinary wear and tear excepted),
free of defects in light of their age and prior use and free of
defects that would prevent the continued use thereof by the
Consolidated Companies following the Closing Date in the conduct
of normal operations. Since December 31, 1993, each Consolidated
Company has continued to maintain its plants and equipment
substantially in accordance with its past practices in such
regard.
(t) No Undisclosed Liabilities. Except as
otherwise disclosed in this Agreement (other than as disclosed in
Schedule 5.1(p)(vi)), the Consolidated Companies have no
liabilities or obligations of any nature (known or unknown,
absolute, accrued, contingent or otherwise) of the type required
to be reflected or disclosed in a balance sheet (or the notes
thereto) prepared in accordance with GAAP that were not fully
reflected or reserved against in the Audited Balance Sheet, the
Unaudited Balance Sheet, and the Interim Balance Sheet, except
liabilities and obligations incurred in the ordinary course of
business, or to the extent that the Unaudited Balance Sheet and
the Interim Balance Sheet do not include notes.
(u) Taxes. All Tax Returns that are or were
required to be filed by or with respect to the Group, any
predecessor thereof, or any corporations or other entities in
which Group owns, directly or indirectly, a majority of the
outstanding capital stock or other equity interests, including
Transit and its subsidiaries (collectively, the "Tax Consolidated
Companies"), either separately or as a member of an affiliated,
combined, unitary or consolidated group ("Company Returns"), have
been filed in accordance with the legal requirements of each
governmental body with taxing power over them or their assets.
All deductions reflected on all Company Returns were properly
claimed as allowable deductions from gross income, and all Taxes
that have or may have become due pursuant to Company Returns, or
otherwise, or pursuant to any assessment received by Group or any
of the Tax Consolidated Companies, have been paid, or adequate
reserves (determined in accordance with GAAP) have been provided
<PAGE>
in the Audited Balance Sheet and the Interim Balance Sheet,
except such Taxes, if any, as are set forth in Schedule 5.1(u)
and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided
in the Audited Balance Sheet and the Interim Balance Sheet.
Except as provided on Schedule 5.1(u), the United States federal
income tax returns of the Tax Consolidated Companies have been
audited by the Internal Revenue Service or are closed by the
applicable statute of limitations for all taxable years through
1990. All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in
Schedule 5.1(u), are being contested in good faith by appropriate
proceedings. Schedule 5.1(u) describes all adjustments to the
United States federal income tax returns filed by or with respect
to any of the Tax Consolidated Companies for all taxable years
since 1987, and the resulting deficiencies proposed by the
Internal Revenue Service. Except as set forth in Schedule
5.1(u), none of the Tax Consolidated Companies has given or been
requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other person) of
any statute of limitations relating to the payment of Taxes of
any of the Tax Consolidated Companies or for which any of the Tax
Consolidated Companies may be liable. The charges, accruals and
reserves with respect to Taxes on the respective books of each of
the Tax Consolidated Companies are adequate (determined in
accordance with GAAP) to cover all Taxes attributable to taxable
years or periods ending with the Effective Date. There exists no
proposed or final Tax assessment with respect to any Company
Return except as disclosed in Schedule 5.1(u). No consent to the
application of Section 341(f)(2) of the Code has been filed with
respect to any property or assets held or acquired or to be
acquired by any of the Tax Consolidated Companies. All Taxes
that any of the Tax Consolidated Companies is or was required by
legal requirements to withhold or collect have been duly withheld
or collected and, to the extent required, have been paid to the
proper governmental body or other person. All Company Returns
are true, correct and complete in all respects.
Except as otherwise set forth in Schedule
5.1(u), (i) none of the Tax Consolidated Companies has been,
since 1970, a member of an affiliated group of corporations
within the meaning of Section 1504 of the Code (with the
exception of Group's affiliated group as it is currently
constituted); (ii) none of the Tax Consolidated Companies has
ever been a member of any combined, consolidated, or unitary
group for state income or franchise tax purposes and does not
file (and is not required to file) combined, consolidated, or
unitary Tax Returns for state income or franchise tax purposes;
(iii) none of the Tax Consolidated Companies is a party to any
agreement, arrangement, or plan that has resulted or could result
in the payment of any "excess parachute payment" as defined in
Section 280G of the Code (without regard to subsection (b)(4)
thereof); (iv) none of the Tax Consolidated Companies is subject
to any joint venture, partnership, or other arrangement or
contract that could be treated as a partnership for federal
<PAGE>
income tax purposes; (v) none of the Tax Consolidated Companies
is, or has been, a United States real property holding
corporation within the meaning of Code section 897(c)(2) during
the period specified in Code section 897(c)(1)(A)(ii); (vi) none
of the Tax Consolidated Companies has agreed, or is otherwise
required, to make any adjustment or report any income under
Section 481 of the Code after the Closing Date by reason of a
change in accounting method or otherwise; (vii) none of the Tax
Consolidated Companies has made an election, or is otherwise
required, to treat any asset as owned by another person pursuant
to the so-called "safe harbor lease" provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended by the
Economic Recovery Tax Act of 1981; (viii) none of the Tax
Consolidated Companies has any asset that directly or indirectly
secures any debt the interest on which is tax-exempt under
Section 103(a) of the Code; and (ix) none of the Tax Consolidated
Companies has any asset that is "tax-exempt use property" as
defined in Section 168(h) of the Code. Set forth in Schedule
5.1(u) is (A) a list of all states, territories, and
jurisdictions (whether foreign or domestic) to which any Tax is
properly payable with respect to each of the Tax Consolidated
Companies, and (B) a complete schedule containing the results of
Group's calculation of the amount of any net operating loss
(including built-in losses), net capital loss, unused investment
or other credits (including without limitation, alternative
minimum tax credits), and unused foreign tax credits allocable to
each of the Tax Consolidated Companies pursuant to Treasury
Regulation Section 1.1502-79, together with the limitations to
which those attributes are currently subject.
(v) Provision for Receivables. The aggregate
receivables of the Consolidated Companies shown on the Interim
Balance Sheet arose in the ordinary course of business and have
been collected or are collectible in the ordinary course of
business, consistent with the past practice of the Consolidated
Companies, in the aggregate book amount of all such receivables,
less an amount not in excess of the aggregate allowance for
doubtful accounts provided for in the Interim Balance Sheet,
except to the extent that such receivables are properly offset by
the payor thereof. The aggregate receivables of the Consolidated
Companies arising between the date of the Interim Balance Sheet
and the date of this Agreement arose in the ordinary course of
business and have been collected or are collectible in the
ordinary course of business, consistent with the past practice of
the Consolidated Companies, in the aggregate book amount of all
such receivables, less an aggregate allowance for doubtful
accounts determined in accordance with GAAP.
(w) Compliance with Environmental Laws.
Except as described on Schedule 5.1(w), to the knowledge of each
of the Consolidated Companies, each of the Consolidated Companies
is in compliance in all material respects with and have always
been in compliance in all materials respects with all applicable
federal, state, municipal or local laws, regulations, orders,
certificates of approval, licenses, permits, governmental
<PAGE>
decrees, ordinances or any and all other legislation or
regulatory instruments having the force of law with respect to
environmental matters (collectively, "Environmental Laws") and
for greater certainty, and without limiting the generality of the
foregoing:
(i) except as disclosed on Schedule
5.1(w)(i), each of the Consolidated Companies have operated
at all times and have received, handled, used, stored,
treated, shipped and disposed at all times of all Hazardous
Materials in compliance in all material respects with all
Environmental Laws (for the purposes hereof, "Hazardous
Materials" means any materials containing any (A) "hazardous
substance" as defined by CERCLA (as hereinafter defined), (B)
petroleum, including crude oil or any fraction thereof, (C)
natural gas, natural gas liquids or synthetic gas usable for
fuel, or (D) asbestos, polychlorinated biphenyls ("PCB's") or
isomers of dioxin);
(ii) except as disclosed on Schedule
5.1(w)(ii), there have been no spills, releases, deposits,
emissions or discharges of a reportable quantity (as defined
in applicable Environmental Laws) of any Hazardous Materials
in violation of Environmental Laws, on any of the real
property owned or leased by the Consolidated Companies, or
under the control of any of the Consolidated Companies, their
respective agents or employees, nor has any of such real
property been used at any time by any person as a landfill or
waste disposal site except in accordance with applicable law;
the adverse effects of any such spills, releases, deposits,
emissions or discharges as disclosed in Schedule 5.1(w)(ii)
have been ameliorated as required by applicable Environmental
Laws;
(iii) there have been no spills, releases,
deposits, emissions or discharges of a reportable quantity
(as defined in applicable Environmental Laws) of any
Hazardous Materials in violation of Environmental Laws into
the air or into any river, stream, lake reservoir or other
body of water (including ground water) or into any municipal
or other sewer or drain water systems except as disclosed in
Schedule 5.1(w)(iii); the adverse effects of any and all such
spills, releases, deposits, emissions or discharges disclosed
in Schedule 5.1(w)(iii) have been ameliorated as required by
applicable Environmental Laws;
(iv) there are not now nor have there ever
been underground storage tanks, associated piping or
appurtenances thereto located on any of the real property
owned or leased by any of the Consolidated Companies except
as disclosed in Schedule 5.1(w)(iv); Schedule 5.1(w)(iv) sets
forth the date of installation and removal of any such
underground storage tanks, associated piping or appurtenances
thereto, as well as the size, contents and composition of
same; all underground storage tanks, associated piping and
<PAGE>
appurtenances are presently in material compliance with
Environmental Laws, and all the foregoing required to be
removed, replaced or upgraded pursuant to Environmental Laws
have been removed, replaced or upgraded in compliance
therewith; all reports, correspondence, invoices, receipts
and other records associated with the installation, removal,
replacement or upgrading of any underground storage tanks,
associated piping and appurtenances thereto dating back a
period of 10 years have been or will, prior to the Closing,
be delivered to the Parent;
(v) in the previous ten (10) years, no
orders, requests for information or notices have been issued
by any governmental agency pursuant to any Environmental Laws
to any of the Consolidated Companies, except as disclosed in
Schedule 5.1(w)(v) hereto, copies of which shall be delivered
to the Parent prior to Closing;
(vi) except as disclosed on Schedule
5.1(w)(vi), each of the Consolidated Companies have
maintained all environmental operating documents, manifests
and other records in the manner and for the time periods
required by Environmental Laws;
(vii) in the previous ten (10) years, each of
the Consolidated Companies have not conducted any
environmental audits except as disclosed in Schedule
5.1(w)(vii) (for the purposes hereof "environmental audits"
means any evaluations, assessments, studies or tests
performed relating to environmental matters, including
without limitation any results of asbestos, soil, ground
water, air or surface water samples and any associated
reports, whether prepared by each of the Consolidated
Companies, their agents or employees or any other person
whomsoever); correct and complete copies of said
environmental audits shall be delivered to the Parent prior
to Closing;
(viii) except as disclosed on
Schedule 5.1(w)(viii), each of the Consolidated Companies are
in compliance with all certificates of approval,
certificates, licenses and permits or other approvals which
they are required to hold pursuant to Environmental Laws;
correct and complete copies of all said orders, directions,
notices, certificates of approval, certificates, licenses,
permits and other approvals shall be delivered to the Parent
at Closing with the possession of the Consolidated Companies'
premises containing such records;
(ix) each of the Consolidated Companies have
never been charged with or convicted of any criminal offense
under Environmental Laws;
(x) none of the Consolidated Companies have
received any written notice nor do they have any knowledge of
<PAGE>
any facts which could give rise to any notice that they are a
Potentially Responsible Party for a waste disposal site
pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of the United States of
America ("CERCLA") or any other similar federal, state or
local laws, as same may be amended or supplemented from time
to time;
(xi) no PCB wastes are stored on or in any of
the real property owned or leased by any of the Consolidated
Companies;
(xii) none of the Consolidated Companies have
failed to report to the proper governmental authority the
occurrence of each spill or release event which is required
to be so reported by any Environmental Laws and Group has
provided or shall prior to Closing provide the Parent with
correct and complete copies of all such reports and all
correspondence relating thereto. Except as disclosed in
Schedule 5.1(w)(xii) hereto, none of the Consolidated
Companies have received any notification from a governmental
agency pursuant to any Environmental Laws that any work,
repairs, construction or capital expenditures are required to
be made in respect of any of the assets owned or used by them
or any of them as a condition of continued compliance with
any Environmental Laws;
(xiii) except as disclosed on
Schedule 5.1(w)(xiii), there are no asbestos-containing
materials, or capacitors, transformers or other equipment or
fixtures containing PCB's and none have ever been located at
any facility or on any real property owned or leased by any
of the Consolidated Companies. There has been no release, as
defined in CERCLA, of asbestos or PCB's from any asbestos-
containing materials or PCB-containing equipment or fixtures
set forth on, or required to be set forth on, Schedule
5.1(w)(xiii) except as specifically noted on Schedule
5.1(w)(xiii);
(xiv) except as disclosed on Schedule
5.1(w)(xiv), none of the Consolidated Companies produces,
purchases or uses any Class I Substance or Class II Substance
or purchase or use any product containing or made with any
Class I Substance or Class II Substance for the purpose
hereof, "Class I Substance" and "Class II Substance" have the
meanings set forth in clauses (3) and (4), respectively of
Section 601 of the Clean Air Act, 42 U.S.C. Section 7671;
(xv) except as disclosed on Schedule
5.1(w)(xv), none of the Consolidated Companies engages or has
ever engaged in the ordinary course of business, in road
oiling activities or the application of used oil or Hazardous
Materials for dust control or paving; and
<PAGE>
(xvi) none of the Consolidated Companies has
received any written notice of, nor, to the knowledge of
Group, is there any reasonable basis for, any existing or
pending violation, citation, claim or complaint relating to
the business of any of the Consolidated Companies or any
facility now or previously owned or operated any of the
Consolidated Companies arising under any Environmental Law
(collectively, "Environmental Matters"). Schedule
5.1(w)(xvi) sets forth all Environmental Matters and all such
violations, citations, claims and complaints of any kind and
nature whatsoever during the past ten (10) years.
(x) Investment Company Status. Group is not
an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
(y) Plan of Reorganization. Group's Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code, dated
January 27, 1992, was confirmed by the United States Bankruptcy
Code for the Southern District of Indiana, Indiana Division, and
has been fully implemented in accordance with its terms and there
are no remaining obligations or actions to be taken under such
Plan of Reorganization.
(z) Proxy Statement; Other Information. None
of the information included in the letter to shareholders, notice
of meeting, proxy or information statement or form of proxy to be
distributed to shareholders of Group in connection with the
Merger (collectively, the "Proxy Statement"), if required, or any
schedules required to be filed with the SEC in connection
therewith, except information supplied by Parent or Newco in
writing for inclusion in the Proxy Statement or in such
schedules, will, as of the date the Proxy Statement is first
mailed to Group's shareholders, and on the date of the meeting of
such shareholders and the date of any adjournment thereof,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
Section 5.2. Representations and Warranties by Parent and
Newco. Parent and Newco jointly and severally represent and
warrant to Group as follows:
(a) Organization and Authorization. Each of
Parent and Newco (i) is a corporation duly incorporated, validly
existing and, if applicable, in good standing under the laws of
the jurisdiction of its incorporation, and (ii) has all requisite
corporate power and authority to own, lease and operate its
property and assets and to carry on its business as it is now
being conducted and is duly authorized by all necessary corporate
action to execute, deliver and perform its obligations under and
to consummate the transactions contemplated by this Agreement.
<PAGE>
(b) Enforceability of Agreement. This
Agreement is a valid and binding agreement of each of Parent and
Newco, enforceable against each of them in accordance with its
terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally and except as the
availability of equitable remedies may be limited by equitable
principles of general applicability.
(c) No Violation. The execution, delivery
and performance of this Agreement will not (i) violate any
provision of the Articles of Incorporation or Bylaws of Parent or
Newco, or (ii) violate any provision of any mortgage, lien,
lease, agreement, instrument, indenture, law, order, ordinance,
regulation, arbitration award, judgment or decree to which either
of Parent or Newco is a party or by which any of them is bound
that would, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition
of Parent and its consolidated subsidiaries taken as a whole.
(d) Brokers, Finders, etc. Neither Parent,
Newco nor any of their affiliates have employed or otherwise made
arrangements with any broker, finder, consultant or other
intermediary in connection with the transactions contemplated by
this Agreement who might be entitled to a fee or commission from
Group or any Group Affiliate upon the consummation of the
transactions contemplated hereby.
(e) Approvals, Other Authorizations,
Consents, etc. Except for the filings pursuant to the rules and
regulation of the SEC, State Transportation Authorities and
pursuant to the Antitrust Improvements Act, neither Parent or
Newco is required to make, file, give or obtain any consents
with, to or from any governmental commission, board or regulatory
authority in connection with the consummation of the Merger.
(f) Parent's Independent Investigation.
Subject to the terms of this Agreement, Parent, Newco and their
representatives have undertaken an independent investigation and
verification of the business, operations and financial condition
of the Group and each of the Group Subsidiaries. Except for the
representations and warranties made by Group in this Agreement
(which representations and warranties shall not survive the
Closing, unless otherwise specified in Section 9.5 of this
Agreement), Parent and Newco acknowledge that there are no
representations or warranties, express or implied, as to the
financial condition, assets, liabilities, equity, operations,
business or prospects of Group and the Group Subsidiaries.
(g) Proxy Statement, Other Information. None
of the information supplied in writing by Parent and Newco for
inclusion in the Proxy Statement, if required, or any schedules
required to be filed with the SEC in connection therewith,
contains or will contain, at the time of the shareholders'
meeting, any untrue statement of material fact or omit to state
<PAGE>
any material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
ARTICLE VI
Covenants of Parties
Section 6.1. Conduct of Group and Group Subsidiaries.
During the period from the date of the Interim Balance Sheet to
the Effective Date:
(a) Operations in the Ordinary Course of
Business. Group shall, and shall cause the Group Subsidiaries,
to conduct their operations according to their ordinary and usual
course of business consistent with past practice and to pay their
respective obligations as they become due, and shall cause each
of the Consolidated Companies to use all reasonable efforts to
preserve intact its business organization and to maintain its
assets and properties, and all insurance and claims reserves,
consistent with past practice and in accordance with applicable
laws and regulations.
(b) Forbearances by Group and the Group
Subsidiaries. Except as contemplated by this Agreement, or as
disclosed in Schedule 6.1 or with the written consent, or at the
written request, of Parent, Group shall not, and shall not cause
or permit any of the Group Subsidiaries, directly or indirectly,
to:
(i) (A) amend their Articles of Incorporation
or By-Laws; (B) change the number of authorized shares of
capital stock; (C) declare, set aside or pay any dividend or
other distribution or payment in cash, stock or property in
respect of shares of their capital stock, except for (1) cash
dividends to pay operating expenses of Group (excluding
Taxes) in amounts consistent with past practices for
comparable periods in the last fiscal year, or (2) cash
payments, if any, required pursuant to that certain Tax
Sharing Agreement dated as of January 1, 1993, by and among
Group, Transit and Contract Services (the "Tax Sharing
Agreement"); (D) effect any split, combination or other
similar change in the outstanding shares of its or their
capital stock; (E) redeem, purchase or otherwise acquire any
shares of capital stock or other securities of Group, Transit
or any Group Subsidiary; (F) transfer any assets or
liabilities to any new subsidiary or, except in the ordinary
course of business and consistent with past practice, to
Group or any existing direct or indirect subsidiary of Group
(including Transit); or (G) settle or compromise any lawsuit,
claim or other proceeding to which any of the Consolidated
Companies is a party, except in the ordinary course of
business and consistent with past practice and provided that
(1) if a Consolidated Company is a defendant, such compromise
or settlement does not entail the payment of consideration
valued in excess of $100,000 over and above the amount of
insurance for or reserves allocated to the relevant claim or
<PAGE>
type of claim, (2) if a Consolidated Company is a plaintiff,
such compromise or settlement does not entail the release of
claims valued in excess of $100,000, and (3) such compromise
or settlement otherwise will not impair the ability of such
Consolidated Company to conduct its business;
(ii) (A) issue or sell, or permit any
subsidiary to issue or sell, any shares of its capital stock
or any securities or obligations convertible into or
exchangeable for, or give any person any right to subscribe
for or acquire from the Consolidated Companies, any shares of
capital stock of the Consolidated Companies; (B) acquire the
stock or any assets of any business as a going concern, or
enter into any other transaction, other than in the ordinary
course of business; (C) sell, lease, or otherwise dispose of
any assets or properties of the Consolidated Companies, other
than in the ordinary course of business consistent with past
practice and for reasonably equivalent consideration; (D)
waive, release, grant or transfer any rights or modify or
change any existing license, lease, contract or other
document, other than in the ordinary course of business
consistent with past practice and for reasonably equivalent
consideration; (E) encumber, mortgage or pledge any assets or
properties of the Consolidated Companies, except for
encumbrances described in Section 5.1(e) hereof; (F)
foreclose on or accept a deed in lieu of foreclosure with
respect to any real property; (G) enter into any sale and
leaseback transaction; (H) serve as a credit provider by
extending any credit to any person (other than committed
advances required under existing credit facilities), enter
into any new credit agreement with any person, or extend or
renew any existing credit facility with any person, other
than loans in an individual amount not in excess of $10,000,
in each case in the ordinary course of business and
consistent with past practice ; or (I) utilize current assets
or any borrowings to prepay or retire any form of long-term
debt except in accordance with regularly scheduled debt
repayment;
(iii) (A) grant any general increase in the
compensation of directors, officers, non-union employees or
consultants (including any such increase pursuant to any
bonus, pension, profit-sharing or other plan or commitment)
or any increase in the compensation payable to or to become
payable to any director, officer, non-union employee or
consultant, except for (1) increases in the ordinary course
of business and in amounts consistent with past practice, and
(2) increases described on Schedule 6.1 which occur by reason
of the Merger pursuant to this Agreement; (B) enter into or
amend any collective bargaining agreement; (C) adopt any new
director, officer, employee or consultant compensation plan
or benefit plan, whether formal or informal, or increase in
any manner the compensation or benefits (other than
compensation increases in accordance with its customary
compensation practices and related changes in fringe
<PAGE>
benefits) of any of its present or former directors,
officers, employees or consultants or pay or agree to pay any
pension or retirement allowance not required by any existing
employee agreement or benefit plan to any such present or
former directors, officers, employees or consultants, commit
itself to an employment agreement or benefit plan with or for
the benefit of any present or former director, officer,
employee, consultant or other person, or alter, amend,
terminate in whole or in part, or curtail or permanently
discontinue any employee welfare plan, compensation or
benefit plan; (D) make or commit to any capital expenditures
in an individual amount equal to or greater than $10,000 or
in an aggregate amount equal to or greater than $100,000,
except for (1) the items set forth on Schedule 6.1 and (2) in
accordance with the 1994/1995 fiscal year capital budget of
the Consolidated Companies; or (E) incur or otherwise become
liable for any material indebtedness, other than (1)
refinancings of existing indebtedness of the Consolidated
Companies incurred in the ordinary course of business
consistent with past practice, and (2) draws on existing
lines of credit of the Consolidated Companies which are
either (x) incurred in the ordinary course of business
consistent with past practice, or (y) the proceeds of which
are utilized to fund reimbursement obligations under letter
of credit numbered ST04582 identified on Schedule 5.1(p)(v)
following a draw by the beneficiary under such letter of
credit up to an aggregate maximum amount of $2,730,382 plus
any additional amounts accrued on the underlying payable in
the ordinary course of business consistent with past
practice; or
(iv) enter into any agreement or commitment to
do or permit any of the actions described in Section
6.1(b)(i) through (iii) which are prohibited or require the
prior written consent of Parent pursuant to this Section 6.1.
(c) 1995 Operating Results. Group
Subsidiaries shall have achieved consolidated EBIT for the period
from January 1, 1995 through the last day of the month
immediately preceding the Effective Date, but in no event prior
to March 31, 1995, that equalled or exceeded 85% of the EBIT
projected for such period in the Financial Projections; provided,
however, that no decline in EBIT attributable to snow, ice,
floods, earthquakes, hurricanes, tornadoes, or similar natural
phenomena shall be considered; and provided further that Parent
may close earlier than March 31, 1995.
Section 6.2. Group's Special Meeting of Shareholders; Proxy
Materials. Groups' board of directors shall call a special
meeting of shareholders as soon as practicable in accordance with
applicable law and Group's articles of incorporation and bylaws
to permit its shareholders to act upon the Merger with Newco.
Subject to Section 8.1(g), Group's board of directors shall
recommend that the shareholders of Group approve the Merger with
Newco. Group will use reasonable efforts to obtain and furnish
<PAGE>
the information required to be included by it in the Proxy
Statement and, after consultation with Parent, respond promptly
to any comments of the SEC relating to the preliminary proxy or
information statement relating to the transactions contemplated
in this Agreement and to cause the definitive Proxy Statement
relating to the transactions contemplated by this Agreement to be
mailed to the shareholders as soon as reasonably practicable.
Whenever any event occurs which should be set forth in an
amendment or supplement to the Proxy Statement or any other
filing required to be made with the SEC, each party will promptly
inform the other and cooperate in filing with the SEC and/or
mailing to shareholders such amendment or supplement, Group,
acting through its Board of Directors, shall, subject to its
fiduciary duties under applicable law as advised by outside
counsel, include in the Proxy Statement the recommendation of its
Board of Directors that shareholders of Group vote in favor of
the approval and adoption of the Merger and use reasonable
efforts to secure such approval and adoption.
Section 6.3. Obtaining Consents and Conditions to Closing.
(a) Obtaining Consents. Group and Parent
shall have joint responsibility for the preparation and filing of
all applications and filings with the FTC and the Antitrust
Division with respect to the consummation of the Merger. Group
shall have responsibility for the preparation and filing of all
filings with SEC and obtaining all other third party consents
required for the consummation of the transactions contemplated
hereby and shall furnish copies of each such consent to Parent
and Newco. Group and Parent shall cooperate with each other and
shall use all reasonable efforts to make promptly all
registrations, filings, applications and proxy statements, to
give all notices and to obtain all governmental consents,
transfers, approvals, orders, qualifications and waivers
necessary for the consummation of the Merger, or that may
thereafter be reasonably necessary to effect the transfer, grant
or renewal of any other licenses, approvals and authorizations.
Group shall bear the expense of all filings made by Group or any
of the Consolidated Companies, and Parent shall bear the expense
of all filings made by Parent or Newco, with any regulatory or
governmental authorities, including but not limited to all
filings with (i) the Antitrust Division or the Federal Trade
Commission pursuant to the Antitrust Improvements Act which are
necessary or desirable in connection with Merger, and (ii) State
Transportation Authorities, which are necessary or desirable in
connection with the Merger.
(b) Conditions to Closing. Group and Parent
each shall use all reasonable efforts to cause its
representations and warranties in this Agreement to be true and
correct as of the Closing Date, and to cause each condition to
Closing (including the consummation of the transactions
contemplated by the Stock Purchase Agreement) which is reasonably
within its control to be satisfied.
<PAGE>
Section 6.4. Access and Investigation. During the period
from the date of this Agreement to the Effective Date (but as to
Transit and its subsidiaries, to the date immediately prior to
the closing date of the Transit Stock Purchase Agreement), Group
shall, and shall cause each Tax Consolidated Company and its
officers, employees, agents and representatives to, afford Parent
and its representatives (including legal counsel, financial and
other advisors, consultants and independent accountants) full
access during normal business hours to such Tax Consolidated
Company's personnel, properties, contracts, books and records and
other documents and data, including tax returns and records of or
relating to such Tax Consolidated Company maintained by Group,
any of the Tax Consolidated Companies and their present and
former accounting firms, and shall furnish Parent with copies of
all documents and with such additional financial and operating
data and other information, as Parent shall, from time to time,
reasonably request, provided, that all such access and
information shall be supplied in such a way to minimize
disruption of the businesses of the Tax Consolidated Companies.
During such investigation, Parent and its representatives shall
have the right to make copies of such contracts, books and
records, tax returns and other documents and data as it may deem
advisable. Without limiting the generality of the foregoing,
Parent shall have the right at Parent's expense to conduct such
environmental audits as Parent, in its sole and absolute
discretion, may deem appropriate pertaining to all facilities and
properties owned, leased or otherwise operated by the Group and
any of the Tax Consolidated Companies. Parent's right to conduct
environmental audits shall include the right to perform such
sampling as Parent deems appropriate and Group agrees to provide
all necessary access for such audits and further agrees to make
facility personnel available for interviews by Parent and/or its
consultants in connection with such audits Group specifically
consents to authorized representatives of Parent, in the presence
of a representative of Group (which representative of the Group
should be reasonably available at the request of Parent), to meet
at any time or times following the execution of this Agreement
with one or more of Group's senior employees to discuss matters
related to the transactions contemplated herein and the business
affairs of Group and Group Subsidiaries related thereto.
Section 6.5. Negotiations with Others. During the period
from the date of this Agreement to the Effective Date, or until
such date as this Agreement may be terminated in accordance with
Article VIII, neither Group nor any Group Affiliate nor any of
their directors, officers, agents or associates nor any
investment banking firm or financial advisor retained by or
acting on behalf of Group or any Group Affiliate shall, directly
or indirectly, solicit or initiate discussions with, or agree
with, any corporation, partnership, person or other entity or
group (other than Parent or Newco) concerning any possible
proposal regarding a sale or purchase of the Group Common Stock
or a merger, consolidation, sale or purchase of assets or other
similar transaction directly or indirectly involving any
Consolidated Company or any subsidiary, division or major asset
<PAGE>
of such Consolidated Company, except for a sale of all
outstanding common stock of Transit pursuant to the terms of the
Stock Purchase Agreement (each, an "Acquisition Proposal").
Further, during such period and subject to the fiduciary duties
of the directors of Group, neither Group nor any Group Subsidiary
nor any of their directors, officers, agents nor any investment
banking firm or financial advisor retained by or acting on behalf
of Group, any Group Subsidiary or any Group Affiliate, shall,
directly or indirectly, without the prior written consent of
Parent, engage in negotiations with, or provide any information
(other than publicly available information) to, any corporation,
partnership, person or other entity (other than Parent and Newco)
concerning any Acquisition Proposal.
In the event that Group receives any request for information
or any unsolicited Acquisition Proposal, Group shall promptly
notify Parent and furnish Parent a copy of any written
communications with respect thereto.
Nothing contained herein or in the Confidentiality Agreement
shall be construed to prohibit Group from making any disclosure
which, in the judgment of its Board of Directors, on advice of
its counsel, is required by law.
Nothing contained herein or in the Confidentiality Agreement
shall be construed to prohibit Parent from making any disclosure
which, in the judgment of its Board of Directors, on advice of
its counsel, is required by law.
Section 6.6. Confidentiality. Parent and Group hereby
acknowledge that they are parties to a Confidentiality Agreement
dated as of August 24, 1994 (the "Confidentiality Agreement") and
that, except as otherwise provided herein, such agreement remains
a binding obligation of each of Parent and Group notwithstanding
the execution of this Agreement. Notwithstanding the terms of
the Confidentiality Agreement, the Confidentiality Agreement
shall automatically terminate simultaneously with the Effective
Date as it relates to Parent and Newco.
Section 6.7. Continuation of Insurance. For the benefit of
the officers and directors of Group serving prior to the
Effective Date (the "Group Directors"), Parent shall purchase or
cause the Surviving Corporation or its successor(s) to purchase
"tail insurance" with respect to all matters, including the
transactions contemplated hereby, occurring prior to, and
including, the Effective Date, for a period not less than six (6)
years from the Effective Date covering the risks insured under
Group's current directors' and officers' liability policy. Such
tail insurance shall be with a financially reputable insurer and
be in an amount equal to the coverage provided by Group's current
directors' and officers' liability policy. If it is not possible
to acquire such tail insurance, the Surviving Corporation or its
successor(s) shall cause the Surviving Corporation or its
successor(s) to maintain in effect for not less than six (6)
years from the Effective Date the current policy of directors'
<PAGE>
and officers' liability insurance maintained by Group and Group's
Subsidiaries (provided that the Surviving Corporation or its
successor(s) may substitute therefor policies of at least the
same coverage with financially reputable insurers containing
terms and conditions which are not less advantageous so long as
no lapse in coverage occurs as a result of such substitution)
with respect to all matters, including the transactions
contemplated hereby, occurring prior to, and including, the
Effective Date. In the event that any claim or claims are
asserted or made within such six year period, such insurance
shall be continued in respect of any such claim or claims until
final disposition of any and all such claims.
Section 6.8. Letters of Credit. Parent and the Consolidated
Companies will cooperate to complete as of the Closing Date
either (at Parent's option) the substitution of letters of credit
or performance bonds issued on behalf of Parent for (and return
of the substituted letters of credit to Group), or the release of
Group, the Group Subsidiaries and the Group Affiliates from any
liability with respect to, letters of credit posted by any
Consolidated Company or Group Affiliate which secure any
Consolidated Companies' obligations to insurance companies under
its insurance program and to providers of surety and performance
bonds issued for the benefit of such Consolidated Company in the
ordinary course of its business.
Section 6.9. Group Stock Plans. As promptly as practicable
after the date hereof but in all events prior to the Effective
Date, Group will take such action as may be required to be taken
by it to cancel all existing stock options (and will use its
reasonable efforts to obtain any necessary consent of optionees
required in connection therewith) in exchange for the right to
receive a cash payment immediately following the Effective Date
equal to the excess, if any, of the Merger Consideration (after
all deductions) over the exercise price of each such option
multiplied by the number of shares subject thereto.
Section 6.10. Intercompany Accounts. Except as otherwise
expressly provided in this Agreement, Group covenants to Parent
that all intercompany transactions between or among Group and any
Group Affiliates shall terminate no later than the Closing. At
or immediately prior to the Closing, Group shall cause the
Consolidated Companies to repay in full all indebtedness owed by
any of them to each other or any Group Affiliates, and Group will
use its best efforts to cause any Group Affiliates to repay in
full all indebtedness owed to the Consolidated Companies, so that
as of the Closing Date there shall be no Intercompany Receivables
or Intercompany Debt, as between the Group Affiliates and the
Consolidated Companies.
Section 6.11. Termination of Group Guaranties. Prior to the
Closing Date, Group will cause any guaranties of any contracts or
obligations of the Group Affiliates by Group to be terminated or
replaced by a comparable guaranty of Transit or UniGroup as of
the Closing Date.
<PAGE>
Section 6.12. Notification and Remedies. Between the date of
this Agreement and the Closing Date, each party hereto shall
promptly notify the other party if it becomes aware of any fact
or condition which makes materially untrue any representation or
materially breaches any covenant or warranty made by the
notifying or the notified party in this Agreement or if it
becomes aware of occurrence after the date of this Agreement, but
prior to Closing, of any fact or condition that would (except as
expressly contemplated by this Agreement) make materially untrue
any such representation or materially breach any such covenant or
warranty had such representation, covenant or warranty been made
as of the time of such occurrence or discovery of such fact or
condition. The party making such representations, warranties and
covenants shall promptly commence using its best efforts to
remedy any such misrepresentation or breach as soon as possible,
and shall keep the other party apprised of the progress of all
such remedial actions.
Section 6.13. Provision for Claims. Group shall make, in
accordance with GAAP, adequate provision for self-insured claims,
indemnified claims, retrospective insurance premium claims, loss
adjustment expense and other losses on each balance sheet of the
Consolidated Companies furnished pursuant to Section 6.14 which
will be sufficient for the payment of all such reasonably
anticipated losses, claims and damages incurred prior to the date
of such balance sheet, together with premium adjustments for
actual and anticipated losses, claims and damages.
Section 6.14. Filings and Other Information. Group shall
provide Parent with true, correct and complete copies of all of
the following documents which relate to any date following, or
any periods ending after, the date of this Agreement through the
earlier of Closing or the date of termination of this Agreement
(a) all filings made by Group with SEC, (b) any monthly,
quarterly and annual financial statements (including without
limitation balance sheet, income statement and statement of cash
flows) for each of the Consolidated Companies and for the
Consolidated Companies on a consolidated basis, and (c) all
notices and other documents mailed or otherwise distributed by
Group to its shareholders; all within three (3) days after the
date of filing, preparation, mailing or distribution thereof.
Section 6.15 Guarantee by Laidlaw Inc.. Parent shall cause
its ultimate parent entity, Laidlaw Inc., to guarantee Parent's
obligations to make payments to the Paying Agent or the
shareholders of Group pursuant to Sections 4.2 and 4.3 hereof.
Section 6.16. Representations, Warranties and Covenants of
TCW. TCW represents, warrants and covenants that, subject to
Section 8.1 (g), Section 9.4 hereof, and Indiana law, TCW shall
continue to beneficially own (within the meaning of Rule 13e-3
under the Exchange Act) all shares of common stock of Group owned
as of the date hereof (except for sales permitted under Rule 144
of the Securities Act) and shall vote all such shares
beneficially owned by TCW to approve the Merger at the special
<PAGE>
meeting of shareholders of Group called by Groups' board of
directors in accordance with Section 6.2.
Section 6.17. Further Assurances. Group and Parent agree
that, from time to time, whether at or after the Closing Date,
each of them will execute and deliver such further instruments of
conveyance and transfer and take such other action as may be
reasonably appropriate to carry out the terms of this Agreement.
Group and Parent further agree that they will not take any action
that will impede or delay the consummation of the Merger or the
ability of Parent to obtain requisite regulatory approval.
Section 6.18. Tax Provisions. On or before the Closing Date
(or as to Transit and its subsidiaries, the closing of the
Transit Stock Purchase Agreement), neither Group nor any of the
other Tax Consolidated Companies shall, without the consent of
Parent, (i) take any action (except for any action required under
this Agreement or the Stock Purchase Agreement) other than in the
ordinary course of business that would give rise to liability of
any of the Tax Consolidated Companies for Taxes, (ii) take any
action required under this Agreement in a manner that would give
rise to additional liability of any of the Tax Consolidated
Companies for Taxes, or (iii) make a change to any Tax election,
amend any Company Returns or take any Tax position on any Company
Return or take any other action unless required by law, to the
extent any of the foregoing results in increased Tax liability or
reduction of any Tax credits or other favorable Tax attributes of
any of the Tax Consolidated Companies in respect of any Tax
period, or suffer or permit any of the Tax Consolidated Companies
to undertake (on or before the Closing Date) any of the actions
set forth in this clause (iii).
ARTICLE VII
Conditions to the Merger
Section 7.1. Conditions to the Obligations of Parent and
Newco. The obligation of Parent and Newco to consummate the
Merger is subject to the satisfaction on or prior to the Closing
Date of all of the following conditions (any of which may be
waived by Parent):
(a) Representations, Warranties and Covenants
of Group. Each of the representations and warranties of Group
contained in this Agreement shall be true and correct in all
respects as of the date of the Agreement, as of March 13, 1995
and as of the Effective Date, as though made on and as of those
respective dates. For purposes of this Section 7.1(a), such
representations and warranties shall be deemed true and correct
in all respects to the extent that the aggregate effect of all
breaches of all such representations and warranties (such
breaches to be determined (i) without giving effect to any
materiality limitation included in any such representation and
warranty and (ii) including the liability attributed to any item
listed on any Schedule to this Agreement, except to the extent
the reserves reflected on the Interim Balance Sheet are adequate,
<PAGE>
appropriate and reasonable to cover such items in the aggregate)
has not resulted, or would not result, if recorded on the books
of the Consolidated Companies in accordance with GAAP, in a
reduction of the shareholders' net worth of Five Million Dollars
($5,000,000) or more; provided, however, that the aggregate
liability for all breaches, if any, of Section 5.1(w) and any of
its subsections and the aggregate liability for items listed on
any Schedules referenced within Section 5.1(w) and any of its
subsections shall be treated as being required to be recorded on
the books of the Consolidated Companies under GAAP (and therefore
result in a reduction of net worth under the test set out in this
subsection) whether or not such liability is actually required to
be shown on the books of the Consolidated Companies under the
provisions of GAAP to the extent of all liabilities identified by
the environmental audits conducted by Parent through duly
licensed and qualified environmental consultants. If such
results are not acceptable to Group, Group shall have the right
to retain similarly licensed and qualified environmental
consultants to review the findings of the environmental audits
conducted by Parent, and to discuss such findings with Parent's
environmental consultant. Should the parties fail to reach
agreement on the extent of such liabilities, either party may
cause the matter to be submitted to binding arbitration in
Detroit, Michigan, pursuant to the Rules of the American
Arbitration Association, except that the parties expressly do not
constitute the American Arbitration Association as administrator
of the arbitration, as provided in Rule 3 of such Rules. Each of
the covenants, conditions and agreements of Group to be performed
and satisfied on or before the Closing Date shall have been duly
performed in all respects, and Parent and Newco shall have
received at the Closing a certificate to that effect dated the
Closing Date and executed on behalf of Group by an authorized
officer of Group.
(b) Filings; Consents; Waiting Periods. All
registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other
actions of any kind required with or from any third party (other
than the Interstate Commerce Commission), the SEC, the FTC and
the Antitrust Division and State Transportation Authorities in
connection with the consummation of the Merger and the
transactions contemplated hereby shall have been filed, made or
obtained (in the case of the FTC and the Antitrust Division,
approvals in an unqualified manner) and all applicable waiting
periods shall have expired or been terminated, including but not
limited to, any applicable waiting period under the Antitrust
Improvements Act.
(c) License Agreements. Group and Contract
Services shall have entered into license agreements with Transit
in the form attached hereto as Exhibit C.
(d) Sale of Transit. Either the transactions
contemplated by the Stock Purchase Agreement pursuant to which
all outstanding common stock of Transit will be sold shall have
<PAGE>
been consummated, or Transit shall otherwise no longer be a
subsidiary of Group. The closing documents and other ancillary
agreements related to the Stock Purchase Agreement or other
transactions effecting the sale or transfer of Transit to
UniGroup or any other party (including any oral or written
amendments to the Stock Purchase Agreement) shall be reasonably
acceptable to Parent and its counsel.
(e) No Pending or Certain Threatened
Litigation. At the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or
governmental agency or body which restrains or prohibits the
consummation of the Merger and no Federal or state agency or
governmental body shall be threatening action of a substantial
nature to restrain or prohibit or attach material conditions to
the completion of the Merger.
(f) Extraordinary Losses. There shall not
have occurred from the date of this Agreement to the Closing Date
any uninsured destructions or any uninsured or unreserved damages
or other losses whatsoever with respect to the Consolidated
Companies which could reasonably be expected to exceed $5,000,000
in the aggregate.
(g) Employees/Labor Matters. There shall not
exist at or prior to Closing any employee strike, work stoppage,
slowdown or lock-out pending or, to the knowledge of the
Consolidated Companies, after due inquiry, threatened against or
involving the Consolidated Companies which affects 10% or more of
the employees of the Consolidated Companies as of the date of
this Agreement.
(h) Closing Documents. In addition to any
other documents required by this Agreement, Group shall deliver
to Parent, Newco and the Consolidated Companies (upon surrender
of the premises where such materials are kept upon Closing or at
Closing as to the documents identified in (i), (iii), (vi), (vii)
and (viii) below):
(i) copies of the Articles of Incorporation
of each Consolidated Company certified as of recent date by
the Secretary of State of their respective states of
incorporation;
(ii) the original Bylaws and original minute
books of Group and each Group Subsidiary, certified as of the
Closing Date by their respective secretaries to be true and
complete in all material respects;
(iii) A certificate of good standing or
existence, if applicable, of each of the Consolidated
Companies issued not earlier than 10 days prior to the
Closing Date by the respective Secretaries of State of the
jurisdictions in which the subsidiaries are incorporated;
<PAGE>
(iv) the Consolidated Companies' stock record
books and all other books, records and documents relating to
the Consolidated Companies;
(v) all customers lists, books of account,
personnel records, Tax returns, computer records and other
books and records maintained by the Consolidated Companies or
Group in connection with the business of the Consolidated
Companies to the extent they relate to the business of the
Consolidated Companies;
(vi) a legal opinion of Barnes & Thornburg,
counsel to Group, dated the Closing Date, in form reasonably
satisfactory to Parent and its counsel, to the effect that:
(A) each of the Consolidated Companies are duly organized,
validly existing and in good standing, (B) Group has duly
authorized, executed and delivered the Agreement, which is a
legal, valid and binding agreement enforceable in accordance
with its terms, (C) no conflict with, or violation of, any
Material Contract, statute etc., (D) all authorizations and
consents have been obtained (in the case of the FTC and the
Antitrust Division, authorizations and consents in an
unqualified manner) and (E) upon filing of this Agreement
with the Secretary of State of Indiana, the Merger will
become effective;
(vii) a certificate signed by the president and
the chief financial officer of Group, certifying that the
aggregate receivables of the Consolidated Companies arising
from and after the date of this Agreement arose in the
ordinary course of business and have been collected or will
be collectible in the ordinary course of business, consistent
with past practice of the Consolidated Companies, in the
aggregate book amount of all such receivables, less an
aggregate allowance for doubtful accounts which shall be an
amount determined in accordance with generally accepted
accounting principles consistently applied; and
(viii) such documents and other evidence as
Parent shall reasonably request to verify that the conditions
to Closing set forth in this Agreement have been fulfilled
and that the obligations of Group required to be performed on
or before the Closing Date have been performed, such
documents or evidence to be reasonably satisfactory to
Parent.
(i) Shareholder and Board Approval. The
Merger shall have been approved in accordance with the Indiana
Act, by the affirmative vote of the holders of a majority of the
outstanding shares of common stock of Group at a duly convened
special meeting of shareholders called pursuant to Section 6.2.
(j) Satisfaction of Obligations. Parent
shall be satisfied that, as of the Closing of the Merger,
utilizing either proceeds of the Merger Consideration or proceeds
<PAGE>
of the Purchase Price under the Transit Stock Purchase Agreement,
in each case prior to any distribution to shareholders of Group:
(i) Group has repaid or otherwise satisfied
all indebtedness (excluding for greater certainty certain
indebtedness to former shareholders of Group not to exceed
$204,102 of principal face amount) for borrowed money and
credit advanced (including principal, interest and any
premium, prepayment penalties and make-whole amounts) on
which any Consolidated Company is an obligor (excluding for
greater certainty, (A) payout of operating leases for
vehicles and (B) payments made to fund reimbursement
obligations under letter of credit numbered ST04582
identified on Schedule 5.1(p)(v) following a draw by the
beneficiary under such letter of credit, to the extent such
draw does not exceed $2,730,382 plus any additional amounts
accrued on the underlying payable in the ordinary course of
business consistent with past practice);
(ii) Group has terminated or caused to be
terminated the employment contracts of (1) Michael L. Smith,
(2) Patrick F. Carr and (3) Robert H. Irvin and has satisfied
all liabilities or obligations (including severance
obligations) of the Consolidated Companies arising therefrom
or from any other pension or other employee benefit that
vests or otherwise accrues as a result of such terminations;
(iii) Group has terminated or caused to be
terminated, suspended, or otherwise transferred to the
benefit of the participants, the benefits under the
Supplemental Employee Retirement Plan of Contract Services,
and any amendment, as to all participants other than Michael
L. Smith, and has satisfied all liabilities and obligations
of the Consolidated Companies arising therefrom relating to
the participation in such plan by Michael L. Smith and all
such other employees (excluding Kyle E. Martin) to the extent
that the aggregate dollar amount of such liabilities and
obligations exceeds $100,000. The Supplemental Employee
Retirement Plan shall be fully funded in an amount and upon
such terms as it relates to Michael L. Smith, as more fully
set forth in the Memorandum of Understanding of even date
herewith;
(iv) Group has paid or otherwise satisfied all
of the expenses and costs of the Consolidated Companies which
were incurred in connection with the transactions
contemplated by this Agreement and the Stock Purchase
Agreement;
(v) Group has terminated or caused to be
terminated the Group Stock Plans and has satisfied all
liabilities and obligations of the Consolidated Companies
arising therefrom; and
<PAGE>
(vi) Group has paid or otherwise made
provision for all of the expenses of the Paying Agent for
carrying out its duties pursuant to the provisions of this
Agreement.
(k) Due Diligence Investigation. By 11:59
p.m., Eastern Standard Time, on March 13, 1995, Parent and its
representatives shall have completed its special "due diligence"
investigation of the Consolidated Companies, for the purpose of
validating the representations and warranties contained in
Article V hereof (including but not limited to the Consolidated
Companies' self-insurance program, the Tax Consolidated
Companies' Tax Returns and any Tax Sharing Agreements, the
Consolidated Companies' compliance with environmental laws and
other matters described in Article V).
Section 7.2. Conditions to Obligations of Group. The
obligation of Group to consummate the Merger is subject to the
satisfaction on or prior to the Closing Date of all of the
following conditions (any of which may be waived by Group):
(a) Representations, Warranties and
Covenants. Each of the representations and warranties of Parent
and Newco contained in this Agreement shall be true in all
material respects on and as of the Closing Date with the same
effect (and taking into account standards of materiality, where
applicable) as though such representations and warranties had
been made on and as of such date, each of the covenants and
agreements of Parent and Newco to be performed on or before the
Closing Date shall have been duly performed in all material
respects, and Group shall have received at the Closing Date a
certificate to that effect dated the Closing Date and executed on
behalf of each of Parent and Newco by an authorized officer of
each of them.
(b) Filings; Consents; Waiting Periods.All
registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other
actions of any kind required with or from the SEC, the FTC and
the Antitrust Division, and State Transportation Authorities in
connection with the consummation of the Merger shall have been
filed, made or obtained and all applicable waiting periods shall
have expired or been terminated, including but not limited to,
any applicable waiting period under the Antitrust Improvements
Act.
(c) No Pending or Certain Threatened
Litigation. At the Closing Date, no injunction, restraining
order or decree of any nature of any court or governmental agency
or body shall be in effect which restrains or prohibits the
consummation of the Merger, and no Federal or state agency or
governmental body shall be threatening action of a substantial
nature to restrain or prohibit or attach material conditions to
the completion of the Merger.
<PAGE>
(d) License Agreements. Group and Contract
Services shall have entered into license agreements with Transit
in the form attached hereto as Exhibit C.
(e) Sale of Transit. Either the transactions
contemplated by the Stock Purchase Agreement pursuant to which
all outstanding common stock of Transit will be sold shall have
been consummated or Transit shall otherwise no longer be a
subsidiary of Group. The closing documents and other ancillary
agreements related to the Stock Purchase Agreement or other
transactions effecting the sale of transfer of Transit shall be
in a form reasonably acceptable to Group and its counsel.
(f) Letters of Credit. Group shall be
reasonably satisfied that, simultaneous with the Merger, Parent
will either (at Parent's option) complete the substitution of
letters of credit or performance bonds issued on behalf of Parent
for (and raise the substituted letters of credit to be returned
to Group), or cause the issuing banks to release Group and each
Group Affiliate from any liability with respect to, letters of
credit posted by Group and/or any Group Affiliate which secure
the Consolidated Companies' obligations to insurance companies
under its insurance program and to providers of surety and
performance bonds issued for the benefit of the Consolidated
Companies in the ordinary course of their businesses.
(g) Shareholder Approval. The Merger shall
have been approved by the affirmative vote of the holders of a
majority of the outstanding shares of common stock of Group
present in person or by proxy at a duly convened special meeting
if shareholders called pursuant to Section 6.2.
(h) Legal Opinion. A legal opinion of Ivan
Cairns, counsel to Parent and Newco, dated the Closing Date, in
form reasonably satisfactory to Group and its counsel, to the
effect that: (i) Parent and Newco have duly authorized, executed
and delivered this Agreement, which is a legal, valid and binding
agreement enforceable in accordance with its terms, (ii) all
necessary authorizations and consents, if any, have been obtained
from the FTC and the Antitrust Division and (iii) no approval of
the Interstate Commerce Commission is necessary to carry out the
transactions contemplated by this Agreement.
(i) Laidlaw Inc. Guarantee. Laidlaw Inc.
shall have executed a guarantee agreement, in a form reasonably
acceptable to Laidlaw Inc., Parent, Group and their respective
counsel, pursuant to which Laidlaw Inc. guarantees Parent's
obligations to make payments to the Paying Agent or the
shareholders of Group pursuant to Sections 4.2 and 4.3 of this
Agreement.
<PAGE>
ARTICLE VIII
Termination, Amendment and Extension
Section 8.1. Termination. This Agreement may be terminated
at any time prior to the Closing :
(a) by mutual written consent of Group and
Parent at any time;
(b) by either Group or Parent if the Closing
shall not have occurred on or before July 31, 1995, unless the
party seeking to terminate has been responsible for delaying the
Closing;
(c) by Group, (A) if one or more of the
conditions specified in Section 7.2 is not satisfied to the
reasonable satisfaction of Group within thirty (30) days after
written notice of failure of any condition is delivered to Parent
and Newco by Group, or such condition is not capable of
satisfaction even with Parent's and Newco's best efforts; or (B)
if, on or after March 14, 1995, all other conditions precedent to
this transaction have been satisfied, except that Parent has
notified Group of a breach of any representation, warranty or
covenant entitling Parent to terminate this Agreement and, in
connection therewith, requests a reduction in the aggregate
Merger Consideration in light thereof or requests a change in the
terms and conditions of this Agreement that is materially
detrimental to the shareholders of Group;
(d) by Parent, if one or more of the
conditions specified in Section 7.1 is not satisfied to the
reasonable satisfaction of Parent within thirty (30) days after
written notice of failure of any condition is delivered to Group
by Parent, or such condition is not capable of satisfaction even
with Group's or TCW's, as the case may be, best efforts;
(e) by Parent or Group, if (i) the
consummation of the Merger shall violate any non-appealable final
order, decree or judgment of any court or governmental body
having competent jurisdiction or (ii) there shall be a statute,
rule or regulation which makes the consummation of the Merger
illegal or otherwise prohibited;
(f) by Parent, by written notice to Group on
or before 11:59 p.m., Eastern Standard Time, March 15, 1995
following completion of Parent's special "due diligence"
investigation pursuant to Section 7.1(k) hereof, if (i) Group
breaches any representations or warranties set forth in Section
5.1, to the extent that the aggregate effect of all breaches of
all representations and warranties (such breaches to be
determined: (A) without giving effect to any materiality
limitation included in any such representation and warranty; and
(B) including the liability attributed to any item listed on any
Schedule to this Agreement, except to the extent the reserves
reflected on the Interim Balance Sheet are adequate, appropriate
<PAGE>
and reasonable to cover such items in the aggregate) has
resulted, or would result, if recorded on the books of the
Consolidated Companies in accordance with GAAP, in a reduction of
the shareholders' net worth of Five Million Dollars ($5,000,000)
or more; provided, however that the aggregate liability for all
breaches, if any, of Section 5.1(w) and any of its subsections
and the aggregate liability for all of the items listed on any
Schedules referenced within Section 5.1(w) and any of its
subsections shall be treated as being required to be recorded on
the books of the Consolidated Companies under GAAP (and therefore
result in a reduction of net worth under the test set out in this
subsection) whether or not such liability is actually required to
be shown on the books of the Consolidated Companies under the
provisions of GAAP to the extent all liabilities identified by
the environmental audits to be conducted by Parent through duly
licensed and qualified environmental consultants. If the results
of such audits are not acceptable to Group, Group shall have the
right to retain similarly licensed and qualified environmental
consultants to review the findings of the environmental audits
conducted by Parent, and to discuss such findings with Parent's
environmental consultants. Should the parties fail to reach
agreement as to the extent of such liabilities, either party may
cause the matter to be submitted to binding arbitration in
Detroit, Michigan, pursuant to the Rules of the American
Arbitration Association, except that the parties expressly do not
constitute the American Arbitration Association as administrator
of the arbitration, as provided in Rule 3 of such Rules;
(g) Subject to Section 9.4 hereof, by Parent,
if either (i) Group's board of directors withdraws or changes its
recommendation to Group's shareholders to approve the Merger
pursuant to Section 6.2, (ii) Group or TCW accepts a superior
Acquisition Proposal from any corporation, partnership, person or
other entity (other than Parent) which in its good faith
judgment, in the exercise of its fiduciary duties and after
consultation with qualified advisors, affords Group's
shareholders substantially more valuable economic benefit than is
afforded to them in the Merger, taking into account the nature of
the consideration offered, the certainty of closure and the
financial strength of the entity making the Acquisition Proposal;
or (iii) TCW breaches its representation, warranty or covenant in
Section 6.16 hereof and Parent demonstrates that this Agreement
has not been amended prior to the time of such breach; or
(h) by Parent, if the parties have not agreed
to the form of stock purchase agreement (containing terms and
conditions substantially similar to those contained in this
Agreement) on or before January 31, 1995.
Section 8.2. Effect of Termination. In the event this
Agreement is terminated in accordance with the provisions of
Section 8.1 hereof, all further obligations of the parties
hereunder (except as set forth below) shall terminate; provided,
however, that:
<PAGE>
(a) if this Agreement is so terminated by a
party because one or more of the conditions to such party's
obligations hereunder is not satisfied as a result of a
misrepresentation or breach of warranty by another party or
another party's failure to comply with its covenants or
obligations under this Agreement, the party's right to pursue all
legal remedies for breach of contract or otherwise, including,
without limitation, indemnification for damages relating thereto,
shall survive such termination unimpaired. Notwithstanding the
foregoing provisions of this Section 8.2, the obligations of the
parties hereto under the Confidentiality Agreement, this Section
8.2, Section 8.3 and Article IX, shall survive the termination of
this Agreement; and
(b) if this Agreement is so terminated
pursuant to Section 8.1 as a result of failure to satisfy the
conditions precedent contained in Sections 7.1(d) or 7.2(e),
Parent shall, at its option, have the irrevocable right to
acquire from Group all of the outstanding capital stock of
Contract Services for a cash purchase price of $158,600,000,
pursuant to the form of stock purchase agreement (containing
terms and conditions substantially similar to those contained in
this Agreement) to be prepared and mutually agreed upon by Group
and Parent prior to January 31, 1995.
Section 8.3. Amendment and Modification. This Agreement may
be amended, modified or supplemented only by written agreement of
all of Group, TCW, Newco and Parent.
ARTICLE IX
Miscellaneous
Section 9.1. Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one
and the same agreement, and shall become effective when one or
more counterparts have been signed by each of the parties and
delivered to the other party.
Section 9.2. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Indiana without reference to the choice of law
principles thereof.
Section 9.3. Entire Agreement. This Agreement and the
Exhibits and Schedules attached hereto, and the Confidentiality
Agreement, contain the entire agreement between the parties with
respect to the subject matter hereof and there are no agreements,
understandings, representations or warranties between the parties
other than those set forth or referred to therein or herein.
Section 9.4. Expenses. Except as otherwise set forth in
this Agreement, all legal and other costs and expenses incurred
in connection with this Agreement and the transactions
contemplated hereby shall be paid (a) by Group, if incurred by or
on behalf of Group, the Group Affiliates or the Consolidated
<PAGE>
Companies, (b) by Parent, if incurred by Parent, or (c) by TCW,
if incurred by it. In the event that this Agreement is validly
terminated by Parent in accordance with the provisions of Section
8.1(g), Group shall promptly pay to Parent upon demand, in cash,
an amount equal to the sum of (i) all reasonable documented out-
of-pocket expenses and fees incurred by Parent and its affiliates
(including reasonable attorney's fees and expenses and investment
banking fees and costs) in negotiating, preparing, executing and
performing this Agreement and in preparing for the Merger, and in
doing its due diligence investigation, plus (ii) $10,500,000. If
the termination of this Agreement is a result of the willful
misrepresentation, willful inaccuracy or omission in a
representation, willful breach of warranty, fraud or any willful
failure to perform or comply with any covenant or agreement
contained herein, the aggrieved party shall be entitled to
recover from the non-performing party all reasonable documented
out-of-pocket expenses and fees which such aggrieved party has
incurred (including reasonable attorney's fees and expenses), and
such termination of this Agreement shall not be deemed or
construed as limiting or denying any legal or equitable right or
remedy of such party, and such party shall in addition be
entitled to recover its costs and expenses (including reasonable
attorney's fees and expenses) incurred in pursuing its rights and
remedies hereunder.
Section 9.5. Survival of Representations and Warranties.
Except for the representations, warranties, covenants and
agreements contained in Sections 2.5, 4.2, 4.3, 4.4, 5.1(b),
5.1(c) (excluding clause (ii) of the first sentence thereof),
5.1(d), 6.6, 6.7 and 6.16, and Article IX of this Agreement which
shall survive the Effective Date and shall continue without time
limit, the representations, warranties, covenants and agreements
of the parties included or provided for herein shall not survive
the consummation of the Merger on the Effective Date.
Section 9.6. Notices. All notices hereunder shall be
sufficiently given for all purposes hereunder if in writing and
delivered personally or sent by registered mail or certified
mail, postage prepaid, to the appropriate address as set forth
below. Notice to Group or any Group Affiliate shall be addressed
to:
Mayflower Group, Inc.
9998 North Michigan Road
Carmel, Indiana 46032
Attn: Michael L. Smith
Chairman of the Board and President
with a copy to:
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Attn: James A. Strain, Esquire
<PAGE>
or at such other address and to the attention of such other
person as Group may designate by written notice to Parent.
Notices to Parent and Newco or, after Closing, to the
Consolidated Companies, shall be addressed to:
Laidlaw Transit, Inc.
P.O. Box 5028
3221 N. Service Road
Burlington, ONT, Canada L7R348
Attn: John R. Grainger, President
and Robert H. Byrne, Legal Counsel
with a copy to:
Schiff Hardin & Waite
7200 Sears Tower
Chicago, IL 60606
Attn: Stephen J. Dragich, Esq.
or at such other address and to the attention of such other
person as Parent may designate by written notice to Group.
Notices to TCW shall be addressed to:
TCW Asset Management Company
865 South Figueroa Street
18th Floor
Los Angeles, California 90017
Attn: Sheldon Stone, Managing Director
and Kenneth Liang, Esq.
Notices shall be deemed given when received, if sent by telegram,
telex, telecopy or similar facsimile means (confirmation of
facsimile transmission being deemed receipt of communication sent
by telex, telecopy or other facsimile means); when delivered and
receipted for (or upon the date of attempted delivery where
delivery is refused), if hand delivered; when sent by express
courier or delivery service; or when sent by certified or
registered mail, return receipt requested.
Section 9.7. Successors and Assigns. The rights and
obligations of any party to this Agreement shall not be
assignable by such party on or prior to the Closing Date without
the prior written consent of all other parties to this Agreement.
This Agreement shall inure to the benefit and shall be binding
upon the respective successors and permitted assigns of the
parties hereto. Nothing herein expressed or implied is intended
to confer upon any person, other than to the parties hereto or
their respective successors or permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this
Agreement except as provided in Section 9.11.
Section 9.8. Headings. The headings in this Agreement are
solely for convenience of reference and shall not affect its
interpretation.
<PAGE>
Section 9.9. Severability. The provisions of this Agreement
(its sections and paragraphs) are severable and the invalidity of
any one or more provisions does not affect or limit the
enforceability of the remaining provisions.
Section 9.10. Gender. Whenever in this Agreement any
masculine, feminine or neuter pronoun is used, such pronouns
shall also include the other genders whenever required by the
context.
Section 9.11. Indemnification. In the event any action,
suit, proceeding or investigation relating to the Merger, this
Agreement, or the transactions contemplated hereby (whether or
not consummated or completed, abandoned or terminated) is
commenced, whether before or after the Effective Date, the
parties hereto agree to cooperate and use reasonable efforts to
defend against and respond thereto. It is understood and agreed
that Group shall indemnify and hold harmless, and, after the
Effective Date, the Surviving Corporation and Parent will
indemnify and hold harmless, each present and former director,
member of any special committee of non-employee directors
established by the Board of Directors of Group, officer, employee
and agent of Group or such special committee (the "Indemnified
Parties") against any losses, claims, damages, liabilities,
costs, expenses (including attorneys' fees), judgments and
amounts paid in settlement in connection with any threatened,
pending or completed action, suit, claim, proceeding or
investigation arising out of or pertaining to any action or
omission occurring at or prior to the Effective Date (including,
without limitation, any which arise out of or relate to the
transactions contemplated by this Agreement) to the full extent
permitted under the Indiana Act. Neither Group, the Surviving
Corporation nor Parent shall be liable for any settlement
effected by such Indemnified Party (or group of Indemnified
Parties) unless Group, the Surviving Corporation or Parent,
respectively, have approved such settlement in writing, which
approval shall not have been unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under this
Section 9.11, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Group or the
Surviving Corporation and Parent thereof; provided, however, that
any failure to so notify Group or the Surviving Corporation and
Parent shall not relieve Group or the Surviving Corporation and
Parent of any obligation to indemnify such Indemnified Party or
of any other obligation imposed by this Section 9.11 unless and
to the extent such failure to so notify shall prejudice the
position of Group or the Surviving Corporation and Parent. In the
event of any such action or proceeding, Group, Parent or Newco,
as the case may be, will be entitled to participate in and, to
the extent that it may wish, assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. This
covenant shall survive the Closing, shall continue without time
limit and is intended to benefit Group and each of the
Indemnified Parties.
<PAGE>
Section 9.12. Public Announcement. Prior to Closing, neither
Group nor Parent shall make any announcement or issue any press
release relating to this Agreement or the transactions
contemplated hereby without the consent of the other parties to
this Agreement; provided, however, that without such consent,
Group or Parent may make any announcement, press release or
filing, which counsel to Group or Parent advises is required by
law.
Section 9.13 Further Assurances. Group and Parent will each
execute and deliver instruments and take such other actions as
may be reasonably required in order to carry out the intent of
this Agreement.
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties as of the day and year first above
written.
LAIDLAW TRANSIT, INC.
By: /s/ John R. Grainger
John R. Grainger, President
Attest:
/s/ Robert H. Byrne
Robert H. Byrne, Secretary
<PAGE>
MCS TRANSIT, INC.
By: /s/ John R. Grainger
John R. Grainger, President
Attest:
/s/ Robert H. Byrne
Robert H. Byrne, Secretary
MAYFLOWER GROUP, INC.
By: /s/ Michael L. Smith
Michael L. Smith, President
Attest:
/s/ Robert H. Irvin
Robert H. Irvin, Secretary
<PAGE>
The undersigned joins in the foregoing Agreement solely for
the purposes of Sections 6.16, 8.1(d), 8.2(a), 9.4(c), 9.5 and
9.6.
TCW ASSET MANAGEMENT COMPANY
as investment manager of certain
funds and accounts which holds shares of
Mayflower Group, Inc.
By: /s/ Sheldon Stone
Sheldon Stone, Managing Director
By: /s/ Kenneth Liang
Kenneth Liang,Senior Vice President
<PAGE>
Appendix F to
Mayflower Group, Inc.
Proxy Statement
MAYFLOWER GROUP, INC.
Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
The following pro forma condensed consolidated balance sheet as
of September 30, 1994, and the pro forma condensed consolidated
statements of operations for the year ended December 31, 1993,
and nine months ended September 30, 1994, are presented in order
to illustrate the estimated effects of the sale of all the
outstanding shares of Contract Services to Laidlaw pursuant to
the Contract Services Option as if the sale had occurred as of
September 30, 1994, in the case of the balance sheet and as of
January 1, 1993, in the case of the statements of operations.
These pro forma statements indicate the pro forma effect on the
financial statements of the Company in the event that the
Contract Services Sale occurs as described herein under the
Contract Services Option, as a distinct and stand alone
transaction. These pro forma financial statements therefore do
not include the effects of the Merger, or the Transit Sale. The
pro forma condensed consolidated statements of operations for the
years ended December 31, 1992 and 1991 are presented in order to
illustrate the Company's results of operations exclusive of Con-
tract. For these years, the statements of operations for the
Company are presented assuming Contract is a discontinued
operation. The pro forma information is based on the historical
financial statements of the Company giving effect to the sale
under the assumptions and the adjustments set forth in the
accompanying notes to the pro forma condensed consolidated
financial statements.
The pro forma condensed consolidated financial statements have
been prepared by the Company's management based upon the
Company's consolidated financial statements included elsewhere
herein. These pro forma condensed consolidated financial
statements may not be indicative of the results that actually
would have occurred if these transactions had been consummated on
the dates indicated or which may be obtained in the future. The
pro forma condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial
statements and notes thereto contained elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
HISTORICAL & PRO FORMA SELECTED FINANCIAL INFORMATION
CONSUMMATION OF PROPOSED SALE OF
MAYFLOWER CONTRACT SERVICES, INC.
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended Year Ended Year Ended Year Ended
September 30, 1994 December 31, 1993 December 31, 1992 December 31, 1991
--------------------- -------------------- ------------------- ------------------
Historical Pro Forma Historical Pro Forma Historical Pro Forma Historical Pro Forma
---------- ---------- ---------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data: (Notes B&C) (Notes B&C) (Notes B&C) (Notes B&C)
Operating Revenues:
Contract Services $194,047 $ 0 $235,918 $ 0 $209,411 $ 0 $193,442 $ 0
Transit 352,784 352,784 441,575 441,575 426,444 426,444 405,600 405,600
-------- -------- -------- -------- -------- -------- -------- --------
Total 546,831 $352,784 $677,493 $441,575 $635,855 $426,444 $599,042 $405,600
======== ======== ======== ======== ======== ======== ======== ========
Operating Profit:
Contract Services $ 4,382 $ 0 $ 7,471 $ 0 $ 10,840 $ 0 $ 4,829 $ 0
Transit 7,177 7,177 5,738 5,738 13,208 13,208 (58,221) (58,221)
Corporate Expenses (603) (603) (1,089) (1,089) (1,142) (1,142) (3,774) (3,774)
-------- -------- -------- -------- -------- -------- -------- --------
10,956 6,574 12,120 4,649 22,906 12,066 (57,166) (61,995)
Interest income
(expense) net (6,035) 802 (6,736) 2,862 (9,661) (5,030) (31,306) (26,151)
Other, net (123) 5 32 (85) 234 0 (161) (256)
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before
federal income taxes $ 4,798 $ 7,381 $ 5,416 $ 7,426 $ 13,479 $ 7,036 $(88,633) $(88,402)
======== ======== ======== ======== ======== ======== ======== =========
Income from continuing
operations $ 3,013 $ 4,560 $ 2,435 $ 4,456 $ 7,835 $ 3,809 $(88,633) $(87,159)
======== ======== ======== ======== ======== ======== ======== ========
<PAGE>
Income (loss) per share
from continuing
operations (Note D) $ .24 $ .36 $ .19 $ .35 $ .66 $ .30 $ (7.01) $ (6.89)
======== ======== ======== ======== ======== ======== ======== ========
As of September 30, 1994
------------------------
Historical Pro Forma
---------- ---------
Balance Sheet Data: (Note A)
Working capital $ 37,726 $ 75,647
Net property and
equipment 133,433 31,962
Total assets 356,559 222,252
Short-term debt 4,706 25
Long-term obligations 102,679 858
Shareholders' investment 85,733 126,858
Book value per share $6.77 $ 10.02
<FN>
The accompanying Notes to Pro Forma Consolidated Financial Statements are an integral
part of this unaudited pro forma selected financial information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER CONTRACT SERVICES, INC.
AS OF SEPTEMBER 30, 1994
(Unaudited) (In thousands)
Adjustments to
Historical Reflect Carrying Pro Forma
Mayflower Value of May- Pro Forma Mayflower
Group, Inc. flower Contract Proposed Sale Group, Inc.
Consolidated Services, Inc. Adjustments Consolidated
--------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Assets: (Note A)
Current assets:
Cash $ 1,333 $ 130 $ 41,438 $ 42,641
Receivables, net 96,683 35,760 0 60,923
Accrued unbilled
accounts receivable 28,020 0 0 28,020
Other current assets 28,989 11,790 0 17,199
-------- --------- --------- --------
Total current assets 155,025 47,680 41,438 148,783
Property and equipment, net 133,433 101,471 0 31,962
Intangible assets 50,469 17,466 0 33,003
Other assets 17,632 9,128 0 8,504
Investment in Contract
Services, Inc. 0 (41,813) (41,813) 0
--------- --------- ---------- --------
$356,559 $133,932 $ (375) $222,252
======== ========= ========== ========
Liabilities and shareholders' investment:
Current liabilities:
Current maturities of
long-term debt $ 4,706 $ 4,681 (1) $ 0 $ 25
Short-term borrowings 4,500 2,000 (2,500) 0
Trade accounts payable 45,589 12,929 0 32,660
Accrued expenses and
other liabilities 62,504 22,053 0 40,451
-------- -------- --------- --------
<PAGE>
Total current liabilities 117,299 41,663 (2,500) 73,136
Noncurrent liabilities:
Long-term debt, less current
maturities 102,679 62,821 (1) (39,000) 858
Other non-current liabilities 50,848 29,448 0 21,400
Shareholders' investment:
Common shares 73,914 0 0 73,914
Retained earnings 11,819 0 41,125 52,944
-------- -------- -------- --------
Total shareholders' investment 85,733 0 41,125 126,858
-------- -------- -------- --------
$356,559 $133,932 $ (375) $222,252
======== ======== ======== ========
<FN>
(1) Includes a total of $67,326 of term debt retired with the proceeds of the
proposed sale of Contract Services. (See Note A)
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements are an
integral part of this unaudited pro forma selected financial information.
</TABLE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER CONTRACT SERVICES, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(Unaudited) (In thousands, except per share amounts) Adjustments
To Reflect
Historical Carrying Pro Forma
Mayflower Value of May- Pro Forma Mayflower
Group, Inc. flower Contract Proposed Sale Group, Inc.
Consolidated Services, Inc. Adjustments Consolidated
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Operating revenues: (Notes B&C)
Contract Services $194,047 $194,047 $ 0 $ 0
Transit 352,784 0 0 352,784
----------- ----------- ----------- ----------
<PAGE>
546,831 194,047 0 352,784
Operating expenses:
Contract Services 189,665 189,665 0 0
Transit 345,607 0 0 345,607
Corporate expenses 603 0 0 603
------------ ------------ ----------- ------------
Operating profit 10,956 4,382 0 6,574
Other income (expense):
Interest income 802 0 0 802
Interest expense (6,837) (3,767) 3,070 0
Other, net (123) (128) 0 5
------------ ------------- ------------ -----------
Income from continuing operations
before federal income taxes 4,798 487 3,070 7,381
Provision (credit) for federal
income taxes 1,785 192 1,228 2,821
------------ ------------- ------------ -----------
Income from continuing operations $ 3,013 $ 295 $ 1,842 $ 4,560
============ ============= ============ ===========
Weighted average shares
outstanding 12,755 12,755
Income per share from
continuing operations $ .24 $ .36
============ ============
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements are an integral
part of this unaudited pro forma condensed consolidated statement of operations.
</TABLE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CONSUMMATION OF PROPOSED SALE OF MAYFLOWER CONTRACT SERVICES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1993
(Unaudited) (In thousands, except per share amounts) Adjustments to
Historical Reflect Carrying Pro Forma
Mayflower Value of Pro Forma Mayflower
Group, Inc. Mayflower Contract Proposed Sale Group, Inc.
Consolidated Services, Inc. Adjustments Consolidated
------------ ------------ ------------ ------------
<PAGE>
<S> <C> <C> <C> <C>
Operating revenues: (Notes B&C)
Contract Services $235,918 $235,918 $ 0 $ 0
Transit 441,575 0 0 441,575
------------ ------------ ------------ -----------
677,493 235,918 0 441,575
Operating expenses:
Contract Services 228,447 228,447 0 0
Transit 435,837 0 0 435,837
Corporate expenses 1,089 0 0 1,089
------------ ------------ ------------ -----------
Operating profit 12,120 7,471 0 4,649
Other income (expense):
Interest income 2,862 0 0 2,862
Interest expense (9,598) (4,234) 5,364 0
Other, net 32 117 0 (85)
------------ ------------ ------------ ------------
Income from continuing
operations before
federal income taxes 5,416 3,354 5,364 7,426
Provision for federal
income taxes 2,981 2,157 2,146 2,970
------------ ------------ ------------ ------------
Income from continuing operations $ 2,435 $ 1,197 $ 3,218 $ 4,456
============ ============ ============ ============
Weighted average shares outstanding 12,740 12,740
Income per share from continuing
operations but before
extraordinary items $ .19 $ .35
============ ============
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements are an integral part
of this unaudited pro forma condensed consolidated statement of operations.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CONSUMMATION OF PROPOSED SALE OF
MAYFLOWER CONTRACT SERVICES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1992
(Unaudited)
(In thousands, except per share amounts)
Adjustments to
Historical Reflect Carrying Pro Forma
Mayflower Value of May- Mayflower
Group, Inc. flower Contract Group, Inc.
Consolidated Services, Inc. Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Contract Services $209,411 $209,411 $ 0
Transit 426,444 0 426,444
------------ ------------ -----------
635,855 209,411 426,444
Operating expenses:
Contract Services 198,571 198,571 0
Transit 413,236 0 413,236
Corporate expenses 1,142 0 1,142
------------ ------------ -----------
612,949 198,571 414,378
Operating profit 22,906 10,840 12,066
Other income (expense):
Interest income 1,995 0 1,995
Interest expense (11,656) (4,631) (7,025)
Other, net 234 234 0
------------ ------------ -----------
Income from continuing operations
before federal income taxes 13,479 6,443 7,036
Provision for federal income taxes 5,644 2,417 3,227
------------ ------------ -----------
Income from continuing operations $ 7,835 $ 4,026 $ 3,809
============= ============ ===========
Weighted average shares
outstanding (Note D) 12,646 12,646
Income per share from
continuing operations but be-
fore extraordinary items (Note D) $ 0.66 $ 0.30
============ ============
<PAGE>
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements are an
integral part of this unaudited pro forma condensed consolidated statement of operations.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CONSUMMATION OF PROPOSED SALE OF
MAYFLOWER CONTRACT SERVICES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1991
(Unaudited)
(In thousands, except per share amounts)
Adjustments to
Historical Reflect Carrying Pro Forma
Mayflower Value of Mayflower
Group, Inc. Mayflower Contract Group, Inc.
Consolidated Services, Inc. Consolidated
------------ ------------ -----------
<S> <C> <C> <C>
Operating revenues:
Contract Services $193,442 $193,442 $ 0
Transit 405,600 0 405,600
------------ ------------ -----------
599,042 193,442 405,600
Operating expenses:
Contract Services 188,613 188,613 0
Transit 394,802 0 394,802
Corporate expenses 3,774 0 3,774
Revaluation of intangible
assets 69,019 0 69,019
------------ ------------ -----------
656,208 188,613 467,595
Operating profit (57,166) 4,829 (61,995)
Other income (expense):
Interest income 903 0 903
Interest expense (32,209) (5,155) (27,054)
Other, net (161) 95 (256)
------------ ------------ -----------
Income from continuing operations
before federal income taxes (88,633) (231) (88,402)
Provision for federal income taxes 0 1,243 (1,243)
------------ ------------ -----------
Income from continuing
operations $ (88,633) $(1,474) $(87,159)
============ ============ ==========
Weighted average shares
outstanding (Note D) 12,646 12,646
Income (loss) per share
from continuing operations
but before extraordinary
items (Note D) $ (7.01) $ (6.89)
============ ============
<PAGE>
<FN>
The accompanying Notes to Pro Forma Condensed Consolidated Financial Statements are an
integral part of this unaudited pro forma condensed consolidated statement of operations.
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Consolidated Financial Statements
Note A
-------
The estimated proceeds from the Contract Services Sale as if the
transaction occurred as of September 30, 1994, are as follows (in
thousands):
Gross sales price $ 158,600
Less costs of sale, net of $2,877 of
tax benefits (6,782)
Less payment of term debt (67,326)
----------
Net cash proceeds 84,492
Less carrying value of Contract Services (41,813)
----------
Gain on sale 42,679
Less prepayment on Transit term debt, net of
$1,036 of tax benefit (see below) (1,554)
---------
Pro forma increase in Retained Earnings
due to Contract Services Sale
as of September 30, 1994 $ 41,125
==========
The costs of sale includes prepayment penalties on early
retirement of debt, financial and other professional advisor
fees, obligations under employment and termination benefit
agreements, state liabilities and transaction expenses.
The net cash proceeds to the Company from the sale of Contract
Services are assumed, as of September 30, 1994, to be applied as
follows (in thousands):
Retirement of Transit term debt $ 39,000
Prepayment penalty on Transit term debt,
net of $1,036 of tax benefit 1,554
Reduction in Transit short-term borrowings 2,500
Increase in cash 41,438
----------
$ 84,492
==========
Note B
------
The estimated proceeds from the Contract Services sale, as if the
transaction occurred as of January 1, 1993, are as follows (in
thousands):
Gross sales price $158,600
Less costs of sale, net of $2,877
<PAGE>
of tax benefits (6,782)
Less payment of term debt (37,312)
Less payment of short-term borrowings (9,470)
----------
Net cash proceeds 105,036
Less carrying value of Contract Services (38,567)
----------
Gain on Sale $ 66,469
========
The net cash proceeds to the Company from the sale of Contract
Services are assumed, as of January 1, 1993, to be applied as
follows (in thousands):
Retirement of Transit debt $ 53,001
Assumed prepayment penalty on Transit
term debt, net of $1,036 of tax benefit 1,554
Increase in cash investments 50,481
--------
$105,036
========
The gain on the Contract Services Sale will be included in net
income of the Company within the 12 months succeeding the
transaction. This gain has not been considered in the pro forma
condensed consolidated statements of operations.
Note C
------
For purposes of determining the pro forma effect of the above
transaction on the pro forma condensed consolidated statements of
operations, the following pro forma adjustments have been made
(in thousands):
Nine
Year Ended Months Ended
December 31, September 30,
1993 1994
------------ -------------
Reduction in interest expense
due to use of proceeds of sale
to reduce debt $ 5,364 $ 3,070
Increase in federal and state
income tax provision at
statutory rates (40%) associated
with the above item (2,146) (1,228)
--------- ---------
Increase in net income $ 3,218 $ 1,842
========= =========
<PAGE>
The proceeds from the Contract Services Sale of $105,036, as
described above, would have allowed the Company to reduce its
debt during 1993 and 1994 by up to that amount less the
prepayment penalty of $1,554. During this entire period, total
Transit debt was less than the total proceeds. These pro forma
adjustments do not include interest income on the excess cash
from the proceeds from the Contract Services Sale. The average
amount of debt reduced during 1993 and 1994 was $58.2 million and
$43.3 million, respectively. The interest rates on the retired
debt were approximately 9.2% and 9.5% for 1993 and 1994,
respectively, based upon the actual interest rates paid on the
debt outstanding.
Note D
------
As described in Notes 1b, 2, and 3 to the financial statements of
the Company in Form 10-K for the periods ended December 31, 1993,
(included as an exhibit to this proxy statement), the historical
capital structure of the Company is not indicative of the
Company's capital structure following its Plan of Reorganization
in 1992. As a result, earnings per share are presented in the
statements of operations for 1992 and 1991 on a pro forma basis.
<PAGE>
Appendix G to
Mayflower Group, Inc.
Proxy Statement
Consolidated Financial Statements
Mayflower Contract Services, Inc.
The attached financial statements for Mayflower Contract
Services, Inc. and its subsidiaries have not been audited, but
have been prepared by management in accordance with generally
accepted accounting principles. Certain information and footnote
disclosures regarding the interim financial statements as of
September 30, 1994 and 1993, normally included in annual
financial statements in accordance with generally accepted
accounting principles, are incorporated by reference to the
annual financial statements for the fiscal years ended June 30,
1994, 1993 and 1992. Management believes the interim financial
statements include all adjustments, including normal recurring
adjustments, necessary for a fair presentation of the financial
condition and results of operations for the interim periods
presented.
Peak business levels for Contract Services occur during the
traditional school months of September through May. For example,
during 1993, approximately 86% of the Contract Services' School
Transportation revenues were generated during these nine months.
Due to the seasonal impact of revenue being generated by Contract
Services, higher net income is generated during the second and
third quarters of their fiscal year, and losses are incurred
during the first and fourth quarters, especially the first
quarter, a period when school is mostly not in session. Contract
Services fiscal year ends June 30.
<PAGE>
MAYFLOWER CONTRACT SERVICES, INC.
BALANCE SHEETS
September 30,
----------------------------
1994 1993
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 130,058 $ ---
Trade receivables, net 35,759,928 29,571,995
Inventory held for resale 2,950,668 1,594,964
Repair parts and supplies 2,031,643 1,733,207
Deferred income taxes 4,930,107 2,202,617
Advance to affiliate 39,291 ---
Other current assets 1,877,481 2,203,540
------------- -------------
Total current assets 47,719,176 37,306,323
Property and equipment:
Land 819,183 819,000
Buildings and improvements 2,906,567 2,167,547
Revenue equipment 123,649,721 98,401,888
Other operating equipment
and improvements 7,436,437 5,070,586
Less accumulated depreciation (33,341,061) (18,751,794)
------------- -------------
Total property and equipment 101,470,847 87,707,227
Other assets:
Intangible assets 6,259,724 6,949,548
Reorganization value in
excess of amounts
allocated to assets 11,206,438 11,846,806
Other assets 9,128,249 7,988,115
------------- -------------
Total other assets 26,594,411 26,784,469
Total assets $175,784,434 $151,798,019
============ ============
<PAGE>
MAYFLOWER CONTRACT SERVICES, INC.
BALANCE SHEETS September 30,
----------------------------
1994 1993
------------ ------------
LIABILITIES AND SHAREHOLDER'S
INVESTMENT
Current Liabilities:
Current maturities of
long-term debt $ 6,681,465 $ 3,945,486
Trade accounts payable 12,968,202 5,667,391
Current portion of insurance
reserves 10,231,383 5,525,123
Accrued salaries and
withholding taxes 9,036,497 7,815,581
Accrued federal income tax (1,727,765) (682,471)
Other current liabilities 4,557,859 5,530,451
Advance from affiliate --- 1,973,548
------------ ------------
41,747,641 29,775,109
Long-term debt, less current
maturities 62,820,680 56,561,255
Deferred income taxes 19,954,499 20,332,615
Insurance reserves, less
current portion 7,800,000 3,600,000
Accrued postretirement
benefit costs 1,693,980 1,123,977
------------ ------------
Total liabilities 134,016,800 111,392,956
Shareholder's investment:
Common shares 4,000 4,000
Additional paid-in capital 42,359,854 40,787,389
Retained earnings (deficit) (596,220) (386,326)
------------ ------------
Total shareholder's investment 41,767,634 40,405,063
Total liabilities and
shareholder's investment $175,784,434 $151,798,019
============= ============
<PAGE>
MAYFLOWER CONTRACT SERVICES, INC.
STATEMENTS OF INCOME
Three months ended September 30,
-----------------------------
1994 1993
------------- -------------
Revenues $ 51,815,467 $ 42,216,622
Operating expenses 56,155,351 45,886,958
Selling, general and
administrative 3,058,069 2,830,691
------------- -------------
Total expenses 59,213,420 48,717,649
------------- -------------
Operating (loss) (7,397,953) (6,501,027)
Other income (expense):
Interest income 72,308 63,297
Interest expense (1,449,304) (1,137,180)
Miscellaneous (48,145) (59,739)
------------- -------------
Total other income (expense) (1,425,141) (1,133,622)
------------- -------------
(Loss) before income taxes (8,823,094) (7,634,649)
Provision (credit) for federal
and state income taxes (3,650,300) (2,346,700)
------------- -------------
Net (loss) $ (5,172,794) $ (5,287,949)
============= =============
<PAGE>
MAYFLOWER CONTRACT SERVICES, INC.
STATEMENTS OF SHAREHOLDER'S INVESTMENT
Additional Retained
Common Paid-in Earnings
Shares Capital (Deficit)
----------- ----------- ----------
Balance at June 30,
1994 $ 4,000 $42,080,168 $ 4,630,292
Net (loss) for
three months ended
September 30, 1994 --- --- (5,172,794)
Dividends paid --- --- (53,718)
Tax benefit from
Parent --- 279,686 ---
------------ ------------ ------------
Balance at
September 30, 1994 $ 4,000 $42,359,854 ($596,220)
============ ============ ============
<PAGE>
MAYFLOWER CONTRACT SERVICES, INC.
STATEMENTS OF CASH FLOWS
Three months ended September 30,
1994 1993
Net cash provided by (used in):
Operating activities ($ 169,738) ($12,635,275)
Investing activities ( 15,061,434) ( 13,842,172)
Financing activities 10,591,431 14,320,971
------------- -------------
(4,639,741) (12,156,476)
Cash and cash equivalents,
beginning of period 4,769,799 12,156,476
------------- -------------
Cash and cash equivalents,
end of period $130,058 $ ---
============= =============
Cash flows from operating
activities:
Net (loss) ($5,172,794) ($5,287,949)
Items not affecting cash:
Depreciation 3,875,579 3,439,231
Amortization 964,970 682,383
Deferred income taxes --- 554,643
Other 45,179 62,306
------------- -------------
(287,066) (549,386)
Changes in:
Trade receivables (10,087,108) (9,053,820)
Repair parts and supplies (82,379) 32,273
Other current assets 398,952 (84,398)
Trade accounts payable 5,616,931 (4,675,002)
Insurance reserves 1,055,766 1,001,425
Accrued salaries and
withholding taxes 1,123,023 1,437,903
Other current liabilities 1,029,224 38,163
Accrued postretirement
benefit cost 143,306 114,977
Payable to Parent (3,988,024) (897,410)
Receivable from affiliate 4,907,637 ---
------------- -------------
Net cash used in operating
activities ($169,738) ($12,635,275)
============= =============
Cash flows from investing activities:
Purchase acquisitions $ --- ($2,908,584)
Purchases of property
and equipment (20,861,634) (19,705,419)
Proceeds from disposal
of property and equipment,
less gains included in
net (loss) 338,811 330,441
Changes in inventory held
for resale 6,158,793 10,426,427
Changes in other noncurrent
<PAGE>
assets (697,404) (1,985,037)
------------- -------------
Net cash used in investing
activities ($15,061,434) ($13,842,172)
============= =============
Cash flows from financing
activities:
Payments on long-term debt ($503,063) $ ---
Proceeds from issuance
of long-term debt 11,163,012 14,506,741
Cash paid for debt costs (14,800) (152,890)
Dividends to Parent (53,718) (32,880)
------------- -------------
Net cash provided by financing
activities $10,591,431 $14,320,971
============ ============
<PAGE>
MAYFLOWER CONTRACT SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
----------
June 30,
---------------------------
ASSETS 1994 1993
------------ ------------
Current assets:
Cash and cash equivalents $ 4,769,799 $ 12,156,476
Trade receivables, net 25,672,820 19,973,272
Inventory held for resale 9,109,461 12,021,391
Repair parts and supplies 1,949,264 1,765,480
Deferred income taxes (Note 4) 4,930,107 2,138,617
Advance to affiliate 4,946,928 ---
Other current assets 2,276,433 2,119,142
------------ ------------
Total current assets 53,654,812 50,174,378
------------ ------------
Property and equipment:
Land 819,000 819,000
Buildings and improvements 2,788,763 2,078,125
Revenue equipment 105,799,386 80,593,457
Other operating equipment
and improvements 6,463,231 3,949,277
Less accumulated depreciation (31,001,598) (15,665,094)
------------ ------------
Total property and
equipment 84,868,782 71,774,765
------------ ------------
Other assets:
Intangible assets, less
accumulated amortization
of $922,586 in 1994 and
$393,337 in 1993 6,397,199 4,500,378
Reorganization value in
excess of amounts
allocated to assets,
less accumulated
amortization of $1,258,661
in 1994 and $618,239 in 1993 11,366,530 12,006,898
Other assets 9,072,469 5,383,831
------------ ------------
Total other assets 26,836,198 21,891,107
------------ ------------
Total assets $165,359,792 $143,840,250
============ ============
Continued
<PAGE>
MAYFLOWER CONTRACT SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
----------
----------
June 30,
---------------------------
LIABILITIES AND 1994 1993
SHAREHOLDER'S INVESTMENT ------------ ------------
Current liabilities:
Current maturities of
long-term debt (Note 6) $ 2,682,463 $ ---
Trade accounts payable 7,351,271 10,164,490
Current portion of
insurance reserves (Note 3) 9,175,617 4,514,783
Accrued salaries and
withholding taxes 7,913,474 6,261,480
Other current liabilities 3,517,656 4,792,530
Federal income taxes payable
to Parent (Note 4) 2,539,945 2,163,582
------------ ------------
Total current liabilities 33,180,426 27,896,865
Noncurrent liabilities:
Long-term debt, less current
maturities (Note 6) 56,159,733 46,000,000
Deferred income taxes (Note 4) 19,954,499 19,574,673
Insurance reserves, less
current portion (Note 3) 7,800,000 3,608,915
Accrued postretirement
benefit costs (Note 12) 1,284,000 1,009,000
Other long-term liabilities
(Note 11) 266,674 ---
Commitments and contingencies
(Note 4)
Shareholder's investment:
Common shares, no par value:
1,000 shares authorized
10 shares issued and
outstanding 4,000 4,000
Additional paid-in capital 42,080,168 40,812,294
Retained earnings 4,630,292 4,934,503
------------ ------------
Total shareholder's
investment 46,714,460 45,750,797
------------ ------------
Total liabilities and
shareholder's investment $165,359,792 $143,840,250
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION> MAYFLOWER CONTRACT SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $253,794,238 $223,869,385 $197,022,332
------------ ------------ ------------
Operating expenses 229,432,197 199,638,101 176,828,730
Selling, general and
administrative 12,029,340 11,665,542 10,727,042
Unusual charge (Note 3) 4,900,000 --- ---
------------ ------------ ------------
Total expenses 246,361,537 211,303,643 187,555,772
------------ ------------ ------------
Operating profit 7,432,701 12,565,742 9,466,560
------------ ------------ ------------
Other income (expense):
Interest income 301,831 61,868 60,934
Interest expense (5,021,260) (4,152,338) (5,526,524)
Miscellaneous income, net 36,088 59,038 87,189
------------ ------------ ------------
Total other income (expense) (4,683,341) (4,031,432) (5,378,401)
------------ ------------ ------------
Income before income taxes
and extraordinary item 2,749,360 8,534,310 4,088,159
Federal and state
income taxes (Note 4) 2,520,529 3,415,900 2,600,027
------------ ------------ ------------
Income before
extraordinary item 228,831 5,118,410 1,488,132
Extraordinary loss, less
applicable taxes of $322,180
in 1992 (Note 13) --- 548,576 ---
------------ ------------ ------------
Net income $ 228,831 $ 4,569,834 $ 1,488,132
============ ============ ============
<PAGE>
<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAYFLOWER CONTRACT SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S INVESTMENT
Years Ended June 30, 1994, 1993 and 1992
-------------------------------------------------------
Additional Receivable
Common Paid-in From Retained
Shares Capital Parent Earnings
------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at July 1, 1991 $4,000 $60,005,761 $(39,153,516) $21,444,871
Net income for nine months
ended March 31, 1992 - - - 884,115
------ ----------- ------------- -----------
Balance at March 31, 1992 4,000 60,005,761 (39,153,516) 22,328,986
Reorganization:
Change in receivable from Parent - - (1,415,108) -
Dividends paid:
Forgiveness of receivable
from Parent - (18,239,638) 40,568,624 (22,328,986)
Cumulative effect of adopting SFAS 109 - (2,113,472) - -
Cumulative effect of adopting SFAS 106 - (511,055) - -
------ ----------- ------------- -----------
Balance at April 1, 1992 4,000 39,141,596 - -
Net income for three months
ended June 30, 1992 - - - 604,017
------ ----------- ------------- -----------
Balance at July 1, 1992 4,000 39,141,596 - 604,017
Net income - - - 4,569,834
Dividends paid - (163,014) - (239,348)
Tax benefit from Parent - 1,833,712 - -
------ ----------- ------------- -----------
Balance at July 1, 1993 4,000 40,812,294 - 4,934,503
Net income - - - 228,831
Dividends paid - (18,047) - (533,042)
Tax benefit from Parent - 1,285,921 - -
------ ----------- ------------- -----------
Balance at June 30, 1994 $4,000 $42,080,168 $ - $ 4,630,292
<PAGE>
====== =========== ============ ===========
<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
MAYFLOWER CONTRACT SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities $ 18,163,311 $ 24,927,422 $ 19,225,831
Investing activities (37,639,002) (15,424,070) (20,466,043)
Financing activities 12,089,014 1,431,094 (2,287,820)
------------ ------------ ------------
(7,386,677) 10,934,446 (3,528,032)
Cash and cash equivalents:
Beginning of year 12,156,476 1,222,030 4,750,062
------------ ------------ ------------
End of year $ 4,769,799 $ 12,156,476 $ 1,222,030
============ ============ ============
Cash flows from operating activities:
Net income $ 228,831 $ 4,569,834 $ 1,488,132
Items not affecting cash:
Depreciation 14,887,653 13,832,027 12,175,747
Amortization 3,516,456 3,351,604 3,378,970
Deferred income taxes (2,550,963) (786,990) 819,000
Other 265,621 734,812 (55,678)
------------ ------------ ------------
16,347,598 21,701,287 17,806,171
------------ ------------ ------------
Changes in:
Trade receivables (5,154,645) (2,981,794) (195,520)
Repair parts and supplies (183,784) (126,540) (95,069)
Other current assets (475,194) (208,452) 2,389,283
Trade accounts payable (2,991,122) 4,011,939 (209,357)
<PAGE>
Insurance reserves 8,851,919 (671,110) (789,297)
Accrued salaries and withholding taxes 1,535,796 1,355,875 559,023
Other current liabilities (1,971,215) 787,177 (1,650,656)
Payable to Parent 1,662,284 911,040 1,411,253
Accrued postretirement benefit cost 275,000 148,000 -
Other long-term liabilities 266,674 - -
------------ ------------ ------------
1,815,713 3,226,135 1,419,660
------------ ------------ ------------
Net cash provided by operating activities $ 18,163,311 $ 24,927,422 $ 19,225,831
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAYFLOWER CONTRACT SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Years Ended June 30,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from investing activities:
Purchases of property and equipment $(29,767,067) $ (4,267,906) $(27,729,459)
Proceeds from disposal of property
and equipment, less gains
included in net income 1,578,797 915,996 697,680
Purchase acquisition, net of cash
acquired (Note 14) (2,778,510) - -
Changes in inventory held for resale 2,911,930 (9,720,568) 10,588,709
Increase in cash surrender value (280,370) - -
Increase in advance to affiliate (4,946,928) - -
Changes in other noncurrent assets (4,356,854) (2,351,592) (4,022,973)
------------ ------------ ------------
Net cash used in investing
activities $(37,639,002) $(15,424,070) $(20,466,043)
============ ============ ============
Cash flows from financing activities:
Proceeds of short-term debt $ - $ 60,950,000 $ 32,113,550
Payment of short-term debt - (60,950,000) (32,986,262)
Proceeds from issuance
<PAGE>
of long-term debt 14,724,349 46,000,000 -
Payment on long-term debt (1,882,153) (42,969,289) -
Cash paid for debt costs (202,093) (1,197,255) -
Dividends to Parent (551,089) (402,362) -
Changes in receivable from Parent - - (1,415,108)
------------ ------------ ------------
Net cash provided by (used in)
financing activities $ 12,089,014 $ 1,431,094 $ (2,287,820)
============ ============ ============
<FN>
Supplemental disclosure of noncash transactions:
As a result of filing a consolidated tax return with the Parent and Transit, the Company realized a benefit of $1,285,921
and $1,883,712 during 1994 and 1993, respectively, which reduced the payable to Parent and increased contributed capital.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
MAYFLOWER CONTRACT SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------
1. Summary of Significant Accounting Policies:
------------------------------------------
a. Reporting Entities: The accompanying balance sheets as
of June 30, 1994 and 1993, and the related statements
of income, shareholder's investment and cash flows for
each of the three years in the period ended June 30,
1994, present the financial position and results of
operations and cash flows of Mayflower Contract
Services, Inc. (Company), a wholly-owned subsidiary of
Mayflower Group, Inc. (Parent). The Parent also owns
100% of the stock of Mayflower Transit, Inc. (Transit).
The Parent's and Transit's fiscal year end is
December 31. The Parent's common stock is registered
under the Securities Exchange Act of 1934 and is traded
on the NASDAQ Stock Market.
Effective July 1, 1993, the Company formed a wholly-
owned subsidiary, Allied Bus Sales, to market new buses
and revenue equipment that is not in service in the
Company's operations. In prior fiscal years, activity
related to sales of revenue equipment was accounted for
as a separate division of the Company. The
accompanying consolidated financial statements include
the accounts of the Company and Allied Bus Sales. All
significant intercompany balances and transactions have
been eliminated in consolidation.
b. Property and Equipment: Property and equipment is
stated on a cost basis. Depreciation is provided
primarily by the straight-line method at annual rates
considered adequate to amortize the costs over the
estimated useful lives of the assets. The lives used
in computing depreciation during the periods were:
Buildings and improvements 5 to 20 years
Revenue equipment 5 to 12 years
Other operating equipment
and improvements 3 to 7 years
The classification of fleet operating buses as property
and equipment is based upon the Company's requirements
for fleet buses to fulfill existing contract
requirements, including an estimate of reserve buses
necessary to ensure continuity of service based on
historical maintenance records and experience. The
remaining buses are classified as inventory held for
resale.
<PAGE>
c. Income Taxes: The Parent and its subsidiaries
(including the Company) file a consolidated federal
income tax return with a calendar year end. The
federal income tax provisions reflected in the
accompanying statements of income were calculated for
the Company on a separate return basis. State income
tax returns are filed separately for the Company.
Federal income taxes currently payable are recorded as
a current payable to Parent in the accompanying balance
sheets.
The Company has a tax sharing agreement with the Parent
and Transit. To the extent the Company's share of the
consolidated tax liability is less than the amount
remitted to the Parent, the difference is returned to
the Company through a contribution of capital.
Effective April 1, 1992, the Company adopted Financial
Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" (SFAS 109) to be
consistent with the accounting policies and transition
date of its Parent. SFAS 109 requires a significantly
different approach to the financial accounting and
reporting of income taxes than had been previously used
and, in accordance with SFAS 109, the Company has
chosen not to restate financial statements prior to
April 1, 1992. Prior to April 1, 1992, the Company
computed income taxes in accordance with Accounting
Principles Board Opinion No. 11.
d. Postretirement Benefits Other Than Pensions: Effective
April 1, 1992, the Company adopted Financial Accounting
Standards Board Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than
Pensions" (SFAS 106) to be consistent with the
accountin g policies and transition date of its Parent.
SFAS 106 requires the Company to accrue for the
expected cost of postretirement benefits during the
years an employee renders service rather than the
previous practice of expensing such costs as incurred.
e. Recognition of Revenues: The Company engages primarily
in the business of bus transportation pursuant to
contracts with school districts and municipalities.
Contract revenues and related direct expenses are
recognized over the period during which the service is
rendered.
f. Intangible Assets and Reorganization Value: Intangible
assets, which have been recorded at their fair value as
a result of the corporate reorganization, are being
amortized over periods ranging from 5 to 20 years.
<PAGE>
The reorganization value in excess of amounts allocated
to net assets (goodwill) is amortized by the straight-
line method over 20 years.
g. Cash Equivalents: The Company considers all highly
liquid investments with a maturity of three months or
less, when purchased, to be cash equivalents.
h. Insurance Reserves: The Company is self-insured for
certain risks and is covered by insurance policies for
other risks.
The Company maintains reserves for their policy
deductibles using case basis evaluations and other
analyses. The reserves include estimates of future
trends in claim severity and frequency and other
factors which could vary as losses are ultimately
settled. Reserve estimates are continually reviewed
and adjustments are reflected in current operations.
i. Reclassifications: Certain amounts within the 1993 and
1992 financial statements have been reclassified to
conform with the 1994 presentation.
2. Corporate Reorganization:
------------------------
On December 18, 1986, the management of the Parent and
certain other investors entered into a leveraged buy out
transaction. This transaction was accounted for as a
purchase and, accordingly, the assets and liabilities of the
Company were adjusted to fair market value. The fair market
value adjustments attributable to the Company and an
allocable share of the excess of the purchase price over net
assets acquired (goodwill) were recorded by the Company.
The debt and related interest expense incurred by the
management of the Parent and certain other investors in
connection with the leveraged buy out transaction was not
reflected in the financial statements of the Company.
Subsequent to the 1986 leveraged buy out, the Company and
Transit did not generate sufficient cash flow to service the
debt from the leveraged buy out. In late 1991, the Parent
reached agreement with various creditors for a restructuring
of the Parent whereby the holders of the subordinated debt
of the Parent would exchange all of their debentures for
approximately 94% of the common stock of the Parent. In
order to facilitate restructuring, a Prepackaged Plan of
Reorganization was filed by the Parent on January 27, 1992
and became effective on March 24, 1992. The Parent
accounted for the reorganization using fresh-start reporting
and the accounting effects have been reflected in the
financial statements of the Company. Accordingly, the
Company accounted for the reorganization as a purchase, and
the assets and liabilities of the Company were adjusted to
estimated fair market value, which approximated net book
<PAGE>
value on March 24, 1992. The most significant impact of
these entries was the elimination of all accumulated
depreciation and amortization, as the net book value of the
respective assets on March 24, 1992 represents the new cost.
Had this transaction occurred on July 1, 1990, operating
revenue and net income would not have been materially
different from that reflected in the accompanying financial
statements.
The Company has used March 31, 1992 as the effective date of
the reorganization for accounting purposes because the
results of operations from March 25, 1992 to March 31, 1992
were not significant. Accordingly, the statements of income
and cash flows for the year ended June 30, 1992 reflect
results of operations of the Company prior to reorganization
for the nine months ended March 31, 1992 and the operations
of the Company after reorganization for the three months
ended June 30, 1992.
3. Unusual Charge - Self-insured Claims Adjustment:
-----------------------------------------------
As discussed in Note 1h, the Company is self-insured for
certain risks and, accordingly, maintains reserves for
losses and premium adjustments which are determined using
case basis evaluations and other analyses. Based on a
review by management of the calculations underlying the
reserve for self-insured claims, the Company has determined
that the portion of the reserve attributable to claims
incurred prior to 1991 was $4.9 million below an appropriate
level. As a result, the Company recognized $4.9 million, or
$3.0 million net of tax, in additional self-insured claims
expense. Management believes that the annual expense
related to risks incurred under the self-insurance program
since January 1, 1991, excluding this adjustment, has been
sufficient to provide for anticipated losses, and that the
magnitude of this expense is such that this adjustment
represents a one-time, nonrecurring increase to its reserve
for self-insured claims.
4. Income Taxes:
------------
The Company records deferred taxes using enacted tax laws
and rates for the years in which the taxes are expected to
be paid. Effective April 1, 1992 (the date of
reorganization), the Company changed its method of
accounting for income taxes from the deferred method to the
liability method required by SFAS 109. For 1992, the
provision for income taxes is computed under the deferred
method for the period July 1, 1991 to March 31, 1992 and
under the liability method for the period April 1, 1992 to
June 30, 1992. The cumulative effect of adopting SFAS 109
as of April 1, 1992 was to decrease shareholder's investment
by $2,100,000. Adoption of the statement decreased pretax
income and income tax expense by $1,400,000 for the year
ended June 30, 1992.
<PAGE>
Income taxes reflected in the statements of operations for
each of the three years in the period ended June 30, 1994
are as follows:
1994 1993 1992
---- ---- ----
Current:
Federal $4,414,531 $2,253,171 $1,397,454
State 656,961 375,739 230,010
---------- ---------- ----------
Total current 5,071,492 2,628,910 1,627,464
---------- ---------- ----------
Deferred:
Federal (2,318,940) 662,729 819,000
State (232,023) 124,261 153,563
---------- ---------- ----------
Total deferred (2,550,963) 786,990 972,563
---------- ---------- ----------
Total provision
before extra-
ordinary items $2,520,529 $3,415,900 $2,600,027
========== ========== ==========
For 1994, 1993 and 1992, an effective rate that differs from
the U.S. federal statutory rate was used in recording
federal tax expense. The primary reasons for these
differences are as follows. For 1994, the Company recorded
additional income tax expense to reflect the cumulative
effect on the net deferred income tax liability of tax rate
increases, as required by SFAS 109, primarily as a result of
the enactment in August 1993, of Omnibus Budget
Reconciliation Act. Also in 1994, the Company recorded
additional income tax expense to eliminate a federal income
tax receivable from prior years which was determined to be
unrealizable. In 1994, 1993 and 1992, a difference in rates
was created as a result of the nondeductibility of
amortization of intangible assets. These intangible assets
were created at the time of the Company's formation in 1986
and were also generated by the excess reorganization value
resulting from the Plan of Reorganization in 1992. With the
adoption of SFAS 109 in April 1992, the amortization of some
intangible assets became a temporary difference for
financial reporting purposes, resulting in an effective rate
more closely approximating the federal statutory rate.
The following table summarizes the differences between the
statutory federal income tax rate and the effective tax rate
provided in the statements of income:
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------
<PAGE>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory rate (credit) 35.0 % 34.0 % 34.0 %
Increase (decrease) in rate due to:
Amortization of nondeductible
acquisition costs 9.2 2.3 4.1
Depreciation of book/tax basis
difference resulting
from acquisitions N/A N/A 20.6
State income taxes, net of
federal benefit 4.9 3.9 5.2
Cumulative effect of tax rate
increases 21.9 .0 .0
Elimination of prior year
federal income tax receivable 16.1 .0 .0
Other, net 4.6 (.2) (.3)
------ ------ ------
Effective rate 91.7 % 40.0 % 63.6 %
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for federal income tax purposes. Significant
components of the Company's deferred tax liabilities and
assets as of June 30, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
Deferred tax liabilities:
<S> <C> <C>
Tax over book depreciation $15,665,657 $14,535,510
Fair value of assets in excess
of book value 4,243,111 4,649,787
Identifiable intangible assets 2,826,332 2,391,817
Other, net 388,653 361,082
----------- -----------
Total net deferred tax
liabilities 23,123,753 21,938,196
----------- -----------
Deferred tax assets:
Insurance reserves 6,510,864 3,109,272
Other, net 1,588,497 1,392,868
----------- -----------
Total net deferred tax assets 8,099,361 4,502,140
----------- -----------
Net deferred tax
<PAGE>
liabilities 15,024,392 17,436,056
Current deferred income taxes 4,930,107 2,138,617
----------- -----------
Net noncurrent deferred income
taxes $19,954,499 $19,574,673
=========== ===========
</TABLE>
SFAS 109 requires a valuation allowance against deferred tax
assets if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will
not be realized. The Company believes, based on the expected
timing of the reversal of the future taxable temporary
differences, that no valuation allowance is necessary.
At June 30, 1994, the Company had $350,062 of investment tax and
jobs credit carryforwards which expire in the years 2000 through
2008.
5. Short-term Borrowing:
--------------------
In May 1993, the Parent and Transit combined with the
Company and collectively entered into a revolving credit
facility. The facility is for letters of credit ($60
million limit) and seasonal working capital ($15 million
limit) with a total facility limit of $70 million. The
maturity date is June 30, 1995. Interest is to be paid
monthly and is computed using the prime rate plus 1.5%. The
facility does not require compensating balances but does
require the payment of a commitment fee at an annual rate of
3/16% of the unused portion of the facility and a fee of 2%
per annum of the amount of letters of credit outstanding.
At June 30, 1994, the Company had no borrowings under the
seasonal working capital facility and $26 million in
outstanding letters of credit. The remaining available
capacity of the facility at June 30, 1994 was $18 million
due to the outstanding obligations of Transit. The facility
is collateralized by substantially all of the assets of
Transit and the Company, and is guaranteed by the Parent.
6. Long-term Debt:
--------------
Long-term debt consisted of the following:
June 30,
-----------------------------
1994 1993
------------ ------------
Senior secured notes:
Tranche A $37,375,000 $37,375,000
Tranche B 8,625,000 8,625,000
Note payable to bank, interest
at prime plus 1-1/2%, payable in
<PAGE>
monthly installments through
1999, collateralized by
equipment 12,647,196 -
Other notes payable 195,000 -
----------- ------------
58,842,196 46,000,000
Less current maturities 2,682,463 -
----------- -----------
$56,159,733 $46,000,000
=========== ===========
Effective May 27, 1993, the Company, along with the Parent
and Transit, issued the Senior secured notes to a group of
lenders and repaid all existing borrowings. The note has
two separate facilities. Tranche A is for $65 million and
has a ten-year maturity with interest only payments required
in the initial three years. Amortization begins in year
four with equal annual installments through year ten.
Interest on this facility is to be paid monthly and is fixed
at 9.5%. The Company's portion of this Tranche is
$37,375,000. Tranche B is for $15 million and has a seven-
year maturity with repayment of principal occurring in eight
equal quarterly installments during years six and seven.
The interest on this facility is to be paid monthly and is
computed at LIBOR plus 2.8%. The interest rate at June 30,
1994 was 6.3%. The Company's portion of this Tranche is
$8,625,000. The note is collateralized by substantially all
of the assets of Transit and the Company, and is guaranteed
by the Parent.
The Company also has a financing agreement for $40 million
to be used to finance the purchase of new school buses over
a period of approximately two years. Through June 30, 1994,
the Company has borrowed approximately $15 million and $25
million remains available under this agreement. The
fundings convert to five-year term notes when the amount
outstanding exceeds $5 million, with no term note maturing
later than December 31, 2000. The term notes bear interest
at the prime rate plus 1-1/2%. Alternatively, the Company
may elect to fix the interest rate at anytime. The notes
are collateralized by a lien on the purchased school buses.
Maturities of long-term debt during each of the next five
years ending June 30 are as follows:
1995 $ 2,682,463
1996 2,964,620
1997 8,303,906
1998 10,460,156
1999 8,761,409
Thereafter 25,669,642
<PAGE>
Interest paid on debt during 1994, 1993 and 1992 totalled
$4,577,625, $3,832,850 and $5,815,842, respectively.
The Company's short-term and long-term financing agreements
contain various restrictive covenants which, among other
things, restrict cash dividend payments, restrict certain
additional indebtedness and require the maintenance of
certain financial ratios.
The carrying value of the Company's borrowings does not
significantly differ from its fair value. The fair value of
the Company's long-term debt is estimated using discounted
cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
7. Commitments and Contingent Liabilities:
--------------------------------------
Future minimum lease payments on noncancellable operating
leases for buses and other equipment and facilities for each
of the five succeeding years and in the aggregate are as
follows:
1995 $19,157,710
1996 17,182,144
1997 9,963,922
1998 3,894,661
1999 2,696,551
Thereafter 797,819
-----------
$53,692,807
===========
Total rent expense was $20,013,828, $19,023,102 and
$17,370,588 for 1994, 1993 and 1992, respectively.
Under certain lease agreements, the Company will act as
selling agent at the end of the lease term. Leases with
this provision have guaranteed residual values totalling
$23,034,000 which are not included in the table above. The
Company has a right to property and equipment which serves
as collateral against these contingent obligations which,
the Company believes, would substantially offset any
potential obligation.
The Company periodically enters into noncancellable purchase
agreements for the acquisition of revenue equipment. At
June 30, 1994, the Company has committed to approximately
$12.5 million of capital purchases during 1995.
The Company becomes involved from time to time in various
actions that are incidental to the ordinary course of their
businesses, including property damage and personal injury
claims. Based upon information currently available, the
<PAGE>
Company believes that its reserves and insurance coverage
with respect to all such actions are adequate to cover
liabilities reasonably anticipated.
8. Restricted Stock Plan:
---------------------
During 1994, the Parent adopted a restricted stock plan
whereby key employees were granted restricted shares of
Mayflower Group stock. Shares were granted in the name of
the employee who has all rights of a shareholder, subject to
certain restrictions or forfeitures. Restrictions on the
grants expire on the third anniversary of the date of the
grant.
The market value of shares granted under the plan of
$131,750 has been recorded as unearned compensation and is
presented as a reduction of shareholder's investment by the
Parent. Compensation expense of $34,083 has been charged to
general and administrative expense by the Company. The
unamortized balance of $97,667 will be charged to the
Company over the remaining three-year vesting period.
9. Line of Business Information:
----------------------------
The Company's operations consist primarily of two customer
segments as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------
1994 1993 1992
------------ ------------ ----------
<S> <C> <C> <C>
School operations:
Revenue $169,466,974 $164,850,046 $158,073,695
Operating profit before
selling, general and
administrative 21,821,880 20,090,046 18,180,704
Percent of revenue 12.9% 12.2% 11.5%
Public transportation:
Revenue $84,327,233 $59,019,339 $ 38,948,637
Operating profit before
selling, general and
administrative 2,540,469 4,141,238 2,012,898
Percent of revenue 3.0% 7.0% 5.2%
</TABLE>
10. Defined Contribution Plan:
-------------------------
The Company sponsors a defined contribution 401(k)
savings/profit sharing plan covering substantially all non-
bargaining employees. Employees may contribute up to 17% of
<PAGE>
their salary to the plan and the Company matches 25% of the
employee's contribution up to 6% of the employee's salary.
Profit sharing contributions are determined at management's
discretion based on the profitability of the Company.
Matching contribution expense associated with the plan was
$401,000, $323,000 and $256,000 for 1994, 1993 and 1992,
respectively. Profit sharing expense associated with the
plan was $250,000, $370,000 and $-0- for 1994, 1993 and
1992, respectively.
11. Supplemental Executive Retirement Plan:
--------------------------------------
The Company has established a supplemental executive
retirement plan for certain officers. This plan, funded
through the purchase of life insurance policies, provides
participants a percentage of their salary for fifteen years
subsequent to their termination from the Company.
Participants are vested in the plan after ten years of
service and reaching 55 years of age. The assets of the
plan are general assets of the Company. The plan is subject
to termination at any time. The Company has expensed
$266,674 under this plan. Due to immateriality, the Company
has not performed an actuarial evaluation of this plan and,
therefore, has not provided the disclosures required by
Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions.
12. Other Postretirement Benefit Plans:
----------------------------------
Effective April 1, 1992, the Company adopted SFAS 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions. The cumulative effect of the accounting change
was a $511,055, net of applicable taxes of $313,228,
reduction in shareholder's investment. In prior years, the
Company had recognized the expense related to these benefits
as they were paid. As the effect on net income of adopting
SFAS 106 was not significant, postretirement benefit cost
for prior periods has not been restated.
The Company makes available health and life insurance
benefits to the majority of the Company's retirees and their
eligible dependents. The postretirement plans are
contributory, with retiree contributions adjusted annually,
and contain other cost-sharing features such a deductibles
and co-insurance. Eligibility for these benefits is based
upon retirement from the Company as well as those retirees
having met certain age and vesting service requirements.
Effective January 1, 1993, the plan was amended such that
the retiree co-payment percentage, after applicable
deductibles, increased from 20% to 30%.
The Company provides contributions to the plan as necessary
to fund the plan's current benefits and expenses.
<PAGE>
Net postretirement benefit expense for the Company included
the following components for the years ended June 30, 1994
and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Service cost-benefits earned
during the year $123,956 $105,000
Interest cost on accumulated
postretirement benefit
obligation 112,577 97,000
Amortization of loss 84,195 -
Amortization of prior service
cost (15,879) -
--------- ---------
Net periodic postretirement
benefit cost $304,849 $202,000
========= =========
</TABLE>
The funded status and amounts recognized in the balance sheet for
the Company's defined benefit postretirement plans were as
follows:
June 30,
--------------------------
1994 1993
------------ -----------
Accumulated postretirement
benefit obligation:
Retirees $ 623,000 $ 353,000
Fully eligible active
plan participants 322,000 101,000
Other active plan
participants 793,000 555,000
---------- ----------
1,738,000 1,009,000
Unrecognized net loss (454,000) -
Plan assets at fair value - -
---------- -----------
Accumulated postretirement
benefit obligation
in excess of plan assets $1,284,000 $1,009,000
========== ==========
<PAGE>
For measurement purposes, the weighted average discount rate
used in determining the accumulated postretirement benefit
obligation was 7-1/2%. The Company's health care cost trend
rate is 12% for 1993 and is assumed to gradually decrease to
7% by the year 2003 and remain at that level thereafter. If
these trend rates were to be increased by 1 percent each
year, the June 30, 1994 accumulated postretirement benefit
obligation would increase by $558,000. The aggregate of the
service and interest cost components of 1994 expenses would
increase by $76,000.
13. Extraordinary Loss:
------------------
In connection with new borrowings obtained in May 1993 and
related repayments of existing indebtedness, the Company
recorded an extraordinary loss for debt issuance costs of
$548,576, net of applicable taxes of $322,180, associated
previously with the retired debt.
14. Purchase Acquisition:
--------------------
During September 1993, the Company purchased all the shares
of CTS Management Company, a public transportation company
with operations in North Carolina. CTS Management Company
was merged into the Company effective January 1, 1994.
The acquisition has been accounted for as a purchase and the
net assets and results of operations are included in the
Company's consolidated financial statements. The fair value
of assets acquired in this transaction was approximately
$4,100,000 which included $200,000 in cash. Liabilities
assumed were $609,000 which included $139,000 of deferred
taxes. The Company also gave a $500,000 note payable. Net
cash paid was approximately $2,800,000. The purchase price
has been allocated to the assets and liabilities acquired
based on their estimated respective fair values.
The purchase price and expenses associated with the
acquisition exceeded the fair market value of the net assets
acquired by approximately $2.4 million which has been
recorded as goodwill. Amortization of the goodwill will be
computed over a period not to exceed 20 years.
<PAGE>
Appendix H
To Mayflower Group, Inc.
Proxy Statement
[LETTERHEAD OF SMITH BARNEY]
CONFIDENTIAL
January 26, 1995
The Board of Directors
Mayflower Group, Inc.
9998 N. Michigan Road
Carmel, Indiana 46032
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the shareholders of Mayflower Group,
Inc. ("Group") other than TCW Asset Management Company (the
"Public Shareholders") of the cash consideration to be received
by the Public Shareholders of Group in connection with the merger
(the "Merger") of Group and MCS Transit, Inc. ("MCS Transit"), a
wholly-owned subsidiary of Laidlaw Transit, Inc. ("Laidlaw")
pursuant to the Agreement and Plan of Merger dated January 20,
1995 (the "Agreement") by and among Group, Laidlaw, MCS Transit,
and TCW Asset Management Company ("TCW"). The effect of the
Merger will be for Laidlaw to acquire Group and its wholly-owned
subsidiary, Mayflower Contract Services, Inc. ("Contract
Services") for aggregate cash consideration of $157 million.
Pursuant to the Agreement, and subject to the terms and
conditions set forth therein, we understand that, based on the
anticipated proceeds to Group from the sale of its wholly-owned
subsidiary Mayflower Transit, Inc. (the "Transit Sale") pursuant
to the Stock Purchase Agreement dated December 4, 1994 by and
among Group, UniGroup, Inc., and TCW, and anticipated payoffs of
certain loans and contractual obligations, and the payment of
expenses of the transaction, the net proceeds to the shareholders
of Group should be in the range of $10.00 to $10.40 per share
(the "Consideration"). The Merger is subject to, among other
things, regulatory approval, shareholder approval, the closing of
the Transit Sale, and the absence of any material adverse change
in the financial condition of Group and Contract Services before
closing.
In arriving at our opinion, we have (i) reviewed the Agreement;
(ii) met with certain senior officers, directors and other
representatives and advisors of Group and Contract Services to
discuss the business, operations, and prospects of Group and
Contract Services; (iii) examined certain publicly available
business and financial information relating to Group and Contract
Services as well as certain financial analyses, forecasts, and
other data for Group and Contract Services that were provided to
us by Group's senior management, which information is not
<PAGE>
publicly available, including financial forecasts provided to us
for Contract Services; (iv) reviewed the financial terms of the
Merger as set forth in the Agreement in relation to the current
and historical market prices and trading volumes of the Group
common stock; (v) reviewed the financial terms of the Merger as
set forth in the Agreement in relation to historical and
projected earnings and operating data for Contract Services; and
(vi) considered, to the extent publicly available, the financial
terms of certain other transactions we deemed relevant and
analyzed certain financial, stock market and other publicly
available information relating to the businesses of other
companies which operate in the passenger transportation services
industry, and further considered to what extent these companies
were comparable to Contract Services. In addition to the
foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as
we deemed necessary in arriving at our opinion.
In rendering our opinion, we have assumed and relief, without
independent verification, upon the accuracy and completeness of
all financial and other information publicly available, or
furnished to, or otherwise discussed with us. Except as
described above, we have not conducted any review or
investigation of Group or Contract Services. With respect to
financial forecasts and other information provided to or
otherwise discussed with us (including estimates as to amounts
due under various loan agreement and contractual obligations and
expenses of the transaction), we assumed, and we have been
advised by senior management, that such forecasts and other
information were reasonable prepared on bases reflecting the best
currently available estimates and judgments of the senior
management of Group and Contract Services. We have assumed the
correctness of and relied upon representations and warranties of
Laidlaw and Group pursuant to the Agreement and have not
attempted to independently verify any such information. We have
not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise)
of Group or Contract Services nor have we made any physical
inspection of the properties or assets of Group or Contract
Services. Our opinion does not address the relative merits of
the Merger as compared to any alternative business strategies
that might exist for Group or the effect of any other transaction
in which Group might engage. Our opinion herein is necessarily
based upon financial, stock market and other conditions and
circumstances existing and disclosed to us as of the date hereof.
Smith Barney Inc. has been engaged to render financial advisory
services to Group in connection with the Merger and will receive
a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. In the ordinary
course of business, we and our affiliates may actively trade the
equity and debt securities of Group and Laidlaw for our own
account or for the account of our customers and, accordingly, may
at any time hold a long or short position in these securities.
We have in the past provided financial advisory and investment
<PAGE>
banking services to Group and Laidlaw and their affiliates
unrelated to the Merger and have received fees for the rendering
of such services. In addition, we and our affiliates (including
The Travelers Inc. and its affiliates) may maintain business
relationships with Group and Laidlaw.
Smith Barney's opinion may not be published, quoted, or otherwise
used or referred to, nor shall any public reference to Smith
Barney Inc. be made, without our prior written consent.
Based upon and subject to the foregoing, our experience as
investment bankers, and other factors we deemed relevant, we are
of the opinion that, as of the date hereof, the Consideration to
be received by the Public Shareholders pursuant to the Merger is
fair, from a financial point of view, to such Public
Shareholders.
Very truly yours,
/s/ Smith Barney Inc.
<PAGE>
Appendix I to
Mayflower Group, Inc.
Proxy Statement
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission file number 0-20332
MAYFLOWER GROUP, INC.
Indiana 35-1692925
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9998 North Michigan Road, Carmel, Indiana 46032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (317) 875-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
[Cover page 1 of 2 pages.]
<PAGE>
State the aggregate market value of the voting stock held
by non-affiliates of the Registrant. The aggregate market value
shall be computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as
of March 7, 1994.
$54,643,216 *
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES x NO
Indicate the number of shares outstanding of each of the
Registrant's classes of Common Stock, as of March 7, 1994.
12,662,445 shares of Common Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement, dated March 31,
1994, are incorporated in Part III (Items 10, 11, 12 and 13)
hereof.
_________________________________
* Aggregate market value of the Registrant's voting stock held
by non-affiliates on March 7, 1994, based on the average bid and
asked price for the Registrant's Common Stock on the Nasdaq
National Market on such date. For purposes of the foregoing
calculation only, required by Form 10-K, the Registrant has
included as shares owned by affiliates shares of Common Stock
beneficially owned by Executive Officers and Directors of the
Registrant and by holders of 10% or more of the Registrant's
Common Stock. Such inclusion shall not be construed as an
admission that any such person is an affiliate for any purpose.
[Cover page 2 of 2 pages.]
<PAGE>
FORM 10-K TABLE OF CONTENTS
Part I
Page
Item 1 - Business 3
Item 2 - Properties 11
Item 3 - Legal Proceedings 13
Item 4 - Submission of Matters to a Vote of
Security Holders 13
Part II
Item 5 - Market for the Registrant's Common Equity
and Related Stockholder Matters 14
Item 6 - Selected Financial Data 15
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 17
Item 8 - Financial Statements and Supplementary
Data 25
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 49
Part III
Item 10 - Directors and Executive Officers of the
Registrant 40
Item 11 - Executive Compensation 49
Item 12 - Security Ownership of Certain
Beneficial Owners and Management 49
Item 13 - Certain Relationships and Related
Transactions 49
Part IV
Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K 50
Signatures 53
<PAGE>
PART I
Item 1. Business.
The business of Mayflower Group, Inc. ("Group") is
conducted entirely through its two operating subsidiaries,
Mayflower Contract Services, Inc. ("Contract Services"), and
MayflowerTransit, Inc. ("Transit") and their respective
subsidiaries(Group, with its respective subsidiaries, being
referred to collectively herein as "the Company or "the
Registrant").
Group, formerly known as MG Holdings, Inc., was formed in
1986 for the purpose of acquiring another company whose name was
Mayflower Group, Inc. ("Old Mayflower"), a holding company that
owned 100% of the stock of three operating subsidiaries:
Mayflower Contract Services, Inc. ("Contract Services"),
Mayflower Transit, Inc. ("Transit"), and Mayflower Consumer
Products, Inc. ("Consumer Products"). The acquisition was
completed in December 1986 in a two-step merger: a cash tender
offer for all the 7.9 million outstanding common shares of Old
Mayflower at $31.50 per share followed by a merger of Old
Mayflower into a wholly-owned subsidiary of Group. To finance
the acquisition, Group raised approximately $330 million of debt
financing, including a $110 million senior secured credit
facility and $160 million through private placement of 12 5/8%
Senior Subordinated Debentures ("Debentures") with Warrants to
purchase common stock of Group. The remaining debt financing
consisted of a secured bank loan to a subsidiary of Contract
Services. Group sold Consumer Products in 1987 and eventually
refinanced the senior secured credit facility with secured credit
facilities at Contract Services and Transit.
Group is a holding company that relies upon the cash flow of
its two operating subsidiaries to satisfy its obligations, which
through December 1990 consisted primarily of interest payments on
the Debentures. Following Group's financial reorganization,
discussed below, it had no significant obligations remaining.
From 1987 through 1991, operating results and cash flow generated
by Group and its operating subsidiaries were not sufficient to
pay significant amounts of principal on Group's senior debt or
allow Group to remain in compliance with all financial covenants
contained in the secured credit facilities. As a result,
beginning after December 1990, Contract Services and Transit were
prohibited by terms of the secured credit facilities from making
any further cash dividend payments to Group for the purposes of
servicing interest payments on its Debentures. Consequently, the
two scheduled semiannual interest payments on the Debentures of
$10.1 million each were not made in 1991 resulting in a default
under provisions of the related indenture. After various
restructuring proposals were considered, Group's Debenture
holders, along with Group's common stock and warrant holders,
overwhelmingly approved a Prepackaged Plan of Reorganization
<PAGE>
("Plan of Reorganization") in early 1992. The Plan of
Reorganization was confirmed by the court and became effective
March 1992. Under the Plan of Reorganization, the holders of the
Debentures received shares of newly issued common stock equal to
approximately 94% of the common stock of Group. The existing
holders of the common stock and warrants of Group received shares
of newly issued common stock equal to approximately 5% of the
common stock of Group. Two other creditors received
approximately 1% of the common stock as payment in lieu of cash
for services in connection with the Plan of Reorganization. The
Plan of Reorganization did not affect Contract Services or
Transit.
Contract Services
Contract Services was created through the acquisition of
R.W. Harmon & Sons, Inc. by Old Mayflower in October 1984. Since
that date, Contract Services has purchased 17 additional
passenger transportation companies. Contract Services provides
service in 28 states.
Contract Services derives revenues from two distinct lines
of business: student transportation and public transportation.
Student Transportation. Student transportation represents
the largest source of revenue for Contract Services. Revenues
from this segment were approximately $166.4 million in 1993,
which represents approximately 71% of Contract Services' total
revenues. Contract Services renders daily transportation services
to more than 200 school districts in 20 states. While the nature
and scope of services to school districts vary, the most typical
arrangement encompasses a multi-year contract under which
Contract Services operates owned or leased school buses driven by
its own drivers. Services rendered to school districts include
traditional daily home-to-school transportation for students, as
well as after-hours or mid-day activity charters.
Contracts are typically priced in terms of a per-day charge
for base services and a per-hour charter rate for extracurricular
transportation. In most instances, billings are rendered monthly
and remittances are collected immediately.
Public Transportation. The Federal Transit Administration
(formerly the Urban Mass Transit Administration), the Department
of Transportation, and certain legislation have, in recent years,
established additional rules and guidelines governing
participants in federally assisted transportation programs. These
rules encourage private enterprise participation, prohibit
discrimination and require programs to provide transit service to
disabled individuals. Contract Services has capitalized on these
trends by establishing public transportation operations in
several major metropolitan markets beginning in 1988. In 1993,
revenues from this segment were approximately $69.5 million,
which represents approximately 29% of Contract Services' total
revenues.
<PAGE>
In this segment,Contract Services provides year-round local
demand-responsive service and fixed route transit service for
transportation authorities in ten major metropolitan markets. As
in its student transportation segment, these contracts are
performed through use of Contract Services-provided and/or
managed vehicles.
Marketing. Traditionally, government agencies and
municipalities have performed the bulk of student and public
transportation services. While there has been a gradual trend
toward privatizing such municipal/ government services, only
about 30% of student transportation is provided by private sector
companies today, and the figure in the public and para transit
industries is considerably lower. In this market, the competitive
challenge for Contract Services lies in persuading its potential
public sector customers to convert to a private vendor.
Contract Services believes that the key to success in both
the student and public transportation markets is demonstrated
expertise. Contract Services competes on the basis of quality,
efficiency and price. In both markets, Contract Services has
determined that a reputation as a safe provider is essential.
Complementing safety, a company must demonstrate sensitivity in
the school market and expertise in the transit market. These
attributes may induce a customer to renew or extend contracts,
foregoing the bid process. Most transit authorities award
contracts via an overall evaluation process that gives weight to
operating qualifications as well as price.
Contract Services has operating or sales management assigned
to certain geographical areas that are responsible for
maintaining contact with active and prospective customers and for
prospecting conversion leads, as well as staying alert to public
bid opportunities in adjacent geographic markets.
Competition. The private, public and student transportation
industries are highly fragmented and regionalized. Contract
Services believes it is the nation's largest provider of
paratransit services and has one of the three largest market
shares of any private contractor in the United States student
transportation industry.
Safety Program. Contract Services operates formal safety
programs centering on employee selection and training, and bus
maintenance. A prospective driver's record is screened for past
criminal and motor vehicle violations through a search of public
records (where such searches are permitted). The prospective
driver must also pass certain tests that screen for traits that
may affect the driver's performance. In addition, Contract
Services has conducted pre-employment and random drug and alcohol
tests since 1989.
Contract Services has a formal training program for its
drivers that involves at least ten hours of one-on-one, behind
the wheel instruction with a certified trainer. The driver also
<PAGE>
receives at least ten hours of classroom training, covering
student discipline on the bus, safety rules and other bus
procedures. On an ongoing basis, drivers attend at least nine
hours per year of meetings to view films and review safety
procedures. Field safety supervisors periodically perform road
observations to assure drivers are complying with traffic laws
and safety procedures. Motor vehicle and criminal records are
also monitored on an ongoing basis for violations and accidents.
Environmental Laws. Compliance by Contract Services with
federal,state and local environmental protection laws has not in
the past had, and is not expected to have in the future, a
material effect upon its capital expenditures, liquidity,
earnings or competitive position.
Insurance. Contract Services' insurance program consists of
three principal types of coverage: auto liability (for third
party personal injury or property damage claims), general
liability and workers' compensation. Workers' compensation is
regulated by the individual states in which Contract Services
operates.
With the rising cost of liability insurance in the
mid-1980's, Contract Services moved to an "economic"
self-insurance program in 1987 whereby Contract Services retains
financial exposure for the first $2.0 million of each claim.
Though Contract Services does not purchase insurance coverage for
this exposure, Contract Services purchases a "fronted" policy
from an insurance carrier. The insurance carrier's liability
under this arrangement is to make any claim payments that are not
made by Contract Services. Contract Services indemnifies the
insurance company for any losses and collateralizes this
indemnification obligation with letters of credit.
The amounts of letter of credit collateralization are
calculated based upon expected losses for a given policy year.
Because of the nature of this liability, it takes several years
to settle fully all claims for a given policy period. As of
December 31, 1993, Contract Services had $28.1 million in letters
of credit outstanding under its primary credit facility as
collateral for its insurance related obligations.
Contract Services also maintains excess liability insurance
policies providing in total up to an additional $42 million in
limits.
Fuel Costs. The impact of additional fuel taxes, which
became effective in October 1993 following the enactment of the
1993 Omnibus Budget Reconciliation Act will not be significant as
Contract Services' student transportation system is exempt from
federal fuel taxes. Also Contract Services limits the effects of
significant increases in fuel prices by including fuel escalator
clauses in many of its contracts, a "fuel cap" which provides
price protection against such increases, and arrangements with
certain vendors to fix fuel costs within a predetermined range.
<PAGE>
Employees. Contract Services employs approximately 11,000
people, approximately 9,000 of whom are employed as drivers and
driver aides. Most drivers are part-time employees, 60% working
fewer than 1,000 hours per year. Approximately 20% of Contract
Services' drivers belong to collective bargaining units. These
unions represent employees in major metropolitan markets or in
school districts where drivers and mechanics were formerly
employed by the school corporation. Relations with employees are
satisfactory.
Transit
Transit is involved in a number of transportation service
businesses. It provides household goods moving services and
transportation services for goods that require special handling,
such as electronic products and trade show exhibits. It also
provides warehousing services such as storage and distribution,
freight forwarding for domestic and international shipments, and
flatbed hauling of containerized shipments. In these operations,
Transit uses its network of approximately 550 independent agents
in the United States and Canada as well as more than 800
independent owner-operators who are skilled in providing
transportation services. Transit also currently owns and operates
25 moving and storage agencies located throughout the United
States. Other Transit operations sell and finance transportation
equipment to Transit's agents and owner-operators, and sell and
underwrite commercial lines of insurance coverage.
Transit operates through two lines of business: domestic
household goods moving services and special transportation
services.
Domestic Household Goods Moving Services
-- Household Goods. The Household Goods division
("Household Goods") is the largest single operating division of
Transit, generating line haul revenue in 1993 equal to 42% of
Transit's total revenue. Total revenue generated by Household
Goods in 1993, including both line haul and accessorial revenue,
accounted for approximately 60% of Transit's total revenue.
-- The Household Goods division serves individual
residential customers, governmental entities and national
accounts. The national account business, which consists of
providing household goods moving services to corporations
transferring their employees, is generally the most
profitable segment of the business, due to the larger
shipment sizes and the accessorial services such as packing
and storage that are normally provided in connection with
these moves. Transit's agent/owner-operator system is used
to transport household goods shipments. See "Agent/ Owner-
Operator System."
-- Moving and Storage Division ("M&S"). This division
consists of 25 agencies owned and operated by Transit. These
<PAGE>
agents function and provide the same services as the independent
agents included in the Transit agent/ owner-operator system. See
"Agent/ Owner-Operator System."
Special Transportation Services
-- Electronic and Trade Show ("E&TS"). This division,
which generated line haul revenue in 1993 equal to approximately
19% of Transit's total revenue, is engaged primarily in the
transportation of electronic products and trade show exhibits for
corporate customers. These items typically require special
handling and other services. The E&TS division began commercial
operations in the early 1970's and has experienced significant
growth since then. Operating revenues have increased from $71.9
million in 1991 to $92.7 million in 1993. Transit's agent/owner-
operator system is used to transport E&TS shipments.
-- International ("International"). This division
operates four business segments: commercialhousehold goods, its
largest business segment; a motor van/ sea van operation that
provides trailer service between the continental United States
and Alaska or Hawaii; international commodities and tradeshows;
and a consolidating service for household goods being shipped to
foreign locations. While Transit has provided international
services for over 25 years, it has seen its most significant
growth in the past few years. In 1993, this division generated
$29.7 million in revenues, or 6.7% of Transit's total revenue.
-- Other Transportation Operations ("Other"). Several
smaller subsidiaries and divisions of Transit engage in sales of
products and services to serve the needs of Transit's owner-
operators and agents, including: (i) sales of tractors, trailers
and other equipment, and the administration of the financing of
such equipment by independent lending institutions for Transit
owner-operators and agents; (ii) the operation of a full service
road equipment maintenance facility to service vehicles for
agents, owner-operators and nonaffiliated customers as well as
Transit's own fleet; (iii) the operation of a full service
insurance agency and captive insurance company that sell and
underwrite property, casualty and other insurance coverages,
primarily to agents and owner-operators; and (iv) sales of moving
supplies, equipment and uniforms to agents and owner-operators.
Revenues and Expenses. Transit derives its revenues
primarily from three sources. Line haul revenues consist of
revenues obtained from transporting goods. These revenues are
generally based upon the weight of the shipment, distance
traveled, type of goods transported and points of origin and
destination. The Household Goods and E&TS divisions generate
substantially all of Transit's line haul revenues. Accessorial
revenues are fees received for other services such as packing,
unpacking, storage and other related services. The majority of
accessorial revenues are related to household goods line haul
activities. The balance of Transit's revenues are generated by
the M&S, International and Other divisions.
<PAGE>
Transit's expenses consist primarily of commissions paid to
agents and owner-operators for their services. Sales and origin
commissions are paid to agents for obtaining orders and providing
support services at point of origin. Hauler commissions are paid
primarily to agents and owner-operators for hauling the goods
from the point of origin to their destination. The total of these
line haul related expenses is historically between 82% and 83% of
line haul revenues. Additional operating expenses not related to
the services of the agent and owner-operator systems are also
incurred in connection with Transit's line haul activities and
the activities of other divisions within Transit. Overhead
expenses incurred by Transit include overhead costs directly
related to Transit operations.
Customers. The Household Goods market is made up of three
basic customer groups: individual residential customers, national
account customers and various agencies of the United States
Government. Individual residential customers arrange and pay for
their own moves and are required to pay for shipping services
upon delivery. National account customers are generally corporate
customers, or their representatives, which are billed for moves
they arrange for employees. United States Government moves are
arranged by various departments of the United States Government,
including the Military Traffic Management Command, which
coordinates the movement of household goods for military
personnel of all branches of the service.
Most individual shippers choose a mover from Yellow Pages
advertising and discuss their move, services and prices with a
local agent. National account business is generally solicited by
agent sales personnel and, to a lesser extent, by sales personnel
employed by Transit. United States Government business is
generally awarded on a shared basis among qualified carriers
meeting the lowest rate for the particular installation.
The E&TS business is solicited by agents and, to a lesser
extent, by the employees of Transit. This business is formed
almost entirely by national account customers, which include
major computer and other high technology companies, hospitals and
trade show exhibitors.
Transit provides marketing support for its agents through
field sales representatives, advertising, incentive programs and
promotional materials and services.
Agent/ Owner-Operator System. Transit has approximately 550
agents in the United States and Canada, of which 25 are owned by
Transit, with the remainder being independent business entities.
Agents operate full service moving and storage businesses in
their geographic areas. They solicit business, pack, unpack and
store goods and provide labor to assist haulers in loading and
unloading goods. Agents also provide tractor/ trailer units and
drivers for the transportation of household goods and E&TS
products.
<PAGE>
In a typical interstate move of household goods or E&TS
products, the agent at the point of origin provides packing and
preparation services. From its Indianapolis headquarters, Transit
arranges and coordinates the transportation of the goods, which
about half of the time are hauled by one of Transit's agents with
the balance by independent owner-operators. The agent at the
destination of the shipment provides unpacking and other support
services.
In addition to arranging for and coordinating the interstate
transportation of goods, pursuant to orders booked by its agents,
Transit provides national advertising and other marketing
support, administers the settlement of damage claims, provides
certain data processing services to agents and collects and
distributes the revenues among Transit, its agents and its owner-
operators.
All United States agents enter agreements with Transit that
generally provide that the agent will represent Transit
exclusively. Agents are compensated according to commission
schedules for services rendered. Agents receive substantially all
the revenue from the packing, unpacking and storage services, a
portion of the line haul revenue for booking and origination
services and a majority of the line haul revenue if the agent
provides the equipment and driver for hauling the goods. Some
agents have their own interstate operating authority (which is
generally limited to states surrounding their locations).
Transit's operations outside the United States and Canada
are conducted through approximately 125 independent
representatives whose arrangements with Transit permit them to
represent other carriers.
For the year ended December 31, 1993, orders booked by
agents owned by Transit accounted for approximately 11% of
Transit's revenues. No other agent or group of agents under
common control accounted for as much as 5% of such revenues.
Approximately 30% of Transit's revenues were generated by the 20
largest agents or group of agents under common control, excluding
the agents owned by Transit.
Approximately 35% of Transit's agents have been with Transit
for 25 years or more; approximately 50% have been agents of
Transit for 15 years or more.
Transit does not employ drivers except for local,intrastate
and, during the peak season, interstate hauling services in
agencies owned by Transit. Transit typically uses approximately
800 independent owner-operators to haul and, generally with the
assistance of local agents, to load and unload shipments. During
the peak summer season, however, Transit may use up to 1,200
owner-operators. Each owner-operator is engaged pursuant to an
agreement with Transit that requires the owner-operator to
furnish a tractor and to pay maintenance, insurance, fuel and
other expenses incurred in hauling goods. Transit trains the
<PAGE>
owner-operators and, for the majority of owner-operators,
provides a trailer. Owner-operators in the Household Goods
division are generally compensated by Transit through a base
commission which has traditionally averaged 56% of the line haul
revenues. While the majority of owner-operators in the E&TS
division are also compensated through a base commission that has
averaged 56% of line haul revenues, an increasing portion of
these owner-operators are being compensated on a mileage basis.
As discussed above, Transit's independent owner-operators
and independent agent drivers agree to pay for fuel costs
incurred in providing their services. Higher fuel costs hurt the
profitability of Transit's independent owner-operators, and
result in higher costs for Transit associated with driver
turnover. The impact of the additional taxes on fuel prices,
which became effective in October 1993 following the enactment of
the 1993 Omnibus Budget Reconciliation Act, is not expected to be
significant to Transit. Further, Transit does not expect changes
in fuel prices will materially affect its financial condition or
its results of operations in the foreseeable future.
Employees. Transit employs approximately 1,400 full time
employees, approximately 500 of whom are salaried employees and
the remainder of whom are hourly employees. Transit has not
experienced any material strikes or work stoppages during the
past five years and believes that its relations with employees
are satisfactory.
Insurance. Transit's insurance program consists of three
principal types of coverage: auto liability (for third party
personal injury or property damage claims), general liability and
workers' compensation. Auto liability coverage is regulated by
the Interstate Commerce Commission ("ICC") and workers'
compensation is regulated by the individual states in which
Transit operates. In order to comply with ICC regulations,
evidence of insurance must be provided to the ICC.
With the rising cost of liability insurance in the
mid-1980's, Transit moved to an "economic" self-insurance program
in 1987 whereby Transit retains financial exposure for the first
$2.0 million of each claim. Though Transit does not purchase
insurance coverage for this exposure, due to ICC regulations the
ICC must be provided evidence of insurance. This is accomplished
by Transit purchasing a "fronted" policy from an insurance
carrier. The insurance carrier's liability under this arrangement
is to make any claim payments that are not made by Transit.
Transit indemnifies the insurance company for any losses and
collateralizes this indemnification obligation with letters of
credit.
The amounts of letter of credit collateralization are
calculated based upon expected losses for a given policy year.
Because of the nature of this liability, it takes several years
to settle fully all claims for a given policy period. As of
December 31, 1993, Transit had $26.2 million in letters of credit
<PAGE>
outstanding under its primary credit facility as collateral for
its insurance related obligations.
Transit management has received approval from the ICC to
self-insure the first $1.0 million of each auto liability claim
effective April 1, 1994, eliminating the need for Transit to
purchase a "fronted" policy from an insurance carrier for these
claims. The Company will benefit by reducing its fronting costs
and its letter of credit requirements in the future, as the ICC
only requires a $1.0 million letter of credit related to this
self-insurance liability.
Transit also maintains excess liability insurance policies
providing in total up to an additional $42 million in limits.
Competition. Transit is in direct competition in the United
States with approximately 2,000 motor common carriers having ICC
authority for the interstate transportation of household goods
and E&TS products. Based upon financial data filed with the ICC,
Transit is the fourth largest mover in the United States in terms
of intercity revenues. According to reports filed with the ICC,
1993 intercity revenues aggregated approximately $2.5 billion for
the 20 largest motor carriers of which Transit accounted for
11.1% andthe six largest carriers, including Transit accounted
for 82.0% of this amount.
Carriers compete on the basis of the number and location of
agents, perceived quality of service, price and carrier name
recognition. Transit's name recognition and its reputation for
quality service, together with Transit's agency network, are
important factors in its competitive position.
As a result of reduced government regulation, increased
price competition, principally in the form of binding estimates
and discounts, has become more significant.
Rates, Pricing and Regulation. Since 1980, a significant
reduction in statutory and administrative restrictions on entry
into surface transportation and the moving industry has increased
competition. Traditionally, in Transit's industry, pricing has
been based upon tariffs approved by the ICC for each class of
goods hauled by an interstate carrier. These tariffs are a
function of the weight of the shipment, the distance the shipment
is moved and accessorial services rendered. Most moves are now
priced below tariffs through individual discount programs filed
by each carrier with the ICC, binding estimates negotiated
between Transit and, primarily, individual residential customers
or on the basis of a contract entered between Transit and a
corporate customer.
Household goods carriers participate in rate bureaus through
which competitors jointly establish and publish tariffs and
rates. Transit is currently a member of the Household Goods
Carriers' Committee of the American Movers Conference, along with
approximately 2,000 other common carriers of household goods,
<PAGE>
including the ten largest carriers in the industry. The
Interstate Commerce Act permits certain collective ratemaking
activities through a rate bureau by exempting such ratemaking
from the antitrust laws.
Certain members of Congress have proposed legislation that
could result in complete deregulation of rates and tariff
filings, repeal of antitrust immunity for collective ratemaking,
total elimination of the ICC over a period of time and transfer
of authority over motor carriers of property (as to unfair
competition and trade practice matters) to other governmental
agencies. Although trade association and industry leaders do not
believe that such legislation will be enacted, they have provided
comments to Congress in opposition to the legislation. Transit is
unable to assess the likelihood of passage by Congress of such
legislation.
Environmental Laws. Compliance by Transit with federal,
state and local environmental protection laws has not in the past
had, and is not expected to have in the future, a material effect
upon its capital expenditures, liquidity, earnings or competitive
position.
Operating Authority. Transit operates nationwide as an
interstate common carrier pursuant to a Certificate of Public
Convenience and Necessity granted by the ICC. This Certificate
authorizes Transit to transport various classes of goods and
products. Transit also operates as a contract carrier, pursuant
to contract authority granted by the ICC. Transit is required to
comply with ICC regulations and the failure to do so could
subject it to civil or criminal penalties, the suspension or
revocation of its operating authority or both. The suspension of
operating authority could have a material adverse impact upon
Transit's operations depending primarily upon the duration of the
suspension and the class or classes of goods or products
affected. In addition, the Department of Transportation regulates
the hours of service of Transit's drivers and other safety
aspects of operations. A failure by Transit with these
regulations could subject it to civil or criminal liabilities.
The agencies owned by Transit also hold intrastate operating
authority that subjects them to the jurisdiction of various state
regulatory commissions. Transit believes that a material
suspension or revocation of these certificates of operating
authority would not have a material adverse effect upon Transit's
operations.
Trademarks. Transit has registered trademarks on a number
of variations of the Mayflower name and corporate logo in the
United States and approximately 25 foreign countries. Depending
on the jurisdiction of registration, trademarks are generally
protected 10 to 20 years (if they are in continuous use during
that period) and are renewable. These trademarks are material to
Transit in the marketing of its services because of the name
recognition possessed by Transit in the transportation services
<PAGE>
industry.
Executive Officers of the Registrant. The following persons
comprise the Executive Officers of the Registrant. All of the
Executive Officers have been employed by the Registrant or its
subsidiaries in one of the capacities indicated below for more
than five (5) years. Each officer serves a term of one year
expiring at the Annual Meeting of the Board of Directors.
Name Age Position
Michael L. Smith 45 Chairman, President and Chief
Executive Officer
Patrick F. Carr 42 Senior Vice President, Chief
Financial Officer and Treasurer
Robert H. Irvin 42 Senior Vice President, Secretary
and General Counsel
Michael L. Smith: Mr. Smith was originally employed at Old
Mayflower in 1974. He has been a Director of the Registrant
since October 1986, President of the Registrant since April 1989,
Chief Executive Officer of the Registrant since January 1990, and
Chairman of the Board of the Registrant since April 1992. He was
Chief Operating Officer of the Registrant between April 1989 and
January 1990. Mr. Smith was Executive Vice President of the
Registrant from January 1987 to April 1989. He has been Chief
Executive Officer of Transit since June 1989 and a director of
Transit since October 1986. He was President of Transit from
June 1989 to April 1991. He has been Chairman of the Board and
Chief Executive Officer of the subsidiaries of Transit since June
1989. He has been Chairman of the Board and Chief Executive
Officer of Contract Services since January 1987 and has been a
director of Contract Services since October 1986. He was
President of Contract Services and the subsidiaries of Contract
Services from January 1987 through December 1992. Mr. Smith also
serves as a Director of First Indiana Corporation, Somerset
Group, Inc. and Acordia, Inc.
Patrick F. Carr: Mr. Carr has been Senior Vice President
and Chief Financial Officer of the Registrant since January 1987.
He has been President of Transit and its subsidiaries since April
1991 and has been a director of Transit since January 1987.
Between January 1989 and January 1990, Mr. Carr was Executive
Vice President of Transit and Executive Vice President of the
subsidiaries of Transit. From January 1987 to January 1989, he
was the Treasurer of Transit. He has been an officer of Contract
Services since 1987 and was a director of Contract Services from
1987 to 1993.
Robert H. Irvin: Mr. Irvin has been Secretary of the
Registrant since September 1986 and Senior Vice President and
General Counsel since January 1987. He has been a director and
<PAGE>
an officer of Transit since 1987. From 1987 to 1993, he was a
director of Contract Services. He has been an officer of
Contract Services since 1987.
Item 2. Properties.
The Company itself owns no property other than the stock of
Contract Services and Transit. All properties are owned by
Contract Services and Transit.
Contract Services Properties
Contract Services is headquartered in Overland Park, Kansas,
a suburb of Kansas City, Missouri. The Company moved to these
premises in December 1987 and occupies approximately 18,000
square feet under a multi-year lease.
Contract Services owns twelve operating terminals and leases
approximately 130 others. Contract Services' strategy is to lease
facilities on terms that approximate the length of the service
contracts at each locale. These properties typically include two
to five acres of parking space with a small office facility for
driver training and dispatch and a two to three bay maintenance
facility. In some instances, Contract Services will secure its
operating terminals from its client and negotiates its occupancy
costs as a part of its service contract.
The average age of Contract Services' fleet is approximately
6 years. The 8,447 vehicles operated by Contract Services are
primarily diesel and gas powered, although some units are propane
powered. The operating fleet includes 1,345 customer owned
vehicles. Nearly all vehicles owned by Contract Services are
encumbered by liens in favor of the Company's lenders, under its
financing agreements.
<TABLE>
<CAPTION>
The following table summarizes the fleet as of December 31, 1993:
Model Year Leased Owned Total
<S> <C> <C> <C>
Pre 1984 0 296 296
1984 0 390 390
1985 0 946 946
1986 42 1,225 1,267
1987 11 324 335
1988 612 199 811
1989 552 108 660
1990 752 148 900
1991 20 573 593
1992 272 116 388
1993 0 491 491
1994 0 25 25
----- ----- -----
<PAGE>
Totals 2,261 4,841 7,102
Customer owned 1,345
----- ----- -----
2,261 4,841 8,447
===== ===== =====
Avg. Model Year 1989 1987 1988
</TABLE>
Contract Services' equipment is maintained under a
comprehensive preventive maintenance program emphasizing
avoidance of on-the-road failures while minimizing per mile
maintenance and tire costs. Fleet maintenance standards are
established by a corporate department located in its Overland
Park headquarters facility. This department supervises the
purchasing of equipment and establishes standards for preventive
maintenance in addition to monitoring levels of repair parts
inventories throughout the Contract Services system.
Contract Services has obtained a substantial portion of the
additions to its fleet through operating leases. As of December
31, 1993, Contract Services was a party to operating leases with
eight equipment finance entities. The Company has guaranteed the
performance of Contract Services' obligations under a portion of
these operating leases.
Transit Properties
Transit owns a 190-acre tract northwest of Indianapolis,
Indiana upon which the Company's headquarters building is
located. Located on the same tract is Transit's driver training
facility, a building used for the preparation and maintenance of
trailers, a storage building, and a warehouse and office facility
used by an agent wholly owned by Transit. This entire tract is
mortgaged to Mellon Bank, N.A. ("Mellon") as part of the security
for a $5.0 million loan to Transit.
Transit also owns a total of approximately 182,000 square
feet of office and warehouse space in Indianapolis, Indiana and
Alexandria, Virginia that is used in its local moving and storage
<PAGE>
operations. All these properties owned by Transit are also
mortgaged to Mellon. In addition, Transit owns another 40,000
square feet which are not encumbered and leases approximately 1.3
million additional square feet at various other locations.
At December 31, 1993, Transit and its Moving & Storage
subsidiaries owned approximately 1,600 trailers, with an average
age of 11 years, which are used primarily by owner-operators in
hauling goods with the owner-operator's tractor. Transit also
owned approximately 240 tractors, straight trucks and other
vehicles at December 31, 1993. The majority of the tractors and
trailers owned by Transit are subject to a security interest
granted to the Company's lenders under its financing agreements.
Agents also provide equipment for Transit's use under
long-term and short-term contract hauling arrangements.
Approximately 400 of Transit's fleet of tractor-trailer units are
maintained pursuant to long-term contract hauling arrangements,
while approximately 1,700 additional units are available on a
short-term basis, some of which are added to the fleet during the
peak season.
Item 3. Legal Proceedings
Litigation
On October 24, 1989, two alleged shareholders of Old
Mayflower filed suit in the federal district court against
certain directors of Old Mayflower and the Company. The
plaintiffs in this lawsuit are also the plaintiffs in a suit
filed in Indiana state court on October 29, 1986. These
complaints allege that the directors breached their fiduciary
obligations to the shareholders of Old Mayflower by entering into
a leveraged buy-out transaction at a grossly inadequate price.
The suits purport to be class actions on behalf of all the
shareholders. In addition to seeking injunctive relief, the
plaintiffs are asking for compensatory and punitive damages.
The defendants in these suits believe the plaintiffs' claims
to be without merit; however, because of the costs associated
with defending these actions, the Company has joined in an
agreement to settle both lawsuits. The settlement agreement must
be approved by the federal and state courts. If approved, the
maximum amount of the settlement will be approximately $2.1
million in cash and notes. Attorneys for the settlement class
will receive approximately $725,000 in cash for fees and
litigation expenses. The Company's insurance carrier will
contribute $617,000 toward the cash payment with the balance to
be paid by the Company. The remainder of the settlement amount,
not more than approximately $1.4 million, will be paid in the
form of unsecured subordinated notes of the Company to members of
the settlement class that properly complete and submit proofs of
claim. The settlement notes (a) will mature in ten years, (b)
will be unsecured and subordinated to certain indebtedness of
<PAGE>
the Company, (c) will pay interest semi-annually, (d) will
require no payment of principal until maturity, and (e) will not
be registered with the Securities and Exchange Commission.
The subsidiaries become involved from time to time in
various actions that are incidental to the ordinary course of
their business, including property damage and personal injury
claims. Based upon information currently available to it, the
Registrant believes that its reserves and insurance coverage with
respect to all such actions are adequate to cover liabilities
reasonably anticipated at the date of this filing. (See Note 4 to
Consolidated Financial Statements.)
The Registrant becomes involved from time to time in actions
arising from the operations of its subsidiaries. The Registrant
routinely seeks to be dismissed from such actions on the grounds
that it is not a proper party defendant.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of 1993
to a vote of security holders of the Registrant, through the
solicitation of proxies or otherwise.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Registrant's Common Stock was registered effective
August 22, 1992, under Section 12 of the Securities Exchange Act
of 1934. The Common Stock of the Registrant was listed on the
Nasdaq National Market on December 1, 1992. Prior to that date
there was no established public trading market for these
securities. As of December 31, 1993, the Registrant had 276
shareholders of record.
The high and low sales prices for the Registrant's Common
Stock during the portion of the fourth calendar quarter of 1992
following the date on which the Registrant's Common Stock began
trading on the Nasdaq National Market were $10.50 and $7.50,
respectively, as reported by Nasdaq.
The high and low sales prices reported by for the
Registrant's Common Stock reported by the Nasdaq National Market
during each calendar quarter of 1993 were as follows:
Quarter High Low
1 12 1/4 9
2 11 1/2 8 1/4
3 13 9 1/2
4 12 1/4 10 3/4
There were 278 holders of record of the Registrant's Common
Stock on March 7, 1994. The high and low sales prices reported
by the Nasdaq National Market on that date were $11 3/4 and $11
1/4.
The Registrant has not paid cash dividends in its two most
recent fiscal years. The senior bank credit agreement entered
into by the Registrant and its operating subsidiaries prohibits
the payment of dividends on its Common Stock. (For a discussion
of the Registrant's credit facilities, see Note 7 to Consolidated
Financial Statements.) Therefore, the Registrant does not
anticipate paying cash dividends on its Common Stock in the
foreseeable future.
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blank.]
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
Selected Historical Financial Information
Thefollowing tablesetsforth selectedconsolidatedfinancial dataregardingthe Registrant.This
informationshould beread inconjunction withthe discussioncontained in"Management'sDiscussion and
Analysisof FinancialConditionand ResultsofOperations" andwiththeconsolidated financialstatements
and notes thereto included in Item 8.
(Dollars in thousands except per share data)
Years ended December 31,
1993 1992 (b) 1991 1990 1989
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues:
Contract Services $235,918 $209,411 $193,442 $186,216 $156,063
Transit (c) 441,575 426,444 405,600 447,769 483,246
-------- -------- -------- -------- --------
Total $677,493 $635,855 $599,042 $633,985 $639,309
======== ======== ======== ======== ========
Operating Profit: (d)
Contract Services $ 7,471 (a) $ 10,840 $ 4,829 $ 10,101 $ 14,283
Transit 5,738 13,208 (58,221) 10,313 17,540
Unallocated Corporate
Overhead (1,089) (1,142) (3,774) (1,521) (887)
-------- -------- -------- -------- --------
12,120 22,906 (57,166) 18,893 30,936
Net interest expense and
purchase fee onreceivables sold (6,736) (9,661) (31,306) (31,737) (33,252)
Miscellaneous, net 32 234 (161) 1,290 537
-------- -------- -------- -------- --------
Income (loss) before federal
income taxes and extraordinary
items $ 5,416 $ 13,479 $(88,633) $(11,554) $ (1,779)
======== ======== ======== ======== ========
Income (loss) before ext. items $ 2,435 $ 7,835 $(88,633) $ (9,988) $(3,525)
Income before ext. items
per share (e) $ 0.19 $ n/a $ n/a $ n/a $ n/a
======== ======== ======== ======== ========
Pro Forma Financial Information:
(unaudited) (e):
Net Income $ n/a $ 8,336 $ 1,465 $ n/a $ n/a
Earnings Per Share $ n/a $ 0.66 $ 0.12 $ n/a $ n/a
======== ======== ======== ======== ========
<PAGE>
Balance Sheet Data:
Working capital (deficit) (f) $ 39,197 $ 23,997 $(16,615) $(21,441) $(14,626)
Net property and equipment 114,747 104,449 101,460 85,146 97,173
Total assets (g) 322,677 302,751 298,945 328,424 353,244
Short-term debt (h) 2,276 21,078 37,015 16,125 15,756
Long-term obligations (h) 95,407 79,149 234,529 201,470 212,970
Shareholders' investment
(deficit) (a)(i)(j) $ 82,671 $ 80,771 $(88,910) $ (219) $ 9,887
======== ======== ======== ======== ========
See footnotes which follow.
----------------------------------
<FN>
(a) The Company is self-insured for certain risks, and, accordingly, maintains reserves for losses and
premium adjustments which are determined using case basis evaluations and other analyses. Based on a
review by management during the fourth quarter of 1993 of the calculations underlying the reserve for
self-insured claims, the Company has determined that the portion of Contract Services' reserve
attributable to claims incurred prior to 1991 was $4.9 million below an appropriate level. As a
result, the Company recognized $4.9 million in additional self-insured claims expense during 1993.
The annual expense related to the self-insurance program since January 1, 1991, excluding this
adjustment, has been sufficient to provide for anticipated losses, and this adjustment represents a
one-time nonrecurring increase to its reserve for self-insured claims.
(b) See Note 2 to Consolidated Financial Statements for discussion of the Registrant's Plan of
Reorganization which became effective March 24, 1992, and included the exchange of Group's
subordinated debentures for common stock.
(c) Transit's equipment financing subsidiary sells transportation equipment to certain of its owner-
operators and agents. Beginning in 1993, revenues associated with these installment sales is recorded
net of the related cost of goods sold as an operating expense, with the related gain on the sale being
recognized on the installment basis. Revenues for each of the years 1992 through 1989 have been
reclassified to conform with this presentation.
(d) See Note 12 to Consolidated Financial Statements for discussion of the components of operating profit.
(e) See Notes 1B and 3 to Consolidated Financial Statements for discussion of the earnings per share
computation and the pro forma financial information.
<PAGE>
(f) The Registrant's working capital balance was negative during 1989 and 1990 because the initial
proceeds of a sale of Transit's receivables in 1988 were used to retire long-term debt. Working
capital remained negative in 1991 after this facility expired due to the accrued interest on the
Debentures, which was subsequently eliminated when the Debentures were exchanged for Common Stock
under the Registrant's Plan of Reorganization in 1992.
(g) See Note 6 to Consolidated Financial Statements for discussion of the Registrant's revaluation of
intangible assets which resulted in a $69.0 million write-down of total assets during 1991.
(h) See Note 7 to Consolidated Financial Statements for a discussion of the Registrant's refinancing of
its debt facilities.
(i) Effective April 1, 1992, the Registrant changed its method of accounting for federal income taxes from
the deferred to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes"
("SFAS 109"). As permitted under the new rules, prior years' financial statements have not been
restated. In accordance with Statement of Position (SOP) 90-7, the cumulative effect of adopting SFAS
109 as of April 1, 1992 was to decrease Shareholder's Investment (deficit) by $8.9 million.
(j) Effective April 1, 1992, the Registrant adopted FASB Statement No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"). In accordance with SOP 90-7, the
cumulative effect of the accounting change was recognized as a $3.0 million reduction in shareholders'
investment. In prior years, the Registrant had recognized the expense related to these benefits as
they were paid. As the effect on net income of adopting SFAS 106 was not significant, postretirement
benefit cost for prior periods has not been restated.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis
Fiscal Year 1993 compared with fiscal year 1992
Operating revenue for 1993 totaled $677.5 million, an
increase of 6.5% over operating revenues of $635.9 million for
1992. Income before extraordinary items was $2.4 million and
$7.8 million for the years ended December 31, 1993 and December
31, 1992, respectively. Income before extraordinary items in
1993 was reduced by $3.0 million resulting from the unusual
charge increasing Contract Services' reserve for self-insured
claims, as discussed below and in Note 4 to Consolidated
Financial Statements. Additionally, the Registrant recognized a
$549,000 extraordinary loss in 1993 related to the extinguishment
of debt, and a $93.1 million extraordinary gain in 1992 related
to the conversion of its subordinated debt to common stock in
accordance with its Plan of Reorganization (See Note 2 to
Consolidated Financial Statements).
The operating results for 1992 included $1.7 million of
interest expense related to the Registrant's subordinated
debentures, which were converted to common stock through the
Registrant's Plan of Reorganization. Note 3 to Consolidated
Financial Statements presents pro forma financial information
before nonrecurring items, including this charge, and assuming
certain other events which occurred in 1992 had taken place as of
December 31, 1990. On a pro forma basis, income before
extraordinary items decreased from $8.3 million for the year
ended December 31, 1992 to $2.4 million for 1993.
Contract Services
Contract Services' revenues for 1993 were $235.9 million
versus $209.4 million during the comparable period in 1992, an
increase of 12.7%. Public transportation revenues increased
$21.2 million, or 43.8%, to $69.5 million. This growth is
attributable to new customer contracts, primarily paratransit
operations in California and Hawaii, and the acquisition of CTS
Management Company in September 1993. Student transportation
revenues increased $5.3 million, or 3.3%, to $166.4 million,
largely the result of pricing changes.
Contract Services' operating profits increased $1.6 million
to $12.4 million in 1993, excluding a $4.9 million unusual charge
to increase Contract Services' reserve for self-insured claims.
Contract Services increased its reserve for self-insured claims,
having determined that the portion of the reserve attributable to
claims incurred prior to 1991 was below an appropriate level.
(See Note 4 to Consolidated Financial Statements.) Including
this unusual charge, Contract Services' operating profits
decreased to $7.5 million in 1993 compared to $10.8 million in
1992.
Contract Services realized a $1.6 million increase in
operating profits, excluding the unusual charge previously
<PAGE>
discussed, largely as a result of realizing additional margin of
$2.7 million from 1993's revenue growth and bus sales profits
increasing $400,000 over the prior year. Also, margin
improvements included decreased insurance costs of $1.6 million
and decreased school revenue equipment depreciation and lease
costs of $300,000. Adversely affecting profits were $800,000 of
costs in resolving an unsuccessful attempt to organize Contract
Services' labor force at a contract site in Pennsylvania, margin
reductions totalling $1.4 million at two metropolitan operations,
one in Pennsylvania and one in Colorado, additional expense
totalling $300,000 resulting from SFAS 106 ("Accounting for
Postretirement Benefits other than Pensions"), and $600,000 of
additional depreciation expense related to the adoption of SFAS
109 as discussed further below.
As a result of the adoption of SFAS 109 ("Accounting For
Income Taxes") in April 1992, Contract Services recognized
additional depreciation expense of $600,000 in 1993. On a pro
forma basis, incorporating this change and the impact of the
shorter lives over which intangible assets are being amortized
since October 1992 as though both changes had occurred prior to
1992 (see Note 3 to Consolidated Financial Statements), Contract
Services' operating profit, excluding the self-insurance
adjustment discussed earlier, increased $2.6 million to $12.4
million, or 27% over the previous year's $9.8 million.
Transit
Operating revenues for Transit for 1993 increased to $441.6
million , or by 3.6% over operating revenues during the same
period in 1992. Line haul revenues, the largest component of
Transit revenues, increased $10.0 million, or 3.8%. Also, the
Moving and Storage division increased revenues by $3.2 million
and Transit's equipment sales and financing subsidiary's revenues
rose $2.2 million versus 1992.
Line haul for the Household Goods division increased 1.5%,
resulting from a 3.2% increase in the average price per shipment,
offset by a 1.7% decline in the number of shipments handled. The
division's 3.2% increase in the average price reflects the higher
price associated with corporate account orders whose weight and
traffic characteristics favorably affect its average price. The
decrease in number of shipments was primarily affected by a
reduction in U.S. government and military orders versus last
year, which had been favorably impacted by the pent-up demand
which developed in 1991 following the Gulf War. Partially
offsetting this decrease in the number of shipments was a 4.2%
increase in the number of shipments to corporate accounts during
1993 versus 1992.
Line haul for the Electronics & Trade Show division
increased 9.3%, resulting from a 7.8% increase in the number of
shipments handled coupled with a 1.5% increase in the average
price per shipment. The increased number of shipments handled
reflects both an increase in the size of Transit's truckload
<PAGE>
fleet and the addition to Transit's agency network in 1993 of an
agency which handles a large number of electronic and tradeshow
orders.
Operating profit for the year was $5.7 million, compared to
a $13.2 million profit in the same period in 1992. Operating
profit was unfavorably affected by additional driver costs of
$2.7 million, increased advertising and sales expenses of $1.1
million, reduced profitability in Transit's International and
Moving and Storage divisions totalling $1.4 million, a $1.7
million increase in salaries and benefits costs, and $1.0 million
of additional amortization expense. Additional gross margin from
increased line haul revenue compared to the prior year was offset
by lesser increases in other expenses.
Transit's independent contract drivers have been adversely
impacted by downward price pressures over the past few years, as
well as higher equipment, insurance and fuel costs, resulting in
Transit having incurred higher contract driver turnover. Driver
turnover results in increased recruiting and training expenses,
bad debts and other operating and administrative costs.
Transit incurred increased sales and advertising costs
primarily resulting from new programs initiated in 1993 to
increase line haul revenues, especially in the corporate account
market.
The International division's margin was unfavorably
affected
by the slowdown in the European economy causing revenues to
remain constant compared to 1992, coupled with increased general
and administrative costs related to new programs which management
believes will favorably impact future revenues.
The Moving and Storage division's profitability was
unfavorably affected by start-up costs related to two agencies
opened in 1993, increased bad debt expenses and reduced margins
realized on local revenues at certain agencies.
Amortization expense increased in 1993 compared to 1992 by
$1.0 million primarily resulting from the shorter lives used to
amortize intangible assets beginning October 1992. On a pro
forma basis incorporating this change and the adoption of SFAS
109 as though they had occurred prior to 1992 (see Note 3 to
Consolidated Financial Statements), Transit's operating profit
decreased $6.0 million from $11.7 million in 1992 to $5.7 million
in 1993.
Unallocated Corporate Overhead
Unallocated corporate overhead was $1.1 million in both 1993
and 1992.
Net Interest Expense
<PAGE>
Net interest expense decreased by $2.9 million from 1992 to
1993. Most significantly, interest on the Registrant's
subordinated debentures (the "Debentures") decreased $1.7 million
as the Debentures and their related claim to interest payments
were converted to common stock under the Registrant's Plan of
Reorganization in 1992. Last year included interest on the
Debentures through January 27, the date the Plan of
Reorganization was filed with the Bankruptcy Court. The
remaining reduction in expense resulted primarily from increased
net interest income realized by Transit's equipment sales and
financing subsidiary and a reduction in average principal
outstanding compared to 1992.
Federal Income Taxes
In August 1993, the Omnibus Budget Reconciliation Act was
enacted which, among other things, resulted in an increase in the
maximum federal income tax rate from 34% to 35%. In accordance
with SFAS 109, the Registrant recorded a one-time charge to its
federal income tax provision of $405,000 during 1993 to reflect
the impact the higher federal tax rate has on its net deferred
federal income tax liability.
At December 31, 1993, the Registrant has net operating loss
carryforwards of $4.8 million for federal income tax purposes and
alternative minimum tax credit carryforwards of $3.2 million.
The net operating loss carryforwards expire in years 2003 and
2006, while the alternative minimum tax credit carryforwards have
an indefinite carryforward period. Because management believes
these carryforwards will be used prior to expiration, no
valuation allowance has been recorded. Transit also has a
capital loss carryforward of $2.6 million which will expire in
1994. Because of the uncertainty of the ability to generate
sufficient capital gains against which to use the capital loss,
this carryforward has been fully provided for in the valuation
allowance. Due to the Registrant's change in ownership resulting
from its Plan of Reorganization (see Note 2 to Consolidated
Financial Statements), the annual aggregate utilization of the
net operating loss carryforward and the capital loss tax
carryforward will be limited to approximately $6.0 million
annually.
Fiscal Year 1992 Compared with Fiscal Year 1991
Operating revenues for 1992 totaled $635.9 million, or an
increase of 6.2% over operating revenues of $599.0 million for
1991. Income before extraordinary gain increased $96.5 million
to $7.8 million for 1992. Additionally, the Registrant
recognized a $93.1 million extraordinary gain on conversion of
its Debentures to Common Stock in 1992 as part of the
Registrant's Plan of Reorganization as described in Note 2 to
Consolidated Financial Statements. The operating results for
1991 included a $69.0 million non-cash charge related to the
revaluation of certain intangible assets and $21.6 million of
interest expense related to the Registrant's Debentures, as
<PAGE>
described in Notes 6 and 2 to Consolidated Financial Statements,
respectively. Note 3 to Consolidated Financial Statements
presents pro forma financial information assuming these and
certain other events which occurred in 1991 and 1992 had occurred
as of December 31, 1990. On a pro forma basis, income before
extraordinary gain increased from $1.5 million in 1991 to $8.3
million in 1992.
Contract Services
Revenues for Contract Services for 1992 were $209.4 million
compared to $193.4 million for 1991, an increase of 8.3%.
Nonseasonal public transportation revenues increased $11.4
million, or 32.2%, compared to 1991. Contract Services was
awarded nine new public transportation contracts in 1992 which
contributed $9.8 million in revenues. Student transportation
revenues increased 2.9% from $158.1 million in 1991 to $162.6
million in 1992. Contractual price escalators contributed
approximately 4% of each segment's revenue increase.
Operating profits increased $6.0 million to $10.8 million in
1992. This increase was primarily attributable to a $4.9 million
margin improvement resulting from reduced accident costs,
decreases in driver wage and hiring costs of $2.3 million, a
decrease in fuel cost of $2.1 million and additional operating
profits of approximately $1.6 million resulting from the increase
in revenues discussed above. These favorable variances were
somewhat offset by increases in field administrative salaries and
benefit programs of $2.3 million, increases in miscellaneous
operating expenses of $500,000, a decrease in margin realized on
bus sales of $400,000 and $1.3 million of non-cash charges
resulting from the implementation of SFAS 109 and the reduction
in lives used to amortize excess reorganization value and
intangible assets, as discussed further below.
Transit
Transit's operating revenues for 1992 increased to $426.4
million, or by 5.1% over operating revenues for 1991. Line haul
revenues, the largest component of Transit's revenues, increased
$17.9 million, or 7.2%. The remainder of the revenue increase
was primarily due to an increase in accessorial revenues of $6.2
million, partially offset by a reduction in fuel surcharge
revenues of $2.5 million.
Line haul for Transit's Household Goods division increased
$12.1 million, or 6.8%, resulting from a 6.5% increase in the
number of shipments handled and a .3% increase in the average
price per shipment. The increase in number of shipments was
affected by a significant increase in U.S. military shipments
versus last year (which had been unfavorably impacted by the Gulf
War) and, to lesser extent, an increase in the number of COD
orders.
<PAGE>
Line haul for Transit's Electronics & Trade Show division
increased $5.8 million, or 8.1%, resulting from a 6.7% increase
in the number of shipments handled, coupled with a 1.4% increase
in the average price per shipment primarily due to an increase in
trade show business. Average price is affected by order size and
distance, which accounts for a portion of the price increase.
Accessorial revenues, which consist of packing, unpacking,
storage and other services performed in connection with line haul
transportation, increased during the year compared to 1991 due to
the increase in the number of shipments handled.
In 1991, the Registrant collected a fuel surcharge, which
was paid in its entirety to agents and owner-operators to help
offset a sharp increase in the amount they paid for fuel costs
prior to, during and after the Gulf War. This surcharge was
discontinued in late 1991 resulting in an unfavorable revenue
variance in 1992, though it had no impact on operating profit in
either year.
Operating profit for 1992 was $13.2 million, which is an
improvement of $2.4 million compared to 1991, excluding the $69.0
million charge in 1991 related to the revaluation of intangible
assets. This improvement resulted from the following factors:
-- Additional margin on the accessorial revenue and a reduction
in net cargo claims and casualty insurance costs improved
profits by $3.2 million. 1991 included an unusually high
provision in casualty insurance costs to increase reserves
for prior accidents.
-- Gross margin on line haul revenue for 1992 decreased by $3.1
million as $3.3 million in additional margin contributed by
the increased line haul was more than offset by an increase
in hauling commissions paid as a percentage of the line haul
revenues, as well as increased advertising costs and driver
recruiting expenses to promote and support the increased
revenues.
Various factors caused this unfavorable commission variance
including: (i) an increase in the number of drivers with
more than one year of service and the number of drivers with
higher performance ratings, both of which cause higher
hauling commission payments to the driver under Transit's
Pay for Performance program; (ii) increased deadhead
expenses paid to Transit's drivers due to traffic
imbalances; (iii) the unfavorable impact on hauling
commissions related to U.S. government orders (the higher
discounts on government orders resulted in a higher
percentage of revenue paid to the hauler as commission);
(iv) an increase in the proportion of Transit's agent
haulers compared to Transit's independent owner-operators
(agent haulers receive a commission which is higher than
independent owner-operators' commissions); and (v) increased
expenses paid to Transit's summer "collegiate" fleet.
<PAGE>
-- Improved profits in the Moving and Storage division of
approximately $500,000 due to increased profit margins and
increased revenues.
-- Overhead expenses decreased $1.0 million compared to the
same period last year, as reduced bad debt and amortization
expenses were only partially offset by increased salaries
and benefit costs.
-- Amortization expenses decreased during 1992 compared to 1991
by $800,000 resulting from the revaluation and resulting
decreased amortization of Transit's intangible assets as of
December 31, 1991, net of an increase in amortization
expense related to financing costs, amortization resulting
from adoption of SFAS 109, and the change in amortization
periods for the Registrant's intangible assets and excess
reorganization value effective October 1, 1992, as discussed
further below.
Unallocated Corporate Overhead
Unallocated corporate overhead decreased by $2.6 million for
1992 compared to the previous year. The variance primarily
reflects a decrease in professional fees related to the
Registrant's reorganization of $2.0 million and a decrease of
$900,000 in amortization expense related to the Debentures due to
the conversion of those Debentures to Common Stock in 1992.
These favorable variances were partially offset by an increase in
administrative expenses including insurance premiums and
professional fees.
Interest and Purchase Fee
Total purchase fee and net interest expense decreased by
$21.6 million to $9.7 million. Most significantly, interest on
the Debentures decreased $19.9 million as the Debentures and
their related accrued interest were converted to Common Stock.
In 1992, interest on the Debentures is included only through
January 27, 1992, the date the Plan of Reorganization was filed
with the Bankruptcy Court. Also, lower outstanding debt and
lower interest rates had a favorable effect on net interest
expense.
Federal Income Taxes
Effective April 1, 1992, the Registrant changed its method
of accounting for income taxes from the deferred to the liability
method required by SFAS 109. As permitted under the new rules,
prior years' financial statements have not been restated. The
cumulative effect of adopting SFAS 109 as of April 1, 1992 was to
decrease shareholders' investment by $8.9 million. For the nine
months ended December 31, 1992, application of the new accounting
method decreased pre-tax income and federal income tax expense by
approximately $2.1 million.
<PAGE>
Federal income tax expense (credit) is computed using an
annual estimated effective tax rate, adjusted quarterly. For
both 1992 and 1991, an effective rate which differs from the
statutory rate was used in recording federal tax expense. The
difference in rates is primarily the result of the amortization
of nondeductible intangible assets incurred at the time of
Group's formation in 1986, and nondeductibility of amortization
of the excess reorganization value resulting from the Plan of
Reorganization for 1992. With the adoption of SFAS 109 in April
1992, the amortization of intangible assets became deductible for
financial reporting purposes, resulting in an effective rate more
closely approximating the federal statutory rate.
Intangible Assets
Effective October 1, 1992, the Registrant changed the
amortization period for its intangible assets. Intangible assets
are now amortized over periods ranging from five to 35 years.
This change will decrease net income by $1.6 million annually in
future periods.
LIQUIDITY AND CAPITAL RESOURCES
Total cash decreased by $3.4 million from December 31, 1992
to December 31, 1993. Operating activities contributed $25.4
million, which was more than offset by the use of cash in
investing activities of $26.0 million and financing activities of
$2.8 million.
The $25.4 million in cash provided by operations was
primarily due to $26.5 million provided by net income, excluding
items not affecting cash. Cash provided by operations was
reduced by a $1.1 million change in certain working capital
items. Most significantly, cash used for an $11.0 million
increase in accounts receivables and for a $3.7 million increase
in equipment and inventory held for resale was somewhat offset by
cash provided by a $8.1 million increase in accounts payable and
a $7.6 million increase in the reserve for self-insured claims.
Other working capital items, net, represent a $2.1 million use of
cash.
The increase in accounts receivable mostly reflects an
increase in revenues at both Transit and Contract Services
compared to last year. Equipment and inventory held for resale
has grown due to an increase in the number of units held by
Transit's equipment sales and financing subsidiary largely
attributable to the higher level of driver turnover. The
increase in accounts payable largely represents a heightened
focus on cash management by the Registrant's two operating
subsidiaries. The Registrant increased its reserve for self-
insured claims largely due to the $4.9 million increase in
Contract Services' reserve related to claims which occurred prior
to 1991, as discussed earlier.
<PAGE>
During 1993, the Registrant used $26.0 million, net, for
investing activities. The Registrant used $30.2 million for the
purchase of property and equipment, primarily the purchase of
school buses by Contract Services and, to a lesser extent,
trailers and other transportation equipment by Transit. The net
increase of $8.9 million in non-current assets and non-current
liabilities, net of non-cash items, resulted from an increase of
$4.2 million in long-term notes receivable used to finance sales
by Transit's equipment sales and financing subsidiary (prior to
these notes receivable being sold, as discussed below) and lesser
increases in deferred debt costs related to the Registrant's
refinancing in the second quarter, as well as deferred start-up
costs and security deposits related to Contract Services' new
customer contracts. The Registrant also used $3.0 million
related to a purchase acquisition by Contract Services. Proceeds
from disposal of property and equipment, less gains included in
net income, totaled $2.1 million.
In December 1993, Transit's equipment sales and financing
subsidiary received $13.9 million in proceeds from the sale of
its long-term notes receivable described above to the same
creditors it had owed notes payable collateralized by those notes
receivable. The proceeds were used to fully repay the amounts
outstanding on the notes payable.
Total debt at December 31, 1993, was $97.7 million compared
to $100.2 million at December 31, 1992, representing a $2.5
million decrease in total debt during 1993. The Registrant
received $80.0 million from a new financing agreement, which was
one of three separate agreements consummated by the Registrant in
May 1993 to refinance previously existing debt. (See Note 7 to
Consolidated Financial Statements for further discussion of these
agreements.) Using the proceeds from the refinancing discussed
above, coupled with cash provided by operations, the Registrant
repaid $81.9 million of outstanding debt, including Transit's and
Contract Services' senior bank debt facilities totalling $52.0
million, Contract Services' short-term borrowing of $9.5 million,
certain of Contract Services' equipment obligations totalling
$17.5 million, and $2.9 million of other debt.
During 1993, Transit prepaid $10.0 million of its $15.0
million mortgage note payable collateralized by certain of
Transit's properties, including its headquarters facility. Also,
as discussed above, Transit used proceeds from its sale of
installment notes receivable to repay certain notes payable
totalling $13.9 million. The Registrant repaid $700,000 of other
debt during 1993.
The Registrant received $23.7 million proceeds from its
equipment financing agreements, used to finance the purchase of
buses by Contract Services and to fund long-term notes receivable
used to finance sales by Transit's equipment sales and financing
subsidiary (prior to the sale of these notes receivable).
At December 31, 1993, the Registrant has committed to
<PAGE>
approximately $19.4 million in capital purchases during 1994.
This includes $15.0 million, or 159 units, for school and transit
buses by Contract Services and $4.4 million for 175 trailers by
Transit.
The Registrant believes cash flow from operations combined
with existing financing resources will be adequate to meet its
short-term and long-term cash requirements. At December 31,
1993, the Registrant has a $15.7 million credit capacity
available under its revolving credit facility discussed in Note 7
to Consolidated Financial Statements.
SEASONALITY
Peak business levels for Contract Services occur during the
traditional school months of September through May. For example,
during 1993 approximately 86% of Contract Services'
transportation revenues were generated during these nine months.
At Transit, proportionately more household goods moves occur
during the summer months. During 1993, for example,
approximately 45% of the Household Goods division's revenues were
generated during the months of June through September.
Due to the seasonal impact of revenue being generated by
each of the Registrant's two operating subsidiaries as discussed
above, the Registrant historically realizes higher net income in
the second and fourth quarters than in the first and third
quarters of the year.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Following are the consolidated financial statements of the
Registrant as of December 31, 1992 and 1993, and for each of the
three years in the period ended December 31, 1993, and the
independent auditors' report on the consolidated financial
statements. A list of the report and financial statements
appears in response to Item 14 of this report:
[The remainder of this page was intentionally left
blank.]
<PAGE>
REPORT OF COOPERS & LYBRAND, INDEPENDENT ACCOUNTANTS
MAYFLOWER GROUP, INC.
Board of Directors
Mayflower Group, Inc.
We have audited the accompanying consolidated balance sheet
of Mayflower Group, Inc. as of December 31, 1993, and the related
consolidated statements of operations, shareholders' investment
and cash flows for the year then ended. We have also audited the
financial statement schedules listed in Item 14(a) of this Form
10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit.
The consolidated balance sheet of Mayflower Group, Inc. as of
December 31, 1992, the consolidated statements of operations,
shareholders' investment and cash flows for each of the two years
in the period ended December 31, 1992, and the related financial
statement schedules for such periods were audited by other
auditors whose report, dated February 1, 1993, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Mayflower Group, Inc. as of December 31,
1993, and the consolidated results of its operations and its cash
flows for the year then ended, in conformity with generally
accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered
in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information
required to be included therein.
/s/ Coopers & Lybrand
Indianapolis, Indiana
March 29, 1994
<PAGE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
Board of Directors
Mayflower Group, Inc.
We have audited the accompanying consolidated balance sheet
of Mayflower Group, Inc. as of December 31, 1992, and the related
consolidated statements of operations, shareholders' investment
and cash flows for each of the two years in the period ended
December 31,1992.Our audits also included the financial statement
schedules listed in the Index at Item 14(a) for the years ended
December 31,1992 and 1991.These financial statements and
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
As more fully described in Note 2, the financial statements as
of and for the year ended December 31, 1992 are not comparable
with those of 1991 as a result of the reorganization.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Mayflower Group, Inc. at December 31, 1992,
and the consolidated results of its operations and its cash flows
for each of the two years in the period ended December 31, 1992,
in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the
information set forth therein.
As described in Notes 1, 9 and 10 to the financial
statements effective April 1, 1992 (date of reorganization), the
Company changed its method of accounting for income taxes and
postretirement benefits.
/s/ Ernst & Young
Indianapolis, Indiana
February 1, 1993
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
MAYFLOWER GROUP, INC.
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands except per share data)
1993 1992 1991
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues:
Contract Services $ 235,918 $ 209,411 $ 193,442
Transit 441,575 426,444 405,600
--------- --------- ---------
677,493 635,855 599,042
Operating Expenses: --------- --------- ---------
Contract Services 210,949 186,189 178,022
Transit 365,144 348,658 331,175
General and administrative 84,380 78,102 77,992
--------- --------- ---------
Unusual Charges:
Self-insured claims adjustment (Note 4) 4,900 --- ---
Revaluation of intangible assets (Note 6) --- --- 69,019
--------- --------- ---------
Operating Profit (Loss) 12,120 22,906 (57,166)
Other Income and Expense:
Interest income 2,862 1,995 903
Interest expense (Note 2) (9,598) (11,656) (32,209)
Miscellaneous, net 32 234 (161)
--------- --------- ---------
Income (loss) before federal income
taxes and extraordinary items 5,416 13,479 (88,633)
--------- --------- ---------
Provision for federal income taxes (Note 9):
Current 2,966 3,679 ---
Deferred 15 1,965 ---
--------- --------- ---------
2,981 5,644 ---
--------- --------- ---------
<PAGE>
Income (loss) before extraordinary items 2,435 7,835 (88,633)
Extraordinary items (Note 5) (549) 93,141 ---
--------- --------- ---------
Net income (loss) $ 1,886 $ 100,976 $ (88,633)
========= ========= =========
Earnings Per Share (Notes 1B and 3): Pro Forma
Weighted average shares outstanding 12,740 12,646
Earnings Per Share before ext. items $ .19 $ .66
Extraordinary items (.04) ---
Earnings Per Share $ .15 $ .66
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
MAYFLOWER GROUP, INC.
<TABLE>
<CAPTION>
December 31
(Dollars in thousands)
1993 1992
------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current assets:
Cash (including cash equivalents at market value of
$5,814 in 1993 and $9,141 in 1992) $ 6,093 $ 9,449
Receivables (Note 7):
Trade receivables 74,136 72,041
Accrued unbilled accounts receivable 16,845 16,012
Other 15,814 11,260
Less allowance for possible collection losses (6,174) (6,178)
-------- -------
Total receivables 100,621 93,135
Equipment and inventory held for resale (Note 7) 8,911 5,190
Deferred income taxes (Note 9) 13,230 9,095
Prepaid expenses and deposits 8,147 8,180
-------- -------
Total current assets 137,002 125,049
-------- -------
Property and equipment (Note 7):
Land 2,175 2,155
Buildings and improvements 16,273 15,675
Revenue equipment 117,561 102,020
Other operating equipment and improvements 9,072 6,966
Less accumulated depreciation (30,334) (22,367)
-------- --------
Net property and equipment 114,747 104,449
Intangible assets (less accumulated amortization of
$6,852 in 1993 and $2,706 in 1992) (Note 1C) 53,372 55,085
Other assets 17,556 18,168
-------- --------
<PAGE>
$322,677 $302,751
======== ========
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
MAYFLOWER GROUP, INC.
<TABLE>
<CAPTION>
December 31
(Dollars in thousands)
1993 1992
------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Investment:
Current liabilities:
Current maturities of long-term debt $ 2,276 $ 11,608
Short-term borrowings (Note 7) --- 9,470
Trade accounts payable 39,141 31,112
Accrued expenses and deposits:
Liabilities on unbilled shipments 9,026 8,961
Reserve for self-insured claims (Note 4) 28,940 20,840
Salaries and withholding taxes 6,755 9,582
Other 11,667 9,479
--------- ---------
Total current liabilities 97,805 101,052
--------- ---------
Noncurrent liabilities:
Reserve for self-insured claims, less
current portion (Note 4) 11,210 9,195
Accrued postretirement benefits cost (Note 10) 5,621 4,948
Long-term debt, less current
maturities (Note 7) 95,407 79,149
Deferred income taxes (Note 9) 29,963 27,636
Commitments and contingencies (Note 11)
Shareholders' investment (Note 8):
Common shares; no par value; 30,000,000
authorized; issued and outstanding:
12,662,403 in 1993 and 12,630,344 in 1992 73,865 73,851
Retained earnings 8,806 6,920
<PAGE>
--------- ---------
Total shareholders' investment 82,671 80,771
--------- ---------
$ 322,677 $ 302,751
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
MAYFLOWER GROUP, INC.
<TABLE>
<CAPTION>
Additional Retained
Common Paid In Earnings
(In thousands) Stock Capital (Deficit)
------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1991 $ 23,346 $ 6,986 $ (30,551)
Net loss
--- --- (88,633)
Repurchase of common stock (58) --- ---
--------- --------- ---------
Balance, December 31, 1991 23,288 6,986 (119,184)
Income before extraordinary gain-
three months ended March 31, 1992 --- --- 915
--------- --------- ---------
Balance, March 31, 1992 23,288 6,986 (118,269)
Reorganization (Note 2):
Retired common stock (23,288) (6,986) 30,274
Extraordinary gain on exchange of
common stock for subordinated
debt --- --- 93,141
Capitalization of Company:
Issuance of new common stock 85,774 --- (5,146)
Cumulative effect of adopting
SFAS 109 (Note 9) (8,897) --- ---
Cumulative effect of adopting
SFAS 106 (Note 10) (3,026) --- ---
--------- --------- ---------
Balance, April 1, 1992 73,851 --- ---
Net income- nine months ended
December 31, 1992 --- --- 6,920
--------- --------- ---------
Balance, December 31, 1992 73,851 --- 6,920
Net income --- --- 1,886
Issuance of restricted shares, net of
<PAGE>
unearned compensation (Note 8) 14 --- ---
--------- --------- ---------
Balance, December 31, 1993 $ 73,865 $ --- $ 8,806
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
MAYFLOWER GROUP, INC.
<TABLE>
<CAPTION>
Years ended December 31
(In thousands)
1993 1992 1991
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities $ 25,392 $ 34,860 $ (22,459)
Investing activities (26,008) (12,398) (31,489)
Financing activities (2,740) (18,309) 53,831
(3,356) 4,153 (117)
Cash and cash equivalents-beginning of year 9,449 5,296 5,413
Cash and cash equivalents-end of year $ 6,093 $ 9,449 $ 5,296
Operating activities:
Net income (loss) (Note 5) $ 1,886 $100,976 $ (88,633)
Add items not affecting cash:
Extraordinary items 871 (93,141) ---
Revaluation of intangible
assets (Note 6) --- --- 69,019
Depreciation 18,203 17,712 16,589
Amortization and other 5,494 4,573 5,066
Changes in certain working capital items:
Receivables (10,997) (8,200) (3,109)
Equipment and inventory held for resale (3,721) 5,722 539
Prepaid expenses and deposits (1,899) 682 (1,161)
Trade accounts payable 8,029 3,516 29
Reserve for self-insured claims 7,611 (1,426) 2,116
Other accrued expenses and deposits (85) 4,446 22,084
Repurchase of sold receivables --- --- (39,675)
Payments on receivables
purchase facility --- --- (5,323)
Net cash provided by (used in)
operating activities $ 25,392 $ 34,860 $ (22,459)
Investing activities:
Purchases of property and equipment $(30,196) (9,160) $ (27,542)
Purchase acquisitions (2,966) --- ---
<PAGE>
Proceeds from disposal of property and
equipment, less gains included in net
income (loss) 2,096 1,837 1,441
Proceeds from sale of notes
receivable (Note 7) 13,913 --- ---
Increase in other noncurrent
assets (liabilities) (8,855) (5,075) (5,388)
Net cash used in investing activities $(26,008) $(12,398) $ (31,489)
Financing activities:
Payment of long-term debt $(96,988) $(29,288) $ (16,659)
Proceeds from long-term debt:
Term loan 80,000 --- 39,675
Equipment financing and other 23,718 12,529 19,853
Net change in revolving
credit agreements (9,470) (1,550) 11,020
Repurchase of common stock --- --- (58)
Net cash provided by (used in)
financing activities $ (2,740) $(18,309) $ 53,831
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAYFLOWER GROUP, INC.
Note 1- Summary of Significant Accounting Policies
A. Principles of Consolidation
The accompanying consolidated financial statements include
Mayflower Group, Inc. ("Group") and its subsidiaries (the
"Company"), all of which are wholly owned. The Company owns two
operating subsidiaries: Mayflower Contract Services, Inc.
("Contract Services") and Mayflower Transit, Inc. ("Transit").
All significant intercompany transactions and balances have been
eliminated.
B. Earnings Per Share
Since the historical capital structure of the Company is not
indicative of the Company's capital structure following its Plan
of Reorganization (Note 2), earnings per share is presented in
the statements of operations for the current year and pro forma
earnings per share is shown for the year ended December 31, 1992
only. The computation of earnings per share for the current year
is based upon the weighted average number of shares outstanding
and the dilutive effect of common equivalent shares issued under
the Stock Option and Restricted Stock Plans discussed in Note 8.
See Note 3 for discussion of the pro forma information.
C. Intangible Assets
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Customer base and agency network (less accumulated
amortization of $1,679 in 1993 and $729 in 1992) $17,804 $18,754
Reorganization value in excess of amounts allocated
to assets (less accumulated amortization of
$1,228 in 1993 and $444 in 1992) (Note 2) 14,285 15,068
Other intangible assets (less accumulated amortization
of $3,945 in 1993 and $1,533 in 1992) 21,283 21,263
------- -------
$53,372 $55,085
</TABLE>
Intangible assets are amortized by the straight-line basis over
periods ranging from 5 to 35 years.
D. Federal Income Taxes
Effective April 1, 1992, the Company adopted Financial
Accounting Standards Board Statement No. 109 "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires a significantly
different approach to the financial accounting and reporting of
income taxes than had been previously used and, in accordance
<PAGE>
with SFAS 109, the Company has chosen not to restate prior year
financial statements. Refer to Note 9 for further discussion of
SFAS 109. Prior to April 1, 1992, the Company computed income
taxes in accordance with Accounting Principles Board Opinion No.
11.
E. Post-retirement Benefits Other Than Pensions
Effective April 1, 1992, the Company adopted Financial
Accounting Standards Board Statement No. 106 "Employers'
Accounting for Post-retirement Benefits Other Than Pensions"
("SFAS 106"). SFAS 106 requires the Company to accrue for the
expected cost of Post-retirement benefits during the years an
employee renders service rather than the previous practice of
expensing such costs as incurred. Refer to Note 10 for further
discussion of SFAS 106.
F. Reserve for Self-insured Claims
The Company is self-insured for certain risks and is covered
by insurance policies for other risks. The Company maintains
reserves for losses and premium adjustments using case basis
evaluations and other analyses. Reserve and premium adjustment
estimates are continually reviewed and adjustments are reflected
in current operations. The Company recognizes the noncurrent
nature of the self insured claims reserves by classifying a
portion of these reserves as a noncurrent liability. See Note 4
for discussion of adjustment to self-insured claims reserves
recorded in 1993.
G. Recognition of Operating Revenues
Revenues and related direct expenses for Contract Services,
which is primarily involved in student transportation, are
recognized over the period during which the service is rendered,
which generally corresponds with the traditional nine month
school year.
Transit, which is primarily involved in the shipment of
household goods and electronic and trade show products,
recognizes revenue and associated transportation costs when the
order has been unloaded at the destination. Transit's equipment
financing subsidiary sells transportation equipment to certain of
its owner-operators and agents. Beginning in 1993, revenues
associated with these installment sales are recorded net of the
related cost of goods sold as an operating expense, with the
related gain on the sale being recognized on the installment
basis. Revenues and operating expenses for 1992 and 1991 have
been reclassified to conform with this presentation.
H. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. The carrying amount reported on the balance sheet
for cash approximates fair value.
I. Inventories
<PAGE>
Inventories are stated at the lower of cost or market as
determined for each specific unit.
J. Property and Equipment
Property and equipment is stated on a cost basis.
Depreciation is provided primarily by the straight-line method at
annual rates considered adequate to amortize the costs over the
estimated useful lives of the assets. The lives used in
computing depreciation during the periods were:
Building and improvements 3 to 40 years
Revenue equipment 3 to 10 years
Other operating equipment
and improvements 2 to 10 years
The portion of fleet operating buses used in the operations
of Contract Services and classified as property and equipment, is
based upon the Company's requirements for fleet buses to fulfill
existing contract requirements, including an estimate of reserve
buses necessary to ensure continuity of service based on
historical maintenance records and experience. The remaining
buses are classified as equipment and inventory held for resale.
K. Reclassification
Certain amounts within the 1992 and 1991 Consolidated
Financial Statements have been reclassified to conform with the
1993 presentation.
Note 2- Corporate Reorganization
Plan of Reorganization
Group was formed in 1986 for the purpose of acquiring
another company whose name was Mayflower Group, Inc. ("Old
Mayflower"), a holding company that owned 100% of the stock of
three operating subsidiaries: Contract Services, Transit, and
Mayflower Consumer Products, Inc. ("Consumer Products"). The
acquisition was completed in December 1986 in a two-step merger
(the "Merger"): a cash tender offer for all of the 7.9 million
outstanding common shares of Old Mayflower at $31.50 per share
followed by a merger of Old Mayflower into a wholly-owned
subsidiary of Group. To finance the acquisition, Group raised
approximately $330 million of debt financing, including a $110
million senior secured credit facility and $160 million through
private placement of 12 5/8% Senior Subordinated Debentures
("Debentures") with Warrants to purchase common stock of Group.
The remaining debt financing consisted of a secured bank loan to
a subsidiary of Contract Services. Group sold Consumer Products
in 1987 and eventually refinanced the senior secured credit
facility with secured credit facilities at Transit and Contract
Services.
Group is a holding company that relies upon the cash flow of
<PAGE>
its two operating subsidiaries to satisfy its obligations, which
through December 1990 consisted primarily of interest payments on
the Debentures. Following Group's financial reorganization,
discussed below, it had no significant obligations remaining.
From 1987 through 1991, operating results and cash flow generated
by Group and its operating subsidiaries were not sufficient to
pay significant amounts of principal on Group's senior debt or
allow Group to remain in compliance with all financial covenants
contained in the secured credit facilities. As a result,
beginning after December 1990, Contract Services and Transit
were prohibited by terms of the secured credit facilities from
making any further cash dividend payments to Group for the
purposes of servicing interest payments on its Debentures.
Consequently, the two scheduled semiannual interest payments on
the Debentures of $10.1 million each were not made in 1991
resulting in a default under the provisions of the related
indenture. After various restructuring proposals were considered
in early 1992, Group's Debenture holders, along with Group's
common stock and warrant holders, overwhelmingly approved a
Prepackaged Plan of Reorganization ("Plan of Reorganization").
The Plan of Reorganization was confirmed by the court and became
effective in March 1992. Under the Plan of Reorganization, the
holders of the Debentures received shares of newly issued common
stock equal to approximately 94% of the common stock of Group.
The existing holders of the common stock and warrants of Group
received shares of newly issued common stock equal to
approximately 5% of the common stock of Group. Two other
creditors received approximately 1% of the common stock as
payment in lieu of cash for services in connection with the Plan
of Reorganization. The Plan did not affect Contract Services or
Transit.
Basis of Presentation
Group emerged from the Plan of Reorganization on March 24,
1992, successfully completing Group's financial reorganization.
Because the results of operations from March 25, 1992 to March
31, 1992 were not significant, the Company has used March 31,
1992 as the effective date of the Reorganization for accounting
purposes. Accordingly, the Consolidated Statements of Operations
and Cash Flows for the year ended December 31, 1992 reflect the
results of operations of the Company prior to reorganization for
the three months ended March 31, 1992 and the operations of the
Company after reorganization for the nine months ended December
31, 1992. The Consolidated Balance Sheet at December 31, 1992
reflects the financial position of the Company subsequent to
reorganization. The Consolidated Statements of Operations and
Cash Flows for the year ended December 31, 1991 reflects the
financial position and results of operations of the Company prior
to reorganization. See discussion of pro forma financial
information contained in Note 3.
Accounting Treatment Using Fresh Start Reporting
The Company accounted for the Reorganization using Fresh
<PAGE>
Start Reporting, in accordance with Statement of Position (SOP)
90-7 (Financial Reporting by Entities in Reorganization under the
Bankruptcy Code) issued by the AICPA. Accordingly, all assets
and liabilities were adjusted to reflect their estimated
reorganization value, which approximated Group's book value less
liabilities at the date of reorganization. This resulted in
reorganization value in excess of amounts allocated to assets of
$16.7 million, which is comparable to the amount of goodwill
existing prior to reorganization. The reorganization value of
Group, less liabilities, was determined to be approximately $86
million at March 31, 1992. This value was determined to fall
within an acceptable range developed by considering several
factors and relying upon various valuation methods including
discounted values of estimated future cash flows, earnings
multiples as appropriate in the two industries in which Transit
and Contract Services operate, and other recent financial
transactions. Forecasts used in earnings and cash flow
estimates assumed revenue and cost patterns similar to historical
levels in recent years.
The most significant of the reorganization adjustments
reduced Long-Term Debt by $155.1 million and Accrued Interest by
$23.6 million, and increased Shareholders' Investment by $173.8
million, including the elimination of a retained deficit totaling
$118.3 million prior to the Reorganization. The conversion of
the Debentures to common stock resulted in an extraordinary gain
totaling $93.1 million. In accordance with SOP 90-7, the
Consolidated Statement of Operations for the year ended December
31, 1992 includes $1.7 million of interest expense related to the
Debentures, representing the amount accrued in 1992 and shown as
part of a claim on the petition filed with the court.
Note 3- Pro Forma Financial Information (Unaudited)
During 1992 and 1991, certain events occurred that result in
the Consolidated Financial Statements not being comparable
between the respective fiscal periods. As presented below, the
pro forma net income excludes credits and charges relating to a)
the corporate reorganization in March 1992 as discussed in Note 2
(which resulted in the exchange of common stock for subordinated
debentures significantly increasing the equity and decreasing the
debt of the Company) and b) the write-down of Transit's
intangible assets of $69.0 million in December 1991 as discussed
in Note 6. It also includes a) additional expense relative to the
adoption of SFAS 109 and SFAS 106 (actual adoption date was April
1, 1992), and b) additional expense relative to the adoption of
shorter lives of intangible assets and excess reorganization
value to reflect the prevailing useful lives of similar assets
(actual adoption date was October 1, 1992) as if these events and
their related adjustments had occurred as of December 31, 1990.
The effects of these pro forma adjustments result in the
following pro forma operating profit, net income, and earnings
per share for the years ended December 31, 1992 and 1991:
<PAGE>
<TABLE>
Year ended December 31
1992 1991
-----------------------------------------------------------------
(In thousands except per share data)
<S> <C> <C>
Operating revenues $635,855 $599,042
Operating profit $ 21,066 $ 12,584
Net income $ 8,336 $ 1,465
Weighted average shares outstanding 12,646 12,646
Earnings per share $ 0.66 $ 0.12
</TABLE>
Pro forma earnings per share is based on the number of
shares issued and outstanding as a result of the Plan of
Reorganization.
The pro forma financial information should be read in
conjunction with the related historical financial statements, and
is not necessarily indicative of results of operations that would
have occurred had the events giving rise to the pro forma
adjustments actually taken place earlier.
Note 4 - Self-Insured Claims Adjustment
As discussed in Note 1F, the Company is self-insured for
certain risks and, accordingly, maintains reserves for losses and
premium adjustments which are determined using case basis
evaluations and other analyses. Based on a review by management
during the fourth quarter of 1993 of the calculations underlying
the reserve for self-insured claims, the Company has determined
that the portion of the reserve attributable to claims incurred
by Contract Services prior to 1991 was $4.9 million below an
appropriate level. As a result, the Company recognized $4.9
million, or $3.0 million net of tax, in additional self-insured
claims expense, which had the effect of reducing earnings per
share in 1993 by $.23. Management believes that the annual
<PAGE>
expense related to risks incurred under the self-insurance
program since January 1, 1991, excluding this adjustment, has
been sufficient to provide for anticipated losses, and that the
magnitude of this expense is such that this adjustment represents
a one-time nonrecurring increase to its reserve for self-insured
claims.
Note 5- Extraordinary Items
In May 1993, the Company refinanced its primary debt
facilities which were scheduled to mature in 1994 (Note 7). Such
refinancing resulted in the write-off of $549,000 of deferred
debt costs, net of tax, which has been accounted for as an
extraordinary loss.
In 1992, the Company recognized an extraordinary gain
totaling $93.1 million, resulting from the conversion of the
Company's debentures to common stock in conjunction with its Plan
of Reorganization (Note 2).
Note 6- Revaluation of Intangible Assets
The revaluation of intangible assets in 1991 represents a
non-cash charge to operations that does not relate directly to
normal ongoing business activity and, in the opinion of
management, is nonrecurring. In 1986, the Merger (Note 2) was
accounted for as a purchase and, accordingly, the assets and
liabilities were adjusted to their estimated fair values based
upon independent appraisals and business conditions at that time.
During the final analysis and evaluation of various restructuring
proposals, which were completed in 1991, the Company determined
that the recorded value of Transit's goodwill and intangible
assets were stated in excess of current market value.
Accordingly, during 1991, goodwill and intangible assets were
adjusted to reflect a write down of $37.8 million and $31.2
million, respectively.
Note 7- Financing Agreements
Long-term debt consists of the following:
<TABLE>
<CAPTION> December 31
1993 1992
Collateralized Debt: (In thousands)
<S> <C> <C>
Senior secured term loans, interest rates and terms
vary through April 2003, as discussed below,
collateralized by substantially all of the
assets of Contract Services and Transit and
guaranteed by the Company $ 80,000 $ ---
Mortgage note payable of Transit, 11%, interest only
payable in monthly installments through 1997,
<PAGE>
collateralized by land and buildings 5,000 14,960
Notes payable of Contract Services, interest at 7.5%,
payable in monthly installments through 1998,
collateralized by certain buses of Contract Services 11,735 ---
Senior secured term loan of Transit, interest at 7.75%,
refinanced in 1993 as discussed below --- 29,200
Senior secured term loans of Contract Services,
interest ranging from 8% to 11%, refinanced in 1993
as discussed below --- 22,301
Notes payable of Contract Services, interest varying
between 10.25% and 11.6%, refinanced in 1993 as
discussed below --- 14,330
Notes payable of Transit, interest varying between
7% and 7.5%, repaid in 1993 as discussed below --- 8,841
Uncollateralized Debt:
Other notes payable, various interest rates, payable
in installments through 2003 948 1,125
-------- --------
97,683 90,757
Less current maturities (2,276) (11,608)
-------- --------
$ 95,407 $ 79,149
======== ========
</TABLE>
Maturities on long-term debt during each of the next five
years ending December 31, are as follows (in thousands):
1994 $ 2,276
1995 2,521
1996 2,521
1997 16,807
1998 15,126
Thereafter 58,432
--------
$ 97,683
========
<PAGE>
New Financing Agreements
Effective May 27, 1993, the Company consummated three
separate agreements for refinancing certain of its debt
facilities which were scheduled to expire in 1993 and 1994.
The first agreement was for an $80 million term loan from a
group of lenders, the proceeds of which were used both to
refinance existing obligations to secured lenders of Contract
Services and Transit, and for working capital purposes. The term
loan has two separate facilities. The first facility is for $65
million and has a ten-year maturity with interest only payments
required in the initial three years. Amortization of principal
begins in year four with equal annual installments through April
2003. Interest on this facility is to be paid quarterly, and is
fixed at 9.5% per annum. The second facility is for $15 million
and has a seven-year maturity with repayment of principal
occurring in eight equal quarterly installments during years six
and seven through April 2000. Interest on this facility is to be
paid quarterly, and is computed using LIBOR plus 2.8% per annum,
which was 6.3% at December 31, 1993.
The second financing agreement was for a $25 million loan
facility to be used by Contract Services to finance the
acquisition of new school buses over a period of approximately
two years. At December 31, 1993, $11.7 million was outstanding
under this loan facility. Periodic fundings under this agreement
convert to five-year term notes when the amount outstanding
exceeds $5 million, with no term note maturing later than
September, 1999. The term notes bear interest at the prime rate
plus 1.5% per annum, which was 7.5% at December 31, 1993.
Alternatively, the Company may elect to fix the interest rate at
the time each funding converts to a term note. The notes will be
collateralized by a lien on the purchased school buses.
Through the third agreement, a group of banks provide the
Company with a $70 million revolving credit facility. The
facility, which has a maturity date of June 1995, will be used
for letters of credit and seasonal working capital purposes. At
December 31, 1993, the Company has letters of credit totaling
$54.3 million, and no borrowings were outstanding under its line
of credit. Interest is to be paid monthly, and is computed using
the prime rate plus 1.5% per annum. The facility does not require
compensating balances but does require the payment of a
commitment fee at an annual rate of .375% of the unused portion
of the facility and a fee of 2% per annum of the amount of
letters of credit outstanding.
The first and third financing facilities discussed above are
collateralized by substantially all of the assets of Transit and
Contract Services and guaranteed by the Company.
Effective December 31, 1993, the Company entered into two
new agreements to sell $13.9 million of installment notes
receivable of Transit's equipment sales and financing subsidiary
<PAGE>
to the same creditors which had previously financed such notes
receivable. The Company recognized no gain or loss on the sale of
the notes receivable and proceeds were used to fully repay
amounts outstanding under the related notes payable.
Financial Covenants and Restrictions
Under terms of the financing agreements with senior lenders,
the ability of Contract Services and Transit to transfer cash to
Group is limited to required income tax payments and $1.5 million
annually for on-going cash expenses. The financing agreements
also contain various restrictive financial covenants that, among
other things, prohibit cash dividend payments, restrict property
and equipment additions, restrict certain additional
indebtedness, and require the maintenance of certain financial
ratios.
Other
Interest paid during 1993, 1992 and 1991 totaled $8.3
million, $9.9 million, and $9.6 million, respectively.
The carrying value of the Company's borrowings does not
significantly differ from its fair value. The fair value of the
Company's long- term debt is estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements.
Note 8- Common Stock
Stock Option Plan
In 1992, the Company established two Stock Option Plans
("Option Plans"). The Option Plans provide for the issuance of
530,000 shares of common stock, no par value, to directors of the
Company and officers and key employees of the Company and its
subsidiaries. Options granted under the Option Plans become
exercisable in 33.3% increments on the first, second and third
anniversaries of the date of grant and must be exercised within
ten years from the date of grant. As of December 31, 1993,
336,500 options are outstanding including options to acquire
159,500 shares of common stock at an exercise price of $6.875 per
share and options to acquire 177,000 shares of common stock at an
exercise price of $9.00 per share. In 1993, options to acquire
53,167 shares of the common stock at $6.875 per share became
exercisable. No options have lapsed or were exercised in 1993 or
1992.
Restricted Stock Plan
In 1993, the Company adopted a restricted stock plan whereby
key employees were granted restricted shares of the Company's
stock. Shares were granted in the name of the employee, who has
<PAGE>
all rights of a shareholder, subject to certain restrictions or
forfeitures. Restrictions on the grants expire on the third
anniversary of the date of the grant. During 1993, 17,000 shares
were granted. As of December 31, 1993, there were 8,000 shares
available for grant.
The market value of shares granted under the plan has been
recorded as unearned compensation and is presented as a reduction
in the value of common stock. Compensation expense will be
charged to general and administrative expense over the respective
three-year vesting period. Such compensation expense was $14,000
in 1993.
Note 9- Federal Income Taxes
Effective April 1, 1992, the Company changed its method of
accounting for income taxes from the deferred to the liability
method required by SFAS 109. As provided by SFAS 109, financial
statements have not been restated. The cumulative effect of
adopting SFAS 109 as of April 1, 1992 was to decrease
shareholders' investment by $8.9 million. For the nine months
ended December 31, 1992, application of the new accounting method
decreased income before federal income taxes and federal income
tax expense by approximately $2.1 million.
Federal income taxes paid totaled $4.5 million, $4.2
million, and $.4 million in 1993, 1992 and 1991, respectively.
At December 31, 1993, the Company has net operating loss
carryforwards of $4.8 million and alternative minimum tax credit
carryforwards of $3.2 million for federal income tax purposes.
The net operating loss carryforwards expire in years 2003 and
2006, while the alternative minimum tax credit carryforwards have
an indefinite carryforward period. Because management believes
these carryforwards will be used prior to expiration, no
valuation allowance has been recorded. Transit has a capital loss
carryforward of $2.6 million. The capital loss carryforward will
expire in 1994. Because of the uncertainty of the ability to
generate sufficient capital gains against which to utilize the
capital loss, this carryforward has been fully provided for in
the valuation allowance. Due to the Company's change in ownership
resulting from its Plan of Reorganization (Note 2) the annual
aggregate utilization of the net operating loss carryforward and
the capital loss tax carryforward will be limited to
approximately $6.0 million annually.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for federal income tax purposes. Significant components of the
Company's noncurrent and current deferred taxes as of December
31, 1993 are as follows (in thousands):
<TABLE>
<S> <C>
<PAGE>
Net noncurrent deferred tax liabilities:
Excess tax depreciation $ 19,184
Intangible assets 14,643
Fair value of assets in excess of book value 5,340
Tax Credit carryforwards (3,468)
Noncurrent portion of reserve for self-insured claims (3,583)
Noncurrent portion of valuation allowance for deferred tax assets 341
Other, net (2,494)
--------
Total net noncurrent deferred tax liabilities 29,963
--------
Net current deferred tax assets:
Current portion of reserve for self-insured claims 7,881
Current portion of net operating loss carryforwards 1,885
Allowance for possible collection losses 2,379
Current portion of valuation allowance for deferred tax assets (659)
Other, net 1,744
--------
Total net current deferred tax assets 13,230
--------
Net deferred tax liabilities $ 16,733
========
</TABLE>
For 1991, the Company did not provide for any deferred
income taxes on timing differences in the recognition of revenues
and expenses for tax and financial statement purposes, due to the
absence of taxable income after consideration of net operating
loss carryforwards.
For 1993, 1992, and 1991, effective rates that differed from
the U.S. federal statutory rates were used in recording federal
tax expense. The primary reasons for these differences are as
follows. For 1993, the Company recorded additional income tax
expense to reflect the cumulative effect on the net deferred
income tax liability of tax rate increases, as required by SFAS
No. 109, primarily as a result of the enactment in August 1993 of
Omnibus Budget Reconciliation Act. Also in 1993, the Company
recorded additional income tax expense to eliminate a federal
<PAGE>
income tax receivable from prior years which was determined to be
unrealizable. In 1993, 1992 and 1991, a difference in rates was
created as a result of the nondeductibility of amortization of
intangible assets. These intangible assets were created at the
time of Group's formation in 1986 and were also generated by the
excess reorganization value resulting from the Plan of
Reorganization for 1992. The following table summarizes the
differences between the statuary federal income tax rate and the
effective tax rate provided in the Consolidated Statements of
Operations.
<TABLE>
<CAPTION>
Years ended December 31
1993 1992 1991
<S> <C> <C> <C>
Statutory rate (credit) 35.0% 34.0% (34.0)%
Increase (decrease) in rate due to:
Amortization of non-deductible acquisition costs 5.2 6.3 3.1
Effect of revaluation of intangible assets --- --- 26.5
Loss not utilized in current year --- --- 3.5
Cumulative effect of tax rate increases 9.8 --- ---
Elimination of prior year federal income
tax receivable 8.2 --- ---
Other, net (3.2) 1.6 0.9
----- ----- ------
55.0% 41.9% ---%
===== ===== ======
</TABLE>
Federal income taxes currently payable are remitted to Group
in the form of dividends from Transit and Contract Services based
upon the separate liability of each segment, but limited to the
consolidated liability. The benefit of consolidation, if any,
upon the current liability is shared ratably between Transit and
Contract Services.
Note 10- Pension Plans and Other Post-retirement Benefits
Pension Plans
Transit sponsors a noncontributory defined benefit pension
plan that covers full-time Transit employees. Benefits are based
on years of service and compensation during the five highest
consecutive years of earnings before retirement. The Company's
policy is to fund actuarially determined amounts adequate to meet
future benefit payment requirements.
At December 31, 1993, plan assets consisted of U.S.
government and corporate bonds, listed stocks, and cash
equivalents.
Net pension cost for the Company's defined benefit pension
plan included the following components:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 583 $ 503 $ 608
Interest cost on projected benefit obligation 1,467 1,355 1,363
Actual return on plan assets (1,521) (1,396) (3,107)
Net amortization and deferral (519) (565) 1,237
Lump-sum settlement --- --- 82
------ ------ ------
$ 10 $ (103) $ 183
======= ======= ======
</TABLE>
The funded status and amount recognized in the Consolidated
Balance Sheets at December 31, 1993 and 1992 were as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation (including
vested benefits of $17,708 in 1993 and
$14,793 in 1992) $(18,150) $(15,154)
Effect of projected future compensation
increases (2,533) (2,159)
-------- --------
Projected benefit obligation for service rendered
through December 31 (20,683) (17,313)
Plan assets at fair value 20,553 19,912
-------- --------
Plan assets in excess of (less than)
projected benefit obligation (130) 2,599
Unrecognized net loss 2,887 208
Unrecognized net assets at December 31 (1,360) (1,632)
Unrecognized prior service cost (reduction) (306) (295)
-------- --------
<PAGE>
Prepaid pension cost $ 1,091 $ 880
======== ========
</TABLE>
The discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.5% and 8.5% at
December 31, 1993 and 1992, respectively. The rate of future
compensation increases used was 5% and 6% at December 31, 1993
and 1992, respectively. The weighted average expected long-term
rate of return on plan assets in 1993, 1992, and 1991 was 9.0%.
Contract Services sponsors a defined contribution profit
sharing plan covering substantially all full-time employees.
Contributions to this plan are made by Contract Services based
upon a discretionary contribution formula. Contract Services
expensed $170,000 and $350,000 in connection with this plan in
1993 and 1992, respectively. No amount was expensed in 1991.
Other Postretirement Benefit Plans
Effective April 1, 1992, the Company adopted SFAS 106. In
accordance with SOP 90-7, the cumulative effect of the accounting
change was recognized as a $3.0 million reduction in
shareholders' investment ($.24 per share). In prior years, the
Company had recognized the expense related to these benefits as
they were paid. As the effect on net income of adopting SFAS 106
was not significant, postretirement benefit cost for prior
periods has not been restated.
The Company's contributory defined benefit postretirement
plans make available health and life insurance benefits to the
majority of the Company's retirees and their eligible dependents.
The postretirement plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing
features such as deductibles and co-insurance. Eligibility for
these benefits is based upon retirement from the Company as well
as those retirees having met certain age and vesting service
requirements.
<PAGE>
The Company provides contributions to the plan as necessary
to fund the plan's current benefits and expenses.
Net postretirement benefit expense for the Company included
the following components for the year ended December 31, 1993 and
the nine months ended December 31, 1992 (in thousands):
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Service cost-benefits earned
during the year $ 190 $ 110
Interest cost on accumulated post-
retirement benefit obligation 437 305
Amortization of Loss 33 ---
Amortization of Prior Service Cost (10) ---
----- -----
Net periodic postretirement benefit cost $ 650 $ 415
===== =====
</TABLE>
The funded status and amounts recognized in the Consolidated
Balance Sheets for the Company's defined benefit postretirement
plans at December 31, 1993 and 1992, were as follows (in
thousands):
<TABLE>
<CAPTION>
Accumulated postretirement benefit obligation: 1993 1992
------- -------
<S> <C> <C>
Retirees $ 4,183 $ 3,773
Fully eligible active plan participants 635 346
Other active plan participants 1,416 829
------- -------
6,234 4,948
Unrecognized net loss (613) ---
Plan assets at fair value --- ---
Accumulated postretirement benefit obligation
in excess of plan assets $ 5,621 $ 4,948
======= =======
</TABLE>
For measurement purposes, the weighted average discount rate
used in determining the accumulated postretirement benefit
obligation was 7.5% in 1993 and 8.5% in 1992. The Company's
health care cost trend rate is 11% for 1994 and is assumed to
gradually decrease to approximately 8% by the year 2000 and
remain approximately at that level thereafter. If these trend
rates were to be increased by one percent each year, the December
31, 1993, accumulated postretirement benefit obligation would
increase by $1.1 million and the aggregate of the service and
<PAGE>
interest cost components of 1993 annual expenses would increase
by $166,000.
Note 11- Commitments and Contingencies
During 1993, the Company agreed to a settlement of two class
action lawsuits which had been filed against it in 1986 and 1989
on behalf of the shareholders of Old Mayflower. The complaints
had alleged that the directors of Old Mayflower had breached
their fiduciary obligation by entering into the Merger, discussed
in Note 2. The Company and other defendants in these suits
believe the plaintiffs' claims to be without merit. Because of
the costs associated with defending these actions, however, the
Company agreed to settle the two lawsuits. The settlement is
subject to approval by the courts. The maximum amount of the
settlement will be $1.5 million, net of approximately $600,000
contributed by the Company's insurance carrier. The Company will
pay approximately $100,000 in cash, and the remainder, not to
exceed $1.4 million, in the form of unsecured subordinated notes
which mature in ten years.
Contract Services and Transit become involved from time to
time in various actions that are incidental to the ordinary
course of their businesses, including property damage and
personal injury claims. Management believes that the disposition
of these matters will not have a material adverse effect on the
financial position of the Company.
The Company has guaranteed aggregate rental and certain
residual values under various leasing arrangements entered into
by the Company's subsidiaries. It also has guaranteed the
collection of certain installment notes receivable, which were
sold by Transit's equipment sales and financing subsidiary. The
contingent liability resulting from these guarantees totaled
approximately $44.9 million at December 31, 1993. The Company
has a right to property and equipment which serves as collateral
against these contingent obligations that, the Company believes,
would substantially offset any potential obligation.
The Company's operating subsidiaries lease certain
transportation equipment and warehouse facilities, as well as
data processing and other office equipment. Generally, these
leases require the Company's operating subsidiaries to pay
maintenance and insurance costs. There are no significant
capital leases. Total rent expense was $25.8 million, $23.9
million, and $22.7 million for 1993, 1992, and 1991,
respectively. Future minimum lease payments on noncancellable
operating leases are as follows (in thousands):
1994 $ 22,076
1995 18,562
1996 14,088
1997 5,961
<PAGE>
1998 2,074
Thereafter 1,753
----------
$ 64,514
==========
At December 31, 1993, the Company has committed to
approximately $19.4 million in capital purchases during 1994.
This includes $15.0 million, or 159 units, for school and transit
buses by Contract Services and $4.4 million for 175 trailers by
Transit.
<PAGE>
Note 12- Segments of Business
<TABLE>
<CAPTION>
Contract
Services Transit Corporate Consolidated
(In thousands)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Operating revenues $ 235,918 $ 441,575 $ 677,493
========= ========= =========
Operating profit (loss) $ 7,471(Note 4) $ 5,738 $ (1,089) $ 12,120
========= ========= =========
Net interest expense (6,736)
Miscellaneous, net 32
---------
Income before federal income
taxes and extraordinary items 5,416
=========
Depreciation and amortization $ 15,437 $ 8,260 $ --- $ 23,697
========= ========= ========= =========
Capital expenditures $ 22,539 $ 7,657 $ --- $ 30,196
========= ========= ========= =========
Identifiable assets at December 31 $ 159,249 $ 161,369 $ 2 ,059 $ 322,677
========= ========= ========= =========
Year ended December 31, 1992
Operating revenues $ 209,411 $ 426,444 $ 635,855
========= ========= =========
Operating profit (loss) $ 10,840 $ 13,208 $ (1,142) 22,906
========= ========= =========
Net interest expense (9,661)
Miscellaneous, net 234
---------
Income before federal income
taxes and extraordinary items $ 13,479
=========
Depreciation and amortization $ 14,945 $ 7,267 $ 73 $ 22,285
========= ========= ========= =========
<PAGE>
Capital expenditures $ 6,295 $ 2,865 $ --- $ 9,160
========= ========= ========= =========
Identifiable assets at December 31 $ 136,551 $ 164,180 $ 2,020 $ 302,751
========= ========= ========= =========
Year ended December 31, 1991
Operating revenues $ 193,442 $ 405,600 $ 599,042
========= ========= =========
Operating profit (loss) (Note 6) $ 4,829 $ (58,221) $ (3,774) $ (57,166)
========= ========= =========
Net interest expense and purchase
fee on receivables sold (31,306)
Miscellaneous, net (161)
---------
Income (loss) before federal income
taxes and extraordinary items $ (88,633)
=========
Depreciation and amortization $ 12,236 $ 8,411 $ 1,008 $ 21,655
========= ========= ========= =========
Capital expenditures $ 26,183 $ 1,359 $ --- $ 27,542
========= ========= ========= =========
Identifiable assets at December 31 $ 139,203 $ 160,903 $ (1,161) $ 298,945
========= ========= ========= =========
</TABLE>
<PAGE>
Contract Services engages in passenger transportation
service businesses, primarily contract public school busing and,
to a lesser extent, municipal transit and paratransit
contracting. Transit primarily operates as a common carrier and a
contract carrier under ICC authority, engaging in the shipment
and storage of household goods, electronic, trade show, and other
commercial products for individual and corporate customers.
Other operations sell and finance transportation equipment to
Transit's agents and owner-operators, and sell and underwrite
commercial lines of insurance coverage.
Operating profit represents operating revenue less operating
expenses. In computing operating profit, interest expense,
purchase fee on receivables sold, gains on the sale of property
and equipment (other than sales of new and used buses) and
federal income taxes have not been included.
Corporate assets primarily include deferred debt costs,
prepaid federal income taxes and cash.
Both Contract Services and Transit operate throughout the
United States with no significant geographic emphasis. No single
customer accounts for 10% or more of the consolidated operating
revenues, and export sales to foreign unaffiliated customers are
immaterial to consolidated operating revenues.
Note 13- Related Party Transactions
Four directors of the Company, prior to its reorganization,
were associated with firms that are shareholders of the Company
and which provided financial services in relation to the Merger
and Plan of Reorganization. The Company incurred fees of
$871,000 during 1991 related to services provided by those firms.
No fees were incurred in 1993 and 1992.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
(Dollars in thousands except per share data)
December 31 1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $677,493 $635,855 $599,042 $633,985 $639,309
Net income (loss) Notes 2, 4 and 5) 1,886 100,976 (88,633) (9,988) (1,798)
Total assets 322,677 302,751 298,945 328,424 353,244
Long-term obligations
(Notes 2 and 6) 95,407 79,149 234,529 201,470 212,970
Per share data (Notes 1b and 3):
Earnings Per Share $ .15
Pro forma Earnings Per Share $ .66 $ .12 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Quarterly Financial Data (Unaudited)
(In thousands except per share data)
Quarters ended March 31 June 30 Sept. 30 Dec. 31
---------------------------------------------------------------------------------------------
(Note 4)
1993
<S> <C> <C> <C> <C>
Operating revenues $152,971 $168,609 $180,772 $175,141
======== ======== ======== ========
Operating profit $ 3,276 $ 6,617 $ 1,800 $ 427
======== ======== ======== ========
Income before extraordinary loss $ 925 $ 3,348 $ (379) $ (1,459)
<PAGE>
======== ======== ======== ========
Net income $ 925 $ 2,799 $ (379) $ (1,459)
======== ======== ======== ========
Earnings per share:
Before extraordinary loss $ .07 $ .26 $ (.03) $ (.11)
Extraordinary loss --- (.04) --- ---
-------- -------- -------- --------
Net income $ .07 $ .22 $ (.03) $ (.11)
======== ======== ======== ========
Weighted avg. shares outstanding 12,708 12,713 12,741 12,761
1992 Pro Forma (Note 3)
Operating revenues $144,975 $155,264 $172,634 $162,982
======== ======== ======== ========
Operating profit $ 4,880 $ 6,383 $ 1,102 $ 8,701
======== ======== ======== ========
Net income (loss) $ 1,604 $ 2,826 $ (347) $ 4,253
======== ======== ======== ========
Earnings (loss) per share $ .13 $ .22 $ (.03) $ .34
======== ======== ======== ========
Weighted avg. shares outstanding 12,646 12,646 12,646 12,646
<FN>
Beginning in the fourth quarter of 1993, operating revenues associated with installment sales of certain
transportation equipment by a subsidiary of Transit have been recorded net of the related cost of goods sold
as an operating expense. The related gain on the sale is being recognized on the installment basis.
Quarterly financial data for 1993 and 1992 have been restated to conform with this presentation. Operating
revenues, compared to those previously reported, have been reduced by $4,956,000, $14,373,000, and
$5,448,000 in the first, second, and third quarters, respectively, of 1993 as a result of this restatement.
Operating revenues have been reduced by $2,245,000, $7,918,000, $4,553,000, and $4,113,000 for the first,
second, third, and fourth quarters, respectively, for 1992.
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Commencing with fiscal year 1993, Coopers & Lybrand
replaced
Ernst & Young as the Company's independent public accountant.
This change was made after management and the Audit Committee
reviewed bids for performing such service received from four
public accounting firms, including Ernst & Young. Based on the
review of the competing bids, management and the Audit Committee
believed that Coopers & Lybrand would provide the services
required by the Company at a lower cost. The appointment of
Coopers & Lybrand to examine the financial statements of the
Company for fiscal year 1993 was ratified by the shareholders of
the Company at the Company's 1993 Annual Meeting of Shareholders.
During fiscal years 1993, 1992 and 1991, the audit reports
issued with respect to the Company's financial statements did not
contain an adverse opinion or disclaimer of opinion, or a
qualification as to uncertainty, audit scope, or accounting
principles. During 1992 and 1991, the two fiscal years
immediately preceding the replacement of Ernst & Young as the
Company's independent accountant, there were no disagreements
between the Company and Ernst & Young on any matter of accounting
principles or practices, financial statement, disclosure or
auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Ernst & Young, would have caused it to
make a reference to the subject matter of the disagreement in
connection with its audit report.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors
The required information regarding Directors of the
Registrant is contained in the definitive Proxy Statement of the
Registrant, dated March 31, 1994 under the caption "Election of
Directors" and is incorporated herein by reference.
Executive Officers
For information regarding the executive officers of the
Registrant, see Part I, Item 1 of this report.
Compliance with Section 16(a) of the Exchange Act
The required information is contained in the definitive
Proxy Statement of the Registrant, dated March 31, 1994, under
the caption "Section 16(a) Reporting" and is incorporated herein
by reference.
Item 11. Executive Compensation.
This information is contained in the definitive Proxy
Statement of the Registrant, dated March 31, 1994, under the
caption "Management Compensation" and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
This information is contained in the definitive Proxy
Statement of the Registrant, dated March 31, 1994, under the
caption "Principal Holders of Shares" and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
This information is contained in the definitive Proxy
Statement of the Registrant, dated March 31, 1994, under the
caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on
Form 8-K.
Page
in
(a)(1) Financial Statements: this
Filing
The following financial statements are filed as a part of
this report:
Report of Independent Auditors 25
Consolidated Statements of Operations for the
Years Ended December 31, 1991, 1992 and 1993 26
Consolidated Balance Sheets as of December 31,
1992 and 1993 27
Consolidated Statements of Shareholders'
Investment for the Years Ended
December 31, 1991, 1992 and 1993 29
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1991, 1992 and 1993 30
Notes to Consolidated Financial Statements 31
(a)(2) Financial Statement Schedules:
The following supplemental schedules for 1991, 1992 and
1993
are filed as a part of this report:
Schedule V - Property, Plant and Equipment S-1
Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant and
Equipment S-2
Schedule VIII - Valuation and Qualifying Accounts S-3
Schedule IX - Short-Term Borrowings S-4
Schedule X - Supplemental Income Statement
Information S-5
All other schedules for which provision is made in the
applicable accounting regulation of the Commission have been
omitted as the schedules are not required under the related
<PAGE>
instructions, or are inapplicable, or the information required
thereby is set forth in the financial statements or the notes
thereto.
(a)(3) Exhibits
The following exhibits are filed as a part of this Annual
Report on Form 10-K, including certain exhibits that were
previously filed as exhibits to reports or filings made pursuant
to the Securities Exchange Act of 1934, as amended, which are
incorporated herein by reference:
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page in
Number Exhibit Filed With this Filing
<S> <C> <C> <C>
2.1 Plan of Reorganization, as supplemented, Form 10 N/A
filed by the Registrant in its Chapter 11
case (Case No. 92-00846-RWV-11) in the
United States Bankruptcy Court for the
Southern District of Indiana, Indianapolis
Division) which was confirmed on March 12,
1992 and became effective on March 24, 1992
3.1 Amended and Restated Articles of Incorporation Form 10 N/A
of the Registrant
3.2 Amended and Restated By-Laws of the Registrant 1993 Form 10-K E-1
4.1 New Shareholders Agreement dated as of March 12, Form 10 N/A
1992 among Michael L. Smith, Morgan Lewis Githens
& Ahn and certain institutional shareholders
4.2 Registration Rights Agreement dated as of March 12, Form 10 N/A
1992 among the Registrant and the Unofficial
Committee of Holders of Debentures of the Registrant
10.01* Employment Agreement dated December 20, 1991 Form 10 N/A
between Michael L. Smith and Contract Services
10.02* Form of Termination Benefits Agreement dated Form 10 N/A
as of December 20, 1991, among either Transit
or Contract Services and Patrick F. Carr,
Robert H. Irvin, Donald K. Sears, Dennis C.
Norman and Kyle E. Martin
10.03 Tax Sharing Agreement dated as of July 31, 1991 Form 10 N/A
among the Registrant, Transit and Contract Services
10.04* Mayflower Group, Inc. 1992 Stock Option Plan 1992 Form 10-K N/A
<PAGE>
10.05* Mayflower Group, Inc. 1992 Director Stock 1992 Form 10-K N/A
Option Plan 1992
10.06* Mayflower Group, Inc. 1993 Restricted Stock Plan 1993 Form 10-K E-14
10.07* Mayflower Contract Services, Inc. 1993 Form 10-K E-18
Executive Retirement Plan, as amended
11 Calculation of earnings per share 1993 Form 10-K E-33
21 Subsidiaries of the Registrant 1993 Form 10-K E-34
23 Consent of Coopers & Lybrand 1993 Form 10-K E-35
_____________________________
<FN>
* Represents a contract, plan or arrangement pursuant to which compensation or benefits
are provided to certain Executive Officers or Directors of the Registrant.
</TABLE>
<PAGE>
(b) Reports on Form 8-K:
The Registrant filed no reports on Form 8-K in the fourth
quarter of 1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MAYFLOWER GROUP, INC.
By: /s/ Michael L. Smith
Michael L. Smith, Chairman,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities indicated this 30th
day of March, 1994.
Signature Title
1. Principal Executive Officer
/s/ Michael L. Smith Chairman, President, Chief
Executive Officer and
Director
2. Principal Financial Officer
/s/ Patrick F. Carr Senior Vice President, Chief
Financial Officer and
Treasurer
3. Principal Accounting Officer
/s/ Ronald W. Martin Vice President and Chief
Accounting Officer
4. Non-employee Directors
/s/ Roderick M. Hills Director
/s/ Perry J. Lewis Director
/s/ Lary R. Scott Director
/s/ Sheldon M. Stone Director
<PAGE>
<PAGE> S-1
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
---------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Balance at
Beginning Additions End of
Classification of Period at Cost Retirements Other (A) Period
---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
----------------------------
Land $ 2,155 $ 20 $ --- $ --- $ 2,175
Buildings and Improvements 15,675 649 51 --- 16,273
Revenue Equipment 102,020 27,239 2,738 (8,960) 117,561
Other Operating Equipment
and Improvements 6,966 2,288 329 147 9,072
-------- -------- -------- -------- --------
$126,816 $ 30,196 $ 3,118 $ (8,813) $145,081
======== ======== ======== ======== ========
Year Ended December 31, 1992
----------------------------
Land $ 2,155 $ --- $ --- $ --- $ 2,155
Buildings and Improvements 23,553 556 84 (8,350) 15,675
Revenue Equipment 128,179 7,400 1,671 (31,888) 102,020
Other Operating Equipment
and Improvements 18,006 1,204 397 (11,847) 6,966
-------- -------- -------- -------- --------
$171,893 $ 9,160 $ 2,152 $(52,085) $126,816
======== ======== ======== ======== ========
<PAGE>
Year Ended December 31, 1991
----------------------------
Land $ 2,189 $ --- $ 34 $ --- $ 2,155
Buildings and Improvements 23,660 1,103 1,448 238 23,553
Revenue Equipment 105,475 24,964 6,770 4,510 128,179
Other Operating Equipment
and Improvements 16,720 1,475 999 810 18,006
-------- -------- -------- -------- --------
$148,044 $ 27,542 $ 9,251 $ 5,558 $171,893
======== ======== ======== ======== ========
<FN>
(A) Amounts for 1993 represent the write-off of fully depreciated valuation accounts, which had been
established in 1986 at the date of purchase of Old Mayflower in accordance with purchase accounting
requirements (see Note 2 to Consolidated Financial Statements for a discussion of the Merger).
Amounts for 1992 principally represent the elimination of accumulated depreciation against the related
asset balances as the result of a Corporate Reorganization which asset balances were adjusted to
reflect their estimated reorganization value, offset by approximately $10 million adjustments related
to the Registrant's adoption of SFAS 109 (See Note 2 to Consolidated Financial Statements for a
discussion of the Corporate Reorganization and Note 9 to Consolidated Financial Statements for
discussion of the Registrant's adoption of SFAS 109). Amounts for 1991 principally represents
adjustments as the result of retired units the asset valuation accounts established in 1986.
</TABLE>
<PAGE>
<PAGE> S-2
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
---------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Additions
Balance Charged to Balance at
Beginning Operating the End of
Classification of Period Expenses Retirement Other (A) Period
---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
----------------------------
Buildings and Improvements $ 1,142 $ 1,540 $ 21 $ --- $ 2,661
Revenue Equipment 19,662 14,616 1,116 (8,913) 24,249
Other Operating Equipment
and Improvements 1,563 2,047 186 --- 3,424
-------- -------- -------- -------- --------
$ 22,367 $ 18,203 $ 1,323 $ (8,913) $ 30,334
======== ======== ======== ======== ========
Year Ended December 31, 1992
----------------------------
Buildings and Improvements $ 8,022 $ 1,531 $ 60 $ (8,351) $ 1,142
Revenue Equipment 50,843 12,510 513 (43,178) 19,662
Other Operating Equipment
and Improvements 11,568 2,134 344 (11,795) 1,563
-------- -------- -------- -------- --------
$ 70,433 $ 16,175 $ 917 $(63,324) $ 22,367
======== ======== ======== ======== ========
<PAGE>
Year Ended December 31, 1991
----------------------------
Buildings and Improvements $ 6,861 $ 1,566 $ 643 $ 238 $ 8,022
Revenue Equipment 46,586 11,624 6,477 (890) 50,843
Other Operating Equipment
and Improvements 9,451 2,298 931 750 11,568
-------- -------- -------- -------- --------
$ 62,898 $ 15,488 $ 8,051 $ 98 $ 70,433
======== ======== ======== ======== ========
<FN>
(A) Amounts for 1993 represent the write-off of fully depreciated valuation accounts, which had been
established in 1986 at the date of purchase of Old Mayflower in accordance with purchase accounting
requirements (see Note 2 to Consolidated Financial Statements for a discussion of the Merger).
Amounts for 1992 principally represent the elimination of accumulated depreciation against the related
asset balances as the result of a Corporate Reorganization which asset balances were adjusted to
reflect their estimated reorganization value. See Note 2 to Consolidated Financial Statements for a
discussion of the Corporate Reorganization. Amounts for 1991 principally represents adjustments as the
result of retired units to the asset valuation accounts established in 1986.
<PAGE>
<PAGE> S-3
</TABLE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
SCHEDULE VIII- VALUATION AND QUALIFYING ACCOUNTS
---------------------------------------------------------------------------------------------
(In thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Deductions
--------- ----------
For Purposes
Balance at Charged to for which Balance at
Beginning Cost and Reserves End of
Description of Period Expenses were created Period
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserve for possible
collection losses-
---------------------------
Year ended
December 31, 1993 $ 6,178 $ 5,920 ($ 5,924) $ 6,174
======== ======== ======== ========
Year ended
December 31, 1992 $ 5,900 $ 4,552 ($ 4,274) $ 6,178
======== ======== ======== ========
Year ended
December 31, 1991 $ 5,577 $ 5,755 ($ 5,432) $ 5,900
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> S-4
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
SCHEDULE IX- SHORT-TERM BORROWINGS
---------------------------------------------------------------------------------------------
(In thousands)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Average Weighted
Weighted Maximum Amount Average
Category of Average Amount Outstanding Interest
Aggregate Balance at Interest Outstanding during the during the
Short-term End of at End of during the Period Period
Borrowings (A) Period Period Period (B) (C)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993 $ --- --- $ 3,620 $ 1,953 8.0%
======== ======== ======== ======== ========
Year ended December 31,
1992 $ 9,470 8.0% $ 13,436 $ 6,947 8.2%
======== ======== ======== ======== ========
Year ended December 31,
1991 $ 11,020 8.5% $ 19,550 $ 6,030 9.8%
======== ======== ======== ======== ========
<FN>
(A) All short-term borrowings were payable to banks.
(B) The average amount outstanding during the period was computed by dividing the total of daily
<PAGE>
outstanding principal balances by 360.
(C) The weighted average interest rate during the period was computed by dividing the actual interest
expense by the average short-term debt outstanding.
<PAGE>
<PAGE> S-5
</TABLE>
<TABLE>
<CAPTION>
MAYFLOWER GROUP, INC.
SCHEDULE X- SUPPLEMENTAY INCOME STATEMENT INFORMATION
The amouts of maintenance and repairs included in the Consolidated Statements of Operations are as follows:
Year Ended December 31,
1993 1992 1991
(In thousands)
-----------------------------------------
<S> <C> <C> <C>
Maintenance and Repairs $ 32,565 $ 29,060 $ 27,350
======== ======== ========
<FN>
Taxes other than payroll and income taxes, royalties, and advertising are not presented because they do not
exceed one percent of consolidated revenues. Depreciation and amortization is presented in Note 12 to the
Consolidated Financial Statements.
</TABLE>
<PAGE>
Appendix J to
Mayflower Group, Inc.
Proxy Statement
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20332
Mayflower Group, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1692925
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
9998 North Michigan Road, Carmel, IN 46032
(Address of principal executive offices) (Zip Code)
317-875-1463
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has filed documents
and reports required to be filed by Sections 12, 13, or 15(d) of
the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
<PAGE>
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date. As of
November 9, 1994, there were 12,661,671 outstanding shares of
Mayflower Group, Inc. common stock.
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MAYFLOWER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
(In thousands, except
per share data) 1994 1993 1994 1993
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Operating revenues:
Contract Services $ 51,815 $ 42,216 $ 194,047 $ 166,566
Transit 140,955 138,556 352,784 335,786
----------- ----------- ----------- -----------
192,770 180,772 546,831 502,352
Operating expenses:
Contract Services 58,899 48,792 189,665 161,004
Transit 133,708 130,026 345,607 329,076
Corporate expenses 172 154 603 579
----------- ----------- ----------- -----------
Operating profit (loss) (9) 1,800 10,956 11,693
Other income (expense):
Interest income 304 854 802 2,042
Interest expense (2,436) (2,578) (6,837) (6,891)
Other, net (59) (65) (123) (244)
----------- ----------- ----------- -----------
Income (loss) before
federal income taxes
and extraordinary
loss (2,200) 11 4,798 6,600
Provision (credit) for
federal income taxes (818) 390 1,785 2,706
----------- ----------- ----------- -----------
Income (loss) before
extraordinary loss (1,382) (379) 3,013 3,894
Extraordinary loss on
early retirement of
debt --- --- --- (549)
----------- ----------- ----------- -----------
Net income (loss) $ (1,382)$ (379) $ 3,013 $ 3,345
=========== =========== =========== ===========
<PAGE>
Weighted average
shares outstanding 12,783 12,742 12,755 12,725
Earnings (loss) per share:
Income (loss) before
extraordinary loss $ (0.11)$ (0.03) $ 0.24 $ 0.30
Extraordinary loss --- --- --- (0.04)
----------- ----------- ----------- -----------
Net income (loss) $ (0.11)$ (0.03) $ 0.24 $ 0.26
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
MAYFLOWER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
As of As of
September 30, December 31,
(Dollars in thousands) 1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
Assets :
Current assets:
Cash $ 1,333 $ 6,093
Receivables:
Trade receivables 88,332 74,136
Accrued unbilled
accounts receivable 28,020 16,845
Other 14,846 15,814
Less allowance for
possible collection losses (6,495) (6,174)
----------- -----------
Total receivables 124,703 100,621
Equipment and inventory
held for resale 6,489 8,911
<PAGE>
Deferred income taxes 13,883 13,230
Prepaid expenses and
deposits 8,617 8,147
----------- -----------
Total current assets 155,025 137,002
Property and equipment:
Land 2,175 2,175
Buildings and improvements 17,059 16,273
Revenue equipment 145,019 117,561
Other operating equipment
and improvements 11,863 9,072
Less accumulated
depreciation (42,683) (30,334)
----------- -----------
Net property and
equipment 133,433 114,747
Intangible assets 50,469 53,372
Other assets 17,632 17,556
----------- -----------
$ 356,559 $ 322,677
=========== ===========
Liabilities and share-
holders' investment:
Current liabilities:
Current maturities
of long-term debt $ 4,706 $ 2,276
Short-term borrowings 4,500 ---
Trade accounts payable 45,589 39,141
Accrued expenses
and deposits:
Liabilities on unbilled
shipments 14,748 9,026
Reserve for self-
insured claims 25,427 28,940
Salaries and with-
holding taxes 11,016 6,755
Other 11,313 11,667
----------- -----------
<PAGE>
Total current
liabilities 117,299 97,805
----------- -----------
Noncurrent liabilities:
Long-term debt,
less current maturities 102,679 95,407
Deferred income taxes 28,914 29,963
Reserve for self-
insured claims, less
current portion 15,925 11,210
Accrued post retirement
benefits cost 6,009 5,621
Shareholders' investment:
Common shares; no par
value; 30,000,000
authorized; issued
outstanding: 12,662,671
in 1994 and 12,662,403
in 1993 73,914 73,865
Retained earnings 11,819 8,806
----------- -----------
Total shareholders'
investment 85,733 82,671
----------- -----------
$ 356,559 $ 322,677
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
MAYFLOWER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended September 30,
-------------------------------
(Dollars in thousands) 1994 1993
<PAGE>
------------ -------------
(Unaudited)
<S> <C> <C>
Net cash provided by
(used in):
Operating activities $ 14,890 $ 6,191
Investing activities (33,803) (38,524)
Financing activities 14,153 23,275
----------- -----------
(4,760) (9,058)
Cash and cash
equivalents-beginning
of period 6,093 9,449
------------ -----------
Cash and cash
equivalents-end
of period $ 1,333 $ 391
=========== ===========
Operating activities:
Net income $ 3,013 $ 3,345
Add items not
affecting cash:
Depreciation 14,866 13,412
Amortization and
other 3,518 4,334
Deferred income
taxes (1,703) (457)
Extraordinary loss --- 871
Changes in certain
working capital items:
Receivables (24,082) (23,037)
Equipment and
inventory held
for resale 2,422 (4,430)
Prepaid expenses
and deposits (423) 63
Trade accounts
payable 6,447 2,371
Reserve for self-
insured claims 1,202 2,707
<PAGE>
Other accrued
expenses and
deposits 9,630 7,012
----------- -----------
Net cash provided
by operating
activities $ 14,890 $ 6,191
=========== ===========
Investing activities:
Purchases of property
and equipment $ (34,544) $ (27,011)
Proceeds from disposals
of property and equipment 1,962 1,799
Purchase acquisition (1,509) (3,086)
Decrease (increase) in other
noncurrent assets and
noncurrent liabilities 288 (10,226)
----------- -----------
Net cash used in
investing
activities $ (33,803) $ (38,524)
=========== ===========
Financing activities:
Proceeds from
long-term debt $ 11,480 $ 103,238
Payment of long-
term debt (1,827) (70,493)
Net change in revolving
credit agreements 4,500 (9,470)
----------- -----------
Net cash provided
by financing
activities $ 14,153 $ 23,275
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
MAYFLOWER GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements
presented herein are prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for interim
financial reporting. Certain information and footnote disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles are
condensed, incorporated by reference or omitted, as allowed by
the rules and regulations. Management of the Company believes
the interim financial statements include all adjustments,
including normal recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations
for the interim periods presented. Reference is made to the Notes
to Consolidated Financial Statements included in the Company's
1993 Annual Report on Form 10-K for a summary of significant
accounting policies and other information, the substance of which
has not changed materially as of September 30, 1994, unless
otherwise noted herein. Certain amounts within the 1993 Condensed
Consolidated Financial Statements are reclassified to conform
with the 1994 presentation.
2. OPERATING PROFIT
Operating profit by segment is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1994 1993 1994 1993
-------------------- -------------------
<S> <C> <C> <C> <C>
Contract Services $(7,084) $(6,576) $ 4,382 $ 5,562
Transit 7,247 8,530 7,177 6,710
Corporate Expenses (172) (154) (603) (579)
------- ------- ------- -------
$ (9) $ 1,800 $10,956 $11,693
======= ======= ======= =======
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
Contract Services and Transit are involved from time to time
in various actions that are incidental to the ordinary course of
their businesses, including property damage and personal injury
claims. Management believes that the disposition of these matters
will not have a material adverse effect on the financial position
of the Company.
<PAGE>
4. PROVISION FOR FEDERAL INCOME TAXES
In accordance with SFAS No. 109 ("Accounting for Income
Taxes"), the Company recorded an additional federal income tax
provision of $405,000 during the three month period ended
September 30, 1993 to reflect the impact the higher federal
income tax rate had on its net deferred federal income tax
liability.
5. EXTRAORDINARY LOSS
In May 1993, the Company refinanced its primary debt
facilities. This refinancing resulted in the write-off of
$549,000 of deferred debt costs, net of tax, which has been
accounted for as an extraordinary loss.
6. AMENDMENT TO ARTICLES OF INCORPORATION
At the Company's annual meeting of shareholders in April
1994, upon the recommendation of the Board of Directors, the
shareholders of the Company amended the Corporation's Articles of
Incorporation (Articles). The amendment: (1) eliminated the
prohibition on the issuance of classes of capital stock without
voting rights, (2) authorized a separate and single class of
5,000,000 shares of preferred stock issuable in series, and (3)
granted the Board of Directors the authority to determine and
state the designations and relative preferences, limitations,
voting rights, if any, and other rights of each such series by
filing an amendment to the Articles. All shares of preferred
stock of the same series must be identical with each other in all
respects. As of the date of the filing of this Form 10-Q, no
preferred stock has been issued.
7. STOCK PLANS
1994 Restricted Stock Plan - At the Company's annual meeting
of shareholders in April 1994, the shareholders of the Company
also approved the Board of Directors' (Board) decision to
establish the 1994 Restricted Stock Plan (Plan). The Plan
authorizes the Company to issue 500,000 shares of restricted
common stock, no par value, to officers and other key employees
of the Company and its subsidiaries. The Compensation Committee
(Committee) of the Board will determine the individuals to whom
shares will be granted and will determine the terms of the
grants, including the number of shares to be awarded, the
required holding period before restrictions on transferability
lapse, and other restrictions the Committee deems advisable.
Grantees of shares under the Plan shall be entitled to exercise
full voting rights and receive all dividends and other
distributions paid with respect to those shares. As of the date
of the filing of this Form 10-Q, no shares have been granted
under the Plan.
<PAGE>
Stock Option Plans - At the Company's annual meeting of
shareholders in April 1994, the shareholders of the Company also
approved an amendment to one of the Company's stock option plans.
The amendment increases the number of shares of common stock
issuable under the option plans to 560,000 shares. Concurrent
with this approval, the Committee granted to directors of the
Company and certain officers and key employees of the Company and
its subsidiaries options to acquire 152,000 shares of common
stock at an exercise price of $8.625 per share.
8. AMENDED FINANCING AGREEMENTS
In June 1994, the Company amended the financing agreement
used by Contract Services to finance the acquisition of new
school buses. The amended financing agreement, which now extends
through December 1995, provides an additional $15 million
borrowing capacity and slightly reduced interest rates. In
September 1994, the Company amended its revolving credit
facility. The amended facility provides an additional $5 million
borrowing capacity through November 1994 and slightly reduced
interest rates.
9. INVESTMENT BANKING FIRM RETAINED
The Company's Board of Directors has retained an investment
banking firm to explore alternatives to enhance shareholder
value. These alternatives may include the possibility of a sale,
a spin-off to shareholders of one or both of the Company's
principal subsidiaries, or a combination with one or more
businesses complementary to the Company's existing operations.
No decision has been made as to whether, when, or in what form a
transaction will take place.
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1994, COMPARED WITH THREE MONTHS
ENDED SEPTEMBER 30, 1993
Operating revenues for the third quarter ended September 30,
1994, were $192.8 million, an increase of 6.6% over last year.
Net loss for the three months ended September 30, 1994, was $1.4
million, or $.11 per share, compared to a loss of $379,000, or
$.03 per share, for the same period in 1993. Operating results
for the 1994 third quarter were at break-even compared to a
profit of $1.8 million in 1993.
Contract Services
Contract Services' operating revenues for the three months
ended September 30, 1994, were $51.8 million versus $42.2 million
for the same period in 1993, an increase of 22.7%. Public
<PAGE>
Transportation revenues increased $6.1 million, or 34%, to $24.1
million primarily due to continued expansion of this business.
School transportation revenues increased $3.5 million, or 14.3%,
to $27.7 million principally as a result of new contracts and
price increases on existing contracts.
Operating loss for the three months ended September 30,
1994, was $7.1 million, an increase of $500,000 from the same
period in 1993. Due to the seasonal nature of the School
Transportation division revenues, operating losses are normally
experienced in the third quarter. School Transportation division
operating margin for the third quarter of 1994 was a loss of $4.7
million, flat in comparison to the same period in 1993. Public
Transportation division gross margin decreased approximately
$600,000 from the 1993 level to $320,000 in 1994. General and
administrative expenses were $160,000 less than 1993, offsetting
some of this decline.
Net growth produced operating margin increases of
approximately $200,000 for the Public Transportation division.
However, higher wage and related costs as well as unanticipated
costs on a new contract more than offset profits from this
growth.
Higher vehicle repairs and maintenance costs and an increase
in the provision for self-insured claims offset School
Transportation division profits from net new business.
Transit
Transit's operating revenues for the three months ended
September 30, 1994, increased $2.4 million, or 1.7%, to $141
million. Operating profits for the 1994 third quarter were $7.2
million, a decline of $1.3 million from the same period in 1993.
Both of Transit's key operating divisions, Household Goods and
Special Transportation Services, as well as the Company's
insurance operations, posted declines in operating gross margins
for the third quarter. Partially offsetting these declines were
reduced general and administrative expenses.
Household Goods' revenues for the third quarter of 1994 were
$103.2 million compared to $103.6 million in 1993. Revenues from
Transit's Moving and Storage business, a component of the
Household Goods division, increased $2.8 million to $13.6 million
primarily due to business growth in the East and Southeast
sectors, the start-up of a new agency in Los Angeles, and the
acquisition of an agency located in Philadelphia. However,
revenue from other Household Goods business declined to $89.6
million, a decrease of $3.3 million, or 3.6%, from the 1993 third
quarter. The $3.3 million decline in other Household Goods
revenues is primarily due to a drop of 9.5% in shipments, offset
somewhat by a 6.5% improvement in average per shipment revenue.
Shortages in our hauling fleets as well as an industry wide
decline in 1994 of military and government business resulted in
an overall reduction in the number of shipments. The
<PAGE>
improvement in the average revenue earned per shipment is due to
both a 6% general tariff increase effective March 28, 1994, and
the shift from smaller government and military shipments to
larger C.O.D. and corporate account shipments.
Third quarter 1994 operating revenues for the Special
Transportation Services (STS) division were $33.2 million
compared to $31.1 million in 1993. STS's Electronics and Trade
Show business contributed $1.1 million of the increased revenue,
principally due to an increase of 5.3% in the average price per
shipment. International business, a component of the STS
division, and other revenues also increased during the third
quarter of 1994.
Operating profits for the third quarter ended September 30,
1994, were $7.2 million, or $1.3 million less than the prior year
period. While increased revenues in Moving & Storage operations
produced operating gross margin increases of $450,000, lower
shipment volume, as well as higher net cargo and delay claims,
reduced total Household Goods' operating margin by approximately
$1 million for the quarter. Transit's STS division operating
margins were also lower for the quarter. Higher hauling,
salaries, and other operating costs reduced STS operating margin
by $1.2 million. Transit's insurance operations also
experienced higher claims costs for the quarter, reducing
operating profits by $300,000. General and administrative
expenses during the third quarter decreased $1.0 million compared
to the same period in 1993. Transit is continuing to experience
favorable results from cost containment programs and
organizational changes implemented in the latter part of 1993.
Interest Income and Interest Expense
Interest income for the three months ended September 30,
1994, was $304,000 compared to $850,000 for the same period in
1993. This decrease is primarily a result of a change in the
financing arrangements for Transit's equipment sales and
financing subsidiary. In December 1993, this subsidiary began
selling installment notes receivable recorded from sales of
equipment by this subsidiary to various financial institutions.
Previously, these notes receivable were financed directly by the
Company resulting in the recording of interest income. Beginning
in 1994, the positive interest margin is recorded as a component
of operating profit.
Interest expense for the three months ended September 30,
1994, was $2.4 million, a decrease of $140,000 from the
comparable period in 1993. The reduction in interest expense due
to the change in financing arrangements of Transit's equipment
sales and financing summary is partially offset by increased
borrowings by Contract Services for new bus acquisitions in the
latter part of 1993.
NINE MONTHS ENDED SEPTEMBER 30, 1994, COMPARED WITH NINE MONTHS
ENDED SEPTEMBER 30, 1993
<PAGE>
Operating revenues for the nine months ended September 30,
1994, totaled $546.8 million, an increase of $44.5 million, or
8.9%, over the first nine months in 1993. Net income for the
nine month period ended September 30, 1994, was $3 million, or
$.24 per share, compared to $3.3 million, or $.26 per share, for
the same period in 1993. The 1993 results include an
extraordinary charge of $549,000, or $.04 per share, for the
early retirement of debt. Operating profits for this nine month
period declined to $11 million from $11.7 million in 1993.
Contract Services
Contract Services' operating revenues for the nine months
ended September 30, 1994, were $194.0 million, up from $166.6
million for the same period in 1993, an increase of 16.5%.
Public Transportation revenues increased $21 million, or 42.5%,
to $70.4 million primarily due to continued expansion of this
business. Revenues from School Transportation business increased
$6.5 million, or 5.6%, to $123.7 million, largely as a result of
improved pricing on new contracts as compared to previous
arrangements.
Operating profit for the nine months ended September 30,
1994, was $4.4 million, a decrease of $1.2 million from the same
period in 1993. Both Public Transportation and School
Transportation operating margins decreased by approximately
$640,000 each. General and administrative expenses were flat
with 1993.
Continued net new business growth in the Public
Transportation division and a lower provision for self-insured
claims contributed approximately $1,000,000 to operating margins.
However, difficulties in two major operations, increased vehicle
maintenance expenses, and increased wages offset these favorable
items.
The operating margin decrease of $640,000 from School
Transportation business was due primarily to an increase in the
provision for self-insured claims as well as higher vehicle
repair and driver related costs. Profits from net new contracts
and reduced fuel costs offset a portion of the decrease.
Transit
Transit's operating revenues for the nine months ended
September 30, 1994, increased by $17 million, or 5.1%, to $352.8
million. Operating profits for the nine month period increased
about $500,000 to $7.2 million over 1993.
Household Goods' revenues for the first nine months of 1994
were $242 million compared to $232.5 million in the prior year.
Revenues from Transit's Moving and Storage business, a component
of the Household Goods division, increased $7.7 million to $34.1
million primarily as a result of an overall increase in business,
the start-up of a new agency in Los Angeles, and the acquisition
<PAGE>
of an existing agency located in Philadelphia. Also, revenues
from other Household Goods business increased slightly by $1.8
million to $207.8 million. While the number of shipments in
other Household Goods business declined from the prior year, a
6.8% increase in the average price earned per shipment more than
offset this volume decrease. The improvement in the average
revenue earned per shipment is due to both the 6% general tariff
increase effective March 28, 1994, and the shift from smaller
government and military shipments to larger C.O.D. and corporate
account shipments. Shortages in our hauling fleets, as well as
an industry wide decline in 1994 of military and government
business resulted in an overall reduction in the number of
shipments.
Revenues for the first nine months of 1994 for the Special
Transportation Services (STS) division were $96.5 million
compared to $89.7 million for the same period in 1993, an
increase of $6.8 million, or 7.6%. STS's Electronics and Trade
Show business contributed $3.9 million of the increased revenue
in the first nine months of 1994 primarily due to an increase in
the number of shipments. International business increased $2.9
million while other revenues remained flat.
Operating profits for the nine months ended September 30,
1994, were $7.2 million, compared to $6.7 million in the same
period last year. The East and Southeast sectors of the Moving
and Storage operations contributed improved operating margins of
$700,000 while other Household Goods business margins were flat.
Operating margins for the STS division were $1.5 million below
1993 levels primarily due to higher hauling, salaries, and other
operating expenses. Higher claims costs in Transit's Insurance
operations also reduced operating profits by $450,000. General
and administrative expenses in 1994 declined by $1.0 million
compared to the same period in 1993. Transit is continuing to
experience favorable results from cost containment programs and
organizational changes implemented in the latter part of 1993.
As described below, operating profit was favorably affected due
to a change in financing arrangements.
Interest Income and Interest Expense
Interest income for the nine months ended September 30,
1994, was $800,000 compared to $2.0 million for the same period
in 1993, a decrease of $1.2 million. This decrease is primarily
a result of a change in financing arrangements of Transit's
equipment sales and financing subsidiary. In December 1993, this
subsidiary began selling installment notes receivable recorded
from sales of equipment by this subsidiary to various financial
institutions. Previously, these notes receivable were financed
directly by the Company resulting in the recording of interest
income. Beginning in 1994, the positive interest margin is
recorded as a component of operating profit.
Interest expense for the nine months ended September 30,
1994, was approximately the same when compared to the same period
<PAGE>
in 1993. There was an $800,000 increase due to new Contract
Services debt incurred in September 1993 for the purchase of new
buses. Offsetting most of this increase was a reduction in
interest expense due to the change in the financing arrangements
of Transit's equipment sales and financing subsidiary as
explained earlier.
Seasonality
Peak business levels for Contract Services occur during the
traditional school months of September through May. For example,
during 1993 approximately 86% of Contract Services' School
Transportation revenues were generated during these nine months.
At Transit, proportionately more household goods moves occur
during the summer months. During 1993, for example,
approximately 45% of the Household Goods division's revenues were
generated during the months of June through September.
Due to the seasonal impact of revenue being generated by
each of the Company's two operating subsidiaries as discussed
above, the Company historically realizes higher net income in the
second and fourth quarters than in the first and third quarters
of the year.
Liquidity and Capital Resources
Total cash decreased by $4.8 million from December 31, 1993,
to September 30, 1994. Operating activities contributed $14.9
million and financing activities provided $14.1 million during
the nine month period. This was offset by the use of cash in
investing activities of $33.8 million.
The $14.9 million in cash provided by operations was
primarily due to $19.7 million provided by net income, after
adding back items not affecting cash. Net cash of $4.8 million
was used for working capital purposes. Cash was used to finance
the increase of $24.1 million in accounts receivable resulting
from the Company's revenue growth and the seasonal impact on
Transit's receivables. Offsetting these uses of cash, other
accrued expenses have increased $9.6 million during the nine
month period due to increased liabilities on accrued unbilled
accounts receivable and accrued payroll. In addition, trade
accounts payable have increased $6.4 million during the nine
months due to increased business.
For the nine months ended September 30, 1994, the Company
used $33.8 million, net, for investing activities. The Company
used $34.5 million for the purchase of property and equipment,
primarily the purchase of school buses by Contract Services and,
to a lesser extent, trailers by Transit.
The Company has working capital of $37.7 million at
September 30, 1994, which is $1.5 million less than the working
capital at December 31, 1993. This decrease is primarily due to
<PAGE>
increased short-term borrowings of $4.5 million. The Company has
a $20 million revolving credit facility available to meet working
capital needs of which $4.5 million was used at September 30,
1994. Total debt at September 30, 1994, was $111.9 million
compared to $97.7 million at December 31, 1993, representing a
$14.2 million increase in total debt during the nine months ended
September 30, 1994. During the first nine months, the Company
received $9.7 million, net of payments, from its bus financing
facility to acquire new buses at Contract Services.
At September 30, 1994, the Company has committed to
approximately $5 million in capital expenditures for the fourth
quarter of 1994 for 125 school and public transit buses to be
used by Contract Services. In acquiring these assets, the
Company will consider various available leasing alternatives or
utilize funds available under existing financing arrangements.
The Company believes cash flow from operations combined with
existing financing arrangements will be more than adequate to
fund short and long-term cash requirements.
PART II-OTHER INFORMATION.
ITEM 5. OTHER INFORMATION.
On November 10, 1994, Perry J. Lewis resigned from the Board
of Directors of the Registrant and its subsidiaries, Mayflower
Transit, Inc. and Mayflower Contract Services, Inc. The
resignation of Mr. Lewis was effective immediately. In his
letter of resignation, Mr. Lewis cited personal reasons for his
resignation. The resignation was not attributed to a
disagreement with the Registrant or any matter relating to the
Registrant's operations, policies, or practices.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibit is filed as a part of this
Quarterly Report on Form 10-Q:
Exhibit Page in
Number Exhibit this filing
11 Computation of Earnings Per Share E-1
27 Financial Data Schedule E-2
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter.
SIGNATURE
The registrant has duly caused this report to be signed on its
behalf by the undersigned duly authorized.
<PAGE>
MAYFLOWER GROUP, INC.
Date: November 14, 1994 By: /s/ Ronald W. Martin
------------------------- ---------------------------
Ronald W. Martin, Vice President
Finance and Chief Accounting
Officer
<TABLE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1994 AND 1993
(In thousands, except per share data):
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1994 1993 1994 1993
------------------- ------------------
<S> <C> <C> <C> <C>
Primary: (1)
Average shares
outstanding 12,663 12,650 12,663 12,647
Net effect of options
to purchase common
stock - based on the
treasury stock
method using
estimated market
price 120 92 92 78
------ ------ ------ ------
12,783 12,742 12,755 12,725
======= ======= ======= =======
Net Income (Loss) $(1,382) $ (379) $ 3,013 $ 3,345
======= ======= ======= =======
Earnings (Loss)
Per Share $ (0.11) $ (0.03) $ 0.24 $ 0.26
======= ======= ======= =======
(1) Fully diluted earnings per share do not differ from primary earnings per
share.
<PAGE>
Form of Proxy
MAYFLOWER GROUP, INC.
9998 N. Michigan Road, Carmel, Indiana 46032
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS, MARCH 30, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Michael L. Smith, Roderick M. Hills and Lary R. Scott, or any of them with full power of
substitution, are hereby authorized to represent and vote all the shares of common stock
of the undersigned at the Special Meeting of the Shareholders of Mayflower Group, Inc. to
be held at 9998 N. Michigan Road, Carmel, Indiana, March 30, 1995, at 11:00 A.M. local
time (Eastern Standard Time), or any adjournment thereof, with all powers which the
undersigned would possess if personally present, in the following manner:
1. Approval of the sale of Mayflower Transit, Inc. pursuant to the Stock Purchase
Agreement.
Approval of the sale by Mayflower Group, Inc. (the "Company") of all the capital
stock of Mayflower Transit, Inc., a wholly owned subsidiary of the Company
("Transit"), to UniGroup, Inc., a Missouri corporation ("UniGroup"), pursuant to a
Stock Purchase Agreement, dated December 4, 1994, as amended (the "Stock Purchase
Agreement"), among the Company, UniGroup and TCW Asset Management Company (the
"Transit Sale").
[___]FOR [___]AGAINST [___]ABSTAIN
2. Approval of the acquisition of Mayflower Group, Inc. and Mayflower Contract Services,
Inc. by Laidlaw Transit, Inc. pursuant to the Merger Agreement.
Approval of the acquisition of Mayflower Group, Inc. (the "Company") and its wholly
owned subsidiary Mayflower Contract Services, Inc. ("Contract Services") by Laidlaw
Transit, Inc., a Delaware corporation ("Laidlaw"), pursuant to a Merger Agreement,
dated as of January 20, 1995 (the "Merger Agreement"), among the Company, Laidlaw,
MCS Transit, Inc., an Indiana corporation ("Newco"), and TCW Asset Management
Company, under which Newco would merge with and into the Company (the "Merger") with
the Company thereby becoming a wholly owned subsidiary of Laidlaw and the outstanding
shares of common stock of the Company thereby converting into a right to receive
<PAGE>
cash. Consummation of the Merger is conditioned upon, among other things, the prior
disposition of Transit by the Company, whether pursuant to the Transit Sale or
otherwise. Approval of the Merger will also constitute approval of the sale of all
capital stock of Contract Services by the Company to Laidlaw pursuant to an option
contained in the Merger Agreement which is exercisable in the event the Merger
Agreement is terminated because of the failure of the Company to divest itself of
Transit.
[___]FOR [___]AGAINST [___]ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other business
(none at the time of solicitation of this Proxy) as may properly come before the
meeting, or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSITIONS. THIS
PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF A CONTRARY DIRECTION, IT SHALL BE
VOTED FOR THE PROPOSALS AND THE PROXIES MAY VOTE IN THEIR DISCRETION UPON SUCH OTHER
MATTERS AS PROPERLY MAY COME BEFORE THE MEETING OR ADJOURNMENT THEREOF.
The undersigned acknowledge receipt of Notice of said Meeting and the accompanying Proxy
Statement (which includes the Company's Annual Report on Form 10-K for the fiscal year end
December 31, 1993 (without exhibits) and Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994), and hereby revokes all proxies heretofore given by the
undersigned for said meeting.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTING THEREOF.
Dated________________________, 1995.
_____________________________________
Signature of Shareholder
_____________________________________
Signature of Shareholder
(if held jointly)
<PAGE>
PLEASE DATE THIS PROXY AND SIGN YOUR NAME OR NAMES EXACTLY AS SHOWN HEREON. WHEN SIGNING
AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE SIGN YOUR FULL TITLE
AS SUCH. IF THERE ARE MORE THAN ONE TRUSTEE, OR JOINT OWNERS, ALL MUST SIGN. PLEASE
RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>