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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 1-10841
GREYHOUND LINES, INC.
AND ITS SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW
(Exact name of registrant as specified in its charter)
DELAWARE 86-0572343
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
15110 N. DALLAS PARKWAY, SUITE 600, DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip code)
(972) 789-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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8 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE MARCH 31, 2007 AMERICAN STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act:
NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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]
Aggregate market value of Common Stock held by non-affiliates of the
registrant on March 29, 1999, was $0.
As of March 29, 1999, the Registrant had 58,743,069 shares of Common Stock,
$0.01 par value, outstanding.
(1) THIS FORM 10-K IS ALSO BEING FILED BY THE CO-REGISTRANTS SPECIFIED UNDER
THE CAPTION "CO-REGISTRANTS", EACH OF WHICH IS A WHOLLY-OWNED SUBSIDIARY OF
GREYHOUND LINES, INC. AND EACH OF WHICH HAS MET THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTIONS I(1)(a) AND (b) OF FORM 10-K FOR FILING FORM 10-K IN A
REDUCED DISCLOSURE FORMAT.
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CO-REGISTRANTS
This Form 10-K is also being filed by the following entities. Except as set
forth below, each entity has the same principal executive offices, zip code and
telephone number as that set forth for Greyhound Lines, Inc. on the cover of
this report:
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I.R.S. EMPLOYER JURISDICTION
COMMISSION IDENTIFICATION OF
NAME FILE NO. NO. INCORP.
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Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia
GLI Holding Company 333-27267-04 75-2146309 Delaware
Greyhound de Mexico, S.A. de C.V. 333-27267-05 None Republic of
Mexico
Grupo Centro, Inc. 333-27267-06 75-2692522 Delaware
Los Buenos Leasing Co., Inc. 333-27267-07 85-0434715 New Mexico
Sistema Internacional de Transporte de Autobuses, Inc. 333-27267-08 75-2548617 Delaware
Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Texas
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389
T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas
(Same as Texas, New Mexico & Oklahoma Coaches, Inc.)
Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont
106 Main Street
Burlington, Vermont 05401
(802) 862-9671
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As of December 31, 1998, Atlantic Greyhound Lines of Virginia, Inc. had 150
shares of common stock outstanding (at a par value of $50.00 per share); GLI
Holding Company had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); Greyhound de Mexico, S.A. de C.V. had 10,000 shares of common
stock outstanding (at a par value of $0.10 Mexican currency per share); Grupo
Centro, Inc. had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); Los Buenos Leasing Co., Inc. had 1,000 shares of common stock
outstanding (at a par value of $1.00 per share); Sistema Internacional de
Transporte de Autobuses, Inc. had 1,000 shares of common stock outstanding (at a
par value of $0.01 per share); Texas, New Mexico & Oklahoma Coaches, Inc. had
1,000 shares of common stock outstanding (at a par value of $0.01 per share);
T.N.M. & O. Tours, Inc. had 1,000 shares of common stock outstanding (at a par
value of $1.00 per share); and Vermont Transit Co., Inc. had 505 shares of
common stock outstanding (no par value). Each of the above named co-registrants
(1) have 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 such co-registrant was required to file such reports), and (2)
have been subject to such filing requirements for the past 90 days.
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GREYHOUND LINES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-K
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PAGE NO.
PART I --------
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Item 1. Business................................................................... 4
Item 2. Properties................................................................. 10
Item 3. Legal Proceedings.......................................................... 11
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 Consolidated Financial Information................................ 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................. 25
Item 8. Financial Statements and Supplementary Data................................ 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................... 59
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 60
Item 11. Executive Compensation..................................................... 62
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 66
Item 13. Certain Relationships and Related Transactions............................. 66
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 67
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PART I
ITEM 1. BUSINESS
GENERAL
Greyhound Lines, Inc. and subsidiaries (the "Company") is the only
nationwide provider of scheduled intercity bus transportation services in the
United States. The Company serves the value-oriented customer by connecting
rural and urban markets throughout the United States, offering scheduled
passenger service to more than 2,600 destinations with a fleet of 2,677 buses
and approximately 1,800 sales locations. The Company also provides package
express service, charter bus service and, in many terminals, food service. For
the year ended December 31, 1998, the Company generated total operating revenues
of $846.0 million and EBITDA (as defined herein) of $83.2 million.
The Company serves a diverse customer base, consisting primarily of low to
middle income passengers from a wide variety of ethnic backgrounds. Management
believes that the demographic groups that make up the core of the Company's
customer base are growing at rates faster than the U.S. population as a whole.
The Company believes that it is uniquely positioned to serve this broad and
growing market because (i) the Company's operating costs, which are lower on an
available-seat-mile basis than other modes of intercity transportation, enable
it to offer passengers everyday low prices, (ii) the Company offers the only
means of regularly scheduled intercity transportation in many of its markets,
and (iii) the Company provides additional capacity during peak travel periods to
accommodate passengers who lack the flexibility to shift their travel to
off-peak periods.
LAIDLAW MERGER
On October 16, 1998, the Company entered into an Agreement and Plan of
Merger with Laidlaw Inc. ("Laidlaw") and its wholly owned subsidiary, Laidlaw
Transit Acquisition Corp. ("Laidlaw Transit"), which Agreement was amended on
November 5, 1998 (as amended, the "Merger Agreement").
At a special meeting of the Company's stockholders held on March 16, 1999,
holders of the Company's Common Stock and Preferred Stock approved the Merger
Agreement. On that date, Laidlaw Transit was merged with the Company (the
"Merger"), with the Company, as the surviving corporation, becoming a subsidiary
of Laidlaw. As a result of the Merger, Laidlaw became the sole beneficial owner
of the Company's Common Stock, representing approximately 96% of the Company's
outstanding voting securities.
After the Merger, holders of Common Stock received $6.50 in cash for each
share of Common Stock they held. The Company's 8 1/2% Convertible Exchangeable
Preferred Stock ("Preferred Stock") remains outstanding. However, following the
Merger, the Preferred Stock is no longer convertible into shares of Common
Stock. The Company's Preferred Stock is presently convertible into the right to
receive $33.33 per share in cash.
The total purchase price Laidlaw paid for the shares of Greyhound's Common
Stock not previously purchased by Laidlaw, including outstanding stock options,
was approximately $402 million. The Greyhound Preferred Stock which remains
outstanding is convertible into the right to receive $33.33 in cash per share or
$80 million in the aggregate. Laidlaw had sufficient funds available under its
existing revolving credit facilities to fund all of its requirements in
connection with the Merger. Laidlaw's credit facilities are provided by a
syndicate of financial institutions for which Canadian Imperial Bank of Commerce
acts as administrative agent. Laidlaw may borrow up to an aggregate amount of
$1.7 billion under the facility for general corporate purposes, including
transactions contemplated by the Merger Agreement. The consideration payable to
stockholders of Greyhound as a result of the Merger was determined through
negotiations between Greyhound and Laidlaw.
BUSINESS STRATEGY
In late 1994 and early 1995, under the direction of a new management team,
the Company developed a "back-to-basics" operating strategy. This strategy
focused on providing a good, customer-oriented product with a capacity-
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flexible, sound bus operation. The Company accomplished this by rebuilding its
infrastructure, expanding the frequency and convenience of its schedule
offerings, providing flexible scheduling of its equipment, drivers and other
resources to meet peak travel demand, introducing everyday low prices and
actively managing fares in individual markets. In response to these initiatives,
the Company has experienced year-over-year revenue growth in each of its last
fifteen consecutive quarters.
Management believes the following represent significant growth
opportunities for the Company:
o CORE PASSENGER GROWTH. The Company believes that its revenues will
continue to grow as its core demographic customer base expands, and
that this customer base is growing at a rate that exceeds the U.S.
population growth rate as a whole. The Company also believes that there
are opportunities to obtain incremental revenues from its existing
customer base through continued targeted advertising and promotional
programs and refinements in pricing and schedule offerings designed to
reinforce the Company's position as the low-cost alternative to other
forms of intercity transportation.
o CHARTER BUSINESS. As the Company expands its fleet size and driver
corps to support the growth of the core passenger business, it will
provide a significant, complementary growth opportunity in the charter
business.
o DOMESTIC ACQUISITIONS, INTERLINE RELATIONSHIPS AND INTERMODAL
ALLIANCES. The bus transportation industry is highly fragmented.
Accordingly, opportunities exist for the Company to acquire regional
bus operators or to form strategic alliances with these carriers to
increase its penetration of existing markets.
o HISPANIC MARKETS. Management believes the Spanish speaking markets in
the U.S. and Mexico represent a significant growth opportunity. The
Company believes that the most effective way to service passengers in
this market is through joint ventures or other business combinations
with Mexico-based bus carriers and U.S.-based bus carriers that
primarily serve these markets. The Company has established a separate
operating subsidiary that has completed joint ventures that provide
through-bus service at all major gateways between the United States and
Mexico.
o EXPRESS BUSINESS. The Company is implementing programs to rebuild its
package express business and capitalize on the market niche
opportunities, which leverages the Company's scheduled bus service.
Additionally, the Company believes other revenue growth opportunities are
available, such as providing increased bus service to casino and commuter
markets and marketing selected products or services to its unique customer base.
MARKETS
Passengers. While the Company's major passenger markets are large
metropolitan areas, its business is geographically fragmented with the 50
largest sales outlets accounting for approximately 48% of 1998 ticket sales, and
the 1,200 largest origin/destination city pairs producing only 43% of 1998
ticket sales. Demographic studies have shown that the Company's potential riders
are concentrated in the northeastern, southern and industrial mid-western United
States, as well as Texas and California. The typical passenger travels to visit
friends and relatives and generally has an annual income of below $35,000. In
many cases, the Company's passengers report that they own automobiles considered
sufficiently reliable for a trip of a similar distance, but travel by bus
because they are traveling alone or because of the lower cost of bus travel. The
majority of the Company's customers usually make the decision to take a trip
only a short time before actually traveling and, for the most part, pay cash for
their tickets on the day of departure.
Package Express. The Company's package express service targets commercial
shippers and delivery companies that require rapid delivery of small parcels,
typically within 300 miles. Shipments include automotive repair parts, wholesale
foods, computer parts and forms, fresh flowers, eyeglasses, medical and dental
supplies, architectural and legal documents, and pharmaceutical products. With
its extensive network and multiple schedules, the Company is
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able to provide expedited service, especially to rural areas. Most shipments
arrive at their destination on the same day they are shipped or by 8 a.m. the
following morning.
Food Service. The Company's food service division oversees many diverse
food service concepts, consisting of more than 160 locations. The Company offers
concepts ranging from cafeteria-style restaurants to quick grab `n go snack
bars.
MARKETING AND ADVERTISING
The Company's marketing and advertising philosophy is geared toward
stimulating extra travel through price awareness, improving the awareness and
image of Greyhound among potential customers and inducing first-time and repeat
travel. The Company uses various means to advertise its passenger travel
business including radio, television and print media (primarily yellow pages).
Additionally, the Company offers convenient around-the-clock fare and schedule
quotations via a toll-free telephone number through its telephone information
centers. The Company's telephone centers handled 30.6 million calls in 1998, an
increase of 4.1% over 1997. The Company also markets its other passenger and
in-terminal services through advertising in the terminal facilities and in print
media. The Company has also established an internet web site that provides fare
and schedule information.
OPERATIONS
The Company utilizes approximately 150 company-operated bus terminals and
approximately 1,650 agency-operated terminals and/or sales agencies which are
managed either by five subsidiaries or 11 districts which are lead by district
managers of customer service. Maintenance garages are maintained at 14 strategic
locations and are supplemented by company-operated service islands and fueling
points. The Company currently has approximately 5,250 drivers based in 88
different locations across the country. The drivers report to driver supervisors
who are organized into 11 districts reporting to district managers of driver
operations. The scheduling and dispatch of the Company's buses and driver corps
is a coordinated and centralized function performed by the Company's resource
management group. This group's purpose is to serve as a liaison between
management and the field in the planning and execution of daily operations
through the Company's existing network. This is accomplished through the
management of national dispatch operations for equipment and drivers, rental of
additional buses to cover peak demand periods, planning and coordinating extra
sections with the field and analyzing and implementing pooling arrangements with
other carriers. This group also plans the fleet size and driver requirements by
location during the year and assists in determining the resource needs based on
the sales plan each year.
Information technology is an integral component of the Company's
operations. The Company's information systems support, among other things, its
scheduling and pricing, dispatch, operations planning, bus maintenance,
telephone information center, customer service, point of sale, payroll and
finance functions. As of December 31, 1998, the Company's automated fare and
schedule quotation and ticketing system, called TRIPS, was in use at 324
locations.
COMPETITION
Passengers. The transportation industry is highly competitive. The
Company's primary sources of competition for passengers are automobile travel,
low cost air travel from both regional and national airlines, and in certain
markets, regional bus companies and trains. During the past few years, airlines
have increased their penetration in intermediate-haul markets (450 to 1,000
miles), which has resulted in the bus industry, in general, reducing prices in
these markets in order to compete. Additionally, airline discount programs have
attracted certain long-haul passengers away from the Company. However, these
lower airline fares usually contain restrictions and require advance purchase.
Typically, the Company's customers decide to travel only a short time before
their trip and purchase their tickets on the day of travel. The Company's
everyday low pricing strategy results in "walk-up" fares substantially below
comparable airline fares. In instances where the Company's fares exceed an
airline discount fare, the Company believes the airline fares typically are more
restrictive and less readily available than travel provided by the Company.
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However, the Company has also instituted numerous advance purchase programs, in
order to attract the price sensitive customer. Price, destination choices and
convenient schedules are the ways in which the Company meets this competitive
challenge.
The automobile is the most significant form of competition to the Company.
The out-of-pocket costs of operating an automobile are generally less expensive
than bus travel, particularly for multiple persons traveling in a single car.
The Company meets this competitive threat through price and convenient
scheduling.
Additionally, the Company experiences competition from regional bus
companies. Price, frequency of service and convenient scheduling are the current
strategies of the Company to meet this competition. The Company's competitors
possess operating authority for, but do not currently operate over, numerous
routes potentially competitive to the Company. Based on market and competitive
conditions, the regional bus companies could operate such routes in the future.
Competition by U.S.-based bus and van operators for the market represented by
Spanish speaking customers in the U.S. is growing. As of January 1, 1997,
barriers to entry into the cross-border intercity bus market between the U.S.
and Mexico were reduced under the North American Free Trade Agreement ("NAFTA").
Entry into either market is still regulated by the respective U.S. and Mexican
regulatory authorities. The U.S. government currently has a moratorium on grants
of cross-border authority to Mexican-owned or controlled carriers of freight and
passengers. There is no current indication as to when the moratorium will be
lifted; however, should the moratorium be lifted, the Company could experience
significant new competition on routes to, from and across Mexican border points.
Nevertheless, certain U.S.-based operators are providing cross-border service
into Mexico at this time. NAFTA also permits U.S. carriers to make
non-controlling, minority investments in Mexican-owned carriers and permits
Mexican carriers to make non-controlling, minority investments in U.S.-owned
carriers. In addition to bringing new competition, the Company believes that the
changes under NAFTA will increase the volume of bus travel along both sides of
the border and provide the Company with a growth opportunity. The Company
believes that the most effective way to service passengers in this market is
through joint ventures or other business combinations with Mexico-based bus
carriers and U.S.-based bus operators that primarily serve these
Spanish-speaking markets. The Company has established a separate operating
subsidiary that has completed joint ventures that provide through-bus service at
all major gateways between the United States and Mexico.
Package Express. The Company faces intense competition in its package
express service from local courier services, the U.S. Postal Service and
overnight express and ground carriers. The Company continues to develop programs
to meet this competition and rebuild its package express business. These
programs focus on system upgrades to improve service, billing and tracking for
its customers, localized marketing strategies, and local or regional alliances
with, or acquisitions of, pick up and delivery carriers. Due to the incremental
nature of the package express business, the Company is able to provide same-day
package express service at distances of up to 300 miles at a substantially lower
price than those charged by other delivery services. Management believes that if
this capability is conveniently aligned with pick up and delivery services at
both ends, the revenue potential of a value-priced, door-to-door, same-day
delivery service will enable package express revenues to grow.
Food Service. The captive nature of the food service operations in the
Company's terminals limits competition; however, in some locations proximity to
fast food outlets and convenience stores can pose a competitive factor.
SEASONALITY
The Company's business is seasonal in nature and generally follows the
pattern of the travel industry as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. As a result, the Company's
cash flows are also seasonal with a disproportionate amount of the Company's
annual cash flows being generated during the peak travel periods. Therefore, an
event that adversely affects ridership during any of these peak periods could
have a material adverse effect on the Company's financial condition and results
of operations for that year. The day of the week on which certain holidays
occur, the length of certain holiday periods, and the date on which certain
holidays occur within a fiscal quarter, may also affect the Company's quarterly
results of operations.
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WORKFORCE
At March 22, 1999, the Company employed approximately 13,400 workers,
consisting of approximately 4,500 terminal employees, 5,250 drivers, 1,500
supervisory personnel, 800 mechanics, 850 telephone information agents and 500
clerical workers. Of the total workforce, approximately 11,000 are full-time
employees and approximately 2,400 are part-time employees.
At March 22, 1999, approximately 49% of the Company's employees were
represented by collective bargaining agreements. The Amalgamated Transit Union
(the "ATU") represents approximately 5,800 of the Company's employees, including
drivers, telephone information agents in the Omaha location, terminal workers in
eight locations (approximately 220 employees) and about half of the Company's
mechanics. The largest ATU agreement, which covers the drivers and maintenance
employees, expires on January 31, 2004. The International Association of
Machinists and Aerospace Workers (the "IAM") represents approximately 370 of the
Company's employees, including the remaining mechanics. The IAM agreements
expire on October 1, 1999. The Company also has bargaining agreements with the
International Brotherhood of Teamsters, which represent approximately 250
employees at six terminal locations and the United Transportation Union, which
represents employees at one of the Company's subsidiaries. Additionally during
1998, the ATU and Teamsters attempted to unionize employees in six terminal
locations. The unions succeeded in organizing employees at three terminals.
TRADEMARKS
The Company owns the Greyhound name and trademarks and the "image of the
running dog" trademarks worldwide, except in Canada. The Company believes that
this name and the trademarks have substantial consumer awareness.
GOVERNMENT REGULATION
The Department of Transportation. As a motor carrier engaged in interstate,
as well as intrastate, transportation of passengers and express shipments, the
Company is, and must remain, registered with the United States Department of
Transportation (the "DOT"). Failure to maintain a satisfactory safety rating,
designate agents for service of process or to meet minimum financial
responsibility requirements, after notice and opportunity to remedy, may result
in the DOT's ordering the suspension or revocation of the registration of the
Company and its right to provide transportation. DOT regulations also govern the
qualifications, duties and hours of service of drivers, the standards for
vehicles, parts and accessories, the maintenance of records and the submission
of reports pertaining to the Company's drivers, buses and operations. The
Company is subject to periodic and random inspections and audits by the DOT or,
pursuant to cooperative arrangements with the DOT, by state police or officials,
to determine whether the Company's drivers, buses and records are in compliance
with the DOT's regulations. The Company, from time to time, has been cited by
the DOT for noncompliance with its regulations but, nevertheless, has retained a
satisfactory safety rating. The DOT establishes minimum financial responsibility
requirements for motor carriers; the Company has met these requirements and has
been authorized to partially self-insure its bodily injury and property damage
liability. See "Insurance Coverage." The DOT also administers regulations to
assure compliance with vehicle noise and emission standards prescribed by the
Environmental Protection Agency (the "EPA"). All of the buses in the Company's
fleet contain engines that comply with, or are exempt from compliance with, EPA
regulations, but, on occasion, the Company has been cited and fined for
non-compliance with noise or emission standards. Additionally, there is
currently litigation pending in California seeking to enforce the posting of
public health warnings at locations where diesel fuel emissions are present.
Surface Transportation Board. The Company is also regulated by the DOT's
Surface Transportation Board (the "STB"). The STB must grant advance approval
for the Company to pool operations or revenues with another passenger carrier.
The STB, moreover, must authorize any merger by the Company with, or its
acquisition or control of, another motor carrier of passengers. The Company must
maintain reasonable through routes with other motor
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carriers of passengers, and, if found not to have done so, the STB can prescribe
them. The Company is party to certain agreements, which are subject to STB
authorization and supervision, for the adoption of mileage guides, rules,
divisions or general rate adjustments.
State Regulations. As an interstate motor carrier of passengers, the
Company may engage in intrastate operations over any of its authorized routes.
By federal law, states are pre-empted from regulating the Company's fares or its
schedules, including the withdrawal of service over any route. However, the
Company's buses remain subject to state vehicle registration requirements, bus
size and weight limitations, fuel sales and use taxes, speed and traffic
regulations and other local standards not inconsistent with federal
requirements.
Other. The Company is subject to regulation under the Americans with
Disabilities Act (the "ADA"). Under final regulations issued by DOT in September
1998, beginning in October 2000, all new buses received by the Company for its
fixed route operations will have to be equipped with wheelchair lifts.
Additionally, by October 2006, one-half of the Company's fleet involved in fixed
route operations will be required to be lift-equipped, and by October 2012, such
fleet will need to be entirely lift-equipped. The regulations do not require the
retrofitting of existing buses with lift equipment. Nor do the regulations
require the purchase of accessible used buses. Moreover, beginning in October
2001, until the fleet is fully equipped, the Company will be required to provide
an accessible bus to any disabled passenger who provides at least 48 hours
notice. Also beginning in October 2001, larger charter/tour operators will be
required to provide an accessible bus to any disabled passenger who provides at
least 48 hours notice. The Company currently estimates that a built-in lift
device will add $20,000 to $40,000 to the cost of a new bus and that maintenance
and employee training costs will increase. The Company does not expect such
maintenance and training costs to be materially higher than the costs currently
incurred in complying with the interim bus access regulations promulgated under
the ADA. Passenger revenues could also be impacted by the loss of seating
capacity when wheelchair passengers are on the bus, offset by potentially
increased ridership by disabled persons.
INSURANCE COVERAGE
The predecessor agency to the STB granted the Company authority to
self-insure its automobile liability exposure for interstate passenger service
up to a maximum level of $5.0 million per occurrence which has been continued by
the DOT. To maintain self-insurance authority, the Company is required to
maintain a satisfactory safety rating by the DOT, a tangible net worth of $10.0
million (as of December 31, 1998, the Company's tangible net worth was $148.8
million) and a $15.0 million trust fund (currently fully funded) to provide
security for payment of claims. In addition to the self-insurance grant by the
federal government, the Company also exercises self-insurance of its intrastate
automobile liability exposure in 38 states. The Company maintains comprehensive
automobile liability and general liability insurance to insure its assets and
operations subject to a $1.5 million self-insured retention or deductible per
occurrence. The Company also maintains property insurance subject to a $0.1
million deductible per occurrence and maintains workers' compensation insurance
subject to a $1.0 million deductible per occurrence. Additionally, the Company
is required by some states and some of its insurance carriers to maintain
collateral deposits (which is discussed in Liquidity and Capital Resources
section of "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations").
ENVIRONMENTAL MATTERS
The Company may be liable for certain environmental liabilities and
clean-up costs relating to underground fuel storage tanks and systems in the
various facilities presently or formerly owned or leased by the Company. Based
upon surveys conducted solely by Company personnel or its experts, 43 locations
have been identified as remaining sites requiring potential clean-up and/or
remediation as of December 31, 1998. The Company has estimated the clean-up
and/or remediation costs of these sites to be $3.5 million, of which
approximately $0.4 million is indemnifiable by the predecessor owner of
Greyhound's domestic bus operations, now known as Viad Corp ("Viad").
The Company has potential liability with respect to two locations which the
EPA has designated Superfund sites. The Company, as well as other parties
designated by the EPA as potentially responsible parties, face exposure for
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costs related to the clean-up of those sites. Based on the EPA's enforcement
activities to date, the Company believes its liability at these sites will not
be material because its involvement was as a de minimis generator of wastes
disposed of at the sites. In light of its minimal involvement, the Company has
been negotiating to be released from liability in return for the payment of
immaterial settlement amounts. Additionally, there are 14 Superfund sites for
which Viad had initially assumed responsibility under the indemnity provisions
of the 1987 acquisition agreement, as amended in 1991. In late 1997, Viad
notified the Company that it believed that the Company should be responsible for
any liabilities at such sites. The Company believed that Viad had responsibility
for these liabilities; however, in the first quarter of 1999, the Company agreed
to assume these liabilities estimated at $2.0 million from Viad as part of the
consideration paid by the Company to purchase nine restaurants Viad had been
operating in the Company's terminals.
The Company has recorded a total environmental reserve of $3.0 million at
December 31, 1998, a portion of which has also been recorded as a receivable
from Viad for indemnification. The environmental reserve relates to sites
identified for potential clean-up and/or remediation and represents the present
value of estimated cash flows discounted at 8.0%. As of the date of this report,
the Company is not aware of any additional sites to be identified, and
management believes that adequate accruals have been made related to all known
environmental matters.
ITEM 2. PROPERTIES
LAND AND BUILDINGS
At December 31, 1998, the Company used 558 parcels of real property in its
operations, of which it owns 162 properties and leases 396 properties. Of those
properties, 406 are bus terminals, 38 are maintenance facilities, 35 are
terminal/maintenance facilities, and the remaining properties consist of driver
dormitories, parking/storage lots, office/storage/warehouse buildings and
telephone information centers. These properties are located throughout the
United States, with a few in Mexico and Canada. The Company believes the current
makeup of its properties is adequate for its operations, and although there can
be no assurance, based on its recent experience, the Company believes that it
will be able to find suitable replacement properties on acceptable terms for any
properties the Company chooses to replace, or which are condemned, or for which
leases are not renewed or are otherwise terminated.
FLEET COMPOSITION, FLEET AGE AND BUS ACQUISITIONS
During 1998, the Company took delivery of 293 buses, retired 114 buses and
through acquisition of subsidiaries added 125 buses, resulting in a fleet of
2,677 buses at year-end. Through March 22,1999, the Company has taken delivery
of an additional 148 buses and retired 101 buses. At March 22, 1999, the Company
owned 993 buses and leased an additional 1,731 buses for a total fleet of 2,724.
Motor Coach Industries, Inc. ("MCI") or its affiliate, Dina Autobuses, S.A. de
C.V. ("DASA"), hereafter referred to collectively as "MCI", produced all but 140
of these buses. The Company is party to a long-term supply agreement with MCI.
The agreement extends through 2007, but may be canceled at the end of any year
upon six months notice. If the Company decides to acquire new buses, the Company
and its affiliates must purchase at least 80% of its new bus requirements from
MCI pursuant to the agreement. The Company has ordered 154 new buses (including
the 148 referred to above) to be delivered during the first half of 1999.
The average age of the Company's bus fleet has been reduced from 6.3 years
in January 1998 to approximately 5.9 years as of March 22, 1999. The Company
also shows a decrease in the amount of buses in excess of 10 years old, with the
percentage dropping to 21.5% in March 1999 versus 26.4% in January 1998. The
Company believes that newer buses, as well as older buses with newer engines,
are more fuel efficient than buses with older engines. In addition, new buses
are generally less costly to maintain, in part because of warranty coverage, and
generally enhance customer satisfaction.
10
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION.
Between August and December 1994, seven purported class action lawsuits
were filed by purported owners of the Company's Common Stock, 8 1/2% Convertible
Subordinated Debentures and 10% Senior Notes retired in May 1997 ("10% Senior
Notes") against the Company and certain of its former officers and directors.
The suits sought unspecified damages for securities laws violations as a result
of statements made in public reports and press releases and to securities
analysts during 1993 and 1994 that were alleged to have been false and
misleading.
All the purported class action cases referred to above (with the exception
of one suit that was dismissed before being served on any defendants) were
transferred to the United States District Court for the Northern District of
Texas, the Court in which the first purported class action suit was filed, and
were pending under a case styled In re Greyhound Securities Litigation, Civil
Action 3-94-CV-1793-G (the "Federal Court Action"). In July 1995, the plaintiffs
filed consolidated amended complaints, naming the Company, Frank J. Schmieder,
J. Michael Doyle, Phillip W. Taff, Robert R. Duty, Don T. Seaquist, Charles J.
Lee, Charles A. Lynch and Smith Barney Incorporated as defendants. Messrs. Lee,
Lynch and Taff were subsequently dismissed from the case by the plaintiffs. On
October 3, 1996, the Court ruled in favor of the Company and all other
defendants, granting defendants' motions to dismiss. Pursuant to the Court's
order, the complaints were dismissed, with leave granted to the plaintiffs to
refile amended complaints within 20 days thereafter. On October 23, 1996, an
amended complaint was tendered to the Court. All seven class representatives
involved in the prior complaints were dropped from the case. A new purported
class plaintiff, John Clarkson, was named. A motion was filed seeking leave to
permit Mr. Clarkson to intervene as the new class representative. On August 15,
1997, the Court denied Mr. Clarkson leave to intervene and dismissed the
litigation, noting that all claims asserted had been adjudicated. On September
12, 1997, a notice of appeal was filed by counsel for the original seven
plaintiffs, seeking a review of the Court's ruling of October 3, 1996. On
February 9, 1998, plaintiffs dismissed their appeal. As a result, the Federal
Court Action has been dismissed.
In November 1994, a shareholder derivative lawsuit was filed by Harvey R.
Rice, a purported owner of the Company's Common Stock, against the then present
directors and former officers and directors of the Company and the Company as a
nominal defendant. The suit sought to recover monies obtained by certain
defendants by allegedly trading in the Company's securities on the basis of
nonpublic information and to recover monies for certain defendants' alleged
fraudulent dissemination of false and misleading information concerning the
Company's financial condition and future business prospects. The suit, filed in
the Delaware Court of Chancery, New Castle County, was styled Harvey R. Rice v.
Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas
F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E.
Osborne, Jr., J. Patrick Foley, Charles J. Lee and Greyhound Lines, Inc., Civil
Action No. 13854 (the "Delaware Action").
In May 1995, a lawsuit was filed on behalf of two individuals, purported
owners of the Company's Common Stock, against the Company and certain of its
former officers and directors. The suit sought unspecified damages for
securities laws violations as a result of statements made in public reports and
press releases and to securities analysts during 1993 and 1994 that are alleged
to have been misleading. The suit, filed in the United States District Court for
the Northern District of Ohio, was styled James Illius and Theodore J. Krawec v.
Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action
No. 1-95-CV-1140. The defendants filed a motion to transfer venue seeking to
have the case transferred to the United States District Court for the Northern
District of Texas where the Federal Court Action was pending. In September 1995,
the defendants' motion was granted, and the matter was transferred and was
consolidated into the Federal Court Action.
On October 29, 1996, a purported class action lawsuit was brought by a
purported holder of Common Stock against the Company, certain of its former
officers and directors and Smith Barney and Morgan Stanley & Company, Inc. The
suit seeks unspecified damages for alleged federal and Texas state securities
laws violations in connection with a Common Stock offering made by the Company
in May 1993. The suit, filed in the 44th Judicial District Court of Dallas
County, Texas, is styled John Clarkson v. Greyhound Lines, Inc., Frank
Schmieder, J. Michael Doyle,
11
<PAGE> 12
Robert R. Duty, Don T. Seaquist, Smith Barney, Inc. and Morgan Stanley &
Company, Inc., Case No. 96-11329-B. Plaintiff, John Clarkson, is the same
individual who sought to intervene in the Federal Court Action. On February 28,
1997, the suit was transferred to a different judge in the 68th Judicial
District Court in Dallas.
On June 22, 1998, the parties to the State Court Action entered into a
Stipulation and Agreement of Compromise and Settlement (the "Stipulation").
Pursuant to the Stipulation, persons who purchased Common Stock on or in
connection with a stock offering made by the Company on May 4, 1993 and who
continued to hold the Common Stock through September 22, 1993, will be entitled
to share, on a claims-made basis, in a settlement fund of up to $3.0 million
plus interest, less attorneys' fees and costs. On June 22, 1998, the Court
preliminarily approved the Stipulation, conditionally certified the plaintiff
class for purposes of settlement and directed plaintiffs' counsel to provide
notice to the class of the terms of the settlement. On November 2, 1998, the
Court approved the Stipulation but continued final approval of the plaintiff
attorneys' fees. On March 29, 1999, the Court approved the plaintiff's
attorneys' fee request and the Stipulation became final.
Effective June 22, 1998, the parties to the Delaware Action entered into a
settlement stipulation whereby the derivative claims would be dismissed in
return for the payment of $50,000 in attorneys' fees for the plaintiff. To
facilitate a global settlement of the State Court Action and the Delaware
Action, on May 20, 1998, plaintiff re-filed the derivative action in the same
court in which the State Court Action is pending. This case is captioned Harvey
R. Rice v. Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J.
Caley, Thomas F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill,
Alfred E. Osborne, Jr., J. Patrick Foley and Charles J. Lee, Civil Action No. DV
98-03990-C (the "Texas Derivative Action"). On August 6, 1998, the Court
preliminarily approved the settlement and directed plaintiffs' counsel to notify
shareholders of the terms of the settlement. On November 2, 1998 the Court gave
its final approval of this settlement. As a result of this settlement, on
December 1, 1998, the Delaware Action was dismissed.
The foregoing settlements, expected to cost approximately $2.0 million,
will be funded entirely by the Company's directors' and officers' liability
insurance carrier and, thus, will not have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity.
In January 1995, the Company received notice that the Securities and
Exchange Commission (the "Commission") is conducting a formal, non-public
investigation into possible securities laws violations allegedly involving the
Company and certain of its former officers, directors and employees and other
persons. The Commission's Order of Investigation (the "Order of Investigation")
states that the Commission is exploring possible insider trading activities, as
well as possible violations of the federal securities laws relating to the
adequacy of the Company's public disclosures with respect to problems with its
passenger reservation system implemented in 1993 and lower-than-expected
earnings for 1993. In addition, the Commission has stated that it will
investigate the adequacy of the Company's record keeping with respect to the
passenger reservation system and its internal auditing controls. Although the
Commission has not announced the targets of the investigation, it does not
appear from the Order of Investigation that the Company is a target of the
insider trading portion of the investigation. In September 1995, the Commission
served a document subpoena on the Company requiring the production of documents,
most of which the Company had voluntarily produced to the Commission in late
1994. The Company has fully cooperated with the Commission's investigation of
these matters. The Company has had limited contact with the Commission in
connection with the investigation since January 1996. The probable outcome of
this investigation cannot be predicted at this stage in the proceeding.
OTHER LEGAL PROCEEDINGS
In addition to the litigation discussed above, the Company is a defendant
in various lawsuits arising in the ordinary course of business, primarily cases
involving personal injury and property damage claims and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of these claims are covered by
insurance for amounts in excess of the self-retention or deductible portion of
the policies. Therefore, based on the
12
<PAGE> 13
Company's assessment of known claims and its historical claims payout pattern
and discussion with internal and outside legal counsel and risk management
personnel, management believes that there is no proceeding either threatened or
pending against the Company relating to such personal injury and/or property
damage claims arising out of the ordinary course of business that, if resolved
against the Company, would materially exceed the amounts recorded.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
Prior to completing the Merger on March 16, 1999 (see Item 1.-Business-in
this report), the Company's Common Stock, par value $.01 per share (the "Common
Stock"), was listed on the American Stock Exchange under the symbol "BUS." The
following table sets forth the high and low sale prices for the Company's Common
Stock during the periods indicated as reported by the American Stock Exchange:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
First Quarter 1997............................................ $ 5 1/2 $ 3 11/16
Second Quarter 1997........................................... 5 3 7/16
Third Quarter 1997............................................ 4 7/8 3 3/4
Fourth Quarter 1997........................................... 4 7/16 3 3/8
First Quarter 1998............................................ $ 5 3/4 $ 3 9/16
Second Quarter 1998........................................... 6 7/8 4 3/8
Third Quarter 1998............................................ 6 3/16 3 5/8
Fourth Quarter 1998........................................... 6 1/16 3 3/8
January 1, 1999 - March 16, 1999.............................. $ 6 1/2 $ 5 3/4
</TABLE>
HOLDERS
The number of shares of Common Stock outstanding as of March 29, 1999, was
58,743,069. As a result of the Merger, Laidlaw is the sole recordholder of the
Company's Common Stock.
DIVIDENDS
The Company has not paid any dividends on the Common Stock in the past. The
indenture governing the Company's 11 1/2% Senior Notes restricts the Company's
ability to pay dividends on the Common Stock. In the event the Company was
contractually permitted to pay dividends, Laidlaw as the sole holder of Common
Stock would be entitled to receive dividends only when, as and if declared by
the Board of Directors of the Company, subject to the prior rights and
preferences, if any, of holders of the Company's Preferred Stock.
CONVERTIBLE DEBENTURES
At December 31, 1998, the Company had outstanding $9.8 million aggregate
principal amount of its 8 1/2% Convertible Subordinated Debentures due March 31,
2007 (the "Convertible Debentures"). At the option of the holders thereof, prior
to the Merger, the Convertible Debentures were convertible into shares of Common
Stock at any time prior to maturity (unless earlier redeemed or repurchased), at
a conversion rate of approximately 80.81 shares of Common Stock per $1,000
principal amount of Convertible Debentures. Following the Merger, the
Convertible Debentures may be converted into $525.27 in cash per $1,000
principal amount of Convertible Debentures.
14
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The statement of operations data and statement of financial position data
set forth below have been derived from the audited Consolidated Financial
Statements of the Company for each of the respective periods indicated. The
following financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Business" and the Consolidated Financial Statements and notes thereto included
elsewhere in this filing. Certain reclassifications have been made to the prior
period statements to conform them to the December 31, 1998, classifications.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1998(a) 1997(b) 1996 1995 1994(c)
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Total Operating Revenues ..................................... 845,996 771,122 700,858 657,849 615,311
Operating Income (Loss) ...................................... 46,831 37,106 20,804 9,363 (65,476)
Net Income (Loss) Attributable to Common Shareholders ........ $ 30,048 $ (20,573) $ (6,604) $ (17,818) $ (77,421)
========= ========= ========= ========= =========
Diluted earnings per Share of Common Stock (d):
Net Income (Loss) per Share of Common Stock ............... $ 0.47 $ (0.34) $ (0.11) $ (0.33) $ (5.07)
========= ========= ========= ========= =========
OTHER DATA:
EBITDA (e) ................................................ $ 83,163 $ 68,365 $ 51,487 $ 40,373 $ (29,430)
Cash Flows provided by (used for) Operating Activities .... $ 46,089 $ 49,843 $ 16,030 $ 29,474 $ (13,171)
Cash Flows used for Investing Activities .................. $ (47,448) $ (80,817) $ (24,104) $ (34,076) $ (58,229)
Cash Flows provided by (used for) Financing Activities .... $ 4,043 $ 32,128 $ 5,478 $ (1,358) $ 41,211
Ratio of earnings to fixed charges ........................ 1.42 1.19 0.76 0.35 (1.96)
Dividends declared per Common Share ....................... -- -- -- -- --
STATEMENT OF FINANCIAL POSITION DATA:
Total Assets .............................................. $ 643,378 $ 566,593 $ 500,282 $ 480,648 $ 511,499
Long-Term Debt, net (d) ................................... 225,688 207,953 192,581 172,671 197,125
Stockholders' Equity ...................................... 218,013 179,599 140,881 149,762 153,196
</TABLE>
- ----------
(a) During the third quarter of 1998, the Company recognized a tax benefit
related to previously reserved deferred tax assets. As a result, the
Company had a $16.9 million tax benefit for the year.
(b) For the year ended December 31, 1997, the Company recorded an extraordinary
loss of $25.3 million relating to (i) the retirement of an interest rate
swap ($2.5 million), (ii) the retirement of the 10% Senior Notes ($21.3
million) and (iii) the write-off of debt issuance costs related to the
Revolving Credit Facility in place prior to the amended and restated
Revolving Credit Facility that was completed in May 1997 ($1.5 million).
(c) The 1994 results reflect $61.9 million in certain operating charges,
including increases in insurance and legal reserves to recognize
pre-bankruptcy claims previously thought to have been barred in the
Company's Chapter 11 reorganization (which concluded in October 1991),
adverse claims development in 1994 and certain litigation exposure;
write-downs of real estate and other assets (including $7.0 million of
depreciation); costs associated with an operational restructuring; and a
$17.0 million increase in the income tax provision due to the reversal of a
previously recognized deferred tax benefit. For the year ended December 31,
1994, the Company recorded (i) an extraordinary loss of $3.6 million, of
which $3.2 million related to the write-off of debt issuance costs and $0.4
million related to professional fees in conjunction with the replacement of
the Company's existing credit agreement with a new credit agreement and
(ii) an extraordinary gain of $41.9 million related to the conversion of
$89.0 million of Convertible Debentures into Common Stock.
15
<PAGE> 16
(d) In January 1995, the Company issued an additional 16.3 million shares of
Common Stock in connection with the consummation of its Common Stock rights
offering, which provided net proceeds of approximately $28.9 million. The
Company issued 4.0 million shares of Common Stock on October 3, 1995 in a
public offering, which provided net proceeds of $15.4 million. The
completion of the Company's 1994 financial restructuring resulted in the
issuance of approximately 22.8 million shares of Common Stock in December
1994 upon the conversion of approximately $89.0 million of Convertible
Debentures into Common Stock.
(e) Represents income before interest, taxes, minority interest, depreciation
and amortization, extraordinary items and preferred dividends. EBITDA is
presented because management believes investors consider it useful in
evaluating a company's ability to service and/or incur debt. EBITDA should
not be considered in isolation from or as a substitute for net income, cash
flows from operating activities and other consolidated income or cash flow
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity. EBITDA should be used based
on the above calculation, as all companies and industries may not calculate
EBITDA in the same manner.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Greyhound is the only nationwide provider of scheduled intercity bus
transportation services in the United States. The Company's primary business
consists of scheduled passenger service, package express service and food
services at certain terminals, which accounted for 86.0%, 4.0% and 3.7%,
respectively, of the Company's total operating revenues for 1998. The Company's
operations include a nationwide network of terminal and maintenance facilities,
a fleet of 2,677 buses and over 1,800 sales outlets.
In late 1994 and early 1995, under the direction of the Company's new
management team, the Company implemented a "back-to-basics" operating strategy.
This strategy focused on the Company's national bus network and capitalizing on
its low operating costs to attract and retain customers, which management
identified as the first step in rebuilding the Company's financial performance.
With this strategy fully implemented and providing a foundation of operating
quality, the Company began to emphasize growth in each of its principal
businesses through a "sales driven" strategy. This strategy involves the Company
focusing even more on pricing the product for growth, utilizing more promotional
pricing programs for the non-peak periods and targeting the advertising towards
bus oriented market segments.
The Company believes that incremental increases in passenger revenues will
produce disproportionately larger increases in operating profits as many of the
Company's operating expenses are fixed, such as depreciation, amortization,
overhead and lease expenses related to buses and facilities. In addition, the
operating costs necessary to produce the Company's base schedule of offerings,
which consist of labor, fuel, maintenance, insurance and long-term bus leases,
cannot be changed rapidly. Accordingly, these costs do not vary proportionately
with short-term increases in demand for the Company's services.
16
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations as a
percentage of total operating revenue for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating Revenues
Transportation Services
Passenger services ...................... 86.0% 85.4% 85.3%
Package express ......................... 4.0 4.6 4.8
Food services .............................. 3.7 3.8 3.9
Other operating revenues ................... 6.3 6.2 6.0
-------- -------- --------
Total Operating Revenues ............ 100.0 100.0 100.0
Operating Expenses
Maintenance ................................ 9.9 10.0 10.5
Transportation ............................. 23.8 24.3 24.4
Agents' commissions and station costs ...... 18.4 18.3 18.8
Marketing, advertising and traffic ......... 3.2 3.5 3.7
Insurance and safety ....................... 5.9 5.9 5.9
General and administrative ................. 11.8 11.8 11.6
Depreciation and amortization .............. 4.3 4.1 4.4
Operating taxes and licenses ............... 6.7 6.7 7.1
Operating rents ............................ 7.8 7.7 7.7
Cost of goods sold - Food services ......... 2.4 2.5 2.7
Other operating expenses ................... 0.3 0.4 0.2
-------- -------- --------
Total Operating Expenses ............ 94.5 95.2 97.0
-------- -------- --------
Operating Income ............................. 5.5 4.8 3.0
Interest Expense ............................. 3.3 3.6 3.9
Income Tax Provision (Benefit) ............... (2.1) 0.1 0.0
Minority Interest ............................ 0.1 0.0 0.0
-------- -------- --------
Net Income (Loss) Before Extraordinary Items . 4.2% 1.1% (0.9)%
======== ======== ========
</TABLE>
The following table sets forth certain operating data for the Company for
1998, 1997 and 1996. Certain statistics have been adjusted and restated from
those previously published to provide consistent comparisons.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Regular Service Miles (000's) ............................. 316,045 285,689 265,259
Total Bus Miles (000's) ................................... 323,393 291,537 270,187
Passenger Miles (000's) ................................... 7,820,225 7,049,637 6,243,262
Passengers Carried (000's) ................................ 22,552 19,893 18,348
Average Trip Length (passenger miles/passengers carried) .. 347 354 340
Load (avg. number of passengers per regular service mile) . 24.7 24.7 23.5
Load Factor (% of available seats filled) ................. 52.3% 52.6% 51.2%
Yield (regular route revenue/passenger mile) .............. $ 0.0931 $ 0.0934 $ 0.0957
Total Revenue Per Total Bus Mile .......................... 2.62 2.65 2.59
Operating Income Per Total Bus Mile ....................... 0.14 0.13 0.08
Cost per Total Bus Mile:
Maintenance ............................................. $ 0.258 $ 0.264 $ 0.272
Transportation .......................................... 0.622 0.642 0.633
</TABLE>
17
<PAGE> 18
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The Company's results of operations include the operating results of
Carolina Coach Company, and affiliates ("Carolina") and Valley Transit, Inc.,
and affiliates ("Valley"), both of which were acquired in 1997, and Golden
State, Peoria-Rockford Bus Company, Autobuses Americanos and Autobuses Amigos,
which were acquired in 1998. These companies are collectively referred to as the
"acquisitions." The results for the acquisitions are included as of their
respective purchase dates.
Operating Revenues. Total operating revenues increased $74.9 million (or
9.7%) for the year ended December 31, 1998 compared to the same period in 1997.
Passenger services revenues increased $69.4 million (or 10.5%) in 1998 compared
to 1997 (including $27.2 million related to the acquisitions). The 10.5%
increase in regular route revenues reflects a 13.4% increase in the number of
passengers carried primarily offset by a 2.0% decrease in average trip length.
Excluding the impact of the acquisitions, the Company's passenger service grew
6.4% due to a 4.6% increase in passengers carried, a 2.5% increase in trip
length, partially offset by a 0.6% decrease in yield. Although the Company
(without the acquisitions) saw growth in the short-haul market (passengers
traveling less than 450 miles), the increase in trip length and decrease in
yield reflect greater growth in long-haul traffic (passengers traveling more
than 450 miles), especially in the first half of the year, as the Company
promoted and priced this product for growth. On a consolidated basis, the
decrease in trip length reflects the impact of the acquisitions, as the
acquisitions have significantly shorter trip lengths than the Company as a
whole.
In 1998, the Company saw a $1.9 million (or 5.3%) decrease in package
express revenues. Package express revenues in 1997 were positively impacted by
the United Parcel Service labor strike that took place in August 1997. Without
the estimated effect of this revenue in 1997, the Company experienced increased
package express revenues of $1.2 million (or 3.7%) which related entirely to the
acquisitions.
Food services and related revenues increased $1.5 million (or 5.1%) for the
year ended December 31, 1998, compared to the same period in 1997. Food services
and related revenues have been reclassified to include sales of retail products.
Previously, sales of retail products were included in other operating revenues.
Food services and related revenues, as reclassified, increased over the prior
year due primarily to the increase in passenger traffic discussed above.
Other operating revenues increased $5.9 million (or 12.3%) for the year
ended December 31, 1998, compared to the same period in 1997 primarily due to a
$4.3 million (or 38.8%) increase in charter service revenues (including $1.0
million related to the acquisitions) and an increase in revenues from other
in-terminal services, such as calling cards and prepaid ticket orders.
Operating Expenses. Total operating expenses increased $65.1 million (or
8.9%) for the year ended December 31, 1998, compared to the same period in 1997.
The increase is due primarily to increased bus miles (10.9%), higher driver
wages, increased terminal salaries, increased ticket and express commissions due
to higher sales, and increased bus operating leases. Additionally, expenses
attributable to the operations of the acquisitions ($25.6 million) are included
as of their acquisition dates. Despite these increases, total operating expenses
decreased as a percentage of total operating revenues.
Maintenance costs increased $6.4 million (or 8.3%) for the year ended
December 31, 1998, compared to the same period in 1997, primarily due to
increased bus miles and the inclusion of the acquisitions. Despite these
increases, maintenance costs decreased on a per-mile basis and as a percentage
of total operating revenues.
Transportation expenses, which consist primarily of fuel costs and driver
salaries, increased $13.9 million (or 7.4%) for the year ended December 31,
1998, compared to the same period in 1997, due primarily to increased bus miles,
contractual driver wage increases in April and October and the inclusion of the
acquisitions. The additional miles resulted in higher overall fuel expense,
despite the favorable prices, and an increase in driver wages and related driver
expenses. Transportation expenses decreased on a per-mile basis and as a
percentage of total operating revenues due in part to the impact of lower fuel
prices in 1998 compared to the prior year.
Agents' commissions and station costs increased $14.7 million (or 10.4%)
for the year ended December 31, 1998, compared to the same period in 1997,
primarily due to commissions from increased ticket sales, terminal salaries
18
<PAGE> 19
associated with staffing for the increase in passengers, terminal salary
raises and the inclusion of the acquisitions. As a result, agents' commissions
and station costs increased slightly as a percentage of total operating
revenues.
Marketing, advertising and traffic expenses increased $0.5 million (or
1.8%) for the year ended December 31, 1998, compared to the same period in 1997,
but decreased as a percentage of total operating revenues. Media advertising
increased over 1997 but the increased costs were almost entirely offset by the
exchange of bus wrap advertising for trade discounts.
Insurance and safety costs increased $3.9 million (or 8.5%) for the year
ended December 31, 1998, compared to the same period in 1997, due primarily to
increased bus miles and the inclusion of the acquisitions. Insurance and safety
costs continue to remain at 5.9% of total operating revenues, while the cost per
mile decreased slightly from 1997 as a result of the acquisitions which have
lower insurance costs.
General and administrative expenses increased $8.5 million (or 9.3%) for
the year ended December 31, 1998, compared to the same period in 1997, primarily
due to additions to administrative personnel, expenses associated with
remediation of the Company's computer systems related to the Year 2000 issue and
the inclusion of the acquisitions. Despite these increases, general and
administrative expenses remained at 11.8% of total operating revenues.
Depreciation and amortization expense increased $5.1 million (or 16.2%) for
the year ended December 31, 1998, compared to the same period in 1997, primarily
due to the purchase of additional buses, other equipment and software and
amortization attributable to the acquisitions. Depreciation and amortization
expense increased as a percentage of total operating revenues.
Operating taxes and license costs increased $5.2 million (or 10.1%) for the
year ended December 31, 1998, compared to the same period in 1997, primarily due
to increased payroll taxes resulting from increased salaries and headcounts
related to higher business volume (including increased miles operated),
increased fuel taxes due to increased miles and the inclusion of the
acquisitions.
Operating rents increased $6.7 million (or 11.3%) for the year ended
December 31, 1998, compared to the same period in 1997, primarily due to an
increase in the number of buses leased under operating leases and the inclusion
of the acquisitions.
Food services and related cost of goods sold increased $1.0 million (or
5.2%) for the year ended December 31, 1998, compared to the same period in 1997,
primarily due to the 5.1% increase in food services and related revenues for the
same period. Food services and related cost of goods sold have been reclassified
to include the costs associated with sales of retail products. Previously those
costs were recorded in other operating expenses.
Other operating expenses decreased $0.7 million (or 22.9%) for the year
ended December 31, 1998, compared to the same period in 1997, primarily due to
an increase in the gains associated with the sale of assets. As a result, other
operating expenses decreased as a percentage of total operating revenues.
Interest expense increased $0.2 million (or 0.9%) for the year ended
December 31, 1998, compared to the same period in 1997, as a result of increased
borrowings under the Revolving Credit Facility. The increased borrowings are
attributable to the acquisitions, partially offset by a positive cash flow from
earnings and a lower average interest rate under the Revolving Credit Facility.
Interest expense decreased as a percentage of total operating revenues.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company's results of operations include the operating results of
Carolina and Valley, collectively referred to as the "1997 acquisitions". The
results for the acquisitions are included as of their respective purchase dates,
both of which occurred during the third quarter of 1997.
Operating Revenues. Total operating revenues increased $70.3 million (or
10.0%) for the year ended December 31, 1997 compared to the same period in 1996.
Passenger services revenues increased $60.6 million (or 10.1%) in
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<PAGE> 20
1997 compared to 1996 (including $11.9 million related to the 1997
acquisitions). The 10.1% increase in passenger services revenues reflects a
13.0% increase in the number of passengers carried offset by a 1.4% decrease in
yield. Excluding the impact of the 1997 acquisitions, the Company's passenger
service grew 8.2% due to a 7.3% increase in passengers carried, a 2.6% increase
in trip length and a 1.8% decrease in yield. The decrease in yield reflects
significant growth in long-haul traffic (passengers traveling more than 450
miles), as the Company promoted and priced this product for growth. However, the
reduction in yield was partially offset by growth in the short-haul market
(passengers traveling less than 450 miles), which typically produces higher
yields. On a consolidated basis, the decrease in trip length reflects the impact
of the acquisitions, as both Carolina and Valley have significantly shorter trip
lengths than the Company as a whole.
In 1997 the Company saw a $2.1 million (or 6.4%) increase in package
express revenues (including $0.7 million related to the 1997 acquisitions),
after nine years of year-over-year declines. Package express revenues increased
due to an increase in shipments handled as a result of the United Parcel Service
labor strike in August 1997, the retention of a portion of those customers
subsequent to the strike and a price increase. In addition, in select markets,
the Company implemented a centralized telephone customer service department
dedicated to package express service and coordinated pick-up and delivery
services.
Food services and related revenues increased $2.1 million (or 7.7%) for the
year ended December 31, 1997, compared to the same period in 1996. Food services
and related revenues have been reclassified to include sales of retail products.
Previously, sales of retail products were included in other operating revenues.
Food services and related revenues, as reclassified, increased over the prior
year due primarily to the increase in passenger traffic discussed above.
Other operating revenues increased $5.4 million (or 12.8%) for the year
ended December 31, 1997 compared to the same period in 1996 primarily due to a
$2.6 million (or 30.1%) increase in charter service revenues (including $0.4
million related to the 1997 acquisitions) and an increase in revenues from other
in-terminal services, such as money order sales and prepaid ticket orders.
Operating Expenses. Total operating expenses increased $54.0 million (or
7.9%) for the year ended December 31, 1997, compared to the same period in 1996.
The increase is due primarily to increased bus miles (7.9%), higher driver
wages, increased terminal salaries, increased ticket and express commissions due
to higher sales, and increased bus operating leases. Additionally, expenses
attributable to the operations of the 1997 acquisitions ($9.9 million) are
included as of their acquisition dates, which both occurred in the third
quarter. Despite these increases, total operating expenses decreased as a
percentage of total operating revenues.
Maintenance costs increased $3.6 million (or 4.9%) for the year ended
December 31, 1997, compared to the same period in 1996, primarily due to
increased bus miles and the inclusion of the 1997 acquisitions. Despite these
increases, maintenance costs decreased on a per-mile basis and as a percentage
of total operating revenues due principally to the decrease in the average age
of the fleet.
Transportation expenses, which consist primarily of fuel costs and driver
salaries, increased $16.3 million (or 9.6%) for the year ended December 31,
1997, compared to the same period in 1996, due primarily to increased bus miles,
a contractual driver wage increase, and the inclusion of the 1997 acquisitions.
The additional miles resulted in higher overall fuel expense and an increase in
driver wages and related driver expenses. Transportation expenses decreased on a
per-mile basis, but increased as a percentage of total operating revenues due
primarily to the impact of the contractual wage increase which was partially
offset by lower fuel prices.
Agents' commissions and station costs increased $9.4 million (or 7.1%) for
the year ended December 31, 1997, compared to the same period in 1996, primarily
due to commissions from increased ticket and express sales and the inclusion of
the 1997 acquisitions. Despite these increases, agents' commissions and station
costs decreased as a percentage of total operating revenues.
Marketing, advertising and traffic expenses increased $1.0 million (or
4.1%) for the year ended December 31, 1997, compared to the same period in 1996,
but decreased as a percentage of total operating revenues. The increase is
primarily due to higher advertising agency fees and production costs. Media
advertising increased over 1996 but the
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<PAGE> 21
increased costs were entirely offset by the exchange of bus wrap advertising for
trade discounts. Additionally, cost savings were recognized related to bringing
in-house certain computing services.
Insurance and safety costs increased $4.8 million (or 11.6%) for the year
ended December 31, 1997, compared to the same period in 1996, due primarily to
increased bus miles and the inclusion of the 1997 acquisitions.
General and administrative expenses increased $10.3 million (or 12.7%) for
the year ended December 31, 1997, compared to the same period in 1996, primarily
due to additions to administrative personnel in late 1996, officer severance, an
increase in the pay-out of the management incentive plan related to improved
company performance, and the inclusion of the 1997 acquisitions.
Depreciation and amortization expense increased $0.6 million (or 1.9%) for
the year ended December 31, 1997, compared to the same period in 1996, primarily
due to the purchase of additional buses in 1997 and late 1996 and the
depreciation and amortization attributable to the 1997 acquisitions.
Depreciation and amortization expense decreased as a percentage of total
operating revenues.
Operating taxes and license costs increased $1.7 million (or 3.4%) for the
year ended December 31, 1997, compared to the same period in 1996, primarily due
to increased payroll taxes resulting from increased salaries and headcounts
related to higher business volume (including increased miles operated) and the
inclusion of the 1997 acquisitions. Operating taxes and license costs decreased
as a percentage of total operating revenues.
Operating rents increased $5.1 million (or 9.5%) for the year ended
December 31, 1997, compared to the same period in 1996, primarily due to an
increase in the number of buses leased under operating leases in 1997 and the
inclusion of the 1997 acquisitions. Operating rents were 7.7% of total operating
revenues in each of 1997 and 1996.
Food services and related cost of goods sold increased $0.9 million (or
4.7%) for the year ended December 31, 1997, compared to the same period in 1996,
primarily due to the 7.7% increase in Food services and related revenues for the
same period. Food services and related cost of goods sold have been reclassified
to include the costs associated with sales of retail products. Previously those
costs were recorded in other operating expenses.
Interest expense increased $0.3 million (or 1.1%) for the year ended
December 31, 1997, compared to the same period in 1996, as a result of increased
borrowing on the Revolving Credit Facility partially offset by lower effective
interest rates on the Company's 11 1/2% Senior Notes due 2007 compared to the
effective interest rate on the retired 10% Senior Notes and renegotiated
Revolving Credit Facility. The increased borrowing is attributed to the purchase
of the 1997 acquisitions, the five terminals purchased from Viad, and the buses
purchased for sale/leaseback transactions partially offset by proceeds from the
Preferred Stock offering in April 1997. Additionally, the Company added three
new capital leases for 77 buses in December 1996. Interest expense decreased as
a percentage of total operating revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to provide working
capital, to finance capital expenditures, including bus acquisitions, to meet
debt service requirements, including the payment of interest on the 11 1/2%
Senior Notes and to pay Preferred Stock dividends. The Company's principal
sources of liquidity are expected to be cash flow from operations and funds
provided by Laidlaw. The Company believes that its cash flow from operations,
together with funds provided by Laidlaw will be sufficient to meet its liquidity
needs.
Net cash provided by operating activities was $46.1 million, $49.8 million
and $16.0 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Net cash used for investing activities was $47.4 million, $80.8
million and $24.1 million for 1998, 1997 and 1996, respectively, principally due
to capital expenditures, consisting primarily of acquisitions of buses and real
estate and facility improvements, totaling $33.7 million, $45.1 million and
$38.4 million for 1998, 1997 and 1996, respectively, offset in part by proceeds
of assets sold of $3.9 million, $6.5 million and $16.7 million, respectively.
Additionally, cash used for investing activities includes payments relating to
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<PAGE> 22
the acquisitions of $10.9 million in 1998 and $40.1 million in 1997. Net cash
provided by financing activities was $4.0 million, $32.1 million and $5.5
million for 1998, 1997 and 1996, respectively.
As a result of the Merger, the Company will be required to make a one-time
offer to repurchase all or any part of each holder's 11 1/2% Senior Notes at a
price equal to 101% of the principal amount thereof plus interest. Also, as a
result of the Merger, the Preferred Stock becomes mandatorily redeemable into
$33.33 in cash for each share of Preferred Stock, which is in excess of the
liquidation preference. Additionally, the Company will be required to make a
one-time offer to repurchase all or any part of each holder's Convertible
Debentures at a price equal to 100% of the principal amount thereof plus
interest.
As a part of its operating strategy, the Company anticipates continuing to
make significant capital expenditures in connection with improvements to its
infrastructure, including acquiring buses, making improvements to its terminals
and maintaining and upgrading its computer systems. The Company's experience
indicates that as the age of its bus fleet increases, the dependability and
quality of service declines, which may make the Company less competitive. In
addition, the Company believes that acquiring new buses and improving the
Company's terminals and computer systems will permit the Company to continue to
improve customer service, which the Company believes has contributed
significantly to its improved operating results in 1996, 1997 and 1998. The
Company has ordered 154 new buses to be delivered during the first half of 1999.
The Company requires significant cash flows to meet its debt service and
other continuing obligations. As of December 31, 1998, the Company had $233.7
million of long-term indebtedness outstanding (including current portions),
including $37.8 million of borrowings under the Revolving Credit Facility and
$150.0 million of 11 1/2% Senior Notes. As of December 31, 1998, the Company had
total availability of $93.1 million under the Revolving Credit Facility. As a
result of the Merger, on March 17, 1999, all amounts outstanding under the
Revolving Credit Facility were paid and the Revolving Credit Facility was
terminated.
The Company has entered into two advance purchase commitments for fuel.
Under these agreements the Company agrees to take delivery of fuel at a specific
location at a fixed price at a specific date in the future. The agreements have
been entered into, with two suppliers, for approximately 23% of projected fuel
needs through October 1999, at an average price per gallon of $0.51. At this
time, due to the nature of the market for fuel, the Company is no longer
entering into advance purchase contracts. However, should the market change, the
Company may decide to enter into additional advance fuel purchase contracts as
Management believes that this strategy is a conservative methodology of
mitigating the impact of fuel price fluctuations.
SELF INSURANCE
Insurance coverage and risk management expense are key components of the
Company's cost structure. The loss of self-insurance authority from the DOT or a
decision by the Company's insurers to modify the Company's program
substantially, by either increasing cost, reducing availability or increasing
collateral, could have a material adverse effect on the Company's liquidity,
financial condition, and results of operations.
The Company maintains cash deposits that secure insurance claims, which as
of February 28, 1999, aggregated approximately $41.5 million, including the
following deposits. The Company maintains $15.0 million on deposit in a trust
fund to support its self-insurance program pursuant to the DOT's approval of
such program. Additionally, as of February 28, 1999, the Company had pledged
$26.1 million in cash and $9.3 million in letters of credit to secure its other
liability insurance obligations. As a result of the Merger, the Company is
negotiating to eliminate or replace the majority of these deposits with letters
of credit to be issued under Laidlaw's existing credit facility.
OTHER DEPOSITS
The Company maintains deposits that secure bus leases associated with sale
leaseback transactions. These deposits are in the form of marketable securities.
As of February 28, 1999, at market value, these deposits are for $23.4 million
pledged as collateral in connection with the sale and leaseback of 319 buses and
$8.5 million pledged as
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<PAGE> 23
collateral in connection with the sale and leaseback of 125 buses. The debt
securities included in these security deposits are recorded at cost plus earned
interest as it is the intent of the Company to hold these securities until
maturity. As a result, the temporary gains and losses associated with the market
value of these securities are excluded from operating results and stockholders'
equity.
PENSION PLAN FUNDING
The Company maintains ten defined benefit pension plans, the most
significant of which (the ATU Plan) covers approximately 15,650 current and
former employees, fewer than 1,500 of which are active employees of the Company.
The ATU Plan was closed to new participants in 1983 and, as a result, over 85%
of its participants are over the age of 50. For financial reporting and
investment planning purposes, the Company currently uses an actuarial mortality
table that closely matches the actual experience related to the existing
participant population. Based upon the application of this table and other
actuarial and investments assumptions, the Company believes that the ATU Plan is
adequately funded.
For funding purposes, legislation passed by the United States Congress in
1994, and amended in 1997, mandates the use of a prescribed actuarial mortality
table and discount rates that differ from those used by the Company for
financial reporting and investment planning purposes. Nevertheless, based upon
the application of the actuarial mortality table, discount rates and funding
calculations prescribed by the legislation, as amended, the Company does not
anticipate that it will be required to make any contributions to the ATU Plan in
the foreseeable future. However, there is no assurance that the ATU Plan will be
able to earn the assumed rate of return or that contributions to the ATU Plan in
the future will not be significant.
COMPUTER SYSTEMS / YEAR 2000 READINESS
Many existing computer systems, communications equipment, control devices
and software products, including several used by the Company, are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, the
Company's date critical functions related to the year 2000 and beyond, such as
scheduling, dispatch, sales, purchasing, planning and financial systems may be
materially adversely affected unless these systems are or become year 2000
ready.
During the past three years, the Company has been replacing or upgrading
its computer systems to improve operating efficiencies. Through some of these
efforts, year 2000 ready applications or systems have been installed. The
Company is preparing both its information technology ("IT") systems and its
non-IT, technology enabled systems for the year 2000 by implementing the year
2000 Readiness Process, comprised of five phases: Assessment, Planning,
Implementation, Testing and Clean Management.
The first phase is an assessment of the Company's systems with respect to
year 2000 readiness. During the Assessment phase, the Company, with the
assistance of consultants, reviews individual applications and the hardware and
network infrastructure supporting those applications. The assessment also
includes non-"information technology" (non-IT) systems, such as fax machines,
time clocks and bus maintenance test equipment. A comprehensive review and
inventory of non-IT technology enabled equipment and functions will be completed
in this phase. The assessment of all of the Company's IT systems was completed
during the third quarter of 1998. The assessment of the Company's non-IT systems
will be completed early in the second quarter of 1999. The Assessment phase also
involves an assessment of the readiness of third party vendors and suppliers.
The Company has already issued year 2000 readiness questionnaires to some
vendors and will continue this effort. However, responses to these inquiries
have been limited. Nevertheless, as a normal course of business, the Company has
contingency plans in place to deal with failures of most of the critical
third-party systems. Where such contingency plans are not in place, the Company
is in the process of developing those plans.
The purpose of the Planning phase is to develop a detailed set of plans for
bringing the Company's systems to year 2000 readiness. The Company first
developed plans to prepare individual applications and platforms for year
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<PAGE> 24
2000 readiness. These individual plans were then consolidated into an overall
plan for remediation of the IT systems. Priority has been given to the mission
critical functions. For those non-mission critical systems that might not be
ready for the year 2000, the overall plan calls for the development of
contingency plans to minimize disruption to the business. The overall plan for
IT systems was completed during the fourth quarter of 1998. The planning phase
for non-IT systems is targeted for completion early in the second quarter of
1999, following the completion of the Company's non-IT systems Assessment Phase.
In the Implementation phase, the Company will bring the IT systems to a
state of readiness as stand-alone units. Each application and its supporting
infrastructure components will be remediated, replaced or upgraded, as
appropriate. Each application will be tested to ensure the accuracy of current
functionality and to ensure the continuance of the functionality into the year
2000 and beyond. To date, the majority of infrastructure components and several
applications have been remediated. The Company expects to complete the
Implementation phase for mission critical IT systems in the second quarter of
1999. Non-mission critical IT systems and non-IT systems are expected to be made
year 2000 ready by the end of third quarter of 1999.
The Testing phase is the most complicated phase of the year 2000 Readiness
Process. In this phase, IT systems are tested for year 2000 readiness, meaning
that a series of tests using the same data but different dates is performed to
ensure readiness of the IT systems both prior to and after the year 2000.
Testing of individual infrastructure components and applications will continue
with the majority of testing completed by the third quarter of 1999.
Clean Management is confirming that any newly acquired components or
applications are deemed year 2000 ready before their introduction into the
Company. The Clean Management phase of the year 2000 Readiness Process is
conducted at the same time as all other phases.
The Company currently has a disaster recovery plan that has put contingency
planning in place to address problems that might occur in the ordinary course of
business. However, the Company is starting to re-evaluate its contingency
planning for critical operational areas that might be specifically affected by
the year 2000 problem if the Company or suppliers are not ready. Throughout
1999, the Company will review the extent to which contingency plans may be
required for any third parties that do not achieve year 2000 readiness, and the
Company expects to complete those necessary contingency plans by the third
quarter of 1999.
The Company's total costs related to year 2000 assessment and remediation
are based on presently available information. The total remaining costs related
to the year 2000 assessment and remediation efforts are estimated to be between
$12.5 million and $17.5 million, including internal salaries that would be
incurred without remediation efforts. The Company estimates that approximately
half of this amount will be capitalized, with the remainder being expensed as
incurred. The costs which include expenditures in 1999 and 2000 exceed the
previous rate of IT related expenditures, including capitalized expenditures, by
approximately $5.0 million to $10.0 million. These costs will be funded through
operating cash flows or from funds provided by Laidlaw. Since the Company has
been replacing and upgrading its computer systems in the ordinary course of
business, the Company cannot estimate the costs incurred to date related
specifically to remediating year 2000 issues.
The costs of the Company's year 2000 readiness project and the date on
which the Company plans to complete the year 2000 modifications are based on
management's estimates, which were derived utilizing numerous assumptions of
future events including the continued availability of certain resources,
third-party modification plans and other factors. The year 2000 issues present a
number of risks that are beyond the Company's reasonable control, such as the
failure of utility companies to deliver electricity, the failure of
telecommunications companies to provide voice and data services, the failure of
financial institutions to process transactions and transfer funds, and the
impact on the Company of the effects of year 2000 issues on the economy in
general or on the Company's business partners and customers. Although the
Company believes that its year 2000 readiness program is designed appropriately
to identify and address those year 2000 issues that are subject to the Company's
reasonable control, the Company can make no assurance that its efforts will be
fully effective or that the year 2000 issues will not have a material adverse
effect on the Company's business, financial condition or results of operations.
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INCOME TAXES
During 1998 the Company recognized deferred tax assets primarily related to
net operating losses from prior years expected to be realized in the current or
future years. These tax assets had been previously reserved; however, the
Company recognized these tax assets due to a continued trend of earnings
improvement and current and future expected positive earnings, as well as the
successful negotiation of the new union agreement.
SEASONALITY
The Company's business is seasonal in nature and generally follows the
pattern of the travel industry as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. As a result, the Company's
cash flows are also seasonal with a disproportionate amount of the Company's
annual cash flows being generated during the peak travel periods. Therefore, an
event that adversely affects ridership during any of these peak periods could
have a material adverse effect on the Company's financial condition and results
of operations for that year. The day of the week on which certain holidays
occur, the length of certain holiday periods, and the date on which certain
holidays occur within a fiscal quarter, may also affect the Company's quarterly
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk includes
"forward-looking statements" that involve risk and uncertainties. Actual results
could differ materially from these projections. The Company is currently exposed
to market risk from changes in commodity prices for fuel, interest rates and
investment prices. In addition, the Company has market risk related to its
put/call agreement for certain buses owned by the Company. The Company does not
use derivative instruments to mitigate market risk, nor does the Company use
market risk sensitive instruments for speculative or trading purposes.
COMMODITY PRICES. The Company currently has exposure to commodity risk from its
advance purchase commitments for fuel and fuel inventory.
As discussed above in Item 7, the Company has entered into two advance
purchase commitments for fuel. Under these agreements the Company agrees to take
delivery of fuel at a specific location at a fixed price at a specific date in
the future. The agreements have been entered into, with two suppliers, for
approximately 23% of projected fuel needs through October 1999, at an average
price per gallon of $0.51. A 10% increase in the cost of fuel would not have a
material effect on these commitments, nor on the Company's financial position,
annual results of operations or cash flows.
Additionally, the Company has fuel inventory at December 31, 1998, at a
carrying value of $0.3 million. As disclosed in Note 2 to the Consolidated
Financial Statements, the Company utilizes the first-in, first-out method for
accounting purposes. Consequently, the Company's fuel inventory is used in
operations before a change in the market price of fuel could have a material
effect on the Company's financial position.
INTEREST RATES. The Company currently has exposure to interest rates from its
long-term debt only as it related to the Company's Revolving Credit Facility, as
all other debt instruments utilize fixed rates. The Revolving Credit Facility
utilized a variable rate based on prime and LIBOR. As of December 31, 1998, the
Revolving Credit Facility utilized prime plus 0.25% and LIBOR plus 1.75%
(weighted average 7.7%) with an outstanding balance of $37.8 million. Based on
this, a 10% increase in interest rates would not materially affect the Company's
financial position, annual results of operations, nor its cash flow. Following
the Merger, on March 17, 1999, all amounts outstanding under the Revolving
Credit Facility were paid and the Revolving Credit Facility was terminated.
INVESTMENT PRICES. The Company currently has exposure in the stock price of
investments in its available for sale security. The Company currently has only
one investment classified as available for sale and a 10% decrease in the market
price of this stock would not have a material effect on the Company's financial
position.
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MARKET RISK. The Company negotiated a put/call agreement whereby the Company
prearranged the sale of certain buses. This agreement allows the Company to put
these buses to the contracting party for a certain price at a certain point in
time, or allows the contracting party to call these buses for a certain price at
a certain point in time. A 10% decrease in the market value of these buses would
result in a market value that is lower than the call price and thus result in
the Company putting these buses to the contracting party at a gain to the
Company.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Management Report on Responsibility for Financial Reporting ....................................... 28
Report of Independent Public Accountants........................................................... 29
Consolidated Statements of Financial Position as of December 31, 1998 and 1997..................... 30
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996........ 31
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997,
and 1996...................................................................................... 32
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996........ 33
Notes to Consolidated Financial Statements......................................................... 34
Schedule II - Valuation and Qualifying Accounts - For the Years Ended December 31, 1996, 1997,
and 1998...................................................................................... 58
</TABLE>
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<PAGE> 28
MANAGEMENT REPORT ON RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of Greyhound Lines, Inc. and its subsidiaries (the
"Company") has the responsibility for preparing the accompanying consolidated
financial statements and for their integrity and objectivity. The statements
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis and are not misstated due to fraud or material
error. The financial statements include amounts that are based on management's
best estimates and judgments. Management also prepared the other information in
the annual report on Form 10-K and is responsible for its accuracy and
consistency with the financial statements.
The Company's consolidated financial statements have been audited by Arthur
Andersen LLP, independent public accountants approved by the Board of Directors.
Management has made available to Arthur Andersen LLP all the Company's financial
records and related data, as well as the minutes of the stockholders' and
directors' meetings. Furthermore, management believes that all representations
made to Arthur Andersen LLP during its audits were valid and appropriate.
Management of the Company has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and the prevention and detection of fraudulent
financial reporting. The system of internal control provides for appropriate
division of responsibility and is documented by written policies and procedures
that are communicated to employees with significant roles in the financial
reporting process and updated as necessary. Management continually monitors the
internal control system for compliance. The Company maintains an internal
auditing program that independently assesses the effectiveness of the internal
controls and recommends possible improvements thereto. In addition, as part of
its audits of the Company's consolidated financial statements, Arthur Andersen
LLP considered the Company's system of internal control to the extent they
deemed necessary to determine the nature, timing and extent of audit tests to be
applied. Management has considered the internal auditors' and Arthur Andersen
LLP's recommendations concerning the Company's system of internal control and
has taken actions that the Company believes respond appropriately to these
recommendations. Management believes that the Company's system of internal
control is adequate to accomplish the objectives discussed herein.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of corporate conduct, which is
publicized throughout the Company. The code of conduct addresses, among other
things, the necessity of ensuring open communication within the Company;
potential conflicts of interests; compliance with all domestic and foreign laws,
including those relating to financial disclosure; and the confidentiality of
proprietary information. The Company maintains a systematic program to assess
compliance with these policies.
T. Scott Kirksey
Vice President Financial
Planning and Reporting
(Principal Financial and
Accounting Officer)
Dallas, Texas
March 31, 1999
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Greyhound Lines, Inc.:
We have audited the accompanying consolidated statements of financial
position of Greyhound Lines, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Greyhound Lines, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
8 (Schedule II) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 15, 1999 (except with respect to the
matter discussed in Note 20, as to which the
date is March 16, 1999)
29
<PAGE> 30
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Current Assets
Cash and cash equivalents ........................................................ $ 4,736 $ 2,052
Accounts receivable, less allowance for doubtful accounts of $198 and $268 ....... 40,774 35,364
Inventories, less allowance for shrinkage of $205 and $175 ....................... 5,705 4,658
Prepaid expenses ................................................................. 5,170 4,949
Assets held for sale ............................................................. 3,029 3,889
Current portion of deferred tax assets ........................................... 24,053 --
Other current assets ............................................................. 9,907 9,694
--------- ---------
Total Current Assets ....................................................... 93,374 60,606
Prepaid Pension Plans ............................................................... 27,917 25,378
Property, Plant and Equipment, net of accumulated depreciation of $ 151,468
and $124,374 .................................................................... 362,417 341,292
Investments in Unconsolidated Affiliates ............................................ 13,560 6,076
Deferred income taxes ............................................................... 8,988 --
Insurance and Security Deposits ..................................................... 67,908 72,693
Goodwill, net of accumulated amortization of $1,755 and $499 ........................ 39,510 30,215
Intangible Assets, net of accumulated amortization of $28,503 and $22,188 ........... 29,704 30,333
--------- ---------
Total Assets ............................................................... $ 643,378 $ 566,593
========= =========
Current Liabilities
Accounts payable ................................................................. $ 27,724 $ 32,731
Accrued liabilities .............................................................. 64,819 62,237
Unredeemed tickets ............................................................... 12,143 10,325
Current portion of reserve for injuries and damages .............................. 22,967 21,374
Current maturities of long-term debt ............................................. 7,970 4,469
--------- ---------
Total Current Liabilities .................................................. 135,623 131,136
Reserve for Injuries and Damages .................................................... 37,392 36,591
Long-Term Debt, net ................................................................. 225,688 207,953
Minority Interests .................................................................. 3,058 --
Other Liabilities ................................................................... 23,604 11,314
--------- ---------
Total Liabilities .......................................................... 425,365 386,994
Commitments and Contingencies (Notes 15 and 18)
Stockholders' Equity
Preferred Stock (10,000,000 shares authorized; par value $.01)
8 1/2% Convertible Exchangeable Preferred Stock (2,760,000 shares
authorized and 2,400,000 shares issued as of December 31, 1998
and 1997, respectively; aggregate liquidation preference $60,000) ......... 60,000 60,000
Series A Junior Preferred Stock (1,500,000 shares authorized as of
December 31, 1998 and 1997, respectively; par value $.01; none issued) .... -- --
Common Stock (100,000,000 shares authorized; 60,255,117 and 59,437,514
shares issued as of December 31, 1998 and 1997, respectively; par
value $.01) .................................................................. 603 594
Less: Treasury Stock, at cost (109,192 shares) ...................................... (1,038) (1,038)
Capital in Excess of Par Value ...................................................... 237,441 229,365
Accumulated Other Comprehensive Income, net of tax benefit of $3,181 ................ (7,232) (7,513)
Retained Deficit .................................................................... (71,761) (101,809)
--------- ---------
Total Stockholders' Equity ................................................. 218,013 179,599
--------- ---------
Total Liabilities and Stockholders' Equity ................................. $ 643,378 $ 566,593
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 31
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating Revenues
Transportation services
Passenger Services .................................... $ 727,786 $ 658,396 $ 597,779
Package express ....................................... 33,790 35,676 33,527
Food services ........................................... 31,127 29,611 27,487
Other operating revenues ................................ 53,293 47,439 42,065
--------- --------- ---------
Total Operating Revenues .......................... 845,996 771,122 700,858
--------- --------- ---------
Operating Expenses
Maintenance ............................................. 83,444 77,022 73,441
Transportation .......................................... 201,190 187,311 170,979
Agents' commissions and station costs ................... 155,799 141,100 131,715
Marketing, advertising and traffic ...................... 27,349 26,860 25,811
Insurance and safety .................................... 49,748 45,860 41,088
General and administrative .............................. 99,836 91,307 81,012
Depreciation and amortization ........................... 36,332 31,259 30,682
Operating taxes and licenses ............................ 56,703 51,511 49,831
Operating rents ......................................... 65,756 59,105 53,993
Cost of goods sold - Food services ...................... 20,656 19,631 18,750
Other operating expenses ................................ 2,352 3,050 2,752
--------- --------- ---------
Total Operating Expenses .......................... 799,165 734,016 680,054
--------- --------- ---------
Operating Income ........................................... 46,831 37,106 20,804
Interest Expense ........................................... 27,899 27,657 27,346
--------- --------- ---------
Net Income (Loss) Before Income Taxes ...................... 18,932 9,449 (6,542)
Income Tax Provision (Benefit) ............................. (16,856) 1,051 62
Minority Interest .......................................... 556 -- --
--------- --------- ---------
Net Income (Loss) Before Extraordinary Item ................ 35,232 8,398 (6,604)
Extraordinary Item ......................................... -- 25,323 --
--------- --------- ---------
Net Income (Loss) .......................................... 35,232 (16,925) (6,604)
Preferred Dividends ........................................ 5,184 3,648 --
--------- --------- ---------
Net Income (Loss) Attributable to Common Stockholders ...... $ 30,048 $ (20,573) $ (6,604)
========= ========= =========
Net Income (Loss) Attributable to Common Stockholders
Before Extraordinary Item ............................. $ 30,048 $ 4,750 $ (6,604)
========= ========= =========
Net Income (Loss) Per Share of Common Stock:
Basic
Net Income (Loss) Attributable to Common Stockholders
Before Extraordinary Item ........................ $ 0.50 $ 0.08 $ (0.11)
Extraordinary Item .................................... -- (0.43) --
--------- --------- ---------
Net Income (Loss) Attributable to Common Stockholders . $ 0.50 $ (0.35) $ (0.11)
========= ========= =========
Diluted
Net Income (Loss) Attributable to Common Stockholders
Before Extraordinary Item ........................ $ 0.47 $ 0.08 $ (0.11)
Extraordinary Item .................................... -- (0.42) --
--------- --------- ---------
Net Income (Loss) Attributable to Common Stockholders . $ 0.47 $ (0.34) $ (0.11)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE> 32
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 ....................... -- $ -- 58,277 $ 583
Issuance of stock in connection with
employee option and 401 (k) programs .......... -- -- 192 2
Comprehensive Income:
Adjustment for unfunded
accumulated pension obligation ......... -- -- -- --
Net Loss .................................... -- -- -- --
Total Comprehensive Income (Loss) .......
------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 ....................... -- -- 58,469 585
Issuance of stock in connection with
employee option and 401 (k) programs .......... -- -- 801 7
Issuance of preferred stock ...................... 2,400 60,000 -- --
Dividends on preferred stock ..................... -- -- -- --
Acquisition of Carolina .......................... -- -- 168 2
Benefit of pre-bankruptcy deferred tax assets .... -- -- -- --
Comprehensive Income:
Adjustment for unfunded
accumulated pension obligation .......... -- -- -- --
Net Loss .................................... -- -- -- --
Total Comprehensive Income (Loss) ..
------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 ....................... 2,400 60,000 59,438 594
Issuance of stock in connection with
employee option and 401 (k) programs,
including tax benefit of $844 ................. -- -- 817 9
Dividends on preferred stock ..................... -- -- -- --
Benefit of pre-bankruptcy deferred tax assets .... -- -- -- --
Comprehensive Income:
Market value adjustment for securities held ... -- -- -- --
Adjustment for unfunded accumulated
pension obligation, net of tax of $857 .... -- -- -- --
Deferred tax benefit on prior years
unfunded accumulated pension obligation ... -- -- -- --
Net Income .................................... -- -- -- --
Total Comprehensive Income ................
------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 ....................... 2,400 $ 60,000 60,255 $ 603
============= ============= ============= =============
<CAPTION>
CAPITAL IN
TREASURY STOCK EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE DEFICIT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 ....................... 109 $ (1,038) $ 228,421 $ (74,632)
Issuance of stock in connection with
employee option and 401 (k) programs .......... -- -- 682 --
Comprehensive Income:
Adjustment for unfunded
accumulated pension obligation ......... -- -- -- --
Net Loss .................................... -- -- -- (6,604)
Total Comprehensive Income (Loss) .......
------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 ....................... 109 (1,038) 229,103 (81,236)
Issuance of stock in connection with
employee option and 401 (k) programs .......... -- -- 1,385 --
Issuance of preferred stock ...................... -- -- (2,440) --
Dividends on preferred stock ..................... -- -- -- (3,648)
Acquisition of Carolina .......................... -- -- 748 --
Benefit of pre-bankruptcy deferred tax assets .... -- -- 569 --
Comprehensive Income:
Adjustment for unfunded
accumulated pension obligation .......... -- -- -- --
Net Loss .................................... -- -- -- (16,925)
Total Comprehensive Income (Loss) ..
------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 ....................... 109 (1,038) 229,365 (101,809)
Issuance of stock in connection with
employee option and 401 (k) programs,
including tax benefit of $844 ................. -- -- 3,785 --
Dividends on preferred stock ..................... -- -- -- (5,184)
Benefit of pre-bankruptcy deferred tax assets .... -- -- 4,291 --
Comprehensive Income:
Market value adjustment for securities held ... -- -- -- --
Adjustment for unfunded accumulated
pension obligation, net of tax of $857 .... -- -- -- --
Deferred tax benefit on prior years
unfunded accumulated pension obligation ... -- -- -- --
Net Income .................................... -- -- -- 35,232
Total Comprehensive Income ................
------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 ....................... 109 $ (1,038) $ 237,441 $ (71,761)
============= ============= ============= =============
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE COMPREHENSIVE
INCOME INCOME
------------- -------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1995 ....................... $ (3,572) $ --
Issuance of stock in connection with
employee option and 401 (k) programs .......... -- --
Comprehensive Income:
Adjustment for unfunded
accumulated pension obligation ......... (2,961) (2,961)
Net Loss .................................... -- (6,604)
-------------
Total Comprehensive Income (Loss) ....... $ (9,565)
------------- =============
BALANCE, DECEMBER 31, 1996 ....................... (6,533)
Issuance of stock in connection with
employee option and 401 (k) programs .......... -- $ --
Issuance of preferred stock ...................... -- --
Dividends on preferred stock ..................... -- --
Acquisition of Carolina .......................... -- --
Benefit of pre-bankruptcy deferred tax assets .... -- --
Comprehensive Income:
Adjustment for unfunded
accumulated pension obligation .......... (980) (980)
Net Loss .................................... -- (16,925)
-------------
Total Comprehensive Income (Loss) .. $ (17,905)
------------- =============
BALANCE, DECEMBER 31, 1997 ....................... (7,513)
Issuance of stock in connection with
employee option and 401 (k) programs,
including tax benefit of $844 ................. -- $ --
Dividends on preferred stock ..................... -- --
Benefit of pre-bankruptcy deferred tax assets .... -- --
Comprehensive Income:
Market value adjustment for securities held ... (682) (682)
Adjustment for unfunded accumulated
pension obligation, net of tax of $857 .... (1,361) (1,361)
Deferred tax benefit on prior years
unfunded accumulated pension obligation ... 2,324 2,324
Net Income .................................... -- 35,232
-------------
Total Comprehensive Income ................ $ 35,513
------------- =============
BALANCE, DECEMBER 31, 1998 ....................... $ (7,232)
=============
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE> 33
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) ........................................................ $ 35,232 $ (16,925) $ (6,604)
Extraordinary item ....................................................... -- 25,323 --
Non-cash expenses and gains included in net income (loss)
Depreciation and amortization .......................................... 36,332 31,259 30,683
Other non-cash expenses and gains, net ................................. (19,134) 1,618 1,962
Net Change in Certain Operating Assets and Liabilities
Accounts receivable .................................................... (4,121) (1,099) (2,932)
Inventories ............................................................ (1,032) (278) (225)
Prepaid expenses ....................................................... 273 5,359 (826)
Other current assets ................................................... 1,608 (261) (1,791)
Insurance and security deposits ........................................ 3,042 3,838 (247)
Intangible assets ...................................................... (5,911) (11,610) (6,038)
Accounts payable ....................................................... (5,469) 6,798 5,875
Accrued liabilities .................................................... (545) 7,335 237
Reserve for injuries and damages ....................................... 1,985 (1,999) (5,698)
Unredeemed tickets ..................................................... 1,817 501 383
Other liabilities ...................................................... 2,012 (16) 1,251
--------- --------- ---------
Net Cash Provided by Operating Activities ........................... 46,089 49,843 16,030
--------- --------- ---------
Cash Flows From Investing Activities
Capital expenditures (see Note 3) ..................................... (33,706) (45,114) (38,402)
Proceeds from assets sold .............................................. 3,935 6,547 16,680
Payments for business acquisitions, net of cash acquired (see Note 3) . (10,924) (40,104) --
Buyout of MDFC lease ................................................... -- -- (1,624)
Other investing activities ............................................. (6,753) (2,146) (758)
--------- --------- ---------
Net Cash Used for Investing Activities .............................. (47,448) (80,817) (24,104)
--------- --------- ---------
Cash Flows From Financing Activities
Payments on debt and capital lease obligations ......................... (5,730) (20,297) (9,551)
Proceeds from long-term borrowings ..................................... -- -- 4,106
Proceeds from 11 1/2% Senior Notes and 8 1/2% Convertible
Exchangeable Preferred Stock Issuance ............................. -- 203,031 --
Redemption of 10% Senior Notes ......................................... -- (161,022) --
Payment of 8 1/2% Convertible Exchangeable Preferred Stock dividends ... (5,184) (2,784) --
Retirement of interest swap ............................................ -- (3,010) --
Proceeds from issuance of Common Stock ................................. 2,950 1,097 258
Net change in revolving credit facility ................................ 12,007 15,113 10,665
--------- --------- ---------
Net Cash Provided by Financing Activities ........................... 4,043 32,128 5,478
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ........................ 2,684 1,154 (2,596)
Cash and Cash Equivalents, Beginning of Period .............................. 2,052 898 3,494
--------- --------- ---------
Cash and Cash Equivalents, End of Period .................................... $ 4,736 $ 2,052 $ 898
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE> 34
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BACKGROUND AND OPERATING ENVIRONMENT
Greyhound Lines, Inc. and subsidiaries (the "Company") is the only
nationwide provider of scheduled intercity bus service in the United States. The
Company provides various services including scheduled passenger service, package
express service and food services at certain terminals. The Company's operations
include a nationwide network of terminal and maintenance facilities, a fleet of
2,677 buses and approximately 1,800 sales outlets. The Company's operating
subsidiaries include Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O"),
Vermont Transit Co., Inc. ("Vermont Transit"), Carolina Coach Company
("Carolina"), Valley Transit Co., Inc. ("Valley"), Sistema Internacional de
Transporte de Autobuses, Inc. ("SITA") and PRB Acquisition, LLC
("Peoria-Rockford"). The Company is subject to regulation by the Department of
Transportation (the "DOT") and certain states.
On March 16, 1999, the Company's shareholders approved the Agreement and
Plan of Merger with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition
Corp., a wholly owned subsidiary of Laidlaw ("Laidlaw Transit"), pursuant to
which Laidlaw Transit was merged with and into the Company (the "Merger"), with
the Company, as the surviving corporation, becoming a subsidiary of Laidlaw.
(see Note 20)
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company. Investments in companies that are 20% to 50% owned ("affiliates")
are accounted for using the equity method. All significant intercompany
transactions and balances have been eliminated.
Certain Reclassifications
Certain reclassifications have been made to the prior period statements to
conform them to the December 31, 1998, classifications.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments that are part of
the Company's cash management portfolio. These investments are highly liquid and
have original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market, with costs
determined using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment, including capitalized leases, are recorded
at cost, including interest during construction, if any. Depreciation is
recorded over the estimated useful lives or lease terms, net of assumed residual
values, ranging from three to twenty years for structures and improvements, four
to twelve years for revenue equipment, and five to ten years for all other
items. The Company principally uses the straight-line method of depreciation for
financial reporting purposes and accelerated methods for tax reporting purposes.
Maintenance costs are expensed as incurred, and renewals and betterments are
capitalized.
34
<PAGE> 35
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Investments and Security Deposits
Equity securities held by the Company are classified as
"available-for-sale" securities and reported at fair value. Any unrealized
holding gains or losses, net of taxes, are excluded from operating results and
are recognized as a separate component of stockholders' equity until realized.
Fair value of the securities is determined based on market prices and gains and
losses are determined using the securities' cost. As of December 31, 1998, the
Company has only one investment classified as an "available-for-sale" security.
This security has an unrealized loss of $0.7 million, for which no tax benefit
is recognized as it is more likely than not that the Company will not have an
offsetting capital gain within five years, as is required under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Debt
securities included in security deposits are recorded at cost plus earned
interest as it is the intent of the Company to hold these securities until
maturity. As a result, the temporary gains and losses associated with the market
value of these securities are excluded from operating results, stockholders'
equity and comprehensive income.
Goodwill
Goodwill represents the excess of cost over fair value of assets acquired
related to the acquisition of regional bus carriers as prescribed by the
purchase method of accounting. The Company is amortizing goodwill on a
straight-line basis over a 20 to 30 year period.
Debt Issuance Costs and Discounts
Costs incurred related to the issuance of debt are deferred, and such costs
and any related discounts are amortized to interest expense using the
straight-line method over the life of the related debt.
Software Development Costs
The direct costs of internally developed software are capitalized when
technological feasibility has been established, and amortization of the software
begins when the software is ready for use. The cost of the capitalized software
is amortized over a period of five years.
Income Taxes
Deferred tax assets and liabilities are based upon the estimated future tax
effects of the differences in the tax bases of existing assets and liabilities
and the related financial statement carrying amounts, using currently enacted
tax laws and rates.
Reserve for Injuries and Damages
The Company maintains comprehensive automobile liability, general
liability, workers' compensation and property insurance to insure its assets and
operations. Automobile and general liability insurance coverages are subject to
a $1.5 million self-insured retention or deductible per occurrence. The Company
also maintains property insurance subject to a $0.1 million deductible per
occurrence, and maintains workers' compensation insurance, subject to a $1.0
million deductible per occurrence.
Successful claims against the Company, which do not exceed the deductible
or self-insured retention, are paid out of operating cash flows. A reserve for
injuries and damages has been established for these claim payments. The reserve
is based on an assessment of actual claims and claims incurred but not reported,
based upon historical experience. This reserve also includes an estimate of
environmental liabilities.
35
<PAGE> 36
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Revenue Recognition
Transportation revenue is recognized when the service is provided. A
liability for tickets sold but not used is recorded as unredeemed tickets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Long-Lived Assets
The Company periodically evaluates whether the remaining useful life of
long-lived assets may require revision or whether the remaining unamortized
balance is recoverable. When factors indicate that an asset should be evaluated
for possible impairment, the Company uses an estimate of the asset's cash flow
in evaluating its fair value.
Earnings Per Share
Basic earnings (loss) per common share is calculated by dividing net income
(loss) attributable to common stockholders by the weighted average shares of
common stock of the Company ("Common Stock"). The calculation of diluted
earnings (loss) per share of Common Stock considers the effect of Common Stock
equivalents outstanding during the period, the conversion of the Company's
8 1/2% Convertible Subordinated Debentures due 2007 (the "Convertible
Debentures") and 8 1/2% Convertible Exchangeable Preferred Stock (the "Preferred
Stock"). Common Stock equivalents represent the dilutive effect of the assumed
exercise of certain outstanding stock options. For the year ended December 31,
1998, the assumed conversion of the Convertible Debentures has an anti-dilutive
effect. For the year ended December 31, 1997, the assumed conversion of the
Preferred Stock and Convertible Debentures has an anti-dilutive effect.
Additionally, for the year ended December 31, 1996, the assumed exercise of
outstanding in-the-money stock options and conversion of Convertible Debentures
has an anti-dilutive effect. As a result, these shares as detailed above by
year, are excluded from the final determination of the weighted average shares
outstanding at the respective dates.
36
<PAGE> 37
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following tables detail the components utilized to calculate earnings
per share for 1998, 1997 and 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------
WEIGHTED
AVERAGE PER-SHARE
INCOME SHARES AMOUNT
----------- ----------- -----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income attributable to common shareholders .. $30,048,000 59,899,742 $ 0.50
=========== =========== ===========
Effect of Dilutive Securities :
Assumed Preferred Stock Conversion ............ 5,184,000 12,307,692
Options issued to Company employees
and Members of the Board of Directors ... -- 2,679,881
----------- -----------
DILUTED EARNINGS PER SHARE
Net Income attributable to common
shareholders plus assumed conversions ........ $35,232,000 74,887,315 $ 0.47
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------
WEIGHTED
AVERAGE PER-SHARE
INCOME SHARES AMOUNT
----------- ----------- -----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income attributable to common
shareholders before Extraordinary Item ....... $ 4,750,000 58,964,093 $ 0.08
=========== =========== ===========
Effect of Dilutive Securities :
Options issued to Company employees
and Members of the Board of Directors ... -- 1,737,481
----------- -----------
DILUTED EARNINGS PER SHARE
Net Income attributable to
common shareholders plus assumed
conversions before Extraordinary Item ........ $ 4,750,000 60,701,574 $ 0.08
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------
WEIGHTED
AVERAGE PER-SHARE
INCOME SHARES AMOUNT
----------- ----------- -----------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Net Loss attributable to common shareholders .... $(6,604,000) 58,263,327 $ (0.11)
=========== =========== ===========
</TABLE>
Future Accounting Changes
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities," is effective for
the Company's fiscal year beginning January 1, 2000. SFAS No. 133 established
standards for the accounting and reporting of derivative instruments and hedging
activities. As of
37
<PAGE> 38
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998, the Company has no derivative instruments or hedging
activities that apply to SFAS No. 133. The Company has entered into two advance
purchase commitments for fuel; however, as defined by SFAS No. 133, this is
specifically excluded as a derivative instrument.
3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
Cash paid for interest was $26.3 million, $29.4 million and $24.5 million
for the years ended December 31, 1998, 1997 and 1996, respectively. There were
no cash payments for federal income taxes for the years ended December 31, 1998,
1997 and 1996, other than payments related to an Internal Revenue Service audit
of the Company's 1987 through 1989 tax returns which resulted in a $0.3 million
payment in 1996.
Significant non-cash investing and financing activities during 1998
included a garage that was acquired under a capital lease for $1.0 million. In
1997, non-cash activity included $0.9 million primarily related to stock issued
in July 1997 for consideration in the purchase of Carolina. In 1996, non-cash
activity included 77 buses which were acquired under a capital lease for $17.9
million and computer equipment which was acquired under a capital lease for $2.1
million.
4. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Service parts ............................................... $ 3,811 $ 3,055
Fuel ........................................................ 631 576
Food service operations ..................................... 1,468 1,202
--------- ---------
Total Inventories ........................................ 5,910 4,833
Less: Allowance for shrinkage ........................... (205) (175)
--------- ---------
Inventories, net ...................................... $ 5,705 $ 4,658
========= =========
</TABLE>
5. PREPAID EXPENSES
Prepaid expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
Insurance ................................................... $ 813 $ 1,520
Taxes and licenses .......................................... 1,645 1,064
Rents ....................................................... 1,493 1,424
Other ....................................................... 1,219 941
--------- ---------
Prepaid expenses .......................................... $ 5,170 $ 4,949
========= =========
</TABLE>
38
<PAGE> 39
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. OTHER CURRENT ASSETS
Other current assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------- --------
<S> <C> <C>
Deposits on insurance................................................... $ 8,658 $ 6,838
Other deposits.......................................................... 465 738
Deferred acquisition costs.............................................. - 1,128
Other................................................................... 784 990
------- --------
Other current assets.................................................. $ 9,907 $ 9,694
======= ========
</TABLE>
The deposits on insurance held as of December 31, 1998 and 1997, are the
current portion of self-insurance deposits required by the Company's primary
insurance carrier to cover interstate and certain intrastate claims for bodily
injury and property damage liability. Deferred acquisition costs for 1997
represent costs associated with acquisitions made by SITA in 1998. These
acquisition costs were considered as part of the total cost of the acquisitions
under purchase accounting.
7. BENEFIT PLANS
Pension Plans
The Company has ten defined benefit pension plans. The first plan (the "ATU
Plan") covers substantially all of the Company's ongoing hourly employees hired
before November 1, 1983. The ATU Plan provides normal retirement benefits to the
covered employees based upon a percentage of average final earnings, reduced pro
rata for service of less than 15 years. Participants in this plan will continue
to accrue benefits as long as no contributions are due from the Company. In the
event a contribution is required, the plan benefits will be frozen until such
time as the assets of the plan exceed 115% of the plan liabilities. The second
plan covered salaried employees through May 7, 1990, when the plan was
curtailed. The third plan is a multi-employer pension plan, instituted in 1992,
to cover certain union mechanics represented by the International Association of
Machinists and Aerospace Workers. The remaining seven plans are held by TNM&O,
Vermont Transit, Carolina and Peoria-Rockford and cover substantially all of
their salaried and hourly personnel. It is the Company's policy to fund the
minimum required contribution under existing laws.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
CHANGE IN BENEFIT OBLIGATION: (IN THOUSANDS)
<S> <C> <C>
Benefit Obligation at Beginning of Year................................. $ 729,421 $ 717,040
Service Cost............................................................ 4,614 4,589
Interest Cost........................................................... 51,011 51,711
Plan Participants' Contributions........................................ 137 -
Plans Transferred from Acquisition...................................... 922 22,406
Actuarial Gain.......................................................... 43,649 14,596
Benefits Paid........................................................... (80,382) (80,921)
----------- -----------
Benefit Obligation at End of Year....................................... $ 749,372 $ 729,421
----------- -----------
</TABLE>
39
<PAGE> 40
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
CHANGE IN PLAN ASSETS: (IN THOUSANDS)
<S> <C> <C>
Fair Value of Plan Assets at Beginning of Year.......................... $ 820,168 $ 758,481
Actual Return on Plan Assets............................................ 67,340 121,107
Employer Contribution................................................... 2,219 625
Plans Transferred from Acquisition...................................... 612 20,810
Plan Participants' Contributions........................................ 203 66
Benefits Paid........................................................... (80,382) (80,921)
----------- -----------
Fair Value of Plan Assets at End of Year................................ $ 810,160 $ 820,168
----------- -----------
Funded Status........................................................... $ 60,788 $ 90,747
Unrecognized Net Gain................................................... (32,333) (65,979)
----------- -----------
Prepaid Benefit Cost (Net Amount Recognized)............................ $ 28,455 $ 24,768
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
AMOUNTS RECOGNIZED IN THE STATEMENTS OF FINANCIAL POSITION: (IN THOUSANDS)
<S> <C> <C>
Prepaid Benefit Cost.................................................... $ 26,257 $ 23,683
Accrued Benefit Liability............................................... (7,533) (6,428)
Accumulated Other Comprehensive Income.................................. 9,731 7,513
----------- ------------
Prepaid Benefit Cost (Net Amount Recognized)............................ $ 28,455 $ 24,768
----------- -----------
</TABLE>
Six of the Company's pension plans have accumulated benefit obligations in
excess of plan assets, for which the projected benefit obligations, accumulated
benefit obligations and fair value of plan assets are $66,710, $65,916 and
$56,699, respectively, as of December 31, 1998. Three of the Company's pension
plans have accumulated benefit obligations in excess of plan assets, for which
the projected benefit obligations, accumulated benefit obligations and fair
value of plan assets are $60,458, $59,529 and $52,296, respectively, as of
December 31, 1997. Seven of the Company's pension plans have projected benefit
obligations in excess of plan assets, for which the projected benefit
obligations, accumulated benefit obligations and fair value of plan assets are
$70,876, $68,842 and $60,595, respectively, as of December 31, 1998. Six of the
Company's pension plans have projected benefit obligations in excess of plan
assets, for which the projected benefit obligations, accumulated benefit
obligations and fair value of plan assets are $66,216, $64,021 and $57,761,
respectively, as of December 31, 1997.
Plan assets consist primarily of government-backed securities, corporate
equity securities, guaranteed insurance contracts, annuities and corporate debt
obligations.
In determining the benefit obligations and service costs for the Company's
defined benefit pension plans, the following assumptions were used:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
WEIGHTED-AVERAGE ASSUMPTIONS FOR END OF YEAR DISCLOSURE:
<S> <C> <C>
Weighted average discount rate.......................................... 6.75% 7.25%
Rate of salary progression.............................................. 0.00-6.00% 0.00-6.00%
Expected long-term rate of return on plan Assets........................ 7.25-9.00% 7.60-9.00%
</TABLE>
40
<PAGE> 41
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
COMPONENTS OF NET PERIODIC PENSION COST: (IN THOUSANDS)
<S> <C> <C>
Service Cost............................................................ $ 4,614 $ 4,589
Interest Cost........................................................... 51,011 51,711
Expected Return on Assets............................................... (57,507) (56,007)
Amortization of Actuarial Loss 303 -
----------- -----------
Net Periodic Pension (Income) Cost...................................... $ (1,579) $ 293
----------- -----------
</TABLE>
Statement of Financial Accounting Standards No. 87, "Employers Accounting
for Pensions," required the Company to record an increase in the additional
minimum liability of $1.4 million, net of a $0.8 million tax benefit as of
December 31, 1998 and $1.0 million as of December 31, 1997. This provision is
reflected as a component of other comprehensive income. Included in the above is
a multi-employer pension plan, instituted in 1992, to cover certain union
mechanics, for which the Company made contributions of $0.5 million and $0.4
million for the years ended December 31, 1998 and 1997, respectively.
Cash or Deferred Retirement Plans
The Company sponsors 401(k) cash or deferred retirement plans that cover
substantially all of its ongoing salaried, hourly and represented employees.
Costs to the Company related to these plans were $1.9 million, $1.7 million, and
$2.1 million for the years ended December 31, 1998, 1997 and 1996, respectively.
On October 31, 1991, the Company contributed 500,000 shares of its Common Stock
to an employee stock ownership plan for its employees. Effective December 31,
1994, this plan was amended to merge it into the Company's 401(k) profit sharing
plan. An IRS determination letter relating to this merger was filed and received
in 1996.
Other Plans
A contributory trusteed health and welfare plan has been established for
all active hourly employees which are represented by collective bargaining
agreements and a contributory health and welfare plan has been established for
salaried employees and hourly employees who are not represented by collective
bargaining agreements. For the years ended December 31, 1998, 1997 and 1996, the
Company incurred costs of $18.1 million, $17.8 million, and $16.3 million,
respectively, related to these plans. No post-retirement health and welfare
plans exist.
The Company also has a Supplemental Executive Retirement Plan (the "SERP"),
which covers only key executives of the Company. During 1995, the SERP was
converted from a defined benefit plan to a defined contribution plan. For the
years ended December 31, 1998, 1997 and 1996, the Company incurred costs of $0.6
million, $0.2 million and $0.4 million, respectively.
41
<PAGE> 42
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Land and improvements .............................. $ 90,258 $ 85,809
Structures and improvements
Owned ............................................ 111,445 101,854
Capitalized leased assets ........................ 1,626 650
Lease interests .................................. 4,376 6,540
Leasehold improvements ........................... 35,417 28,757
Revenue equipment
Owned ............................................ 170,506 149,627
Capitalized leased assets ........................ 36,046 36,101
Leasehold improvements ........................... 3,957 3,123
Furniture and fixtures ............................. 49,050 42,778
Vehicles, machinery and equipment
Owned ............................................ 11,204 10,427
---------- ----------
Property, plant and equipment ...................... 513,885 465,666
Accumulated depreciation ....................... (151,468) (124,374)
---------- ----------
Property, plant and equipment, net ......... $ 362,417 $ 341,292
========== ==========
</TABLE>
During 1998, the Company took delivery of 293 buses, all but three of which
were manufactured by Motor Coach Industries, Inc. or its affiliate, Dina
Autobuses, S.A. de C.V. The Company purchased 23 of these buses and the
remaining were financed as long-term operating leases.
The Company paid $10.3 million to Viad Corp. ("Viad") in the fourth quarter
of 1997 to acquire terminal facilities in San Jose, CA, Nashville, TN and Reno,
NV and Viad's joint venture interests in the terminals in Denver, CO, and
Albuquerque, NM.
Accumulated depreciation of capitalized leased revenue equipment amounted
to $14.9 million and $12.1 million at December 31, 1998 and 1997, respectively.
9. INSURANCE AND SECURITY DEPOSITS
Insurance and security deposits consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Insurance deposits...................................................... $ 32,443 $ 37,205
Security deposits....................................................... 31,808 33,756
Other................................................................... 3,657 1,732
--------- ---------
Insurance and security deposits................................. $ 67,908 $ 72,693
========= =========
</TABLE>
Insurance deposits are required by the Company's self-insurance
authorizations and the Company's primary insurance carrier to cover self-insured
interstate and certain intrastate auto liability as well as workers'
compensation coverage in certain states. Security deposits include two separate
deposits pledged as collateral in connection with the sale and leaseback of 319
buses and the sale and leaseback of 125 buses.
42
<PAGE> 43
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Trademarks.............................................................. $ 10,198 $ 10,198
Software................................................................ 34,398 30,561
Debt issuance costs..................................................... 10,741 10,082
Deferred lease costs.................................................... 2,841 1,652
Other................................................................... 29 28
--------- ---------
Intangible assets....................................................... 58,207 52,521
Accumulated amortization.............................................. (28,503) (22,188)
--------- ---------
Intangible assets, net.............................................. $ 29,704 $ 30,333
========= =========
</TABLE>
Trademarks are amortized using the straight-line method over 15 years.
11. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Compensation, benefits and payroll-related taxes........................ $ 20,036 $ 26,375
Bus operating leases and rentals........................................ 7,748 5,900
Interest................................................................ 4,288 4,145
Operating, property and income taxes.................................... 6,161 3,998
Dividends payable....................................................... 864 864
Other expenses.......................................................... 25,722 20,955
--------- ---------
Accrued liabilities................................................. $ 64,819 $ 62,237
========= =========
</TABLE>
43
<PAGE> 44
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. LONG-TERM DEBT AND INTEREST EXPENSE
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Secured Indebtedness
Revolving bank loans, prime plus 0.25% or LIBOR plus 1.75%
(weighted average 7.7%) as of December 31, 1998 and
prime plus 0.75% or LIBOR plus 2.25% (weighted average
8.6%) as of December 31, 1997, due 2002 ............................... $ 37,785 $ 25,778
Capital lease obligations (weighted average 10.8% at December 31, 1998
and 10.4% at December 31, 1997) due through 2033 ...................... 31,967 26,635
Real estate mortgages (9.5% at December 31, 1998 and 11.2% at
December 31, 1997) due through 2006 .................................. 623 205
Unsecured Indebtedness
11 1/2% Senior notes, due 2007 .......................................... 150,000 150,000
8 1/2% Convertible debentures, due 2007 ................................. 9,804 9,804
Other long-term debt (weighted average 5.6% at December 31, 1998)
due through 2008 ...................................................... 3,479 --
--------- ---------
Long-term debt ............................................................ 233,658 212,422
Less current maturities ................................................. (7,970) (4,469)
--------- ---------
Long-term debt, net ................................................. $ 225,688 $ 207,953
========= =========
</TABLE>
Revolving Credit Facility
The Company was a party to a Revolving Credit Facility which was amended on
April 20, 1998. The amended facility increased the borrowing availability from
$125.0 million to $150.0 million. The Revolving Credit Facility consisted of (i)
a revolving facility providing for advances of up to $117.5 million based on the
liquidation value of certain bus collateral, (ii) a revolving facility providing
for advances of up to $2.5 million based on a formula of eligible accounts
receivable and (iii) a real estate facility providing for borrowings of up to
$35.0 million based on fair market value of certain core real property
collateral with a maximum combined borrowing base of $150.0 million. As of
December 31, 1998, the Company had total availability of $93.1 million under the
Revolving Credit Facility. The Revolving Credit Facility was secured by liens on
substantially all of the assets of the Company. The Revolving Credit Facility
was subject to certain operating and financial covenants, including maintenance
of a minimum consolidated net worth, ratio of total indebtedness to cash flow
and ratio of cash flow to interest expense. In addition, non-bus capital
expenditures were limited to $30.0 million annually with no spending limitations
on bus purchases. As of December 31, 1998, the Company was in compliance with
all such covenants. Following the Merger, all amounts outstanding under the
Revolving Credit Facility were paid and the Revolving Credit Facility was
terminated (see Note 20).
11 1/2% Senior Notes
The Company's 11 1/2% Senior Notes due 2007 (the "11 1/2% Senior Notes")
bear interest at the rate of 11 1/2% per annum, payable each April 15 and
October 15. The 11 1/2% Senior Notes are redeemable at the option of the Company
in whole or in part, at any time on or after April 15, 2002, at redemption
prices of 105.750% in 2002, 103.834% in 2003, 101.917% in 2004 and 100% in 2005
and thereafter plus any accrued but unpaid interest. The 11 1/2% Senior Note
indenture contains certain covenants that, among other things, limit the ability
of the Company to incur additional indebtedness, pay dividends or make other
distributions, repurchase equity interests or subordinated indebtedness, create
certain liens, sell assets or enter into certain mergers or consolidations. As
of December 31, 1998, the Company was in compliance with all such covenants. As
a result of the Merger, the Company will be required to
44
<PAGE> 45
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
make a one-time offer to repurchase all or any part of each holder's 11 1/2%
Senior Notes at a price equal to 101% of the principal amount thereof plus
interest (see Note 20).
Convertible Debentures
During 1992, the Company issued $98.9 million of 8 1/2% Convertible
Subordinated Debentures ("Convertible Debentures") of which $9.8 million remains
outstanding. Interest on the Convertible Debentures is payable semiannually
(each March 31 and September 30). At the option of the holders thereof, prior to
the Merger, the Convertible Debentures were convertible into shares of Common
Stock at any time prior to maturity (unless earlier redeemed or repurchased), at
a conversion rate of approximately 80.81 shares of Common Stock per $1,000
principal amount of Convertible Debentures. Following the Merger, the
Convertible Debentures may be converted into $525.27 in cash per $1,000
principal amount of Convertible Debentures. The Company will be required to make
a one-time offer to repurchase all or any part of each holder's Convertible
Debentures at a price equal to 100% of the principal amount thereof plus
interest (see Note 20).
Other long-term debt
Other long-term debt relates to debt associated with certain of the
acquisitions. These debt instruments are unsecured.
Other
For the year ended December 31, 1997, the Company recorded an extraordinary
loss of $25.3 million relating to (i) the retirement of an interest rate swap
($2.5 million), (ii) the retirement of the Company's 10% Senior Notes due 2001
($21.3 million) and (iii) the write-off of debt issuance costs related to the
Revolving Credit Facility in place prior to the amended and restated Revolving
Credit Facility that was completed in May 1997 ($1.5 million).
At December 31, 1998, maturities of long-term debt for the next five fiscal
years ending December 31 and all years thereafter, are as follows (in
thousands):
<TABLE>
<S> <C>
1999............................................. $ 7,970
2000............................................. 8,559
2001............................................. 5,069
2002............................................. 42,661
2003 ............................................ 7,159
Thereafter....................................... 162,240
----------
$ 233,658
==========
</TABLE>
45
<PAGE> 46
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. INCOME TAXES
Income Tax Provision
The income tax provision consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
---------- ------- --------
<S> <C> <C> <C>
Current
Federal........................................................... $ 6,843 $ -- $ --
State............................................................. 862 482 62
--------- -------- --------
Total Current............................................... 7,705 482 62
--------- -------- --------
Deferred
Federal........................................................... (22,376) 478 --
State............................................................. (2,185) 91 --
--------- -------- --------
Total Deferred.............................................. (24,561) 569 --
--------- -------- --------
Income tax provision (benefit).............................. $ (16,856) $ 1,051 $ 62
========= ======== ========
</TABLE>
Effective Tax Rate
The differences, expressed as a percentage of income before taxes and
extraordinary items, between the statutory and effective federal income tax
rates are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate ................................................. 35.0% 34.0% (34.0)%
State income taxes ................................................. 4.6 6.1 1.0
Unrecognized current year benefit .................................. -- -- 31.0
Recognition of previously unrecognized deferred tax assets ......... (132.6) (31.0) --
Other .............................................................. 4.0 2.0 3.0
--------- --------- ---------
Effective tax rate .............................................. (89.0)% 11.1% 1.0%
========= ========= =========
</TABLE>
46
<PAGE> 47
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred Tax Assets
Significant components of deferred income taxes at December 31, 1998 and
1997, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred Tax Assets
Federal and state NOL carryforwards ........................ $ 37,571 $ 43,124
Reserve for injuries and damages ........................... 18,703 16,943
Other accrued expenses and reserves ........................ 7,828 6,303
Other deferred tax assets .................................. 716 245
---------- ----------
Total deferred tax assets ................................ 64,818 66,615
---------- ----------
Deferred Tax Liabilities
Tax over book depreciation and amortization ................ 20,407 14,232
Pension cost for tax purposes in excess of books ........... 6,546 8,749
Other deferred tax liabilities ............................. 874 398
---------- ----------
Total deferred tax liabilities ........................... 27,827 23,379
---------- ----------
Net deferred tax assets ...................................... 36,991 43,236
Valuation allowance .......................................... (3,950) (43,236)
---------- ----------
Deferred tax assets, net of valuation allowance .......... $ 33,041 $ --
========== ==========
</TABLE>
During 1998 the Company recognized deferred tax assets primarily related to
net operating losses from prior years expected to be realized in the current or
future years. These tax assets had been previously reserved; however, the
Company recognized these tax assets due to a continued trend of earnings
improvement and current and future expected positive earnings, as well as the
successful negotiation of the new union agreement.
The changes in the valuation allowance are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(Decrease) Increase resulting from identification
of additional temporary differences ....................................... $ (3,953) $ 1,136
(Decrease) related to income recorded as deferred tax benefit ................ (5,898) --
(Decrease) in deferred income tax asset recorded to capital in excess of par . (960) (569)
Increase related to loss not recognized ...................................... -- 5,741
Increase in deferred income tax asset for acquisitions ....................... -- 1,959
Deferred tax asset recognized due to a change in estimate of future
realization recorded as a deferred tax benefit ............................ (25,144) --
Deferred tax asset recognized due to a change in estimate of future
realization recorded as an increase in additional paid in capital ......... (3,331) --
---------- ----------
Net change in valuation allowance ................ $ (39,286) $ 8,267
========== ==========
</TABLE>
Availability and Amount of NOL's
As a result of an ownership change in 1994, Section 382 of the Internal
Revenue Code (the "Code") requires that an annual limitation be placed on the
amount of net operating loss ("NOL") carryforwards which the Company may
utilize. Consequently, the Company's NOL carryforwards from 1994 are now subject
to an annual limitation of $2.1 million. These NOL's are subject to a fifteen
year carryforward period. Any unused portion of the current annual limitation
may be carried forward to the following year. As a result, the Company will
carry forward available NOL's
47
<PAGE> 48
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of $87.6 million, $23.1 million of which is subject to the annual $2.1 million
limitation. The Merger resulted in an additional ownership change as defined by
the Code. This new ownership change may impact the timing of the availability of
the NOL carryforwards (see Note 20). The NOL carryforwards expire as follows (in
thousands and before the effects of the Merger):
<TABLE>
<S> <C>
2008............................................... $ 5,400
2009............................................... 17,700
2010............................................... 25,200
2011............................................... 19,700
2012............................................... 19,600
---------
$ 87,600
=========
</TABLE>
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of
the fair value of financial instruments. The following methods and assumptions
were used by the Company in estimating the fair value disclosures for its
financial instruments.
For cash and cash equivalents, accounts receivable, and the revolving bank
loans, the carrying amounts reported in the Consolidated Statements of Financial
Position approximate fair value. Additionally, the Company has one equity
security at December 31, 1998, which is publicly traded. This security is
classified as "available-for-sale", and is reported on the Statements of
Financial Position at fair value. The Company has no instruments that are held
for trading purposes. The fair values of the short-term deposits and long-term
insurance deposits are based upon quoted market prices at December 31, 1998 and
1997, where available. For the portion of short-term deposits and long-term
insurance and security deposits where no quoted market price is available, the
carrying amounts are believed to approximate fair value. For the other secured
indebtedness, real estate mortgages and other long-term debt, the fair values
are estimated using discounted cash flow analysis, based upon the Company's
incremental borrowing rates for similar types of borrowing arrangements. The
fair values of the Senior Notes and the Convertible Debentures were based upon
quoted market prices at December 31, 1998 and 1997.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Current Assets
Deposits on Insurance ....................... $ 8,658 $ 8,658 $ 6,838 $ 6,838
Other Deposits .............................. 465 465 738 738
Insurance and Security Deposits
Insurance Deposits .......................... 32,443 32,443 37,205 37,205
Security Deposits ........................... 31,808 33,166 33,756 34,265
Long-Term Debt
Real Estate Mortgages ....................... (623) (467) (205) (141)
11 1/2% Senior Notes ........................ (150,000) (170,250) (150,000) (165,750)
8 1/2% Convertible Subordinated Debentures .. (9,804) (9,951) (9,804) (9,804)
Other Long-term Debt ........................ (3,479) (3,434) -- --
</TABLE>
48
<PAGE> 49
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. LEASE COMMITMENTS
The Company leases buses and terminals from various parties pursuant to
capital and operating leases expiring at various dates through 2065.
At December 31, 1998, scheduled future minimum payments for the next five
fiscal years ending December 31, under the capital leases and non-cancelable
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1999 ................................................. $ 9,659 $ 53,862
2000 ................................................. 9,814 49,038
2001 ................................................. 5,776 48,216
2002 ................................................. 5,937 38,986
2003 ................................................. 7,089 45,498
Thereafter ........................................... 2,987 78,023
---------- ----------
Total minimum lease payments ................. 41,262 $ 313,623
==========
Amounts representing interest .................... 9,295
----------
Present value of minimum lease payments ...... $ 31,967
==========
</TABLE>
For the years ended December 31, 1998, 1997 and 1996, rental expenses for
operating leases (net of sublease rental income of approximately $2.2 million,
$2.1 million and $2.2 million, respectively) amounted to $60.0 million, $57.6
million and $52.4 million, respectively. Rental expenses for bus operating
leases, excluding casual rents and other short term leases during peak periods,
amounted to $34.4 million, $32.1 million and $27.5 million in 1998, 1997 and
1996, respectively.
16. STOCK INCENTIVE PLANS
As of December 31, 1998, the Company's seven stock incentive plans have
authorized the grant of options and restricted stock to employees and outside
directors for up to 9,439,446 shares of the Company's Common Stock. All options
granted had five to ten year terms and vested over a three to four year period
of continued employment or service on the Company's Board of Directors. In
connection with the Merger, all unvested options and restricted stock vested on
March 16, 1999. Additionally, all outstanding options were either canceled in
exchange for cash equal to $6.50 less the exercise price or were replaced by
grants to purchase Laidlaw common shares (see Note 20).
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. However, pro forma
information regarding net income and earnings per share is required by FASB
Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions. The assumptions for 1998 were
risk-free interest rates of 6.0%; dividend yield of zero; volatility factor of
the expected market price of the Company's Common Stock of 0.55; and a
weighted-average expected life of the options of 7.2 years. The assumptions for
1997 were risk-free interest rates of 6.0%; dividend yield of zero; volatility
factor of the expected market price of the Company's Common Stock of 0.40; and a
weighted-average expected life of the options of 7.1 years. The assumptions for
1996 were risk-free interest rates of 6.0% and 7.0%; dividend yield of zero;
volatility factor of the expected market price of the Company's Common Stock of
0.35; and a weighted-average expected life of the options of 5.7 years.
49
<PAGE> 50
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Had compensation cost for these plans been determined consistent with SFAS
123, the Company's net income (loss) and diluted earnings per share would have
been reduced to the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- --------
<S> <C> <C> <C>
Pro forma net income (loss) (in 000's)............................... $ 33,739 $ (21,899) $ (8,647)
Pro forma diluted net income (loss) per share......................... $ 0.45 $ (0.36) $ (0.15)
</TABLE>
A summary of the Company's stock option and restricted stock activity and
related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
OPTIONS AND RESTRICTED
STOCK OUTSTANDING
SHARES -------------------------------
AVAILABLE WEIGHTED AVERAGE
FOR GRANT SHARES EXERCISE PRICE
------------ ------------ ----------------
<S> <C> <C> <C>
Balance, December 31, 1995 ................. 2,705,034 5,111,387 $ 3.35
Options granted ......................... (1,352,000) 1,352,000 3.56
Options exercised ....................... -- (100,450) 2.43
Terminated or canceled .................. 418,000 (418,000) 4.21
------------ ------------ ------------
Balance, December 31, 1996 ................. 1,771,034 5,944,937 3.35
Options and Restricted Stock granted..... (1,324,000) 1,324,000 2.70
Options and Restricted Stock exercised... -- (258,694) 2.59
Terminated or canceled .................. 510,369 (510,369) 3.48
------------ ------------ ------------
Balance, December 31, 1997 ................. 957,403 6,499,874 3.24
New shares authorized ................... 1,500,000 -- --
Options and Restricted Stock granted..... (1,700,869) 1,700,869 4.17
Options and Restricted Stock exercised... -- (785,114) 2.59
Terminated or canceled .................. 391,725 (391,725) 3.82
------------ ------------ ------------
Balance, December 31, 1998 ................. 1,148,259 7,023,904 $ 3.49
============ ============ ============
</TABLE>
The table below details the Company's options and restricted stock
outstanding by related option exercise price.
<TABLE>
OPTIONS AND OPTIONS AND
RESTRICTED WEIGHTED WEIGHTED RESTRICTED WEIGHTED
RANGE OF STOCK AVERAGE AVERAGE STOCK AVERAGE
EXERCISE PRICE OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0 - 3.00 2,328,333 3.6 $ 1.83 1,973,400 $ 2.16
3.09 - 6.22 4,517,821 5.1 3.83 1,882,771 3.70
9.81 - 20.625 177,750 4.4 16.79 177,750 16.79
---------- ---- ---------- ----------- --------
7,023,904 4.5 $ 3.49 4,033,921 $ 3.52
========== ==== ========== =========== ========
</TABLE>
Additionally, the Company had 3,726,306 and 2,150,515 options
exercisable and restricted stock at December 31, 1997 and 1996, respectively.
Included in the above options and restricted stock granted for 1998 and 1997
were options and restricted stock granted at a value less than market value on
that date. For 1998, of the 1,700,869 options and restricted stock granted,
1,700,369 were granted at market value with a weighted average
50
<PAGE> 51
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
exercise price of $4.17, while 500 options and restricted stock were granted
below market value with no weighted average exercise price and no fair value.
For 1997, of the 1,324,000 options and restricted stock granted, 703,300 were
granted at market value with a weighted average exercise price of $4.27, while
620,700 options and restricted stock were granted below market value with a
weighted average exercise price of $0.92 and a fair value of $3.32. The Company
recognized $0.3 million, $0.4 million and $0 in compensation expense for 1998,
1997 and 1996, respectively.
17. STOCKHOLDERS' EQUITY
The Company is authorized to issue 100,000,000 shares of $0.01 par value
common stock.
Prior to the Merger, the Company was authorized to issue 10,000,000 shares
of preferred stock, $0.01 par value. The Board of Directors was entitled to
designate and issue one or more series of preferred stock from the authorized
and unissued shares of preferred stock. As of December 31, 1998, the Company had
designated 1,500,000 shares of preferred stock as "Series A" junior preferred
stock in connection with the stockholders rights plan discussed below. No
"Series A" junior preferred stock had been issued as of December 31, 1998.
Subsequent to the Merger, the Company is authorized to issue 2,400,000 shares of
preferred stock, $0.01 par value (see Note 20).
During 1997, the Company issued 2,400,000 shares of 8 1/2% convertible
exchangeable preferred stock ("the Preferred Stock"). The Preferred Stock
carries a liquidation preference of $25.00 per share plus accumulated and unpaid
dividends. The holders of the Preferred Stock are currently entitled to vote
with the holders of the Common Stock on all matters submitted to a vote of
stockholders of the Company, each share of Preferred Stock entitling the holder
thereof to one vote. Dividends accrue at a rate per annum equal to 8 1/2% of the
liquidation preference per share of Preferred Stock and are payable quarterly in
arrears on February 1, May 1, August 1 and November 1. Prior to the Merger, the
Preferred Stock was convertible, at the option of the holder thereof, into
approximately 5.128 shares of Greyhound Common Stock. The Preferred Stock will
be redeemable at the option of the Company, in whole or in part, at any time on
or after May 3, 2000, at redemption prices of 104.86% in 2000, 103.64% in 2001,
102.43% in 2002, 101.21% in 2003 and 100% in 2004 and thereafter plus
accumulated and unpaid dividends. Following the Merger, each share of Preferred
Stock is convertible into $33.33 in cash which is in excess of the liquidation
preference (see Note 20).
On March 22, 1994, the Company's Board of Directors adopted a stockholder
rights plan (the "Rights Plan"). The Rights Plan, which was amended in 1997,
provided for a dividend distribution of a Preferred Stock Purchase Right (the
"Rights") for each share of Common Stock held by stockholders of record at the
close of business on April 4, 1994. The Rights would have become exercisable
only in the event that, with certain exceptions, an acquiring party accumulated
20% or more of the Company's voting stock or a person or group commenced or
announced intentions to commence a tender or exchange offer, the consummation of
which, would have resulted in the ownership of 30% or more of the Company's
outstanding voting stock (even if no shares are actually purchased pursuant to
such offer). On October 16, 1998, the Company amended the Rights Plan. The
amendment provided that neither the Merger nor the Agreement and Plan of Merger
with Laidlaw and Laidlaw Transit would cause the rights issued under the Rights
Plan to become exercisable. Effective with the Merger, the Rights Plan expired
(see Note 20).
18. COMMITMENTS AND CONTINGENCIES
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION.
Between August and December 1994, seven purported class action lawsuits
were filed by purported owners of the Company's Common Stock, 8 1/2% Convertible
Subordinated Debentures and 10% Senior Notes retired in May 1997 ("10% Senior
Notes") against the Company and certain of its former officers and directors.
The suits sought
51
<PAGE> 52
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
unspecified damages for securities laws violations as a result of statements
made in public reports and press releases and to securities analysts during 1993
and 1994 that were alleged to have been false and misleading.
All the purported class action cases referred to above (with the exception
of one suit that was dismissed before being served on any defendants) were
transferred to the United States District Court for the Northern District of
Texas, the Court in which the first purported class action suit was filed, and
were pending under a case styled In re Greyhound Securities Litigation, Civil
Action 3-94-CV-1793-G (the "Federal Court Action"). In July 1995, the plaintiffs
filed consolidated amended complaints, naming the Company, Frank J. Schmieder,
J. Michael Doyle, Phillip W. Taff, Robert R. Duty, Don T. Seaquist, Charles J.
Lee, Charles A. Lynch and Smith Barney Incorporated as defendants. Messrs. Lee,
Lynch and Taff were subsequently dismissed from the case by the plaintiffs. On
October 3, 1996, the Court ruled in favor of the Company and all other
defendants, granting defendants' motions to dismiss. Pursuant to the Court's
order, the complaints were dismissed, with leave granted to the plaintiffs to
refile amended complaints within 20 days thereafter. On October 23, 1996, an
amended complaint was tendered to the Court. All seven class representatives
involved in the prior complaints were dropped from the case. A new purported
class plaintiff, John Clarkson, was named. A motion was filed seeking leave to
permit Mr. Clarkson to intervene as the new class representative. On August 15,
1997, the Court denied Mr. Clarkson leave to intervene and dismissed the
litigation, noting that all claims asserted had been adjudicated. On September
12, 1997, a notice of appeal was filed by counsel for the original seven
plaintiffs, seeking a review of the Court's ruling of October 3, 1996. On
February 9, 1998, plaintiffs dismissed their appeal. As a result, the Federal
Court Action has been dismissed.
In November 1994, a shareholder derivative lawsuit was filed by Harvey R.
Rice, a purported owner of the Company's Common Stock, against the then present
directors and former officers and directors of the Company and the Company as a
nominal defendant. The suit sought to recover monies obtained by certain
defendants by allegedly trading in the Company's securities on the basis of
nonpublic information and to recover monies for certain defendants' alleged
fraudulent dissemination of false and misleading information concerning the
Company's financial condition and future business prospects. The suit, filed in
the Delaware Court of Chancery, New Castle County, was styled Harvey R. Rice v.
Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas
F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E.
Osborne, Jr., J. Patrick Foley, Charles J. Lee and Greyhound Lines, Inc., Civil
Action No. 13854 (the "Delaware Action").
In May 1995, a lawsuit was filed on behalf of two individuals, purported
owners of the Company's Common Stock, against the Company and certain of its
former officers and directors. The suit sought unspecified damages for
securities laws violations as a result of statements made in public reports and
press releases and to securities analysts during 1993 and 1994 that are alleged
to have been misleading. The suit, filed in the United States District Court for
the Northern District of Ohio, was styled James Illius and Theodore J. Krawec v.
Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action
No. 1-95-CV-1140. The defendants filed a motion to transfer venue seeking to
have the case transferred to the United States District Court for the Northern
District of Texas where the Federal Court Action was pending. In September 1995,
the defendants' motion was granted, and the matter was transferred and was
consolidated into the Federal Court Action.
On October 29, 1996, a purported class action lawsuit was brought by a
purported holder of Common Stock against the Company, certain of its former
officers and directors and Smith Barney and Morgan Stanley & Company, Inc. The
suit seeks unspecified damages for alleged federal and Texas state securities
laws violations in connection with a Common Stock offering made by the Company
in May 1993. The suit, filed in the 44th Judicial District Court of Dallas
County, Texas, is styled John Clarkson v. Greyhound Lines, Inc., Frank
Schmieder, J. Michael Doyle, Robert R. Duty, Don T. Seaquist, Smith Barney, Inc.
and Morgan Stanley & Company, Inc., Case No. 96-11329-B. Plaintiff, John
Clarkson, is the same individual who sought to intervene in the Federal Court
Action. On February 28, 1997, the suit was transferred to a different judge in
the 68th Judicial District Court in Dallas.
52
<PAGE> 53
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On June 22, 1998, the parties to the State Court Action entered into a
Stipulation and Agreement of Compromise and Settlement (the "Stipulation").
Pursuant to the Stipulation, persons who purchased Common Stock on or in
connection with a stock offering made by the Company on May 4, 1993 and who
continued to hold the Common Stock through September 22, 1993, will be entitled
to share, on a claims-made basis, in a settlement fund of up to $3.0 million
plus interest, less attorneys' fees and costs. On June 22, 1998, the Court
preliminarily approved the Stipulation, conditionally certified the plaintiff
class for purposes of settlement and directed plaintiffs' counsel to provide
notice to the class of the terms of the settlement. On November 2, 1998, the
Court approved the Stipulation but continued final approval of the plaintiff
attorneys' fees.
Effective June 22, 1998, the parties to the Delaware Action entered into a
settlement stipulation whereby the derivative claims would be dismissed in
return for the payment of $50,000 in attorneys' fees for the plaintiff. To
facilitate a global settlement of the State Court Action and the Delaware
Action, on May 20, 1998, plaintiff re-filed the derivative action in the same
court in which the State Court Action is pending. This case is captioned Harvey
R. Rice v. Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J.
Caley, Thomas F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill,
Alfred E. Osborne, Jr., J. Patrick Foley and Charles J. Lee, Civil Action No. DV
98-03990-C (the "Texas Derivative Action"). On August 6, 1998, the Court
preliminarily approved the settlement and directed plaintiffs' counsel to notify
shareholders of the terms of the settlement. On November 2, 1998 the Court gave
its final approval of this settlement. As a result of this settlement, on
December 1, 1998, the Delaware Action was dismissed.
The foregoing settlements, expected to cost approximately $2.0 million,
will be funded entirely by the Company's directors' and officers' liability
insurance carrier and, thus, will not have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity.
In January 1995, the Company received notice that the Securities and
Exchange Commission (the "Commission") is conducting a formal, non-public
investigation into possible securities laws violations allegedly involving the
Company and certain of its former officers, directors and employees and other
persons. The Commission's Order of Investigation (the "Order of Investigation")
states that the Commission is exploring possible insider trading activities, as
well as possible violations of the federal securities laws relating to the
adequacy of the Company's public disclosures with respect to problems with its
passenger reservation system implemented in 1993 and lower-than-expected
earnings for 1993. In addition, the Commission has stated that it will
investigate the adequacy of the Company's record keeping with respect to the
passenger reservation system and its internal auditing controls. Although the
Commission has not announced the targets of the investigation, it does not
appear from the Order of Investigation that the Company is a target of the
insider trading portion of the investigation. In September 1995, the Commission
served a document subpoena on the Company requiring the production of documents,
most of which the Company had voluntarily produced to the Commission in late
1994. The Company has fully cooperated with the Commission's investigation of
these matters. The Company has had limited contact with the Commission in
connection with the investigation since January 1996. The probable outcome of
this investigation cannot be predicted at this stage in the proceeding.
INSURANCE COVERAGE
The predecessor agency to the STB granted the Company authority to
self-insure its automobile liability exposure for interstate passenger service
up to a maximum level of $5.0 million per occurrence which has been continued by
the DOT. To maintain self-insurance authority, the Company is required to
maintain a satisfactory safety rating by the DOT, a tangible net worth of $10.0
million (as of December 31, 1998, the Company's tangible net worth was $148.8
million) and a $15.0 million trust fund (currently fully funded) to provide
security for payment of claims. In addition
53
<PAGE> 54
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
to the self-insurance grant by the federal government, the Company also
exercises self-insurance of its intrastate automobile liability exposure in 38
states. The Company maintains comprehensive automobile liability and general
liability insurance to insure its assets and operations subject to a $1.5
million self-insured retention or deductible per occurrence. The Company also
maintains property insurance subject to a $0.1 million deductible per occurrence
and maintains workers' compensation insurance subject to a $1.0 million
deductible per occurrence. Additionally, the Company is required by some states
and some of its insurance carriers to maintain collateral deposits.
ENVIRONMENTAL MATTERS
The Company may be liable for certain environmental liabilities and
clean-up costs relating to underground fuel storage tanks and systems in the
various facilities presently or formerly owned or leased by the Company. Based
upon surveys conducted solely by Company personnel or its experts, 43 locations
have been identified as remaining sites requiring potential clean-up and/or
remediation as of December 31, 1998. The Company has estimated the clean-up
and/or remediation costs of these sites to be $3.5 million, of which
approximately $0.4 million is indemnifiable by the predecessor owner of
Greyhound's domestic bus operations, now known as Viad Corp ("Viad").
The Company has potential liability with respect to two locations which the
EPA has designated Superfund sites. The Company, as well as other parties
designated by the EPA as potentially responsible parties, face exposure for
costs related to the clean-up of those sites. Based on the EPA's enforcement
activities to date, the Company believes its liability at these sites will not
be material because its involvement was as a de minimis generator of wastes
disposed of at the sites. In light of its minimal involvement, the Company has
been negotiating to be released from liability in return for the payment of
immaterial settlement amounts. Additionally, there are 14 Superfund sites for
which Viad had initially assumed responsibility under the indemnity provisions
of the 1987 acquisition agreement, as amended in 1991. In late 1997, Viad
notified the Company that it believed that the Company should be responsible for
any liabilities at such sites. The Company believed that Viad had responsibility
for these liabilities; however, in the first quarter of 1999, the Company agreed
to assume these liabilities estimated at $2.0 million from Viad as part of the
consideration paid by the Company to purchase nine restaurants Viad had been
operating in the Company's terminals.
The Company has recorded a total environmental reserve of $3.0 million at
December 31, 1998, a portion of which has also been recorded as a receivable
from Viad for indemnification. The environmental reserve relates to sites
identified for potential clean-up and/or remediation and represents the present
value of estimated cash flows discounted at 8.0%. As of the date of this report,
the Company is not aware of any additional sites to be identified, and
management believes that adequate accruals have been made related to all known
environmental matters.
54
<PAGE> 55
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At December 31, 1998, clean-up and/or remediation costs under the plan are
as follows (in thousands):
<TABLE>
<S> <C>
1999..................................................... $ 1,158
2000..................................................... 835
2001..................................................... 616
2002..................................................... 335
2003..................................................... 214
Thereafter............................................... 180
---------
Total environmental expenditures................ 3,338
Amounts representing interest............................ 378
---------
Reserve for environmental expenditures................... $ 2,960
=========
</TABLE>
POTENTIAL PENSION PLAN FUNDING REQUIREMENTS
The Company maintains ten defined benefit pension plans, the most
significant of which (the ATU Plan) covers approximately 15,650 current and
former employees, fewer than 1,500 of which are active employees of the Company.
The ATU Plan was closed to new participants in 1983 and, as a result, over 85%
of its participants are over the age of 50. For financial reporting and
investment planning purposes, the Company currently uses an actuarial mortality
table that closely matches the actual experience related to the existing
participant population. Based upon the application of this table and other
actuarial and investments assumptions, the Company believes that the ATU Plan is
adequately funded.
For funding purposes, legislation passed by the United States Congress in
1994, and amended in 1997, mandates the use of a prescribed actuarial mortality
table and discount rates that differ from those used by the Company for
financial reporting and investment planning purposes. Nevertheless, based upon
the application of the actuarial mortality table, discount rates and funding
calculations prescribed by the legislation, as amended, the Company does not
anticipate that it will be required to make any contributions to the ATU Plan in
the foreseeable future. However, there is no assurance that the ATU Plan will be
able to earn the assumed rate of return or that contributions to the ATU Plan
will not be significant.
OTHER LEGAL PROCEEDINGS
In addition to the litigation discussed above, the Company is a defendant
in various lawsuits arising in the ordinary course of business, primarily cases
involving personal injury and property damage claims and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of these claims are covered by
insurance for amounts in excess of the self-retention or deductible portion of
the policies. Therefore, based on the Company's assessment of known claims and
its historical claims payout pattern and discussion with internal and outside
legal counsel and risk management personnel, management believes that there is
no proceeding either threatened or pending against the Company relating to such
personal injury and/or property damage claims arising out of the ordinary course
of business that, if resolved against the Company, would materially exceed the
amounts recorded.
55
<PAGE> 56
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years ended December
31, 1998 and 1997 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1998 QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues ............................... $ 180,720 $ 211,247 $ 244,134 $ 209,895
Operating expenses ............................... 187,623 201,890 211,350 198,302
--------- --------- --------- ---------
Operating income (loss) .......................... (6,903) 9,357 32,784 11,593
Interest expense ................................. 6,654 7,305 7,263 6,677
Income tax provision (benefit) ................... (1,096) 179 (16,250) 311
Minority Interest ................................ (8) (83) 134 513
--------- --------- --------- ---------
Net income (loss) before preferred dividends ..... (12,453) 1,956 41,637 4,092
Preferred dividends .............................. 1,296 1,296 1,296 1,296
--------- --------- --------- ---------
Net income (loss) ................................ $ (13,749) $ 660 $ 40,341 $ 2,796
========= ========= ========= =========
Net income (loss) per share of Common Stock:
Basic ....................................... $ (0.23) $ 0.01 $ 0.67 $ 0.05
========= ========= ========= ---------
Diluted ..................................... $ (0.23) $ 0.01 $ 0.55 $ 0.04
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1997 QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues ............................... $ 161,148 $ 181,530 $ 228,524 $ 199,920
Operating expenses ............................... 170,651 178,766 197,035 187,564
--------- --------- --------- ---------
Operating income (loss) .......................... (9,503) 2,764 31,489 12,356
Interest expense ................................. 7,586 6,526 6,618 6,927
Income tax provision ............................. 79 86 83 803
--------- --------- --------- ---------
Net income (loss) before extraordinary item and
preferred dividends .......................... (17,168) (3,848) 24,788 4,626
Extraordinary item ............................... -- 25,323 -- --
--------- --------- --------- ---------
Net income (loss) ................................ (17,168) (29,171) 24,788 4,626
Preferred dividends .............................. -- 1,063 1,275 1,310
--------- --------- --------- ---------
Net income (loss) ................................ $ (17,168) $ (30,234) $ 23,513 $ 3,316
========= ========= ========= =========
Net income (loss) per share of Common Stock:
Basic
Net income (loss) attributable to common
stockholders before extraordinary item ... $ (0.29) $ (0.08) $ 0.40 $ 0.06
Extraordinary item .......................... -- (0.43) -- --
--------- --------- --------- ---------
Net income (loss) attributable to common
stockholders ............................. $ (0.29) $ (0.51) $ 0.40 $ 0.06
========= ========= ========= =========
Diluted
Net income (loss) attributable to common
stockholders before extraordinary item ... $ (0.29) $ (0.08) $ 0.34 $ 0.05
Extraordinary item .......................... -- (0.43) -- --
--------- --------- --------- ---------
Net income (loss) attributable to common
stockholders ............................. $ (0.29) $ (0.51) $ 0.34 $ 0.05
========= ========= ========= =========
</TABLE>
56
<PAGE> 57
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
20. SUBSEQUENT EVENTS
On March 16, 1999, the Company's shareholders approved the Agreement and
Plan of Merger with Laidlaw and Laidlaw Transit. On that date, Laidlaw Transit
was merged with and into the Company, with the Company, as the surviving
corporation, becoming a subsidiary of Laidlaw. As a result of the Merger,
Laidlaw became the sole holder of the Company's Common Stock.
The total purchase price Laidlaw paid for the shares of Greyhound's Common
Stock not previously purchased by Laidlaw, including outstanding stock options,
was approximately $402 million. The Greyhound Preferred Stock, which remains
outstanding, is convertible into the right to receive $33.33 in cash per share
or $80 million in the aggregate. Following the Merger, all amounts outstanding
under the Revolving Credit Facility were paid and the Revolving Credit Facility
was terminated.
As a result of the Merger, the Preferred Stock will be classified as
Redeemable Preferred Stock for all periods after March 16, 1999. If the Merger
had been consummated on or prior to December 31, 1998, the Stockholders' Equity
would have been reported as follows:
<TABLE>
<CAPTION>
AS REPORTED AFTER SUBSEQUENT
DECEMBER 31, 1998 MODIFICATION
----------------- ----------------
<S> <C> <C>
Redeemable Preferred Stock ......... $ -- $ 60,000
Stockholders Equity:
Preferred Stock ................. 60,000 --
Other Stockholders' Equity ...... 158,013 158,013
--------------- ---------------
Total Stockholders' Equity .. $ 218,013 $ 158,013
=============== ===============
</TABLE>
See Notes 1, 12, 13, 16 and 17 for additional disclosures related to the Merger.
57
<PAGE> 58
SCHEDULE II
GREYHOUND LINES, INC. AND SUBSIDIARIES(a)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
December 31, 1996:
Allowance for Doubtful Accounts .... $ 217 $ 585 $ (155) $ (406)(b) $ 241
Inventory Reserves ................. 109 (14) -- -- 95
Accumulated Amortization of
Intangible Asset ................ 14,901 5,613 -- (1,409)(c) 19,105
Reserves for Injuries and Damages .. 65,661 23,443 -- (29,141)(d) 59,963
------------ ------------ ------------ ------------ ------------
Total Reserves and Allowances . $ 80,888 $ 29,627 $ (155) $ (30,956) $ 79,404
============ ============ ============ ============ ============
December 31, 1997:
Allowance for Doubtful Accounts .... $ 241 $ 302 $ (61) $ (214)(b) $ 268
Inventory Reserves ................. 95 80 -- -- 175
Accumulated Amortization of
Intangible Assets ............... 19,105 5,434 -- (2,351)(c) 22,188
Reserves for Injuries and Damages .. 59,963 32,687 (194) (34,491)(d) 57,965
------------ ------------ ------------ ------------ ------------
Total Reserves and Allowances . $ 79,404 $ 38,503 $ (255) $ (37,056) $ 80,596
============ ============ ============ ============ ============
December 31, 1998:
Allowance for Doubtful Accounts .... $ 268 $ 342 $ (40) $ (372)(b) $ 198
Inventory Reserves ................. 175 30 -- -- 205
Accumulated Amortization of
Intangible Assets ............... 22,188 6,908 -- (594)(c) 28,503
Reserves for Injuries and Damages .. 57,965 35,237 (1,021) (31,822)(d) 60,359
------------ ------------ ------------ ------------ ------------
Total Reserves and Allowances . $ 80,596 $ 42,517 $ (1,061) $ (32,788) $ 89,265
============ ============ ============ ============ ============
</TABLE>
- ----------
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Write-off of uncollectible receivables, net of recovery of bad debt.
(c) Write-off or amortization of other assets and deferred costs.
(d) Payments of settled claims.
58
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
59
<PAGE> 60
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
James R. Bullock (age 54) became the sole director of the Company upon
consummation of the Merger on March 16, 1999. Mr. Bullock has been a director of
Laidlaw Inc. since 1991 and President and Chief Executive Officer of that
company since October 1993. Mr. Bullock is also a director of Imasco Inc. and
Ontario Hydro.
Craig R. Lentzsch (age 50) became President and Chief Executive Officer of
the Company in November 1994. Mr. Lentzsch also served as Chief Financial
Officer of the Company from November 22, 1994 to April 10, 1995. Mr. Lentzsch
served as director of the Company from August 1994 to March 1999. Mr. Lentzsch
previously served as Executive Vice President and Chief Financial Officer of
Motor Coach Industries International, Inc., where he had been employed from 1992
to 1994; as President and Chief Executive Officer of Continental Asset Services,
Inc. from 1991 to 1992; as a private consultant to, and investor in, Storehouse,
Inc. from 1983 to 1991 and Communication Partners, Ltd. from 1989 to 1991; as
Vice Chairman, Executive Vice President and a director of the Company from March
1987 to December 1989; and as Co-Founder and President of BusLease, Inc. from
1980 to 1989. Mr. Lentzsch also serves as a director of Hastings Entertainment,
Inc., Enginetech, Inc., the Intermodal Transportation Institute and the Great
American Station Foundation and is a director and a member of the Executive
Committee of the American Bus Association.
Jack W. Haugsland (age 59) joined the Company in May 1995, as Executive
Vice President and Chief Operating Officer. From 1992 to 1995 Mr. Haugsland was
President and Chief Executive Officer of Gray Line Worldwide. From 1990 to 1992
Mr. Haugsland held the position of Senior Vice President of Operations for the
Company; and from 1986 to 1990 Mr. Haugsland served as President of Greyhound
Travel Services, Inc., a former subsidiary of the Company. Mr. Haugsland began
employment with the Company's predecessor in 1964. Mr. Haugsland is also a board
member of the American Bus Association and of the Travel Industry Association of
America.
J. Floyd Holland (age 63) has served as Senior Vice President -- Operations
since September 1994 and is responsible for equipment maintenance, engineering,
environmental compliance and purchasing. Certain of the Company's bus operating
subsidiaries also report to Mr. Holland. From October 1992 to September 1994, he
served as Vice President -- Maintenance of the Company. From July 1987 to
September 1992, he was Vice President -- Fleet Operations and was responsible
for fleet planning and allocation. From October 1979 to July 1987, Mr. Holland
served as Vice President of Operations and Transportation of Trailways. Mr.
Holland held various management positions with predecessor companies since he
began employment in 1958 with Trailways Lines, Inc. Mr. Holland has been a
member of the Board of Directors and Executive Committee of the National Bus
Traffic Association since 1991.
Frederick F. Richards, III (age 39) was named Senior Vice President and
Chief Information Officer in December 1997. Mr. Richards oversees information
technology development and services, accounting operations, and the telephone
information centers. From 1987 to December 1997, Mr. Richards worked as an
independent management consultant and provided consulting services to Greyhound
from 1987 to 1990 and again from 1994 to December 1997. Recently, Mr. Richards
integrated and managed the centralized driver and equipment dispatch and
planning operations for the Company. Mr. Richards also managed the integration
of automated ticketing with revenue reporting and fare and schedule quotation
systems in the late 1980's. Mr. Richards is the son-in-law of A. A. Meitz, who
served as a director of the Company from November 1995 to March 1999.
Ralph J. Borland (age 51) serves as Vice President -- Marketing and Sales
and is responsible for selling the Company's regularly scheduled service,
charter bus and related products and is responsible for the passenger marketing,
advertising, promotion and pricing activities of the Company. He previously
served as Vice President -- Sales and Service, where he was responsible for
charter sales, Hispanic initiatives and the casino and special services markets;
and previously, as Vice President -- Customer Satisfaction. Mr. Borland also
served as Vice President -- Marketing from March 1987 to April 1993. Mr. Borland
joined the Company's predecessor in 1972.
60
<PAGE> 61
T. Scott Kirksey (age 41) joined the Company in June 1995 as Vice President
- -- Financial Planning and Reporting and is responsible for the business and
strategic planning for the Company as well as corporate accounting and financial
reporting. Prior to joining the Company, Mr. Kirksey was Corporate Controller
for Hat Brands, Inc. from 1993 and served as Director of Financial Planning,
Budgeting and Treasury and Vice President/Controller of Telemedia Services for
Neodata Corporation from 1990 to 1993.
Jeffrey W. Sanders (age 37) joined the Company in June 1997 as Vice
President -- Corporate Development and is responsible for corporate acquisitions
and new business development, treasury, corporate finance, tax and investor
relations. Prior to joining the Company, Mr. Sanders was Vice President --
Controller of Motor Coach Industries International, Inc. from January 1995 to
January 1997 and Director -- Financial Reporting and Consolidations from October
1993 to December 1994. From January 1985 to October 1993, Mr. Sanders held
various positions, including senior manager in the audit department, with
Deloitte & Touche LLP.
Mark E. Southerst (age 41) was elected as Vice President and General
Counsel and Secretary in January 1995. Mr. Southerst was previously employed by
the Company as Associate General Counsel, since July 1988. Prior to joining the
Company, Mr. Southerst served as in-house legal counsel for Burlington Northern
Railroad Company from 1983 to July 1988. Mr. Southerst also serves as a director
of the National Bus Traffic Association and a legal advisor to the ATA
Litigation Center, a trade association specializing in legal issues affecting
motor carriers.
SECTION 16(a) DELINQUENT FILER DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission (the
"SEC") initial reports of beneficial ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% beneficial owners of the Company are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with for the year ended December 31, 1998.
61
<PAGE> 62
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation, including bonuses,
restricted stock and stock option awards and other payments, paid or accrued by
the Company during each of the fiscal years ended December 31, 1998, 1997 and
1996, to or for the Chief Executive Officer of the Company, and the four other
most highly compensated executive officers of the Company (the Chief Executive
Officer and such other officers collectively being the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- --------------------------
AWARDS
OTHER --------------------------
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) SATION($)(3) AWARDS($)(4) OPTIONS/SARS(#) SATION($)(5)
---- ----------- ----------- ------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Craig R. Lentzsch 1998 441,242 322,594 -- 0 142,300 110,835
President and Chief 1997 391,250 290,503 -- 187,182 0 100,133
Executive Officer 1996 350,013 112,228 86,603 55,163 100,000 86,169
Jack W. Haugsland 1998 285,986 171,073 -- 0 89,700 83,248
Executive Vice President 1997 255,000 154,913 -- 119,990 0 74,288
and Chief Operating Officer 1996 225,008 79,029 -- 36,775 60,000 55,393
Frederick F. Richards, III (6) 1998 200,000 106,400 -- 0 32,600 47,986
Senior Vice President and Chief 1997 12,603 0 -- 300,000 0 0
Information Officer 1996 0 0 0 0 0 0
J. Floyd Holland 1998 172,436 91,723 -- 0 53,200 51,137
Senior Vice President - Operations 1997 164,987 89,093 -- 58,704 0 49,562
1996 155,956 36,735 -- 0 30,000 50,310
Mark E. Southerst 1998 164,035 76,345 -- 0 42,600 41,143
Vice President and General Counsel 1997 154,305 72,909 -- 46,580 0 38,176
and Secretary 1996 128,050 28,486 -- 0 45,000 33,646
</TABLE>
- ---------
(1) Represents annual salary, including compensation deferred by the Named
Executive Officer pursuant to the Company's 401(k) and non-qualified
savings plans.
(2) Represents annual bonus earned by the Named Executive Officer for the
relevant fiscal year.
(3) In 1996, for Mr. Lentzsch, $50,000 is for reimbursement of the loss on
the sale of Mr. Lentzsch's personal residence in connection with his
relocation to Dallas, Texas, after joining the Company in 1994.
(4) As of December 31, 1998, Mr. Lentzsch held 45,600 shares of restricted
stock, with an aggregate value of $270,294. Of these shares granted to
Mr. Lentzsch, 10,000 shares vested on January 22, 1999. As of December
31, 1998, Mr. Haugsland held 29,333 shares of restricted stock, with an
aggregate value of $173,871. Of these shares granted to Mr. Haugsland,
6,500 shares vested on January 22, 1999. As of December 31, 1998, Mr.
Holland held 12,700 shares of restricted stock, with an aggregate value
of $75,279. Of these shares granted to Mr. Holland, 3,250 shares vested
on January 22, 1999. As of December 31, 1998, Mr. Southerst held 10,100
shares of restricted stock, with an aggregate value of $59,868. Of
these shares granted to Mr. Southerst, 2,500 shares vested on January
22, 1999. Upon the completion of the Merger, all shares of restricted
stock that were unvested became vested in accordance with the terms of
the plan under which the restricted stock grants were made. Pursuant to
the Merger Agreement, each of the Named Executive Officers received
$6.50 in cash for each share of restricted stock held.
62
<PAGE> 63
(5) For 1998, includes $101,545, $64,394, $47,126, $41,440 and $37,458 in
accrued benefits under the Company's Supplemental Executive Retirement
Plan ("SERP"); $5,000, $12,399, $0, $2,586 and $1,640 in Company
contributions to the 401(k) and non-qualified savings plans; and
$4,290, $6,455, $860, $7,111 and $2,045 in term life insurance premiums
paid by the Company for Messrs. Lentzsch, Haugsland, Richards, Holland
and Southerst, respectively.
(6) Mr. Richards became Senior Vice President and Chief Information Officer
on December 9, 1997.
EMPLOYMENT CONTRACTS
Craig R. Lentzsch. Mr. Lentzsch's terms of employment are governed by an
employment contract that continues until March 16, 2002, subject to automatic
successive two-year renewals unless and until terminated. The contract provides
for an annual base salary to Mr. Lentzsch, currently $500,000, subject to annual
review and adjustment. Mr. Lentzsch is entitled to receive an annual incentive
bonus in accordance with the Company's management incentive plan ("MIP") as in
effect from time to time. If the Company terminates or does not renew Mr.
Lentzsch's employment contract without good cause (as defined) or if Mr.
Lentzsch resigns for good reason (as defined), the Company must pay Mr. Lentzsch
a lump-sum payment equal to three times the sum of: (i) an amount equal to his
then-current, annualized base salary; and (ii) the greater of: (A) the
applicable annual payout of incentive compensation under the MIP for the plan
year immediately prior to the termination; or (B) the full annual target award
under the MIP for the plan year in which the termination occurs. Additionally,
Mr. Lentzsch's employment contract provides that if there is a change of control
(other than the Merger) (as defined) and within two years thereafter, Mr.
Lentzsch's employment contract is terminated, or not renewed, for any reason
other than cause, death, disability or retirement, or if he resigns for good
reason, Mr. Lentzsch would be entitled to the same severance payments as
described above, subject to a "gross up" should any portion of his severance
benefits be construed to be an "excess parachute payment" under the federal tax
code. Mr. Lentzsch also participates in the Company's Supplemental Executive
Retirement Plan, and has received past service credit, for vesting purposes
only, related to his former employment with the Company, its affiliates and
predecessors. Additionally, Mr. Lentzsch is entitled to participate in the
Company's 401(k) plan, medical plan (with waiver of pre-existing conditions),
and other applicable benefit plans and is entitled to estate, tax and financial
planning assistance, a car allowance and country club dues reimbursement.
Jack W. Haugsland. Mr. Haugsland's terms of employment are governed by an
employment contract that continues until March 16, 2002, subject to automatic
successive two-year renewals unless and until terminated. Mr. Haugsland is
entitled to receive an annual base salary, currently $305,000, subject to annual
review and adjustment. Mr. Haugsland is also entitled to receive an annual
incentive bonus in accordance with the Company's MIP as in effect from time to
time. If the Company terminates or does not renew Mr. Haugsland's employment
contract without good cause (as defined) or if Mr. Haugsland's resigns for good
reason (as defined), the Company must pay Mr. Haugsland's a lump-sum payment
equal to three times the sum of: (i) an amount equal to his then-current,
annualized base salary; and (ii) the greater of: (A) the applicable annual
payout of incentive compensation under the MIP for the plan year immediately
prior to the termination; or (B) the full annual target award under the MIP for
the plan year in which the termination occurs. Additionally, Mr. Haugsland's
employment contract provides that if there is a change of control (other than
the Merger) (as defined) and within two years thereafter, Mr. Haugsland's
employment contract is terminated, or not renewed, for any reason other than
cause, death, disability or retirement, or if he resigns for good reason, Mr.
Haugsland would be entitled to the same severance payments as described above,
subject to a "gross up" should any portion of his severance benefits be
construed to be an "excess parachute payment" under the federal tax code. Mr.
Haugsland also participates in the Company's Supplemental Executive Retirement
Plan, and has received past service credit, for vesting purposes only, related
to his former employment with the Company, its affiliates and predecessors.
Additionally, Mr. Haugsland is entitled to participate in the Company's 401(k)
plan, medical plan (with waiver of pre-existing conditions), and other
applicable benefit plans and is entitled to estate, tax and financial planning
assistance, a car allowance and country club dues reimbursement.
63
<PAGE> 64
SEVERANCE ARRANGEMENTS
The Company has entered into Change in Control Agreements ("CIC
Agreements") with the Named Executive Officers (other than Messrs. Lentzsch and
Haugsland). Under the CIC Agreements, if the employment of the employee is
terminated prior to March 16, 2001, either for "Good Reason" by the employee or
"Without Cause" (as such terms are defined in the CIC Agreements) by the Company
(or any successor or assignee), the employee would receive severance benefits,
including base salary and benefits earned and payable through the termination
date, the dollar amount of the target payout under the MIP prorated through the
termination date for the year in which employment is terminated, and a lump-sum
cash payment of two times the sum of (x) the employee's current annual base
salary and (y) the dollar amount of the annual target payout under the MIP in
effect on March 16, 1999.
In addition, certain employee benefits (including medical, dental and
vision plan coverage) will continue for a period of two years after the date of
termination. Under the CIC Agreements, if any amount to be paid or provided is
determined to be nondeductible by reason of Section 280G of the Internal Revenue
Service Code, the severance benefits will be reduced to the minimum extent
necessary so that Section 280G does not cause any amount to be nondeductible.
Benefits under the CIC Agreements replace benefits, if any, under any other
Company severance plans.
DIRECTORS' COMPENSATION
Directors of the Company are entitled to reimbursement of their expenses,
if any, of attendance at each meeting of the Board of Directors or committees
thereof.
STOCK OPTION PLANS
The following table reflects all options granted to the Named Executive
Officers of the Company during the fiscal year ended December 31, 1998, under
the Company's stock option and incentive plans. Additionally, the present value
of the options at the grant date is provided. The present value is calculated
utilizing the Black-Scholes model, which is a mathematical formula widely used
to value stock options. This formula considers a number of factors, including
the stocks volatility, dividend rate, term and vesting of the option and
interest rates to estimate the option's present value.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS GRANT EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(#)(1) DATE FISCAL YEAR PRICE DATE PRESENT VALUE (2)
------------- ------- ------------ -------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Craig R. Lentzsch.......... 142,300 1/20/98 8.37% 4.0000 1/20/2005 $ 357,173
Jack W. Haugsland.......... 89,700 1/20/98 5.28 4.0000 1/20/2005 225,147
Frederick F. Richards, III. 32,600 1/20/98 1.92 4.0000 1/20/2005 81,826
J. Floyd Holland........... 53,200 1/20/98 3.13 4.0000 1/20/2005 133,532
Mark E. Southerst.......... 42,600 1/20/98 2.51 4.0000 1/20/2005 106,926
</TABLE>
- ----------
(1) Twenty-five percent of the options granted were exercisable on and after
January 20, 1999, 25% were to become exercisable on and after January 20,
2000, 25% were to become exercisable on and after January 20, 2001 and 25%
were to become exercisable on and after January 20, 2002. Upon completion
of the Merger, all of these options became vested in accordance with the
terms of the plan under which the grants were made. Pursuant to the Merger
Agreement, each of the Named Executive Officers received, in cash, the
difference between $6.50 per share and the exercise price of the options.
64
<PAGE> 65
(2) Assumptions used in calculating grant date present value under the
Black-Scholes model include stock price volatility at the grant date of
55%, risk-free rate of return at the grand date of 6%, annual dividend
yield of $0, an option term of 7 years from the grant date and a stock
price at the grant date of $4.00.
The following table reflects information with respect to option exercises by the
Named Executive Officers during the fiscal year ended December 31, 1998, and
information with respect to the unexercised options to purchase the Company's
Common Stock granted under the Company's stock option and incentive plans to the
Named Executive Officers and held by them at December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FY-END(#) FY-END($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2)
---- ----------- ----------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Craig R. Lentzsch............... -- -- 890,000 192,300 3,519,957 385,331
Jack W. Haugsland............... -- -- 405,000 144,700 1,357,517 309,747
Frederick F. Richards, III...... -- -- 240,000 92,600 693,512 187,773
J. Floyd Holland................ -- -- 253,250 99,450 530,008 223,525
Mark E. Southerst 17,000 71,125 101,250 77,600 313,673 161,444
</TABLE>
- ----------
(1) Computed based upon the difference between $5.9375 per share, the fair
market value at December 31, 1998, and the exercise price per share for the
options.
(2) Upon completion of the Merger, all of these options became vested in
accordance with the terms of the plan under which the grants were made.
Pursuant to the Merger Agreement, each of the Named Executive Officers
received, in cash, the difference between $6.50 per share and the exercise
price of the options.
LONG-TERM INCENTIVE PLANS
The Company does not maintain any long-term incentive plan under which
awards were granted or paid during 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Merger, the Compensation Committee of the Board of Directors
consisted of Richard J. Caley, A.A. Meitz and Stephen M. Peck who were
non-employee directors of the Company. Additionally, prior to the Merger,
Messrs. Caley and Peck served as members of the Option Committee which oversaw,
administered and approved grants under the Company's stock option and incentive
plans. Mr. Meitz is the father-in-law of Frederick F. Richards, III, the Senior
Vice President and Chief Information Officer of the Company. Mr. Richards was
elected an officer of the Company in December 1997. Prior to becoming an
employee of the Company and since November 1994, Mr. Richards was engaged by the
Company as an independent management consultant on an at-will basis, supplying
consulting services to the Company on a variety of operational and technology
issues. Under Compensation Committee procedures, Mr. Meitz was not present
during discussions of Mr. Richards' compensation terms, performance or other
related matters, abstained from voting on matters involving or affecting Mr.
Richards and did not serve on the committee of the Board of Directors that
administers and makes stock incentive awards and grants.
65
<PAGE> 66
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the outstanding
shares of Greyhound Common Stock and Greyhound Preferred Stock, as of March 16,
1999 (except as noted below), held by persons believed by Greyhound to
beneficially own more than 5% of the outstanding shares of the Greyhound Common
Stock or Greyhound Preferred Stock and the percentage of the outstanding shares
of Greyhound Common Stock and Greyhound Preferred Stock represented thereby.
With the exception of Mr. Lentzsch, no director or executive officer of
Greyhound beneficial owns any share of Greyhound Common Stock or Greyhound
Preferred Stock. Except as otherwise noted below, these stockholders have sole
voting and investment power with respect to all shares beneficially owned by
them.
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF PERCENT OF
NAME AND ADDRESS COMMON STOCK PERCENT PREFERRED STOCK PERCENT VOTING
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS BENEFICIALLY OWNED OF CLASS SECURITIES (a)
- ------------------- ------------------ -------- ------------------ -------- ---------------
<S> <C> <C> <C> <C> <C>
Laidlaw Inc. (b) 58,743,069 100.0% 0 0 96.1
Snyder Capital Management, L.P. (c) 0 - 639,800 26.7% 1.0
Craig R. Lentzsch 0 - 1,000 * *
</TABLE>
* - less than 1%
- --------
(a) Calculated based on the holders of Greyhound Common Stock and Greyhound
Preferred Stock voting together as a single class with each holder of
Greyhound Common Stock having one vote per share and each holder of
Greyhound Preferred Stock having on vote per share.
(b) The principal business address of Laidlaw Inc. is 3221 North Service Road,
Burlington, Ontario, Canada L7R 3Y8.
(c) The information is based on a Schedule 13G filed with the SEC on February
5, 1999, on behalf of Snyder Capital Management, L.P., Snyder Capital
Management, Inc. (collectively "Snyder") and subsequent discussions with
Snyder representatives. As of that date, Snyder reported that it held
639,800 shares of Greyhound Preferred Stock (presently convertible into
$33.33 per share in cash) and that it had sole voting power with respect to
30,100 shares, shared voting power with respect to 571,900 shares, sole
dispositive power with respect to 30,100 shares and shared dispositive
power with respect to 609,700 shares. The principal business address of
Snyder Capital Management, L.P. is 350 California Street, Suite 1460, San
Francisco, California, 94104.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE> 67
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) CERTAIN DOCUMENTS FILED AS PART OF THE FORM 10-K
1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES
The following financial statements and financial statements schedules are
set forth in Item 8 of this report. Financial Statement Schedules not included
in this report have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto. Fifty percent
or less owned companies accounted for by the equity method have been omitted
because, considered in the aggregate, they have not been considered to
constitute a significant subsidiary.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Management Report on Responsibility for Financial Reporting................................. 28
Report of Independent Public Accountants.................................................... 29
Consolidated Statements of Financial Position at December 31, 1998 and 1997................. 30
Consolidated Statements of Operations for the years ended December 31, 1998, 1997
and 1996.................................................................................. 31
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998,
1997 and 1996............................................................................. 32
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997
and 1996.................................................................................. 33
Notes to Consolidated Financial Statements.................................................. 34
Schedule II - Valuation and Qualifying Accounts............................................. 58
</TABLE>
3. EXHIBITS
2.1 -- Amended and Restated Agreement and Plan of Merger dated as
of November 5, 1998 (the "Merger Agreement") by and among
Greyhound Lines, Inc., Laidlaw Inc. and Laidlaw Transit
Acquisition Corp. (14)
3.1 -- Restated Certificate of Incorporation of Greyhound Lines,
Inc. (15)
3.2 -- Bylaws of Greyhound Lines, Inc. (15)
4.1 -- Indenture governing the 8 1/2% Convertible Subordinated
Debentures due March 31, 2007, including the form of 8 1/2%
Convertible Subordinated Debentures due March 31, 2007. (3)
4.2 -- First Supplemental Indenture to the 8 1/2% Convertible
Subordinated Debentures Indenture between the Registrant and
Shawmut Bank Connecticut, N.A., as Trustee. (6)
4.3 -- Second Supplemental Indenture to the 8 1/2% Convertible
Subordinated Debentures Indenture between the Registrant and
State Street Bank and Trust Company, as trustee. (15)
4.4 -- Indenture, dated April 16, 1997, by and among the Company,
the Guarantors and PNC Bank, N.A., as Trustee. (9)
4.5 -- First Supplemental Indenture dated as of July 9, 1997
between the Registrant and PNC Bank, N.A. as Trustee. (12)
4.6 -- Second Supplemental Indenture dated as of August 25, 1997
between the Registrant and PNC Bank, N.A. as Trustee. (13)
4.7 -- Form of 11 1/2% Series A Senior Notes due 2007. (9)
4.8 -- Form of 11 1/2% Series B Senior Notes due 2007. (11)
4.9 -- Form of Guarantee of 11 1/2% Series A and B Senior Notes.
(11)
4.10 -- Indenture dated April 16, 1997 by and between the Company
and U.S. Trust of Texas, N.A., as Trustee. (10)
67
<PAGE> 68
10.1 -- Acquisition Agreement dated December 22, 1986, among The
Greyhound Corporation, Greyhound Lines, Inc., the Registrant,
GLI Holding Company, GLI Bus Operations Holding Company and
GLI Merger Company. (1)
10.2 -- First Amendment to Acquisition Agreement dated January 31,
1987. (1)
10.3 -- Second Amendment to Acquisition Agreement dated March 18,
1987. (1)
10.4 -- Third Amendment to Acquisition Agreement dated March 18,
1987. (1)
10.5 -- Fourth Amendment to Acquisition Agreement dated September
18, 1987. (1)
10.6 -- Contested Claim Pool Trust Agreement to be entered into as
of October 31, 1991, by and between the Registrant and Smith
Barney Trust Company, as trustee. (2)
10.7 -- Claims Treatment Agreement dated August 23, 1991, by and
among Eagle Bus Manufacturing, Inc., the Registrant,
Trailways Commuter Transit, Inc., GLI Bus Operations Holding
Company, GLI Food Services, Inc., Southern Greyhound Lines
Co., GLI Holding Company, Central Greyhound Lines Co.,
Greyhound Travel Services, Inc., Eastern Greyhound Lines,
Co., and Western Greyhound Lines Co., on the one hand, and
The Dial Corp, on the other. (2)
10.8 -- Memorandum of Agreement, dated as of October 1, 1996,
between Greyhound Lines, Inc. and District No. 9,
International Association of Machinists, AFL-CIO. (8)
10.9 -- Memorandum of Agreement, dated as of October 1, 1996,
between Greyhound Lines, Inc. and the International
Association of Machinists and Aerospace Workers covering
garage employees at Miami, Florida; St. Petersburg, Florida;
Columbia, South Carolina; Orlando, Florida; Charleston, West
Virginia and Tallahassee, Florida. (8)
10.10 -- Memorandum of Agreement, dated as of October 1, 1996,
between Greyhound Lines, Inc. and the International
Association of Machinists and Aerospace Workers covering
garage employees at Dallas, Texas, Houston, Texas, Kansas
City, Missouri, San Antonio, Texas, Brownsville, Texas and
Grand Junction, Colorado. (8)
10.11 -- Memorandum of Agreement, dated September 30, 1998, between
the Registrant and the Amalgamated Transit Union National
Local 1700. (14)
10.12 -- Lease Agreement No. 1, dated as of December 29, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.13 -- Lease Agreement No. 2, dated as of December 29, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.14 -- Lease Agreement No. 3, dated as of December 29, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.15 -- Lease Supplement No. 1-1, dated as of December 30, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.16 -- Lease Supplement No. 2-1, dated as of December 30, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.17 -- Lease Supplement No. 3-1, dated as of December 30, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.18 -- Tax Indemnification Agreement, dated as of December 29,
1993, between NationsBank Lease Investments, Inc. and the
Registrant. (4)
10.19 -- Pledge Agreement, dated as of December 29, 1993, among the
Registrant, Wilmington Trust Company and NationsBank Lease
Investments, Inc. (4)
10.20 -- Participation Agreement, dated as of December 29, 1993,
among NationsBank Lease Investments, Inc. and the Registrant.
(4)
10.21 -- Lease Agreement, dated as of March 28, 1994, between
Wilmington Trust Company and the Registrant. (5)
10.22 -- Lease Supplement No. 1, dated as of March 28, 1994,
between Wilmington Trust Company and the Registrant. (5)
10.23 -- Pledge Agreement, dated as of March 28, 1994, among the
Registrant, Wilmington Trust Company and Cargill Leasing
Corporation. (5)
10.24 -- Participation Agreement, dated as of March 28, 1994, among
Cargill Leasing Corporation and the Registrant. (5)
68
<PAGE> 69
10.25 -- Bill of Sale, dated as of March 28, 1994, between the
Registrant and Wilmington Trust Company.(5)
10.26 -- Tax Indemnification Agreement, dated as of March 28, 1994,
between Cargill Leasing Corporation and the Registrant. (5)
10.27 -- Lease Agreement, dated as of March 29, 1994, between
Wilmington Trust Company and the Registrant. (5)
10.28 -- Lease Supplement No. 1, dated as of March 29, 1994,
between Wilmington Trust Company and the Registrant. (5)
10.29 -- Pledge Agreement, dated as of March 29, 1994, among the
Registrant, Wilmington Trust Company and Cargill Leasing
Corporation. (5)
10.30 -- Participation Agreement, dated as of March 29, 1994, among
Cargill Leasing Corporation and the Registrant. (5)
10.31 -- Bill of Sale, dated as of March 29, 1994, between the
Registrant and Wilmington Trust Company.(5)
10.32 -- Tax Indemnification Agreement, dated as of March 29, 1994,
between Cargill Leasing Corporation and the Registrant. (5)
10.33 -- Termination Agreement dated as of March 17, 1999, by and
between Greyhound Lines, Inc. and Foothill Capital
Corporation and BankBoston N.A. (15)
10.34 -- Greyhound Lines, Inc. Supplemental Executive Retirement
Plan. (7)
10.35 -- First Amendment to Supplemental Executive Retirement Plan.
(8)
10.36 -- Second Amendment to Supplemental Executive Retirement
Plan. (15)
10.37 -- Supplemental Executive Retirement Plan Trust Agreement
(15)
10.38 -- Second Amended Employment Agreement dated March 16, 1999,
between Registrant and Craig R. Lentzsch. (15)
10.39 -- Second Amended Employment Agreement dated March 16, 1999,
between Registrant and John Werner Haugsland. (15)
10.40 -- 1998 Stock Option Plan for ATU Represented Drivers and
Mechanics, dated July 22, 1998. (14)
10.41 -- Greyhound Lines, Inc. Change in Control Severance Pay
Program. (14)
10.42 -- Form of Change in Control Agreement between the Company
and certain officers of the Company. (14)
21 -- Subsidiaries of the Registrant. (15)
27 -- Financial Data Schedule as of and for the year ended
December 31, 1998. (16)
- -----
(1) Incorporated by reference from the Annual Report Form 10-K/A for the year
ended December 31, 1994.
(2) Incorporated by reference from the Registration Statement on Form S-1
(File Nos. 33-45060-01 and 33-45060-02) regarding the Registrant's 8 1/2%
Convertible Subordinated Debentures Due 2007.
(3) Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 33-47908) regarding the Registrant's Common Stock and
10% Senior Notes Due 2001 held by the Contested Claims Pool Trust.
(4) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
(5) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994.
(6) Incorporated herein by reference from the Registrant's Issuer Tender Offer
Statement on Schedule 13E-4 (File No. 5-41800).
69
<PAGE> 70
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
(9) Incorporated by reference from the Company's Registration Statement on
Form S-4 regarding the Company's 11 1/2% Series B Senior Notes due 2007.
(10) Incorporated by reference from the Company's Registration Statement on
Form S-3 regarding the Company's 8 1/2% Convertible Exchangeable preferred
Stock, Common Stock and 8 1/2% Convertible Subordinated Debentures due
2009.
(11) Incorporated by reference from Amendment 1 to Form S-4 filed on June 27,
1997.
(12) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
(13) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
(14) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.
(15) Filed herewith.
(16) Filed only in EDGAR format with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K with the Securities and Exchange Commission on
October 30, 1998. The purpose of this filing was to announce that the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition Corp., a wholly owned
subsidiary of Laidlaw ("Laidlaw Transit"), pursuant to which Laidlaw Transit
will merge with and into the Company (the "Merger"), with the Company as the
surviving corporation. The Company was not required to file any additional Form
8-Ks during the quarter ended December 31, 1998.
70
<PAGE> 71
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 in the City of Dallas
and the State of Texas, on March 31, 1999.
GREYHOUND LINES, INC.
By: /s/ CRAIG R. LENTZSCH
-------------------------------------
Craig R. Lentzsch
President and Chief Executive Officer
(Principal 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 and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JAMES R. BULLOCK Director March 31, 1999
- -----------------------------------------
James R. Bullock
/s/ CRAIG R. LENTZSCH President and Chief March 31, 1999
- ----------------------------------------- Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999
- ----------------------------------------- Planning and Reporting
T. Scott Kirksey (Principal Financial and
Accounting Officer)
</TABLE>
71
<PAGE> 72
<TABLE>
<S> <C> <C>
CO-REGISTRANTS
ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.
By:
/s/ CRAIG R. LENTZSCH Chairman of the Board, President, March 31, 1999
- ------------------------------------------ and Chief Executive Officer
Craig R. Lentzsch
/s/ J. FLOYD HOLLAND Director March 31, 1999
- ------------------------------------------
J. Floyd Holland
/s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999
- ------------------------------------------ Planning and Reporting
T. Scott Kirksey (Principal Financial and
Accounting Officer)
GLI HOLDING COMPANY
By:
/s/ CRAIG R. LENTZSCH Director, President and March 31, 1999
- ------------------------------------------ Chief Executive Officer
Craig R. Lentzsch
/s/ JACK W. HAUGSLAND Director March 31, 1999
- ------------------------------------------
Jack W. Haugsland
/s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999
- ------------------------------------------ Planning and Reporting
T. Scott Kirksey (Principal Financial and
Accounting Officer)
GREYHOUND de MEXICO S.A. de C.V.
By:
/s/ CRAIG R. LENTZSCH Director and President March 31, 1999
- ------------------------------------------
Craig R. Lentzsch
/s/ JACK W. HAUGSLAND Director March 31, 1999
- ------------------------------------------
Jack W. Haugsland
/s/ JEFFREY W. SANDERS Director March 31, 1999
- ------------------------------------------
Jeffrey W. Sanders
/s/ T. SCOTT KIRKSEY Examiner March 31, 1999
- ------------------------------------------
T. Scott Kirksey (Principal Financial and
Accounting Officer)
</TABLE>
72
<PAGE> 73
<TABLE>
<S> <C> <C>
GRUPO CENTRO, INC.
By:
/s/ CRAIG R. LENTZSCH Director and President March 31, 1999
- ------------------------------------------
Craig R. Lentzsch
/s/ JACK W. HAUGSLAND Director March 31, 1999
- ------------------------------------------
Jack W. Haugsland
/s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999
- ------------------------------------------ Planning and Reporting
T. Scott Kirksey (Principal Financial and
Accounting Officer)
LOS BUENOS LEASING CO., INC.
By:
/s/ ALFONSO PENEDO Director, President, Chief March 31, 1999
- ------------------------------------------ Executive Officer and General
Alfonso Penedo Manager
/s/ T. SCOTT KIRKSEY Chief Financial Officer March 31, 1999
- ------------------------------------------ and Treasurer
T. Scott Kirksey (Principal Financial and
Accounting Officer)
SISTEMA INTERNACIONAL de
TRANSPORTE de AUTOBUSES, INC.
By:
/s/ CRAIG R. LENTZSCH Director and President March 31, 1999
- ------------------------------------------
Craig R. Lentzsch
/s/ JACK W. HAUGSLAND Director March 31, 1999
- ------------------------------------------
Jack W. Haugsland
/s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999
- ------------------------------------------ Planning and Reporting
T. Scott Kirksey (Principal Financial and
Accounting Officer)
</TABLE>
73
<PAGE> 74
<TABLE>
<S> <C> <C>
TEXAS, NEW MEXICO & OKLAHOMA
COACHES, INC.
By:
/s/ CRAIG R. LENTZSCH Director and Chief March 31, 1999
- ------------------------------------------ Executive Officer
Craig R. Lentzsch
/s/ JACK W. HAUGSLAND Director March 31, 1999
- ------------------------------------------
Jack W. Haugsland
/s/ J. FLOYD HOLLAND Director March 31, 1999
- ------------------------------------------
J. Floyd Holland
/s/ ROBERT D. GREENHILL Director March 31, 1999
- ------------------------------------------
Robert D. Greenhill
/s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999
- ------------------------------------------ Planning and Reporting
T. Scott Kirksey (Principal Financial and
Accounting Officer)
T.N.M. & O. TOURS, INC.
By:
/s/ CRAIG R. LENTZSCH Director and Chief March 31, 1999
- ------------------------------------------ Executive Officer
Craig R. Lentzsch
/s/ JACK W. HAUGSLAND Director March 31, 1999
- ------------------------------------------
Jack W. Haugsland
/s/ J. FLOYD HOLLAND Director March 31, 1999
- ------------------------------------------
J. Floyd Holland
/s/ ROBERT D. GREENHILL Director March 31, 1999
- ------------------------------------------
Robert D. Greenhill
/s/ RICHARD M. PORTWOOD Director March 31, 1999
- ------------------------------------------
Richard M. Portwood
/s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999
- ------------------------------------------ Planning and Reporting
T. Scott Kirksey (Principal Financial and
Accounting Officer)
</TABLE>
74
<PAGE> 75
<TABLE>
<S> <C> <C>
VERMONT TRANSIT CO., INC.
By:
/s/ CRAIG R. LENTZSCH Director, President and March 31, 1999
- ------------------------------------------ Chief Executive Officer
Craig R. Lentzsch
/s/ JACK W. HAUGSLAND Director March 31, 1999
- ------------------------------------------
Jack W. Haugsland
/s/ J. FLOYD HOLLAND Director March 31, 1999
- ------------------------------------------
J. Floyd Holland
/s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999
- ------------------------------------------ Planning and Reporting
T. Scott Kirksey (Principal Financial and
Accounting Officer)
</TABLE>
75
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Greyhound Lines,
Inc.
3.2 Bylaws of Greyhound Lines, Inc.
4.3 Second Supplemental Indenture to the 8 1/2% Convertible
Subordinated Debentures Indenture between the Registrant and
State Street Bank and Trust Company, as trustee.
10.33 Termination Agreement dated as of March 17, 1999, by and
between Greyhound Lines, Inc. and Foothill Capital
Corporation and BankBoston N.A.
10.36 Second Amendment to Supplemental Executive Retirement
Plan.
10.37 Supplemental Executive Retirement Plan Trust Agreement
10.38 Second Amended Employment Agreement dated March 16, 1999,
between Registrant and Craig R. Lentzsch.
10.39 Second Amended Employment Agreement dated March 16, 1999,
between Registrant and John Werner Haugsland.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule as of and for the year ended December
31, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF MERGER
OF
LAIDLAW TRANSIT ACQUISITION CORP.
WITH AND INTO
GREYHOUND LINES, INC.
Greyhound Lines, Inc., a Delaware corporation, does hereby certify:
1. The name and state of incorporation of each of the constituent
corporations participating in the merger are:
(a) Greyhound Lines, Inc. ("Greyhound"), which is incorporated under the
laws of the State of Delaware; and
(b) Laidlaw Transit Acquisition Corp. ("LTAC"), which is incorporated
under the laws of the State of Delaware.
2. The Amended and Restated Agreement and Plan of Merger, dated as of
November 5, 1998 (the "Merger Agreement"), by and among Greyhound, Laidlaw
Inc. and LTAC has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with
Section 251 of the General Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger is Greyhound Lines,
Inc. (the "Company").
4. The Restated Certificate of Incorporation of Greyhound Lines, Inc., as
amended, shall be the Restated Certificate of Incorporation of the Company
as set forth in the attached Exhibit A.
5. The executed Merger Agreement is on file at the principal place of
business of the Company, the address of which is: 15110 N. Dallas Parkway,
Suite 600, Dallas, Texas 75248.
6. A copy of the Merger Agreement will be furnished by the Company, on
request and without cost, to any stockholder of either constituent
corporation.
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this Certificate of Merger to
be signed by its President and Chief Executive Officer and attested by its
Secretary as of this 16th day of March, 1999.
GREYHOUND LINES, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------
Craig R. Lentzsch,
President and Chief Executive Officer
ATTESTED BY:
/s/ Mark E. Southerst
- ----------------------------------
Mark E. Southerst, Secretary
<PAGE> 3
Exhibit A
RESTATED CERTIFICATE OF INCORPORATION
OF
GREYHOUND LINES, INC.
FIRST. The name of the corporation is Greyhound Lines, Inc.
SECOND. The address of the Company's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as amended.
FOURTH. The total number of shares of stock which the Company shall
have authority to issue is 102,400,000 shares of capital stock classified as
(i) 2,400,000 shares of 8 1/2% Convertible Exchangeable Preferred Stock, par
value $.01 per share ("Preferred Stock") and (ii) 100,000,000 shares of common
stock, par value $.01 per share ("Common Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and Common Stock are as
follows:
I. Provisions Relating to the Preferred Stock.
(a) Designation. The following is a statement of the powers,
preferences, rights, qualifications, limitations and restrictions of the
Preferred Stock. The liquidation preference of the Preferred Stock (the
"Liquidation Preference") shall be $25.00 per share.
(b) Rank. the Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up and
dissolution of the Company, rank (i) senior to all classes of common stock of
the Company and to each other class of capital stock or series of preferred
stock established after April 11, 1997 by the Board of Directors, the terms of
which do not expressly provide that it ranks senior to or on a parity with the
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred
to with the common stock of the Company as "Junior Securities"); (ii) on a
parity with any class of capital stock or series of preferred stock established
after the Preferred Stock Issue Date by the Board of Directors, the terms of
which expressly provide that such class or series will rank on a parity with
the Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred
to as "Parity Securities"); and (iii) junior to each class of capital stock or
series of
<PAGE> 4
preferred stock established after the Preferred Stock Issue Date by the Board
of Directors, the terms of which expressly provide that such class or series
will rank senior to the Preferred Stock as to dividend distributions and
distributions upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Senior Securities"). The Preferred Stock shall be
subject to the issuance of series of Junior Securities, Parity Securities and
Senior Securities, provided that the Company may not issue any new class of
Senior Securities without the approval of the Holders of at least 66 2/3% of the
shares of Preferred Stock then outstanding, voting or consenting, as the case
may be, together as one class. The Preferred Stock shall rank junior in right
of payment to all indebtedness and other obligations of the Company.
(c) Dividends.
(i) Beginning on the Preferred Stock Issue Date, the
Holders of the outstanding shares of Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor,
distributions in the form of cash dividends on each share of
Preferred Stock, at a rate per annum equal to 8 1/2% of the
Liquidation Preference per share of the Preferred Stock,
payable quarterly. All dividends shall be cumulative, whether
or not earned or declared, on a daily basis from the Preferred
Stock Issue Date and shall be payable quarterly in arrears on
each Dividend Payment Date, commencing on August 1, 1997. Each
distribution in the form of a dividend shall be payable to the
Holders of record as they appear on the stock register of the
Company on the record date for such purpose fixed by the Board
of Directors, which shall not be less than 10 nor more than 60
days preceding the related Dividend Payment Date. Dividends
shall cease to accumulate in respect of shares of the Preferred
Stock on the Exchange Date or on the date of their earlier
redemption unless the Company shall have failed to issue the
appropriate aggregate principal amount of Exchange Debentures
in respect of the Preferred Stock on the Exchange Date or shall
have failed to pay the relevant redemption price on the date
fixed for redemption.
(ii) All dividends paid with respect to shares of the
Preferred Stock pursuant to paragraph I(c)(i) of this Article
Fourth shall be paid pro rata to the Holders entitled thereto.
(iii) Nothing herein contained shall in any way or under
any circumstances be construed or deemed to require the Board
of Directors to declare, or the Company to pay or set apart for
payment, any cash dividends on shares of the Preferred Stock at
any time.
-2-
<PAGE> 5
(iv) Dividends on account of arrears for any past Dividend
Period and dividends in connection with any optional redemption
pursuant to paragraph I(f)(i) of this Article Fourth may be
declared and paid at any time, without reference to any regular
Dividend Payment Date, to Holders of record on such date, not
more than 45 days prior to the payment thereof, as may be fixed
by the Board of Directors.
(v) Except as set forth in the following sentence, no
dividends shall be declared by the Board of Directors or paid
or funds set apart for the payment of dividends by the Company
on any Parity Securities for any period unless full cumulative
dividends shall have been or contemporaneously are declared and
paid in cash or declared and a sum in cash set apart sufficient
for such payment on the Preferred Stock for all Dividend
Periods terminating on or prior to the date of payment of such
dividends on such Parity Securities. If full dividends in cash
are not so paid upon the shares of the Preferred Stock and any
other Parity Securities, all dividends declared upon the
Preferred Stock and any other Parity Securities shall be
declared pro rata so that the amount of dividends declared on
each class or series of the Preferred Stock and such Parity
Securities shall in all cases bear to each other the same ratio
that the aggregate accrued dividends on the Preferred Stock and
such Parity Securities bear to each other.
(vi) (A) Holders of shares of the Preferred Stock shall be
entitled to receive the dividends provided for in paragraph
I(c)(i) of this Article Fourth in preference to and in priority
over any dividends upon any of the Junior Securities.
(B) So long as any shares of Preferred Stock are
outstanding, the Company shall not declare, pay or set apart
for payment any dividend on any Junior Securities or make any
payment on account of, or set apart for payment money for a
sinking or other similar fund for, the purchase, redemption or
other retirement of, any Junior Securities or any warrants,
rights, calls or options exercisable for or convertible into
any Junior Securities, or make any distribution in respect
thereof, either directly or indirectly, and whether in cash,
obligations or shares of the Company or other property (other
than distributions or dividends in Junior Securities to the
holders of Junior Securities), and shall not permit any
corporation or other entity directly or indirectly controlled
by the Company to purchase or redeem any Junior Securities or
any such warrants, rights, calls or options unless full
cumulative dividends determined in accordance herewith have
been paid or deemed paid in full on the Preferred Stock for all
past Dividend Periods.
(C) So long as any shares of the Preferred Stock are
outstanding, the Company shall not make any payment on account
of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement
of, any Parity Securities or any warrants, rights, calls or
options exercisable for or convertible into any Parity
Securities, and shall not permit any corporation or other
entity directly or indirectly controlled by the
-3-
<PAGE> 6
Company to purchase or redeem any Parity Securities or any such
warrants, rights, calls or options unless the dividends
determined in accordance herewith on the Preferred Stock have
been paid or deemed paid in full for all past Dividend Periods.
(vii) Dividends payable on shares of the Preferred Stock
for any period of less than a year shall be computed on the
basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in any period of less than one month. If
any Dividend Payment Date occurs on a day that is not a
Business Day, any accrued dividends otherwise payable on such
Dividend Payment Date shall be paid on the next succeeding
Business Day.
(d) Liquidation Preference.
(i) Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the Holders of shares
of Preferred Stock then outstanding shall be entitled to be
paid, out of the assets of the Company available for
distribution, the Liquidation Preference, plus an amount in
cash equal to accumulated and unpaid dividends and Liquidated
Damages, if any, thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a
prorated dividend for the period from the last Dividend Payment
Date to the date fixed for liquidation, dissolution or
winding-up), before any payment shall be made or any assets
distributed to the holders of any Junior Securities. If, upon
any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to
the Preferred Stock and all other Parity Securities are not
paid in full, then the holders of the Preferred Stock and the
Parity Securities shall share equally and ratably in any
distribution of assets of the Company in proportion to the full
liquidation preference and accumulated and unpaid dividends and
Liquidated Damages, if any, determined as of the date of such
voluntary or involuntary liquidation, dissolution or
winding-up, to which each is entitled. After payment of the
full amount of the liquidation preferences and accumulated and
unpaid dividends and Liquidated Damages, if any, to which they
are entitled, the Holders of shares of Preferred Stock shall
not be entitled to any further participation in any
distribution of assets of the Company.
(ii) For the purposes of this paragraph (d) only, neither
the sale, lease, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Company nor
the consolidation or merger of the Company with or into one or
more entities shall be deemed to be a liquidation, dissolution
or winding-up of the Company.
-4-
<PAGE> 7
(e) Conversion.
(i) A Holder of shares of Preferred Stock may convert such
shares into cash at any time. For the purposes of conversion,
each share of Preferred Stock shall be convertible into $33.33.
Immediately following such conversion, the rights of the
Holders of converted Preferred Stock shall cease.
(ii) To convert Preferred Stock, a Holder must (A)
surrender the certificate or certificates evidencing the shares
of Preferred Stock to be converted, duly endorsed in a form
satisfactory to the Company, at the office of the Company or
transfer agent for the Preferred Stock, (B) notify the Company
at such office that he elects to convert Preferred Stock and
the number of shares he wises to convert, and (C) pay any
transfer or similar tax if required. In the event that a Holder
fails to notify the Company of the number of shares of
Preferred Stock which he wises to convert, he shall be deemed
to have elected to convert all shares represented by the
certificate or certificates surrendered for conversion. The
date on which the Holder satisfies all those requirements is
the "Conversion Date." As soon as practical, the Company shall
deliver a payment in cash and a new certificate representing
the unconverted portion, if any, of the shares of Preferred
Stock represented by the certificate or certificates
surrendered for conversion. No payment or adjustment will be
made for accrued and unpaid dividends on converted shares of
Preferred Stock. A share of Preferred Stock surrendered for
conversion during the period from the close of business on any
record date for the payment of dividends to the opening of
business of the corresponding Dividend Payment Date must be
accompanied by a payment in cash in an amount equal to the
dividend payable on such Dividend Payment Date, unless such
share of Preferred Stock has been called for redemption on a
redemption date occurring during the period from the close of
business on any record date for the payment of dividends to the
close of business on the business day immediately following the
corresponding Dividend Payment Date. The dividend payment with
respect to a share of Preferred Stock called for redemption on
a date during the period from the close of business on any
record date for the payment of dividends to the close of
business on the business day immediately following the
corresponding Dividend Payment Date will be payable on such
Dividend Payment Date to the record Holder of such share on
such record date, notwithstanding the conversion of such share
after such record date and prior to such Dividend Payment Date,
and the Holder converting such share of Preferred Stock need
not include a payment of such dividend amount upon surrender of
such share of Preferred Stock for conversion. If the last day
on which Preferred Stock may be converted is not a Business
Day, Preferred Stock may be surrendered for conversion on the
next succeeding Business Day.
(iii) All shares of Preferred Stock converted pursuant to
this paragraph (e) shall be restored to the status of
authorized and unissued shares of Preferred Stock.
-5-
<PAGE> 8
(f) Redemption
(i) Optional Redemption. (A) The Company may, at the option
of the Board of Directors, redeem at any time on or after May 3,
2000, from any source of funds legally available therefor, in
whole or in part, in the manner provided in paragraph I(e)(iii)
of this Article Fourth, any or all of the shares of the
Preferred Stock, at the redemption prices (expressed as a
percentage of the Liquidation Preference) set forth below if
redeemed during the 12-month period beginning on May 3 of each
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000................................. 104.86%
2001................................. 103.64%
2002................................. 102.43%
2003................................. 101.21%
2004 and thereafter.................. 100.00%
</TABLE>
plus, in each case, an amount in cash equal to all accumulated
and unpaid dividends per share (including an amount in cash
equal to a prorated dividend for the period from the Dividend
Payment Date immediately prior to the date fixed for redemption
(the "Redemption Date") and Liquidated Damages, if any (the
"Optional Redemption Price"), provided, that no optional
redemption pursuant to this paragraph (f)(i)(A) shall be
authorized or made unless prior to the applicable Redemption
Notice all accumulated and unpaid dividends for Dividend
Periods ended prior to the date of such Redemption Notice shall
have been paid in cash.
(B) In the event of a redemption pursuant to paragraph
I(f)(i)(A) of this Article Fourth of only a portion of the then
outstanding shares of the Preferred Stock, the Company shall
effect such redemption pro rata according to the number of
shares held by each Holder of the Preferred Stock or by lot, as
may be determined by the Company in its sole discretion;
provided that the Company may redeem all shares held by Holders
of fewer than 100 shares of Preferred Stock (or by Holders that
would hold fewer than 100 shares of Preferred Stock following
such redemption) prior to its redemption of other shares of
Preferred Stock.
(ii) Procedures for Redemption. (A) At least 30 days and not
more than 60 days prior to the Redemption Date of the Preferred
Stock, the Company shall make a public announcement of the
redemption, and shall mail written notice (the "Redemption
Notice") by first class mail, postage prepaid, to each Holder of
record on the record date fixed for such redemption of the
Preferred Stock at such Holder's address as the same appears on
the stock register of the
<PAGE> 9
Company, provided that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure
for the redemption of any shares of Preferred Stock to be
redeemed except as to the Holder or Holders to whom the Company
has failed to give said notice or except as to the Holder or
Holders whose notice was defective. The Redemption Notice shall
state:
(1) that the redemption is pursuant to paragraph
I(f)(i)(A) of this Article Fourth;
(2) the Optional Redemption Price;
(3) whether all or less than all the outstanding shares of
the Preferred Stock are to be redeemed and the total
number of shares of the Preferred Stock being
redeemed;
(4) the number of shares of Preferred Stock held, as of
the appropriate record date, by the Holder that the
Company intends to redeem;
(5) the Redemption Date;
(6) that the Holder is to surrender to the Company, at the
place or places where certificates for shares of
Preferred Stock are to be surrendered for redemption,
in the manner and at the price designated, his
certificate or certificates representing the shares of
Preferred Stock to be redeemed;
(7) the name of any bank or trust company performing the
duties referred to in paragraph I(f)(ii)(D) of this
Article Fourth; and
(8) that dividends on the shares of the Preferred Stock to
be redeemed shall cease to accrue on such Redemption
Date unless the Company defaults in the payment of the
Optional Redemption Price.
(B) Each Holder of Preferred Stock shall surrender the
certificate or certificates representing such shares of Preferred Stock to the
Company, duly endorsed, in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full Optional Redemption
Price for such shares shall be payable in cash to the Person whose name appears
on such certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
-7-
<PAGE> 10
(C) Unless the Company defaults in the payment in full of the
applicable redemption price, dividends on the Preferred Stock called for
redemption shall cease to accumulate on the Redemption Date, and the Holders of
such redemption shares shall cease to have any further rights with respect
thereto on the Redemption Date, other than the right to receive the Optional
Redemption Price without interest.
(D) If a Redemption Notice shall have been duly given or if the
Company shall have given to the bank or trust company hereinafter referred to
irrevocable authorization promptly to give such notice, and if on or before the
Redemption Date specified therein the funds necessary for such redemption shall
have been deposited by the Company with such bank or trust company in trust for
the pro rata benefit of the Holders of the Preferred Stock called for
redemption, then, notwithstanding that any certificate for shares so called for
redemption shall not have been surrendered for cancellation, from and after the
close of business on the day on which such funds are so deposited, all shares
so called, or to be so called pursuant to such irrevocable authorization, for
redemption shall no longer be deemed to be outstanding and all rights with
respect of such shares shall forthwith cease and terminate and, for the
purposes of paragraphs (f)(ii)(A)(8) and (f)(ii)(C) above, the Company will be
deemed to have paid the Optional Redemption Price on the Redemption Date,
except only the right of Holders thereof to receive from such bank or trust
company at any time after the time of such deposit the funds so deposited,
without interest, and the right of the Holders thereof to convert such shares
as provided in paragraph I(f) of this Article Fourth to the Business Day
preceding the Redemption Date. The aforesaid bank or trust company shall be
organized and in good standing under the laws of the United States of America
or any state thereof, shall have capital, surplus and undivided profits
aggregating at least $100,000,000 according to its last published statement of
condition, and shall be identified in the Redemption Notice. Any interest
accrued on such funds shall be paid to the Company from time to time. Any funds
so set aside or deposited, as the case may be, in respect of shares of the
Preferred Stock that are subsequently converted shall be promptly returned to
the Company. Any funds so set aside or deposited, as the case may be, and
unclaimed at the end of three years from such redemption shall, to the extent
permitted by law, be released or repaid to the Company, after which repayment
the Holders of the shares so called for redemption shall look only to the
Company for payment thereof.
(g) Voting Rights.
(i) The holders of shares of Preferred Stock shall be entitled to vote
(together with the holders of shares of Common Stock as one class) upon all
matters submitted to a vote of the stockholders of the Company and shall be
entitled to one vote for each share held. Holders of Preferred Stock shall
further be entitled to vote as set forth in paragraphs I(g)(ii), I(g)(iii) and
I(g)(iv) of this Article Fourth.
-8-
<PAGE> 11
(ii) (A) So long as any shares of the Preferred Stock are outstanding, the
Company shall not authorize any class of Senior Securities without the
affirmative vote or consent of Holders of at least 66 2/3% of the outstanding
shares of Preferred Stock, voting or consenting, as the case may be, as one
class, given in person or by proxy, either in writing or by resolution adopted
at an annual or special meeting.
(B) So long as any shares of the Preferred Stock are outstanding, the
Company shall not amend this Section I of this Article Fourth so as to affect
adversely the specified rights, preferences, privileges or voting rights of
Holders of shares of Preferred Stock or to authorize the issuance of any
additional shares of Preferred Stock without the affirmative vote or consent of
Holders of at least 66 2/3% of the issued and outstanding shares of Preferred
Stock, voting or consenting, as the case may be, as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting.
(C) Except as set forth in paragraph (g)(ii)(A) above, (1) the
creation, authorization or issuance of any shares of any Junior Securities,
Parity Securities or Senior Securities or (2) the increase or decrease in the
amount of authorized capital stock of any class, including any preferred stock,
shall not require the consent of the Holders of Preferred Stock and shall not
be deemed to affect adversely the rights, preferences, privileges or voting
rights of the Preferred Stock.
(iii) (A) If (1) dividends on the Preferred Stock are in arrears and
unpaid for six quarterly dividend periods (whether or not consecutive) (a
"Dividend Default"); or (2) the Company fails to make a Preferred Stock Change
of Control Offer or to repurchase all of the Preferred Stock validly tendered
in a Preferred Stock Change of Control Offer pursuant to the provisions of
paragraph I(i) of this Article Fourth (a "Change of Control Default") (in each
case, a "Voting Rights Triggering Event"), then the number of directors
constituting the Board of Directors shall be adjusted to permit the Holders of
the majority of the then outstanding Preferred Stock, voting separately as one
class, to elect two directors. Holders of a majority of the issued and
outstanding shares of the Preferred Stock, voting separately as one class,
shall have the exclusive right to elect such members of the Board of Directors
at a meeting therefor called upon occurrence of such Dividend Default or Change
of Control Default, as the case may be, and at every subsequent meeting at
which the terms of office of the directors so elected by the Holders of the
Preferred Stock expire (other than as described in (g)(iii)(B) below).
(B) The right of the Holders of Preferred Stock voting separately as
one class to elect members of the Board of Directors as set forth in paragraph
(g)(iii)(A) above shall continue until such time as (1) in the event such right
arises due to a Dividend Default, all accumulated dividends and Liquidated
Damages, if any, that are in arrears on the Preferred Stock are paid in full;
and (2)
<PAGE> 12
in the event such right arises because a Change of Control Default, the
Company remedies any such failure, breach or default, at which time the term of
any directors elected pursuant to paragraph I(g)(iii)(A) of this Article Fourth
shall terminate, subject always to the same provisions for the renewal and
divestment of such special voting rights in the case of any future Voting
Rights Triggering Event. At any time after voting power to elect directors
shall have become vested and be continuing in the Holders of shares of the
Preferred Stock pursuant to paragraph I(g)(iii)(A) of this Article Fourth if
vacancies shall exist in the offices of directors elected by the Holders of
shares of the Preferred Stock, a proper officer of the Company may, and upon
the written request of the Holders of record of at least 10% of the shares of
Preferred Stock then outstanding addressed to the Secretary of the Company
shall, call a special meeting of the Holders of Preferred Stock, for the
purpose of electing the directors that such Holders are entitled to elect. If
such meeting shall not be called by the proper officer of the Company within 20
days after personal service of said written request upon the Secretary of the
Company, or within 20 days after mailing the same within the United States by
certified mail, addressed to the Secretary of the Company at its principal
executive offices, then the Holders of record of at least 20% of the
outstanding shares of the Preferred Stock may designate in writing one of their
number to call such meeting at the expense of the Company, and such meeting may
be called by the Person so designated upon the notice required for the annual
meetings of stockholders of the Company and shall be held at the place for
holding the annual meetings of stockholders or such other place in the United
States as shall be designated in such notice. Notwithstanding the provisions of
this paragraph (g)(iii)(B), no such special meeting shall be called if any such
request is received less than 30 days before the date fixed for the next
ensuing annual or special meeting of stockholders of the Company. Any Holder of
shares of the Preferred Stock so designated shall have, and the Company shall
provide, access to the lists of Holders of shares of the Preferred Stock for
purposes of calling a meeting pursuant to the provisions of this paragraph
(g)(iii)(B).
(C) At any meeting held for the purpose of electing directors at
which the Holders of Preferred Stock shall have the right, voting separately as
one class, to elect directors as aforesaid, the presence in person or by proxy
of the Holders of at least a majority of the outstanding Preferred Stock shall
be required to constitute a quorum of such Preferred Stock.
(D) Directors elected pursuant to this paragraph (g) shall serve
until the earlier of (1) the next annual meeting of the stockholders and until
their successors are qualified or (2) the time specified in paragraph
(g)(iii)(B) above. Any vacancy occurring in the office of a director elected by
the Holders of shares of the Preferred Stock may be filled by the remaining
director elected by the Holders of shares of the Preferred Stock unless and
until such vacancy shall be filled by the Holders of shares of the Preferred
Stock.
-10-
<PAGE> 13
(iv) In any case in which the Holders of shares of the
Preferred Stock shall be entitled to vote pursuant to this paragraph
(g) or pursuant to Delaware law, each Holder of shares of the
Preferred Stock shall be entitled to one vote for each share of
Preferred Stock held.
(h) Exchange.
(i) Requirements. (A) The Company at its option may exchange all,
but not less than all, of the then outstanding shares of Preferred
Stock into the Company's 8 1/2% Convertible Subordinated Debentures
due 2009 (the "Exchange Debentures") on any Dividend Payment Date on
or after April 16, 1999, provided that within 30 days of the Exchange
Date, the Company shall send a written notice (the "Exchange Notice")
of exchange by mail to each Holder, which notice shall state: (1)
that the Company is exercising its option to exchange the Preferred
Stock into Exchange Debentures pursuant to this Section I of this of
this Article Fourth; (2) the date of the exchange (the "Exchange
Date"), which date shall not be less than 30 days nor more than 60
days following the date on which the Exchange Notice is mailed; (3)
that the Holder is to surrender to the Company, at the place or
places where certificates for shares of Preferred Stock are to be
surrendered for exchange, in the manner designated in the Exchange
Notice, his certificate or certificates representing the shares of
Preferred Stock to be exchanged; (4) that dividends on the shares of
Preferred Stock to be exchanged shall cease to accrue on the Exchange
Date whether or not certificates for shares of Preferred Stock are
surrendered for exchange on the Exchange Date unless the Company
shall default in the delivery of Exchange Debentures; and (5) that
interest on the Exchange Debentures shall accrue from the Exchange
Date whether or not certificates for shares of Preferred Stock are
surrendered for exchange on the Exchange Date. On the Exchange Date,
if the conditions set forth in clauses (u) through (z) below are
satisfied, the Company shall issue Exchange Debentures in exchange
for the Preferred Stock as provided in the clause (B) of this
paragraph (h)(i) provided that on the Exchange Date: (u) there are no
accumulated and unpaid dividends or Liquidated Damages on the
Preferred Stock (including the dividends payable and Liquidated
Damages on such date) or other contractual impediment to such
exchange; (v) there shall be legally available funds sufficient
therefore; (w) a registration statement relating to the Exchange
Debentures shall have been declared effective under the Securities
Act prior to such exchange and shall continue to be in effect on the
date of such exchange, or the Company shall have obtained a written
opinion of counsel that an exemption from the registration
requirements of the Securities Act is available for such exchange,
and that upon receipt of such Exchange Debentures pursuant to such
exchange made in accordance with such exemption, the holders
(assuming such holder is not an Affiliate of the Company) thereof
will not be subject to any restrictions imposed by the Securities Act
upon the resale thereof, other than any such restriction to which the
holder thereof already is subject on the Exchange Date, and such
exemption is relied upon by the Company for such exchange; (x) the
Exchange Debenture Indenture and the trustee thereunder shall have
been
-11-
<PAGE> 14
qualified under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"); (y) immediately after giving effect to such
exchange, no Default or Event of Default (each as defined in the
Exchange Debenture Indenture) would exist under the Exchange
Debenture Indenture; and (z) the Company shall have delivered to the
trustee under the Exchange Debenture Indenture a written opinion of
counsel, dated the Exchange Date, regarding the satisfaction of the
conditions set forth in clauses (u), (v), (w) and (x). In the event
that the issuance of the Exchange Debentures is not permitted on the
Exchange Date or any of the condition set forth in clause (u) through
(z) of the preceding sentence are not satisfied on the Exchange Date,
the Company shall use its best efforts to satisfy such conditions and
effect such exchange as soon as practicable.
(B) Upon any exchange pursuant to paragraph I(g)(i)(A) of this
Article Fourth, Holders of outstanding shares of Preferred Stock
shall be entitled to receive $1,000 principal amount of Exchange
Debentures for each 40 shares of Preferred Stock, plus an amount in
cash equal to accumulated and unpaid dividends (including a prorated
dividend for the period from the immediately preceding Dividend
Payment Date to the date of exchange) and Liquidated Damages, if any;
provided, that the Company shall pay cash in lieu of issuing an
Exchange Debenture in a principal amount of less than $1,000. On and
after the Exchange Date, unless the Company defaults in the issuance
of Exchange Debentures in exchange for the Preferred Stock, dividends
will cease to accrue on the outstanding shares of Preferred Stock,
and all rights of the Holders of Preferred Stock (except the right to
receive the Exchange Debentures, an amount in cash equal to the
accrued and unpaid dividends and Liquidated Damages, if any, to the
Exchange Date and cash in lieu of any Exchange Debenture that is in
an amount that is not an integral multiple of $1,000) will terminate,
and the Person entitled to receive the Exchange Debentures issuable
upon such exchange will be treated for all purposes as the registered
holder of such Exchange Debentures.
(ii) Procedure for Exchange. (A) On or before the Exchange Date,
each Holder of Preferred Stock shall surrender the certificate or
certificates representing such shares of Preferred Stock, in the manner
and at the place designated in the Exchange Notice. The Company shall
cause the Exchange Debentures to be executed on the Exchange Date and,
upon surrender in accordance with the Exchange Notice of the certificates
for any shares of Preferred Stock so exchanged (properly endorsed or
assigned for transfer, if the notice shall so state), such shares shall be
exchanged by the Company into Exchange Debentures. The Company shall pay
interest on the Exchange Debentures at the rate and on the dates specified
therein from the Exchange Date.
(B) If notice has been mailed as aforesaid, and if before
the Exchange Date specified in such notice (1) the Exchange Debenture
Indenture shall have been duly executed and delivered by the Company
and the trustee and (2) all Exchange Debentures necessary for such
exchange shall have been duly executed by the Company and delivered
to the trustee with irrevocable
-12-
<PAGE> 15
instructions to authenticate the Exchange Debentures necessary for
such exchange, then dividends shall cease to accrue on the
outstanding shares of Preferred Stock, and all rights of the Holders
of Preferred Stock (except the right to receive the Exchange
Debentures, an amount in cash equal to the accrued and unpaid
dividends and Liquidated Damages, if any, to the Exchange Date and
cash in lieu of any Exchange Debenture that is in an amount that is
not an integral multiple of $1,000) will terminate. The Person
entitled to receive the Exchange Debentures issuable upon such
exchange will be treated for all purposes as the holder of such
Exchange Debentures.
(i) Change of Control.
(i) Subject to paragraph I(i)(v) of this Article Fourth, upon the
occurrence of a Change of Control, the Company shall be required to
make an offer (a "Preferred Stock Change of Control Offer") to each
Holder of shares of Preferred Stock to repurchase all or any part of
such Holder's shares of Preferred Stock at an offer price in cash
equal to 100% of the aggregate Liquidation Preference thereof plus an
amount in cash equal to all accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the Change
of Control Payment Date) and Liquidated Damages, if any, thereon to
the date of repurchase (the "Change of Control Payment").
(ii) Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder describing the transaction that
constitutes the Change of Control, together with such other
information as may be required pursuant to the securities laws, and
stating: (A) that the Change of Control Offer is being made pursuant
to this Section I of this Article Fourth and that, to the extent
lawful, all shares of Preferred Stock validly tendered will be
accepted for payment; (B) the purchase price and the purchase date,
which shall be no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment
Date"); (C) that any shares of Preferred Stock not tendered will
continue to accrue dividends in accordance with the terms of this
Section I of this Article Fourth; (D) that, unless the Company
defaults in the payment of the Change of Control Payment, all shares
of Preferred Stock accepted for payment pursuant to the Change of
Control Offer shall cease to accrue dividends on the Change of
Control Payment Date; and (E) a description of the procedures to be
followed by such Holder in order to have its shares of Preferred
Stock repurchased.
(iii) On the Change of Control Payment Date, (A) the Company
shall, to the extent lawful, (A) accept for payment shares of
Preferred Stock validly tendered pursuant to the Change of Control
Offer and (B) promptly mail to each Holder of shares of Preferred
Stock so accepted payment in an amount equal to the purchase price
for such shares and (B) unless the Company defaults in the payment
for the shares of Preferred Stock tendered pursuant to the Preferred
Stock
-13-
<PAGE> 16
Change of Control Offer, dividends will cease to accrue with respect
to the shares of Preferred Stock tendered and all rights of Holders
of such tendered shares will terminate, except for the right to
receive payment therefor, on the Change of Control Payment Date. The
Company shall publicly announce the results of the Preferred Stock
Change of Control Offer on or as soon as practicable after the Change
of Control Payment Date.
(iv) The Company shall comply with any securities laws and
regulations, to the extent such laws and regulations are applicable
to the repurchase of shares of the Preferred Stock in connection with
a Change of Control.
(v) Notwithstanding the foregoing, prior to complying with this
paragraph (i), but in any event within 90 days following a Change of
Control, the Company shall either repay all outstanding indebtedness
or obtain the requisite consents, if any, under all agreements
governing outstanding indebtedness necessary to permit the repurchase
of the Preferred Stock required by this paragraph (i).
(vi) Notwithstanding the foregoing, the Company will not be
required to make a Change of Control Offer following a Change of
Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the
requirements set forth in this Section I of this Article Fourth
applicable to a Change of Control Offer made by the Company and
purchases all of the Preferred Stock validly tendered and not
withdrawn under such Change of Control Offer.
(j) Preemptive Rights. No shares of Preferred Stock shall have any
rights of preemption whatsoever as to any securities of the Company, or any
warrants, rights or options issued or granted with respect thereto, regardless
of how such securities or such warrants, rights or options may be designated,
issued or granted.
(k) Reissuance of Preferred Stock. Shares of Preferred Stock that
have been issued and reacquired in any manner, including shares purchased or
redeemed or exchanged, shall (upon compliance with any applicable provisions of
the laws of Delaware) have the status of authorized but unissued shares of
Preferred Stock and may be issued or reissued, as the case may be, provided
that any issuance of such shares as Preferred Stock must be in compliance with
the terms in this Section I of this Article Fourth.
(l) Business Day. If any payment, redemption or exchange shall be
required by the terms in this Section I of this Article Fourth to be made on a
day that is not a Business Day, such payment, redemption or exchange shall be
made on the immediately succeeding Business Day.
-14-
<PAGE> 17
(m) Merger. Consolidation and Sale of Assets. Without the vote or
consent of the Holders of a majority of the then outstanding shares of
Preferred Stock, the Company may not consolidate or merge with or into, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, any person unless (i) the entity formed by
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (in any such case, the "resulting entity") is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia; (ii) if the Company is not the resulting entity, the
Preferred Stock is converted into or exchanged for and becomes shares of such
resulting entity, having in respect of such resulting entity the same (or more
favorable) powers, preferences and relative, participating, optional or other
special rights thereof that the Preferred Stock had immediately prior to such
transaction; and (iii) immediately after giving effect to such transaction, no
Voting Rights Triggering Event has occurred and is continuing. The resulting
entity of such transaction shall thereafter be deemed to be the "Company" for
all purposes of this Section I of this Article Fourth.
(n) Reports. Whether or not the Company is required to do so by the
rules and regulations of the Commission, the Company shall file with the
Commission (unless the Commission will not accept such a filing) and, within 15
days of filing, or attempting to file, the same with the Commission, furnish to
the Holders of the Preferred Stock (i) all quarterly and annual financial and
other information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants, and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, the Company
shall furnish to the Holders of the Preferred Stock, prospective purchasers of
shares of Preferred Stock and securities analysts, upon their request, the
information, if any, required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act.
(o) Mutilated or Missing Preferred Stock Certificates. If any of the
Preferred Stock certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue, in exchange and in substitution for and upon cancellation
of the mutilated Preferred Stock certificate, or in lieu of and substitution
for the Preferred Stock certificate lost, stolen or destroyed, a new Preferred
Stock certificate of like tenor and representing an equivalent amount of shares
of Preferred Stock, but only upon receipt of evidence of such loss, theft or
destruction of such Preferred Stock certificate and indemnity, if requested,
satisfactory to the Company and the transfer agent (if other than the Company).
(p) Headings of Subdivision. The headings of various subdivisions in
this Section I of this Article Fourth are for convenience of reference only and
shall not affect the interpretation of any of the provisions in this Section I
of this Article Fourth.
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<PAGE> 18
(q) Severability of Provisions. If any right, preference or
limitation of the Preferred Stock set forth in this Section I of this Article
Fourth filed pursuant hereto (as this Section I of this Article Fourth may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any rule or law or public policy, all other rights, preferences
and limitations set forth in this Section I of this Article Fourth, as amended,
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless remain in full force and effect
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right preference or limitation unless so
expressed herein.
(r) Notice of the Company. All notices other communications required
or permitted to be given to the Company hereunder shall be made by first-class
mail, postage prepaid, to the Company at its principal executive offices,
Attention: General Counsel. Minor imperfections in any such notice shall not
affect the validity thereof.
(s) Limitations. Except as may otherwise be required by law, the
shares of Preferred Stock shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this Section I of this Article Fourth (as may be amended from time
to time) or otherwise in the Certificate of Incorporation of the Company.
(t) Definitions. As used in this Section I of this Article Fourth,
the following terms shall have the following meanings (with terms defined in
the singular having comparable meanings when used in the plural and vice
versa), unless the context otherwise requires:
"Affiliate" of any specified Person means an "affiliate" of such
Person. as such term is defined for purposes of Rule 144 under the
Securities Act.
"Board of Directors" means the Board of Directors of Greyhound
Lines, Inc.
"Business Day" means any day except a Saturday, a Sunday, or any
day on which banking institutions in New York, New York are required
or authorized by law or other governmental action to be closed.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of
corporate stock or partnership interests, whether common or
preferred.
"Certificate of Incorporation" means the Certificate of
Incorporation of Greyhound Lines, Inc., as in effect from time to
time.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of
the Company and its subsidiaries, taken as a whole, (ii) the adoption
of a plan relating to the liquidation or dissolution of the Company,
(iii)
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the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person"
or "group" (as such terms are used in Section 13(d)(3) of the
Exchange Act) becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule l3d-5 under the Exchange Act), directly or
indirectly through one or more intermediaries, of more than 50% of
the voting power of the outstanding voting stock of the Company,
unless at least 90% of the consideration in the transaction or
transactions constituting a Change of Control pursuant to clause
(iii) consists of shares of common stock traded or to be traded
immediately following such Change of Control on a national securities
exchange or the NASDAQ National Market and, as a result of such
transaction or transactions, the Preferred Stock become, convertible
solely into such common stock (and any rights attached thereto), or
(iv) the first day on which more than a majority of the Board of
Directors are not Continuing Directors; provided, however, that a
transaction in which the Company becomes a subsidiary of another
entity shall not constitute a Change of Control if (A) the
stockholders of the Company immediately prior to such transaction
"beneficially own" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly through one or
more intermediaries, at least a majority of the voting power of the
outstanding voting stock of the Company immediately following the
consummation of such transaction and (B) immediately following the
consummation of such transaction, no "person" or "group" (as such
terms are defined above), other than such other entity (but including
holders of equity interests of such other entity), "beneficially
owns" (as such term is defined above), directly or indirectly through
one or more intermediaries, more than 50 % of the voting power of the
outstanding voting stock of the Company.
"Change of Control Default" has the meaning set forth in
paragraph I(g)(iii) of this Article Fourth.
"Change of Control Payment" has the meaning set forth in
paragraph I(i)(i) of this Article Fourth.
"Control of Control Payment Date " has the meaning set forth in
paragraph I(i)(ii) of this Article Fourth.
"Commission" means the Securities and Exchange Commission.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a
member of the Board of Directors on the date of original issuance of
the Preferred Stock or (ii) was nominated for election to the Board
of Directors with the approval of, or whose election to the Board of
Directors was ratified by, at least two-thirds of the Continuing
Directors who were members of the Board of Directors at the time of
such nomination or election.
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"Conversion Date" has the meaning set forth in paragraph I(e)(ii)
of this Article Fourth.
"Dividend Default" has the meaning set forth in paragraph
I(g)(iii) of this Article Fourth.
"Dividend Payment Date" means February 1, May 1, August 1 and
November 1 of each year.
"Dividend Period" means the Initial Dividend Period and,
thereafter, each Quarterly Dividend Period.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Date" means a date on which shares of Preferred Stock
are exchanged by the Company for Exchange Debentures.
"Exchange Debentures" has the meaning set forth in paragraph
I(h)(i) of this Article Fourth.
"Exchange Debenture Indenture" means that certain indenture under
which the Exchange Debentures will be issued.
"Exchange Notice" has the meaning set forth in paragraph I(h)(i)
of this Article Fourth.
"Holder" means a holder of shares of Preferred Stock as reflected
in the stock records of the Company or the transfer agent for the
Preferred Stock.
"Initial Dividend Period" means the dividend period commencing on
the Preferred Stock Issue Date and ending on the day before the first
Dividend Payment Date to occur thereafter.
"Junior Securities" has the meaning set forth in paragraph I(b)
of this Article Fourth.
"Liquidated Damages" means all liquidated damages then owing
under the Registration Rights Agreement.
"Liquidation Preference" has the meaning set forth in paragraph
I(a) of this Article Fourth.
"Optional Redemption Price" has the meaning set forth in
paragraph I(f)(i) of this Article Fourth.
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"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust or unincorporated
organization (including any subdivision or ongoing business of any
such entity or substantially all of the assets of any such entity,
subdivision or business).
"Preferred Stock Change of Control Offer" has the meaning set
forth in paragraph I(i)(i) of this Article Fourth.
"Preferred Stock Issue Date" means the date on which the
Preferred Stock is originally issued by the Company.
"Quoted Price " means the last reported sales price of the
applicable security on the principal exchange (including, if
applicable, the NASDAQ National Market) on which the applicable
security is listed or admitted for trading (which shall be for
consolidated trading if applicable to such exchange), or if neither
so reported or listed or admitted for trading, the last reported bid
price of the applicable security in the over-the-counter market. In
the event that the Quoted Price cannot be determined as aforesaid,
the Board of Directors of the Company shall determine the Quoted
Price on the basis of such quotations as it in good faith considers
appropriate.
"Quarterly Dividend Period" shall mean the quarterly period
commencing on each February 1, May 1, August 1 and November 1 and
ending on the before the following Dividend Payment Date.
"Redemption Date" with respect to any shares of Preferred Stock,
means the date on which such shares of Preferred Stock are redeemed
by the Company.
"Redemption Notice" has the meaning set forth in paragraph
I(f)(ii) of this Article Fourth.
"Registration Rights Agreement" means the Registration Rights
Agreement with respect to the Preferred Stock, dated as of April 16,
1997, by and between the Company and Bear, Stearns & Co. Inc., as
such agreement may be amended, modified or supplemented from time to
time.
"Senior Securities" has the meaning set forth in paragraph I(b)
of this Article Fourth.
"Shareholder Rights Plan" means the Amended and Restated Rights
Agreement dated as of April 8, 1997 by and between the Company and
Mellon Securities Trust Company, as Rights Agent.
"Trading Day" means any day on which the American Stock Exchange
or other applicable stock exchange or market is open for business.
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<PAGE> 22
"Trust Indenture Act" has the meaning set forth in paragraph
I(h)(i) of this Article Fourth.
"Voting Rights Triggering Event" has the meaning set forth in
paragraph I(g)(iii) of this Article Fourth.
II. Provisions Relating to the Common Stock
(a) General. Each share of Common Stock of the Company shall have
identical rights and privileges in every respect. The holders of shares of
Common Stock shall be entitled to vote upon all matters submitted to a vote of
the stockholders of the Company and shall be entitled to one vote for each
share held.
(b) Dividends and Distributions. Subject to the prior rights and
preferences, if any, applicable to shares of Preferred Stock, the holders of
shares of Common Stock shall be entitled to receive such dividends or other
distributions, payable in cash, property, stock, or otherwise, as may be
declared thereon by the Board of Directors at any time and from time to time
out of any funds of the Company legally available therefor.
(c) Dissolution. In the event of any voluntary or involuntary
liquidation, dissolution, or winding-up of the affairs of the Company, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, the holders of shares of Common
Stock shall be entitled to receive all of the remaining assets of the Company
available for distribution to its stockholders, ratably in proportion to the
number of shares of Common Stock held by them. Neither the consolidation with
nor the merger of the Company into any other corporation or corporations or
other entity or entities, nor the merger of any other corporation or other
entity into the Company, nor a reorganization of the Company, nor the purchase
or redemption of all or any part of the outstanding shares of any class or
classes of the capital stock of the Company, nor a voluntary sale or transfer
of the property and business of the Company as, or substantially as, an
entirety, shall be deemed a liquidation, dissolution, or winding-up of the
affairs of the Company within the meaning of any of the provisions of this
Section II.
III. General.
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Company may issue shares of its Preferred Stock and Common
Stock from time to time for such consideration (not less than the par value
thereof) as may be fixed by the Board of Directors, which is expressly
authorized to fix the same in its absolute and uncontrolled discretion subject
to the foregoing conditions. Shares so issued for which the consideration shall
have been paid or delivered to the Company shall be deemed fully paid stock and
shall not be liable to any further call or assessment thereon, and the holders
of such shares shall not be liable for any further payments in respect of such
shares.
(b) The Company shall have authority to create and issue rights
and options entitling their holders to purchase shares of the Company's capital
stock of any class or series or
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other securities of the Company, and such rights and options shall be evidenced
by instrument(s) approved by the Board of Directors. The Board of Directors
shall be empowered to set the exercise price, duration, times for exercise, and
other terms of such options or rights; provided, however, that the
consideration to be received for any shares of capital stock subject thereto
shall not be less than the par value thereof.
FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(1) To adopt, amend or repeal the by-laws of the Company and
(2) To provide for the indemnification of directors, officers,
management, employees and agents of the Company, and of
persons who serve other enterprises in such or similar
capacities at the request of the Company, to the full extent
permitted by the General Corporation Law of the State of
Delaware, as amended, or any other applicable laws, as may
from time to time be in effect.
SIXTH: The Company shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Company or (ii) while a director or officer of the Company, is or was serving
at the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or other enterprise, to the fullest extent
permitted under the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall run to the benefit of any director or officer who is elected
and accepts the position of director or officer of the Company or elects to
continue to serve as a director or officer of the Company while this Article
Sixth is in effect. Any repeal or amendment of this Article Sixth shall be
prospective only and shall not limit the rights of any such director or officer
or the obligations of the Company with respect to any claim arising from or
related to the services of such director or officer in any of the foregoing
capacities prior to any such repeal or amendment to this Article Sixth. Such
right shall include the right to be paid by the Company expenses incurred in
defending any such proceeding in advance of its final disposition to the
maximum extent permitted under the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Company within sixty (60) days after a written claim has been received by the
Company, the claimant may at any time thereafter bring suit against the Company
to recover the unpaid amount of the claim, and if successful in whole or in
part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense is not permitted under the
General Corporation Law of the State of Delaware, but the burden of proving
such defense shall be on the Company. Neither the failure of the Company
(including its Board of Directors or any committee thereof, independent legal
counsel, or stockholders) to have made its determination prior to the
commencement of such action that indemnification of, or advancement of costs of
defense to, the claimant is permissible in the circumstances nor an actual
determination by the
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Company (including its Board of Directors or any committee thereof, independent
legal counsel, or stockholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
any person having a right of indemnification under the foregoing provisions,
such right shall inure to the benefit of his or her heirs, executors,
administrators, and personal representatives. The rights conferred above shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statute, bylaw, resolution of stockholders or directors,
agreement, or otherwise.
The Company may additionally indemnify any employee or agent of the
Company to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
SEVENTH. A director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or amendment of this Article Seventh by
the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Company is not personally liable as set forth in the foregoing provisions
of this Article Seventh, a director shall not be liable to the Company or its
stockholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the General
Corporation Law of the State of Delaware.
EIGHTH. Elections of directors need not be by written ballot unless the
by-laws of the Company shall so provide.
NINTH. Action may be taken by the stockholders of the Company, without a
meeting, by written consent as and to the extent provided at the time by the
General Corporation Law of the State of Delaware, provided that the matter to
be acted upon by such written consent previously has been approved by the Board
of Directors of the Company and directed by such board to be submitted to the
stockholders for their action thereon by written consent.
TENTH. Whenever a compromise or arrangement is proposed between this
Company and its creditors or any class of them and/or between this Company and
its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of this
Company or of any creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this Company under the provisions of
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section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for this Company under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Company, as the case may be, to be summoned in such manner
as the said court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Company, as the case may be, agree to any
compromise or arrangement and to any reorganization of this Company as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this Company, as the case may be, and also on this Company.
ELEVENTH. The Company reserves the right to amend its certificate of
incorporation, and thereby to change or repeal any provision therein contained,
from time to time, in the manner prescribed at the time by statute, and all
rights conferred upon stockholders by such certificate of incorporation are
granted subject to this reservation.
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EXHIBIT 3.2
BY-LAWS
OF
GREYHOUND LINES, INC.
(A Delaware corporation)
(Effective March 16, 1999)
ARTICLE 1
OFFICES; REGISTERED AGENT
ARTICLE 1.1 Registered Office And Agent. The corporation shall maintain in the
State of Delaware a registered office and a registered agent whose business
office is identical with such registered office.
ARTICLE 1.2 Principal Business Office. The corporation shall have its principal
business office at such location within or without the State of Delaware as the
board of directors may from time to time determine.
ARTICLE 1
STOCKHOLDERS
ARTICLE 2.1 Annual Meeting. The annual meeting of the stockholders shall be held
on the second Tuesday of April each year, at the hour of 10:00 a.m., for the
purpose of electing directors and for the transaction of such other business as
may properly come before the meeting. If the day fixed for the annual meeting
shall be a legal holiday, such meeting shall be held on the next succeeding
business day.
ARTICLE 2.2 Special Meetings. Special meetings of the stockholders of for any
purpose or purposes may be called by the Chairman, the Board of Directors or by
the President.
ARTICLE 2.3 Place Of Meetings. The board of directors may designate any place,
either within or without the State of Delaware, as the place of meeting for any
annual meeting or for any special meeting called by the board of directors, but
if no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the principal business office of the corporation;
provided, however, that for any meeting of the stockholders for which a waiver
of notice designating a place is signed by all of the stockholders, then that
shall be the place for the holding of such meeting.
<PAGE> 2
ARTICLE 2.4 Notice Of Meetings. Written or printed notice stating the place,
date and hour of the meeting of the stockholders and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote at the meeting, not less than 10
nor more than 60 days before the date of the meeting, or in the case of a
meeting called for the purpose of acting upon a merger or consolidation not less
than 20 nor more than 60 days before the meeting. Such notice shall be given by
or at the direction of the secretary. If mailed, such notice shall be deemed to
be given when deposited in the United States mail addressed to the stockholder
at his or her address as it appears on the records of the corporation, with
postage thereon prepaid. If delivered (rather than mailed) to such address, such
notice shall be deemed to be given when so delivered.
ARTICLE 2.5 Adjournments. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, unless the
adjournment is for more than 30 days or unless a new record date is fixed for
the adjourned meeting.
ARTICLE 2.6 Waiver Of Notice. A waiver of notice in writing signed by a
stockholder entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance of
a stockholder in person or by proxy at a meeting of stockholders shall
constitute a waiver of notice of such meeting except when the stockholder or his
or her proxy attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
ARTICLE 2.7 Meeting Of All Stockholders. If all of the stockholders shall meet
at any time and place, either within or without the State of Delaware, and
shall, in writing signed by all of the stockholders, waive notice of, and
consent to the holding of, a meeting at such time and place, such meeting shall
be valid without call or notice, and at such meeting any corporate action may be
taken.
ARTICLE 2.8 Record Dates.
(a) In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the board of directors may fix a record date, which record date shall not
precede the date on which the resolution fixing the record date is adopted by
the board of directors, and which record date shall not be more than 60 nor less
than 10 days before the date of such meeting (or 20 days if a merger or
consolidation is to be acted upon at such meeting). If no record date is fixed
by the board of directors, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the
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<PAGE> 3
close of business on the next day preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
the certificate of incorporation of the corporation or by statute, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered in the manner required by law to the
corporation at its registered office in the State of Delaware or at its
principal place of business or to an officer or agent of the corporation having
custody of the book in which proceedings of meetings of the corporation's
stockholders are recorded. If no record date has been fixed by the board of
directors and prior action by the board of directors is required by the
certificate of incorporation or by statute, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall not be more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
(d) Only those who shall be stockholders of record on the record date so fixed
as aforesaid shall be entitled to such notice of, and to vote at, such meeting
and any adjournment thereof, or to consent to such corporate action in writing,
or to receive payment of such dividend or other distribution, or to receive such
allotment of rights, or
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<PAGE> 4
to exercise such rights, as the case may be, notwithstanding the transfer of any
stock on the books of the corporation after the applicable record date.
ARTICLE 2.9 Lists Of Stockholders. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least 10 days before each
meeting of stockholders, a complete list of the stockholders entitled to vote
thereat, arranged in alphabetical order, and showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least 10 days prior
to the meeting, either at a place within the municipality where the meeting is
to be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where said meeting is to be held, and the list
shall be produced and kept at the time and place of meeting during the whole
time thereof, for inspection by any stockholder who may be present.
ARTICLE 2.10 Quorum and Vote Required For Action. Except as may otherwise be
provided in the certificate of incorporation of the corporation, the holders of
stock of the corporation having a majority of the total votes which all of the
outstanding stock of the corporation would be entitled to cast at the meeting,
when present in person or by proxy, shall constitute a quorum at any meeting of
the stockholders; provided, however, that where a separate vote by a class or
classes of stock is required, the holders of stock of such class or classes
having a majority of the total votes which all of the outstanding stock of such
class or classes would be entitled to cast at the meeting, when present in
person or by proxy, shall constitute a quorum entitled to take action with
respect to the vote on the matter. Unless a different number of votes is
required by statute or the certificate of incorporation of the corporation, (a)
if a quorum is present with respect to the election of directors, directors
shall be elected by a plurality of the votes cast by those stockholders present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors, and (b) in all matters other than the election of
directors, if a quorum is present at any meeting of the stockholders, a majority
of the votes entitled to be cast by those stockholders present in person or by
proxy shall be the act of the stockholders except where a separate vote by class
or classes of stock is required, in which case, if a quorum of such class or
classes is present, a majority of the votes entitled to be cast by those
stockholders of such class or classes present in person or by proxy shall be the
act of the stockholders of such class or classes. If a quorum is not present at
any meeting of stockholders, then holders of stock of the corporation who are
present in person or by proxy representing a majority of the votes cast may
adjourn the meeting from time to time without further notice and, where a
separate vote by a class or classes of stock is required on any matter, then
holders of stock of such class or classes who are present in person or by proxy
representing a majority of the votes of such class or classes cast may adjourn
the meeting with respect to the vote on that matter from time to time without
further notice.
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At any adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the original meeting. Withdrawal
of stockholders from any meeting shall not cause failure of a duly constituted
quorum at that meeting.
ARTICLE 2.11 Proxies. Each stockholder entitled to vote at a meeting of the
stockholders or to express consent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy, but no
proxy shall be valid after three years from its date unless otherwise provided
in the proxy. Such proxy shall be in writing and shall be filed with the
secretary of the corporation before or at the time of the meeting or the giving
of such written consent, as the case may be.
ARTICLE 2.12 Voting Of Shares. Each stockholder of the corporation shall be
entitled to such vote (in person or by proxy) for each share of stock having
voting power held of record by such stockholder as shall be provided in the
certificate of incorporation of the corporation or, absent provision therein
fixing or denying voting rights, shall be entitled to one vote per share.
ARTICLE 2.13 Voting By Ballot. Any question or any election at a meeting of the
stockholders may be decided by voice vote unless the presiding officer shall
order that voting be by ballot or unless otherwise provided in the certificate
of incorporation of the corporation or required by statute.
ARTICLE 2.14 Inspectors. At any meeting of the stockholders the presiding
officer may, or upon the request of any stockholder shall, appoint one or more
persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting, based upon their
determination of the validity and effect of proxies; count all votes and report
the results; and do such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the stockholders. Each report of an
inspector shall be in writing and signed by him or a majority of them if there
is more than one inspector acting at such meeting. If there is more than one
inspector, the report of a majority shall be the report of the inspectors. The
report of the inspector or inspectors on the number of shares represented at the
meeting and the results of the voting shall be prima facie evidence thereof.
ARTICLE 2.15 Informal Action. Any corporate action upon which a vote of
stockholders is required or permitted may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the corporation in the manner
required by law at its registered office within
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the State of Delaware or at its principal place of business or to an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders of the corporation are recorded. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within 60 days of the earliest dated consent delivered, as
aforesaid, written consents signed by a sufficient number of holders to take
action are delivered to the corporation in the manner required by law at its
registered office within the State of Delaware or at its principal place of
business or to an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders of the corporation are
recorded. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not so consented in writing.
ARTICLE 3
DIRECTORS
ARTICLE 3.1 Powers. The business and affairs of the corporation shall be managed
under the direction of its board of directors which may do all such lawful acts
and things as are not by statute or by the certificate of incorporation of the
corporation or by these by-laws directed or required to be exercised or done by
the stockholders.
ARTICLE 3.2 Number, Election, Term Of Office And Qualifications. The number of
directors of the Corporation shall be not less than one (1) and not more than
seven (7), the actual number of directors to be determined from time to time by
the board of directors. The directors shall be elected at the annual meeting of
the stockholders, except as provided in ss. 3.3, and each director elected shall
hold office until his or her successor is elected and qualified or until his or
her earlier death, resignation or removal in a manner permitted by statute or
these by-laws. Directors need not be stockholders.
ARTICLE 3.2 Vacancies. Vacancies occurring in the board of directors and
newly-created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director, and any director
so chosen shall hold office until the next annual election of directors and
until his or her successor is duly elected and qualified or until his or her
earlier death, resignation or removal in a manner permitted by statute or these
by-laws.
ARTICLE 3.3 Regular Meetings. A regular meeting of the board of directors shall
be held immediately following the close of, and at the same place as, each
annual
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meeting of stockholders. No notice of any such meeting, other than this by-law,
shall be necessary in order legally to constitute the meeting, provided a quorum
shall be present. In the event such meeting is not held at such time and place,
the meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the board of directors or
as shall be specified in a written waiver signed by all of the directors. The
board of directors may provide, by resolution, the time and place for the
holding of additional regular meetings without notice other than such
resolution.
ARTICLE 3.4 Special Meetings. Special meetings of the board may be called by the
president or any director. The person or persons calling a special meeting of
the board shall fix the time and place at which the meeting shall be held and
such time and place shall be specified in the notice of such meeting.
ARTICLE 3.5 Notice. Notice of any special meeting of the board of directors
shall be given at least 2 days previous thereto by written notice to each
director at his or her business address or such other address as he or she may
have advised the secretary of the corporation to use for such purpose. If
delivered, such notice shall be deemed to be given when delivered to such
address or to the person to be notified. If mailed, such notice shall be deemed
to be given two business days after deposit in the United States mail so
addressed, with postage thereon prepaid. If given by telegraph, such notice
shall be deemed to be given the next business day following the day the telegram
is given to the telegraph company. Such notice may also be given by telephone or
other means not specified herein, and in each such case shall be deemed to be
given when actually received by the director to be notified. Notice of any
meeting of the board of directors shall set forth the time and place of the
meeting. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors (regular or special) need be specified in the
notice or waiver of notice of such meeting.
ARTICLE 3.6 Waiver Of Notice. A written waiver of notice, signed by a director
entitled to notice of a meeting of the board of directors or of a committee of
such board of which the director is a member, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice to that
director. Attendance of a director at a meeting of the board of directors or of
a committee of such board of which the director is a member shall constitute a
waiver of notice of such meeting except when the director attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE 3.7 Quorum And Vote Required For Action. At all meetings of the board of
directors, a majority of the number of directors fixed by these by-laws shall
constitute a quorum for the transaction of business and the act of a majority of
the
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directors present at any meeting at which there is a quorum shall be the act of
the board of directors except as may be otherwise specifically provided by
statute, the certificate of incorporation of the corporation or these by-laws.
If a quorum shall not be present at any meeting of the board of directors, a
majority of the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
ARTICLE 3.8 Attendance By Conference Telephone. Members of the board of
directors or any committee designated by the board may participate in a meeting
of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such a meeting.
ARTICLE 3.9 Presumption Of Assent. A director of the corporation who is present
at a duly convened meeting of the board of directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken unless his or her dissent shall be entered in the minutes of the
meeting or unless he or she shall file his or her written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered or certified mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
ARTICLE 3.10 Informal Action. Unless otherwise restricted by statute, the
certificate of incorporation of the corporation or these by-laws, any action
required or permitted to be taken at any meeting of the board of directors or of
any committee thereof may be taken without a meeting, if a written consent
thereto is signed by all the directors or by all the members of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the board of directors or of such committee.
ARTICLE 3.11 Compensation. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and at each meeting of a
committee of the board of directors of which they are members. The board of
directors, irrespective of any personal interest of any of its members, shall
have authority to fix compensation of all directors for services to the
corporation as directors, officers or otherwise.
ARTICLE 3.12 Removal. Any director or the entire board of directors may be
removed by the stockholders, with or without cause, by a majority of the votes
entitled to be cast at an election of directors.
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ARTICLE 4
COMMITTEES
By resolution passed by a majority of the whole Board, the Board of
Directors may designate one or more committees, each such committee to consist
of two or more directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member of any meeting of the committee. Any such committee, to the
extent provided in the resolution or in these by-laws, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it. In the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at the meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of such absent or
disqualified member.
ARTICLE 5
OFFICERS
ARTICLE 5.1 Designation; Number; Election. The board of directors, at its
initial meeting and thereafter at its first regular meeting after each annual
meeting of stockholders, shall choose the officers of the corporation. Such
officers shall be a chairman, a president, a secretary, and a treasurer, and
such vice presidents, assistant secretaries and assistant treasurers as the
board of directors may choose. The board of directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board. Any two or more offices may be held
by the same person. Except as provided in Article 6, election or appointment as
an officer shall not of itself create contract rights.
ARTICLE 5.2 Salaries. The salaries of all officers and agents of the corporation
chosen by the board of directors shall be fixed by the board of directors, and
no officer shall be prevented from receiving such salary by reason of the fact
that he is also a director of the corporation.
ARTICLE 5.3 Term Of Office; Removal; Vacancies. Each officer of the corporation
chosen by the board of directors shall hold office until the next annual
appointment of officers by the board of directors and until his or her successor
is appointed and qualified, or until his or her earlier death, resignation or
removal in
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the manner hereinafter provided. Any officer or agent chosen by the board of
directors may be removed at any time by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any vacancy occurring in any office of the corporation at any time
or any new offices may be filled by the board of directors for the unexpired
portion of the term.
ARTICLE 5.4 Chairman. The chairman of the board, if appointed, shall, if
present, preside at all meetings of the Board of Directors and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors.
ARTICLE 5.5 President. The president shall be the chief executive officer of the
corporation and, subject to the direction and control of the board of directors,
shall be in charge of the business of the corporation. In general, the president
shall discharge all duties incident to the principal executive office of the
corporation and such other duties as may be prescribed by the board of directors
from time to time. Without limiting the generality of the foregoing, the
president shall see that the resolutions and directions of the board of
directors are carried into effect except in those instances in which that
responsibility is specifically assigned to some other person by the board of
directors; shall preside at all meetings of the stockholders and, if he or she
is a director of the corporation, of the board of directors; and, except in
those instances in which the authority to execute is expressly delegated to
another officer or agent of the corporation or a different mode of execution is
expressly prescribed by the board of directors, may execute for the corporation
certificates for its shares of stock (the issue of which shall have been
authorized by the board of directors), and any contracts, deeds, mortgages,
bonds, or other instruments which the board of directors has authorized, and may
(without previous authorization by the board of directors) execute such
contracts and other instruments as the conduct of the corporation's business in
its ordinary course requires, and may accomplish such execution in each case
either under or without the seal of the corporation and either individually or
with the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the form
of the instrument. The president may vote all securities which the corporation
is entitled to vote except as and to the extent such authority shall be vested
in a different officer or agent of the corporation by the board of directors.
ARTICLE 5.6 Vice Presidents. The vice president (and, in the event there is more
than one vice president, each of the vice presidents) shall render such
assistance to the president in the discharge of his or her duties as the
president may direct and shall perform such other duties as from time to time
may be assigned by the president or by the board of directors. In the absence of
the president or in the event of his or her inability or refusal to act, the
vice president (or in the event there may be more than one
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vice president, the vice presidents in the order designated by the board of
directors, or by the president if the board of directors has not made such a
designation, or in the absence of any designation, then in the order of
seniority of tenure as vice president) shall perform the duties of the
president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. Except in those instances in which the
authority to execute is expressly delegated to another officer or agent of the
corporation or a different mode of execution is expressly prescribed by the
board of directors or these by-laws, the vice president (or each of them if
there are more than one) may execute for the corporation certificates for its
shares of stock (the issue of which shall have been authorized by the board of
directors), and any contracts, deeds, mortgages, bonds or other instruments
which the board of directors has authorized, and may (without previous
authorization by the board of directors) execute such contracts and other
instruments as the conduct of the corporation's business in its ordinary course
requires, and may accomplish such execution in each case either under or without
the seal of the corporation and either individually or with the secretary, any
assistant secretary, or any other officer thereunto authorized by the board of
directors, according to the requirements of the form of the instrument.
ARTICLE 5.7 Treasurer. The treasurer shall be the principal accounting and
financial officer of the corporation and as such shall perform all the duties
incident to the office of treasurer and such other duties as from time to time
may be assigned by the board of directors or the president. Without limiting the
generality of the foregoing, the treasurer shall have charge of and be
responsible for the maintenance of adequate books of account for the corporation
and shall have charge and custody of all funds and securities of the corporation
and be responsible therefor and for the receipt and disbursement thereof. If
required by the board of directors, the treasurer shall give a bond for the
faithful discharge of his or her duties in such sum and with such surety or
sureties as the board of directors may determine.
ARTICLE 5.8 Secretary. The secretary shall perform all duties incident to the
office of secretary and such other duties as from time to time may be assigned
by the board of directors or president. Without limiting the generality of the
foregoing, the secretary shall (a) record the minutes of the meetings of the
stockholders and the board of directors in one or more books provided for that
purpose and shall include in such books the actions by written consent of the
stockholders and the board of directors; (b) see that all notices are duly given
in accordance with the provisions of these by-laws or as required by statute;
(c) be the custodian of the corporate records and the seal of the corporation;
(d) keep a register of the post office address of each stockholder which shall
be furnished to the secretary by such stockholder; (e) sign with the president,
or a vice president, or any other officer thereunto authorized by the board of
directors, certificates for shares of stock of the corporation (the issue of
which shall have been authorized by the board of directors), and any contracts,
deeds, mortgages, bonds, or
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other instruments which the board of directors has authorized, and may (without
previous authorization by the board of directors) sign with such other officers
as aforesaid such contracts and other instruments as the conduct of the
corporation's business in its ordinary course requires, in each case according
to the requirements of the form of the instrument, except when a different mode
of execution is expressly prescribed by the board of directors; and (f) have
general charge of the stock transfer books of the corporation.
ARTICLE 5.9 Assistant Treasurers And Assistant Secretaries. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the treasurer, in the case of assistant treasurers, or the
secretary, in the case of assistant secretaries, or by the board of directors or
president in either case. Each assistant secretary may sign with the president,
or a vice president, or any other officer thereunto authorized by the board of
directors, certificates for shares of stock of the corporation (the issue of
which shall have been authorized by the board of directors), and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized, and may (without previous authorization by the board of directors)
sign with such other officers as aforesaid such contracts and other instruments
as the conduct of the corporation's business in its ordinary course requires, in
each case according to the requirements of the form of the instrument, except
when a different mode of execution is expressly prescribed by the board of
directors. The assistant treasurers shall, if required by the board of
directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the board of directors shall determine.
ARTICLE 6
INDEMNIFICATION
ARTICLE 6.1 Indemnification Of Directors And Officers. The corporation shall, to
the fullest extent to which it is empowered to do so by the General Corporation
Law of Delaware or any other applicable laws, as may from time to time be in
effect, indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding.
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ARTICLE 6.2 Advancement of Expenses. Expenses incurred by an officer or director
of the corporation in defending a civil or criminal action, suit or proceeding
shall be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall be ultimately
determined that he or she is not entitled to be indemnified as authorized by the
General Corporation Law of Delaware, as amended.
ARTICLE 6.3 Contract With The Corporation. The provisions of this Article 6
shall be deemed to be a contract between the corporation and each person who
serves as such officer or director in any such capacity at any time while this
Article and the relevant provisions of the General Corporation Law of Delaware,
as amended, or other applicable laws, if any, are in effect, and any repeal or
modification of any such law or of this Article 6 shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
ARTICLE 6.4 Indemnification Of Employees And Agents. Persons who are not covered
by the foregoing provisions of this Article 6 and who are or were employees or
agents of the corporation, or are or were serving at the request of the
corporation as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, may be indemnified to the extent authorized
at any time or from time to time by the board of directors.
ARTICLE 6.5 Other Rights Of Indemnification. The indemnification and the
advancement of expenses provided or permitted by this Article 6 shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
by law or otherwise, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
ARTICLE 7
LIMITATION ON DIRECTOR'S LIABILITY
The personal liability for monetary damages to the corporation or its
stockholders of a person who serves as a director of the corporation shall be
limited if and to the extent provided at the time in the certificate of
incorporation of the corporation, as then amended.
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ARTICLE 8
CERTIFICATES OF STOCK AND THEIR TRANSFER
ARTICLE 8.1 Form And Execution Of Certificates. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the president or a vice president and by the secretary or
an assistant secretary of the corporation, certifying the number of shares
owned. Such certificates shall be in such form as may be determined by the board
of directors. During the period while more than one class of stock of the
corporation is authorized there will be set forth on the face or back of the
certificates which the corporation shall issue to represent each class or series
of stock a statement that the corporation will furnish, without charge to each
stockholder who so requests, the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. In case any officer, transfer agent or registrar of the
corporation who has signed, or whose facsimile signature has been placed upon,
any such certificate shall have ceased to be such officer, transfer agent or
registrar of the corporation before such certificate is issued by the
corporation, such certificate may nevertheless be issued and delivered by the
corporation with the same effect as if the officer, transfer agent or registrar
who signed, or whose facsimile signature was placed upon, such certificate had
not ceased to be such officer, transfer agent or registrar of the corporation.
ARTICLE 8.2 Replacement Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate evidencing shares of stock
of the corporation theretofore issued by the corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of the fact by the
person claiming the certificate to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as it shall require and may
require such owner to give the corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed. The
board of directors may delegate its authority to direct the issuance of
replacement stock certificates to the transfer agent or agents of the
corporation upon such conditions precedent as may be prescribed by the board.
ARTICLE 8.3 Transfers Of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares of stock of the
corporation duly endorsed or accompanied by proper evidence of succession,
assignment, or other authority to transfer, it shall be the duty of the
corporation to issue a new certificate to
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the person entitled thereto, cancel the old certificate and record the
transaction upon its books, provided the corporation or a transfer agent of the
corporation shall not have received a notification of adverse interest and that
the conditions of Section 8-401 of Title 6 of the Delaware Code have been met.
ARTICLE 8.4 Registered Stockholders. The corporation shall be entitled to treat
the holder of record (according to the books of the corporation) of any share or
shares of its stock as the holder in fact thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other party whether or not the corporation shall have express or
other notice thereof, except as expressly provided by the laws of the State of
Delaware.
ARTICLE 9
CONTRACTS, LOANS, CHECKS AND DEPOSITS
ARTICLE 9.1 Contracts. The board of directors may authorize any officer or
officers, or agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; provided, however,
that this ss. 9.1 shall not be a limitation on the powers of office granted
under Article 5 of these by-laws.
ARTICLE 9.2 Loans. No loans shall be contracted on behalf of the corporation and
no evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the board of directors. Such authority may be general or confined
to specific instances.
ARTICLE 9.3 Checks, Drafts And Other Instruments. All checks, drafts or other
orders for the payment of money and all notes or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers or such agent or agents of the corporation and in such manner as from
time to time may be determined by the resolution of the board of directors or by
an officer or officers of the corporation designated by the board of directors
to make such determination.
ARTICLE 9.4 Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the board of directors, or an officer
or officers designated by the board of directors, may select.
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ARTICLE 10
MISCELLANEOUS PROVISIONS
ARTICLE 10.1 Dividends. Subject to any provisions of any applicable statute or
of the certificate of incorporation, dividends may be declared upon the capital
stock of the corporation by the board of directors at any regular or special
meeting thereof; and such dividends may be paid in cash, property or shares of
stock of the corporation.
ARTICLE 10.2 Reserves. Before payment of any dividends, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the board of directors from time to time, in its discretion, determines to be
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the board of directors shall determine to be conducive
to the interests of the corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
ARTICLE 10.3 Voting Stock Of Other Corporations. In the absence of specific
action by the board of directors, the president shall have authority to
represent the corporation and to vote, on behalf of the corporation, the
securities of other corporations, both domestic and foreign, held by the
corporation.
ARTICLE 10.4 Fiscal Year. The fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of the next following
December.
ARTICLE 10.5 Seal. The corporate seal shall have inscribed thereon the name of
the corporation and the words "Corporate Seal, Delaware". The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise applied.
ARTICLE 10.6 Severability. If any provision of these by-laws, or its application
thereof to any person or circumstances, is held invalid, the remainder of these
by-laws and the application of such provision to other persons or circumstances
shall not be affected thereby.
ARTICLE 10.7 Amendment. These by-laws may be amended or repealed, or new by-laws
may be adopted, by the board of directors of the corporation. These by-laws may
also be amended or repealed, or new by-laws may be adopted, by action taken by
the stockholders of the corporation.
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EXHIBIT 4.3
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SECOND SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 16, 1999
TO
INDENTURE
DATED AS OF APRIL 10, 1992
-----------------------------------
BETWEEN
GREYHOUND LINES, INC.
AND
STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE
-----------------------------------
8-1/2% CONVERTIBLE DEBENTURES DUE MARCH 31, 2007
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<PAGE> 2
SECOND SUPPLEMENTAL INDENTURE, dated as of March 16, 1999 (this
"Second Supplemental Indenture"), between GREYHOUND LINES, INC., a Delaware
corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, as
trustee (the "Trustee").
WHEREAS, the Company and the Trustee (as successor to Shawmut Bank
Connecticut, N.A., formerly The Connecticut National Bank) entered into an
Indenture, dated as of April 10, 1992 as supplemented by the First Supplemental
Indenture dated as of December 22, 1994 (the "Indenture"), pursuant to which
the Company issued its 8-1/2% Convertible Subordinated Debentures due March 31,
2007 (the "Debentures"); and
WHEREAS, pursuant to Section 1301 of the Indenture, Holders of the
Debentures presently have the right prior to Maturity to convert any Debenture
or Debentures into shares of Common Stock of the Company at the rate of 80.81
shares of Common Stock for each $1,000 principal amount of Debentures; and
WHEREAS, pursuant to Section 1306 of the Indenture, in the case of any
merger of another person into the Company, the Debentures will be convertible
only into the kind and amount of securities, cash and other property receivable
in such merger by a holder of the number of shares of Common Stock of the
Company into which such Debentures might have been converted immediately prior
to such merger; and
WHEREAS, the Company, Laidlaw Inc., a Canadian corporation ("Laidlaw")
and Laidlaw Transit Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Laidlaw ("Acquisition") have entered into the Amended and
Restated Agreement and Plan of Merger, dated as of November 5, 1998 (the
"Merger Agreement"), pursuant to which Acquisition will be merged with and into
the Company, with the Company being the surviving corporation ("Merger"); and
WHEREAS, upon completion of the Merger, each share of Common Stock of
the Company will be converted into the right to receive $6.50 in cash; and
WHEREAS, the Merger was completed on March 16, 1999; and
WHEREAS, to establish the conversion rights of a Holder of Debentures
following the Merger and in accordance with Section 1306 of the Indenture, the
Company has agreed to execute and deliver this Second Supplemental Indenture;
and
WHEREAS, the Company has complied with all the conditions and
requirements necessary under the Indenture to effect this Second Supplemental
Indenture, and the execution and delivery of this Second Supplemental Indenture
has been duly authorized in all respects by the Company;
NOW, THEREFORE, in consideration of the above premises, the Company
and the Trustee agree, for the benefit of the other and for the equal and
ratable benefit of the Holders of the Debentures, as follows:
<PAGE> 3
ARTICLE I
AMENDMENT OF INDENTURE
Section 1.01 Amendment. The Indenture is hereby amended as follows:
(a) Notwithstanding anything to the contrary contained in the
Indenture, including Article Thirteen thereof, from and after the date of this
Second Supplemental Indenture, a Holder of any Debenture or Debentures shall
have the right to receive, upon conversion of such Debenture or Debentures in
accordance with the Indenture, an amount in cash equal to $525.27 for each
$1,000 principal amount of Debentures so converted.
ARTICLE II
MISCELLANEOUS PROVISIONS
SECTION 2.01 Terms Defined. For all purposes of this Second Supplemental
Indenture, except as otherwise defined or unless the context otherwise requires,
terms used in capitalized form in this Second Supplemental Indenture and defined
in the Indenture have the meanings specified in the Indenture.
SECTION 2.02 Indenture. Except as amended by this Second Supplemental
Indenture, the Indenture and the Debentures are in all respects ratified and
confirmed and all the terms shall remain in full force and effect. The Trustee
has no responsibility for correctness of the recitals of facts herein contained
which shall be taken as the statements of the Company, and makes no
representations as to the validity or sufficiency of this Second Supplemental
Indenture and shall incur no liability or responsibility in respect of the
validity thereof.
SECTION 2.03 Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 2.04 Successors. All agreements of the Company in this Second
Supplemental Indenture shall bind it successors. All agreements of the Trustee
in this Second Supplemental Indenture shall bind its successors.
SECTION 2.05 Multiple Counterparts. The parties may sign multiple
counterparts of this Second Supplemental Indenture. Each signed counterpart
shall be deemed an original, but all of them together represent the same
agreement.
<PAGE> 4
SIGNATURES
IT WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed as of the date first written above.
GREYHOUND LINES, INC.
/s/ Craig R. Lentzsch
ATTEST: ---------------------------------
Craig R. Lentzsch, President and
Chief Executive Officer
/s/ Mark E. Southerst
---------------------------------
Mark E. Southerst, Vice President and
General Counsel and Secretary
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ Susan C. Merker
-----------------------------
ATTEST: Name: Susan C. Merker
----------------------------
By: /s/ Elizabeth C. Hammer Title: Vice President
---------------------------------- ---------------------------
Name: Elizabeth C. Hammer
--------------------------------
Title: Vice President
------------------------------
<PAGE> 1
EXHIBIT 10.33
TERMININATION AGREEMENT
This Termination Agreement ("Termination Agreement") dated as of March
17, 1999, is entered into by and between GREYHOUND LINES, INC., a Delaware
corporation ("Borrower"). FOOTHILL CAPITAL CORPORATION, a California corporation
as the facility agent (in such capacity "Facility Agent") for the Lenders (as
defined below) and BANKBOSTON, N.A., a national banking association as facility
co-agent for the Lender ("Facility Co-Agent" and collectively with Facility
Agent, the "Agents").
A. borrower has entered into that certain Third Amended and Restated
Loan and Security Agreement, dated as of May 21, 1997 (as amended, the "Loan
Agreement") with various financial institutions party thereto (collectively, the
"Lenders") and the Agents. Initially capitalized terms used but not defined in
this Termination Agreement shall have the meanings given to them in the Loan
Agreement.
B. Pursuant to the terms of the Loan Agreement and the other Loan
Documents the Lenders have made certain loans to the borrower, and have arranged
for the issuance of, or have guaranteed the reimbursement of, certain letters of
credit for the account of the Borrower that are outstanding as of the date
hereof (the "Existing Letters of Credit").
C. Borrower has notified Facility Agent that it intends to terminate
the Loan Agreement, repay in full all non-contingent Obligations existing under
the Loan Documents, and back up all outstanding Letters of Credit as provided in
the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the parties agree as
follows:
1. Payment of Pay-Out Amount and Deposit. Upon (a) payment to Facility
Agent (for the benefit of the Lenders) of the amount specified in Schedule 1
attached hereto ("Pay-Out Amount") and (b) the receipt by Facility Agent of
"back up" letters of credit in all respects satisfactory to Agents (the "Backup
LCs") in an amount equal to at least 102% of the maximum amount of the Lender
Group's obligations under the Existing Letters of Credit specified in Schedule 1
(the meeting of both such conditions constituting the "Payoff") all of the
obligations and liabilities (exclusive of any indemnification by Borrower or its
subsidiaries of Agents or Lenders contained herein or in the Loan Documents and
all non-liquidated and contingent obligations of Borrower owing to the Lender
Group) of Borrower or its subsidiaries under the Loan Documents shall be
terminated and satisfied in full. Agents hereby confirm to Borrower that payment
to the Facility Agent of the Pay-Out Amount and receipt by the Facility Agent of
the Backup LCs will not cause any prepayment penalty or other charge under the
Loan Agreement except as specified in Schedule 1.
2. Effect of Payoff. Agents hereby agree that upon the Payoff (a) all
security interests, mortgages and liens which Borrower or any of its
subsidiaries may have granted to the Facility Agent pursuant to the Loan
Documents will be released and terminated, (b) all security interests of the
Facility agent in the stock of Borrower's subsidiaries will be released and
terminated, and (c) all lockbox, blocked depository account, or similar
agreements with La Salle National Bank, Chase Texas and Questpoint concerning
the Borrower shall be terminated, and all funds received by the Facility Agent
in any related accounts after the Payoff promptly will be returned to the
Borrower; and (d) the Borrower and its subsidiaries will have no further
liability or obligation (exclusive of any indemnification by borrower or its
subsidiaries of Agents or Lenders contained herein or in the Loan Documents and
all non-liquidated and contingent obligations of Borrower or its subsidiaries
owing to the Agents or lenders) under or in connection with the Loan Documents.
3. Deliver of Lien Releases. Following the Payoff, the Facility Agent
will deliver to Borrower UCC termination statements relating to the UCC's filed
in favor of Facility Agent and shall return to the Borrower all certificates of
title in the Facility Agent's possession respecting the Borrower's or its
subsidiaries' motor vehicles
<PAGE> 2
and execute any required releases of its lien with respect thereto. Facility
Agent has prepared some of the releases and reconveyances relating to the deeds
of trust and mortgages securing the Loan Documents which shall also be delivered
to Borrower following the Payoff. On a post termination basis, the Facility
Agent has agreed to execute and deliver to Borrower all additional releases,
termination statements, reconveyances of real property, and other agreements in
connection with releasing any lien or security interest it may have pursuant to
the Loan Documents (collectively, the "Lien Releases"). The Borrower
acknowledges that it has instructed the Facility Agent to halt all work that the
Facility Agent and its attorneys have been performing in preparing the Lien
Releases and has undertaken all responsibility for preparing the Lien Releases;
and that, as a result, if such attorneys are requested in the future to prepare
(or review) such Lien Releases in bulk or individually, the time and costs of
such counsel shall be paid for by Borrower. The Facility Agent agrees that it
will promptly execute all additional Lien Releases reasonably requested by the
Borrower in the future and will cooperate with Borrower rewarding same.
4. Release of Certain Claims. Upon the Payoff, and in consideration of
the Lender Group discounting the breakage fees that would otherwise be payable
under Section 2.17(d) of the Loan Agreement associated with the prepayment of
the Eurodollar Rate Loans existing at such time and the Agents' agreements
contained in this Termination Agreement, the Borrower hereby releases and
forever discharges the Agents and the rest of the Lender Group and their
respective successors, representatives, assigns, officers, directors, agents,
employees, and attorneys, and each of them (collectively the "Affiliated
Parties"), of and from any and all claims, demands, debts, liabilities, actions
and causes of action of every kind and character and the Borrower hereby agrees
to indemnify and hold the Lender Group harmless from any and all loss, cost,
damage or expense (including, but not limited to, attorney's fees) which the
Lender Group of the Affiliated Parties may suffer or incur at any time, based on
or arising out of any delay or failure to release and reconvey the liens held by
or assigned to the Facility Agent and recorded against the real and personal
property of the Borrower or any of its subsidiaries; provided, however, that
such release and indemnification shall not excuse any party's compliance with
the terms of Section 3 above.
5. No Assignment of Claims; Advice of Counsel. The Borrower hereby
warrants and represents that neither it nor any of its subsidiaries has assigned
or in any other way conveyed, transferred, or encumbered all or any portion of
the claims or rights covered by the release set forth above. The Borrower
executes this Termination Agreement voluntarily, after consultation with
counsel, and with full knowledge of it significance.
6. Indemnity for Dishonored Items. The Borrower acknowledges that the
Pay-Out Amount is calculated on the premise that all checks and other
instruments delivered by Borrower to the Facility Agent have been or will be
honored and paid in full. The Borrower agrees to indemnify and hold the Lender
Group harmless from any and all loss, cost, damage or expense (including, but
not limited to attorneys' fees) which the Lender Group may suffer or incur at
any time as a result of any non-payment, claim, refund or dishonor of any checks
or other similar items which have been credited by the Facility Agent to the
account of the Borrower, together with any expenses or other charges incident
thereto.
Notwithstanding anything to the contrary contained herein, the
Facility Agent reserves all of its right in and to any checks or similar
instruments for payment of money heretofore received by the Facility Agent in
connection with the Facility Agent's arrangements with the Borrower, and all of
its rights to any money due or to become due under said checks or similar
instruments and/or all of the Facility Agent's claims thereon.
Notwithstanding anything to the contrary contained herein, in
the event any payment made to, or other amount or value received by the Facility
Agent from or for the account of the Borrower is avoided, rescinded, set aside
or must otherwise be returned or repaid by the Facility Agent or any of the
Lenders whether in any bankruptcy, reorganization, insolvency or similar
proceeding involving the Borrower or otherwise, the indebtedness intended to be
repaid thereby shall be reinstated (without further action by any party) and
shall be enforceable against the Borrower. In such event, the Borrower shall be
and remain liable to the Facility Agent and the Lenders for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by the Facility Agent and if Borrower fails or refuses to pay Facility
Agent for any amounts repaid by or recovered from the Facility Agent, all liens
shall automatically attach to all of the real and personal property of Borrower
with the same lien priority that such liens would have enjoyed if Facility Agent
had not released its liens. Borrower shall perform all acts reasonably required
by Facility Agent to accomplish such results.
<PAGE> 3
7. Sole Agreement; Amendments. This Termination Agreement, the Loan
Documents, and the other written documents and instruments between the parties
set fort in full all of the representations and agreements of the parties, and
this Termination Agreement may not be modified or amended, nor may any rights
hereunder be waived, except in a writing signed by the parties hereto.
8. Fees; Costs; Deposit. The Borrower agrees that it will pay the
Facility Agent's costs (including its attorneys' fees) incurred in connection
with this Termination Agreement, and any instruments or documents contemplated
hereunder, including those incurred in connection with the review, approval,
execution and delivery of such Lien Releases prepared by the Borrower, and in
connection with preparing any Lien Releases that the Borrower requests such
counsel to prepare. The Borrower agrees that the Pay-Out Amount will include a
deposit in the amount shown on Schedule 1 (the "Deposit") which shall be held by
the Facility Agent. To the extent that the Facility Agent incurs such fees and
costs after the Payoff, whether arising out of Section 3 or this Section 8
hereof or otherwise, the Facility Agent shall be permitted to recoup such costs
from the Deposit. In addition, while any Existing Letters of Credit are
outstanding, the Facility Agent may charge any Letter of Credit fees accruing
thereon (as calculated in accordance with the terms of the Loan Agreement), and
recoup such fees from the Deposit. Moreover, lender may use part of the Deposit
to pay all legal fees and costs that it has incurred prior to the Payoff. Upon
the earlier to occur of (a) June 30,1999 or (b) the Borrower providing the
Facility Agent with a written confirmation that all Lien Releases have been
filed and recorded and that no further Lien Releases shall be required of the
Facility Agent or the Lender Group, and the termination of the Existing Letters
of Credit, the Facility Agent shall return the remaining balance of the Deposit
to the Borrower. The amount and duration of the Deposit shall in no way limit
the Borrower's liability under this Termination Agreement.
9. Counterparts; Effectiveness. This Termination Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original. All such counterparts, taken together, shall constitute but one and
the same
<PAGE> 4
Termination Agreement. This Termination Agreement shall become effective upon
the execution of a counterpart of this Termination Agreement by each of the
parties hereto.
"BORROWER"
GREYHOUND LINES, INC.,
a Delaware corporation
By:
------------------------------------------------
Type Name: Jeff Sanders
----------------------------------------
Type Title: Vice President - Finance & Corporate
Development
----------------------------------------
"FACILITY AGENT"
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
------------------------------------------------
Type Name: Tom Sigurdson
----------------------------------------
Type Title: Vice-President
----------------------------------------
"FACILITY CO-AGENT"
BANK BOSTON, N.A.,
a national banking association
By:
------------------------------------------------
Type Name: Paul Feloney, Jr.
----------------------------------------
Type Title: Director.
----------------------------------------
<PAGE> 1
EXHIBIT 10.36
SECOND AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Second Amendment to the Greyhound Lines, Inc. (the "Company")
Supplemental Executive Retirement Plan is made as of January 20, 1999.
WHEREAS, the Company previously adopted the Greyhound Lines, Inc.
Supplemental Executive Retirement Plan, as restated effective January 1, 1994,
and as amended by the First Amendment dated as of December 9, 1996 (the "Plan");
and
WHEREAS, the Company, having sought the approval of the Compensation
and Organization Committee of the Board of Directors of the Company, desires to
amend the Plan as set forth herein.
NOW, THEREFORE, the Plan shall be amended as follows.
1. Section 6.3 of the Plan shall be deleted in its entirety and replaced with
the following:
"Section 6.3 Investment Earnings Credit. Accounts shall be
credited as of each Valuation Date with an allocable portion of
the earnings of the Trust or with an amount representing an
investment return rate on 10-year Treasury notes as of each
Valuation Date, plus 150 basis points, whichever is greater, or
such other rate as is determined from time to time by the
Sponsor."
2. Sections 8.1 (a) and (b) of the Plan shall be deleted in their entirety and
replaced with the following:
"Section 8.1 Trust Payments.
(a) General. Any obligation of the Sponsor to pay benefits
hereunder shall be an unsecured promise and any right to enforce
such obligation shall be solely as a general creditor of the
Sponsor. For the convenience and benefit of the Sponsor and to the
extent not inconsistent with the foregoing sentence, the Sponsor
may establish one or more irrevocable trusts to hold assets to
meet its obligations under the Plan to Participants. However, in
the event of a Change in Control as defined in Section 2.1 (e) of
the Plan, the Sponsor shall immediately transfer
1
<PAGE> 2
or cause to be transferred such amounts and rights to a Trust as
are necessary to pay all Plan benefits, and shall continue to
transfer or cause to be transferred additional amounts and rights
as become necessary to pay Plan benefits following the Change in
Control.
(b) Trust Assets. The property comprising the assets of a Trust
established under subsection (a) shall, at all times, remain the
property of the Trust. The Trustee shall distribute the assets
comprising the Trust in accordance with the provisions of the Plan
and Trust, but in no event shall the Trustee distribute the assets
of the Trust to or for the benefit of the Sponsor, except as
provided in the Trust.
3. Capitalized terms used herein without definition shall have the meaning
ascribed to such terms as set forth in the Plan.
GREYHOUND LINES, INC.
By:
----------------------------------
Craig R. Lentzsch
President and CEO
2
<PAGE> 1
EXHIBIT 10.37
- -------------------------------------------------------------------------------
TRUST AGREEMENT
Between
GREYHOUND LINES, INC.
and
LASALLE NATIONAL BANK
March 12, 1999
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. TRUST FUND........................................................................... 1
II. PAYMENTS TO TRUST BENEFICIARIES...................................................... 4
III. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO
TRUST BENEFICIARIES WHEN THE COMPANY IS INSOLVENT ................................... 5
IV. PAYMENTS TO COMPANY.................................................................. 6
V. INVESTMENT OF TRUST FUND............................................................. 6
VI. INCOME OF THE TRUST.................................................................. 6
VII. ACCOUNTING BY TRUSTEE................................................................ 6
VIII. RESPONSIBILITY AND INDEMNIFICATION OF TRUSTEE........................................ 7
IX. AMENDMENTS, ETC., TO PLAN AND EXHIBITS............................................... 10
X. REPLACEMENT OF TRUSTEE............................................................... 10
XI. AMENDMENT OR TERMINATION OF AGREEMENT................................................ 11
XII. SPECIAL DISTRIBUTIONS................................................................ 12
XIII. GENERAL PROVISIONS................................................................... 13
XIV. NOTICES.............................................................................. 14
</TABLE>
-i-
<PAGE> 3
TABLE OF DEFINITIONS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
Section
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<S> <C>
"Agreement" Introduction
"Bank" 1.4(d)
"Board" 3.1
"CEO" 3.1
"Change in Control" 1.7
"Code" 1.6
"Company" Introduction
"ERISA" 1.6
"Exhibit A" Recitals
"Exhibit B" 1.5
"Exhibit C" 8.11
"Fiduciary" 8.11
"Insolvent" Recitals
"Laidlaw" 1.7
"Letter of Credit" 1.4(d)
"Participants" Recitals
"Plan" Recitals
"Plan Year" 1.4(c)
"President" 3.1
"Secured Amount" 1.4(b)
"Successor" 9.2.1
"Supplemental Benefits" Recitals
"Trust Beneficiaries" Recitals
"Trust" Recitals
"Trustee" Introduction
</TABLE>
-ii-
<PAGE> 4
TRUST AGREEMENT
This trust agreement ("Agreement") made as of this 12th day of March,
1999 by and between Greyhound Lines, Inc., a Delaware corporation (the
"Company"), and LaSalle National Bank, a national bank (the "Trustee").
WITNESSETH:
WHEREAS, the employees of the Company listed on an exhibit ("Exhibit
A") to this Agreement (the "Participants") and their beneficiaries are, or may
become, entitled to benefits under the provisions of the Greyhound Lines, Inc.
Supplemental Executive Retirement Plan, as the same may hereafter be amended or
restated, or any successor thereto (the "Plan");
WHEREAS, the Plan provides for certain benefits, and the Company
wishes specifically to assure the payment to the Participants and their
beneficiaries (the Participants and their respective beneficiaries being
collectively referred to herein as the "Trust Beneficiaries") of amounts due
thereunder (the amounts so payable being collectively referred to herein as the
"Supplemental Benefits");
WHEREAS, the Company wishes to establish a trust (the "Trust") and to
transfer to the Trust assets and rights which shall be held subject to the
claims of the creditors of the Company to the extent set forth in Article III
until (i) paid in full to all Trust Beneficiaries as Supplemental Benefits in
such manner and as specified in this Agreement unless the Company is Insolvent
(as that term is defined below) at the time that such Supplemental Benefits
become payable or (ii) otherwise disposed of pursuant to the terms of this
Agreement; and
WHEREAS, the Company shall be considered "Insolvent" for purposes of
this Agreement at such time as the Company (i) is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code, as heretofore
or hereafter amended, or (ii) is unable to pay its debts as they become due;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
I. TRUST FUND
1.1 Subject to the claims of creditors to the extent set forth in Article III,
the Company shall deposit with the Trustee in trust One Hundred Dollars
($100.00), which shall become the principal of this Trust, to be held,
administered and disposed of by the Trustee as provided in this Agreement.
1.2 The Trust hereby established shall be revocable by the Company at any time
prior to the date on which occurs a Change in Control (as that term is defined
in Section 1.7); on or after such date, this Trust shall be irrevocable. In the
event that a Change in Control has occurred, the Chief Executive Officer,
President, Chief Financial Officer or Treasurer of the Company shall so notify
the Trustee promptly. The Trustee shall be entitled to rely upon such
<PAGE> 5
notice as to whether and when a Change in Control has occurred and shall not be
required to make any independent verification of a Change in Control.
1.3 The principal of the Trust and any earnings shall be held in trust separate
and apart from other funds of the Company and shall be used exclusively for the
uses and purposes set forth in this Agreement. No Trust Beneficiary shall have
any preferred claim on, or any beneficial ownership interest in, any assets of
the Trust prior to the time that such assets are paid to a Trust Beneficiary as
Supplemental Benefits. Any rights created under the Plan and this Agreement
shall be mere unsecured contractual rights of Trust Beneficiaries with respect
to the Company. The obligation of the Trustee to pay Supplemental Benefits
pursuant to this Agreement constitutes merely an unfunded and unsecured promise
to pay such Benefits.
1.4 (a) The Company may at any time or from time to time make additional
deposits of cash or other property as may be acceptable to the Trustee in the
Trust, make provision for cash or other property as may be acceptable to the
Trustee to be transferred to the Trust or arrange for the issuance of a letter
of credit, to augment the principal to be held, administered and disposed of by
the Trustee as herein provided, but no payment of all or any portion of the
principal of the Trust or earnings thereon shall be made to the Company or any
other person or entity on behalf of the Company except as herein expressly
provided.
(b) Prior to the first event constituting a Change in Control, the Company
shall make a contribution to the Trust that is sufficient as of such date,
taking into account the assets of the Trust prior to such contribution, to
provide for the payment of all Supplemental Benefits and any other amounts
payable or reimbursable pursuant to the terms of this Agreement including,
without limitation, the fees of the Trustee and the Fiduciary (as that term is
defined in Section 8.11) and other expenses of the Trust for a period of at
least two years (collectively, the "Secured Amount").
(c) Within 30 days after the end of any Plan Year (as that term is defined
in the Plan) (a "Plan Year") ending after a Change in Control, the Company
shall make a contribution to the Trust that is sufficient as of such date,
taking into account the assets of the Trust prior to such contribution, to
provide for the payment of the Secured Amount.
(d) Laidlaw (as that term is defined in Section 1.7) or the Company may at
any time cause to be issued to the Trust an irrevocable clean letter of credit
(the "Letter of Credit") in an initial aggregate amount of not less than
$2,500,000 for the benefit of the Trustee by a bank having combined capital and
surplus in excess of $500,000,000 (the "Bank"). The Letter of Credit shall
provide that Laidlaw must pay all fees associated therewith, and that the
amounts of the Supplemental Benefits and the Trust and Fiduciary expenses,
including the fees of the Trustee and the Fiduciary, shall be paid to the
Trustee on a regular, periodic basis upon presentation by the Trustee to the
Bank of a statement or statements satisfactory to the Bank and prepared by the
Trustee (the "Draw Documents"). Upon a Change in Control, or if later, the
issuance of the Letter of Credit to the Trust, to the extent that the assets of
the Trust, including the initial aggregate amount of the Letter of Credit, then
exceed the Secured Amount, such excess shall be paid to the Company by the
Trustee from the assets of the Trust. Before the twentieth day prior to the
stated expiration date of the Letter of Credit, the Company and/or
-2-
<PAGE> 6
Laidlaw shall take any actions it or they deem appropriate to renew or replace
the Letter of Credit and/or to contribute additional assets to the Trust. On or
after the twentieth day prior to the stated expiration date of the Letter of
Credit, the Trustee is authorized, empowered and directed to sign and present
the Draw Documents for an amount of the Letter of Credit (and to hold and
disburse the funds received thereby pursuant to the terms of this Agreement)
equal to the excess, if any, of (i) the then applicable Secured Amount, over
(ii) the sum of (a) the assets of the Trust (excluding any Letter of Credit)
and (b) the initial aggregate amount of any renewal or replacement irrevocable
clean letter of credit drawn upon a commercial bank selected by Laidlaw or the
Company, as the case may be, and approved by the Fiduciary, in either case,
upon substantially the same terms and conditions as contained in the Letter of
Credit that is due to expire. A letter of credit that is renewed or provided in
accordance with this Section 1.4(d) shall thereafter be referred to as the
"Letter of Credit."
1.5 Within five business days after the date on which the Trust has become
irrevocable and within 30 days after the first day of each Plan Year
thereafter, the Company shall (a) specify the nature, amounts and timing of the
Supplemental Benefits to which each Trust Beneficiary may become entitled,
subject to Article IX hereof, in an exhibit ("Exhibit B") which shall become a
part of this Agreement and be incorporated herein by this reference, (b)
provide any corresponding revisions to Exhibit A that may be required and (c)
provide the Fiduciary with copies of the Plan and any amendments thereto.
1.6 The Trust is intended to be a grantor trust, within the meaning of
section 671 of the Internal Revenue Code of 1986, as amended (the "Code") and
shall be construed accordingly. The purpose of the Trust is to assure that the
Company's obligations to the Participants pursuant to the Plan are fulfilled.
The Trust is neither intended nor designed to qualify under section 401(a) of
the Code or to be subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Trust established under this
Agreement does not fund and is not intended to fund the Plan or any other
employee benefit plan or program of the Company. Such Trust is and is intended
to be a depository arrangement with the Trustee for the setting aside of cash
and other assets of the Company for the meeting of part or all of its future
obligations with respect to Supplemental Benefits to some or all of the Trust
Beneficiaries under the Plan.
1.7 As used in this Agreement, the term "Change in Control" shall have the
same meaning assigned to that term in the Plan; provided, however, that the
term "Change in Control" shall include the merger to be effected pursuant to
the Amended and Restated Agreement and Plan of Merger dated as of October 16,
1998, and amended and restated as of November 5, 1998, by and among Laidlaw,
Inc., a Canadian corporation ("Laidlaw"), Laidlaw Transit Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Laidlaw, and the Company,
pursuant to which Laidlaw Transit Acquisition Corp. will be merged with and
into the Company, with the Company as the surviving entity.
II. PAYMENTS TO TRUST BENEFICIARIES
2.1 Provided that the Company is not Insolvent and commencing with the
earlier to occur of (a) appropriate notice to the Trustee by the Company, or
(b) the date on which the
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Trustee has been notified in accordance with Section 1.2 that the Trust has
become irrevocable, the Trustee shall make payments of Supplemental Benefits to
each Trust Beneficiary when and as due under the Plan from the assets of the
Trust as it shall be directed in writing by the Fiduciary.
2.2 The Trustee shall continue to pay Supplemental Benefits to the Trust
Beneficiaries when and as due under the Plan until the assets of the Trust are
depleted, subject to Section 11.2. If any current payment by the Trustee under
the terms of this Agreement would deplete the assets of the Trust below the
amount necessary to provide adequately for Supplemental Benefits known to the
Trustee to be due and payable in the future, the Trustee shall nevertheless
make the current payment when due. If, after application of the preceding
sentence, amounts in the Trust are not sufficient to provide for full payment
of the Supplemental Benefits to which any Trust Beneficiary is entitled as
provided in this Agreement, the Company shall make the balance of each such
payment directly to the Trust Beneficiary as it becomes due.
2.3 Notwithstanding Sections 2.1 and 2.2, the Company may make payments of
Supplemental Benefits to each Trust Beneficiary when and as due under the Plan.
The Company shall notify the Trustee in writing of its decision to pay
Supplemental Benefits directly at least 30 days prior to the time amounts are
due to be paid to a Trust Beneficiary and shall provide the Trustee promptly
after the due date of each payment written confirmation as specified by the
Trustee that such payment has been made.
2.4 Nothing in this Agreement shall in any way diminish any rights of any Trust
Beneficiary to pursue such Trust Beneficiary's rights as a general creditor of
the Company with respect to Supplemental Benefits or otherwise, and the rights
of each Trust Beneficiary under the Plan shall in no way be affected or
diminished by any provision of this Agreement or action taken pursuant to this
Agreement, except that any payment actually received by any Trust Beneficiary
hereunder shall reduce dollar-per-dollar amounts otherwise due to such Trust
Beneficiary pursuant to the Plan.
2.5 The Trustee shall withhold from any payment to a Trust Beneficiary the
amount required by law to be so withheld under federal, state and local tax
withholding requirements as it shall be directed in writing by the Fiduciary,
and shall pay over the amounts withheld to the Company to forward to the
appropriate government authority. The Company shall have sole responsibility
for all related reporting requirements.
III. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO
TRUST BENEFICIARIES WHEN THE COMPANY IS INSOLVENT
3.1 At all times during the continuance of this Trust, the principal and
income of the Trust shall be subject to claims of creditors of the Company as
set forth in this Section 3.1. The Board of Directors of the Company (the
"Board"), the Chief Executive Officer of the Company (the "CEO") and the
President of the Company (the "President") shall have the duty to inform the
Trustee in writing if either the Board, the CEO or the President believes that
the Company is Insolvent. If the Trustee receives a notice in writing from the
Board, the CEO or the President stating that the Company is Insolvent or if a
person claiming to be a creditor of the Company
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alleges in writing to the Trustee that the Company has become Insolvent, the
Trustee shall request that the Company's independent accountants determine
within 30 days after receipt of such notice whether the Company is Insolvent.
The Trustee shall be fully protected under Section 8.7 in relying upon the
opinion and advice of such independent accountants. The Company shall provide
its independent accountants with any information reasonably requested, and
otherwise cooperate with the accountants in making the determination. Pending
such determination, or if the Trustee has actual knowledge that the Company is
Insolvent, the Trustee shall discontinue or refrain from making payments to any
Trust Beneficiary and hold the Trust assets for the benefit of the general
creditors of the Company. The Trustee shall pay any undistributed principal and
income in the Trust to the extent necessary to satisfy the claims of the
creditors of the Company as a court of competent jurisdiction may direct in
writing. If the Trustee has discontinued or refrained from making payments to
any Trust Beneficiary pursuant to this Section 3.1, the Trustee shall pay or
resume payments to such Trust Beneficiary in accordance with this Agreement if
the Company's independent accountants have determined that the Company is not
Insolvent, or is no longer Insolvent (if the Trustee initially determined the
Company to be Insolvent), or pursuant to the order of a court of competent
jurisdiction. Unless the Trustee has actual knowledge of Insolvency, or has
received notice from the Board, the President, the CEO or a person claiming to
be a creditor of the Company alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire as to whether the Company is Insolvent
and may rely on information concerning the Insolvency of the Company that has
been furnished to the Trustee by any creditor of the Company or by any person
(other than an employee or director of the Company) acting with apparent or
actual authority with respect to the Company.
3.2 If the Trustee is precluded from paying Supplemental Benefits from the
Trust assets pursuant to Section 3.1 and such prohibition is subsequently
removed, the Trustee shall pay the aggregate amount of all Supplemental
Benefits that would have been paid to the Trust Beneficiaries in accordance
with this Agreement during the period of such prohibition, less the aggregate
amount of Supplemental Benefits otherwise paid to any Trust Beneficiary
directly by the Company during any such period, together with interest on the
delayed amount determined at a rate equal to the rate actually earned
(including, without limitation, market appreciation or depreciation, plus
receipt of interest and dividends) during such period with respect to the
assets of the Trust corresponding to such net amount delayed.
IV. PAYMENTS TO COMPANY
4.1 Except to the extent expressly contemplated by Sections 1.2, 1.4(d) and
2.5 and this Article IV, the Company shall have no right or power to direct the
Trustee to return any of the Trust assets to the Company before all payments of
Supplemental Benefits have been made to all Trust Beneficiaries as provided in
this Agreement. Upon the written request of the Company made prior to the date
on which the Trust becomes irrevocable, the Trustee shall return to the Company
any Trust assets in excess of One Hundred Dollars ($100.00) as may be specified
in such request by the Company.
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V. INVESTMENT OF TRUST FUND
5.1 Prior to the date on which the Trust becomes irrevocable, the Trustee
shall invest and reinvest the assets of the Trust as the Company or its
designee shall prescribe in writing from time to time.
5.2 On or after the date on which the Trust becomes irrevocable, or in the
absence of the instructions from the Company specified in Section 5.1, the
provisions of this Section 5.2 shall apply to the investment of the Trust
assets. The investment objective of the Trustee shall be to preserve the
principal of the Trust while obtaining a reasonable total rate of return,
measurement of which shall include, without limitation, market appreciation or
depreciation plus receipt of interest and dividends. The Trustee shall be
mindful, in the course of its management of the Trust, of the liquidity demands
on the Trust.
5.3 The Trustee shall have the sole power to invest the assets of the
Trust, in accordance with the provisions of Sections 5.1 and 5.2. The Trustee
shall not be liable for any failure to maximize income on such portion of the
Trust assets as may be from time to time invested or reinvested as set forth
above, nor for any loss of principal or income due to the liquidation of any
investment that the Trustee, in its sole discretion, believes necessary to make
payments or to reimburse expenses under the terms of this Agreement. The
Trustee shall have the right to invest assets of the Trust for short-term
investment periods, pending distribution or long-term investment of such
assets, as the Trustee may deem proper in the circumstances.
VI. INCOME OF THE TRUST
6.1 Except as provided in Articles III and IV, during the continuance of
this Trust all net income of the Trust shall be retained in the Trust.
VII. ACCOUNTING BY TRUSTEE
7.1 The Trustee shall maintain such books, records and accounts as may be
necessary for the proper administration of the Trust assets, including such
specific records as shall be agreed upon in writing by the Company and the
Trustee. Within 60 days following the close of each Plan Year that includes or
commences after the date of this Trust until the termination of this Trust or
the removal or resignation of the Trustee (and within 60 days after the date of
such termination, removal or resignation), the Trustee shall render to the
Company an accounting with respect to the Trust assets as of the end of the
then most recent Plan Year (and as of the date of such termination, removal or
resignation, as the case may be). The Trustee shall furnish to the Company on a
quarterly basis and in a timely manner such information regarding the Trust as
the Company shall require for purposes of preparing its statements of financial
condition. Upon the written request of the Company or, on or after the date on
which the Trust has become irrevocable, the Fiduciary, the Trustee shall
deliver to the Fiduciary or the Company, as the case may be, a written report
setting forth the amount held in the Trust and a record of the deposits made
with respect thereto by the Company. Unless the Company or the Fiduciary shall
have filed with the Trustee written exception or objection to the statement and
account furnished by the Trustee within 90 days after receipt thereof, the
Company and the Trust Beneficiaries shall be deemed to have approved such
statement and account, and in such case the Trustee shall be forever released
and discharged with respect to all matters and things reported in such
statement
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and account as though it had been settled by a decree of a court of competent
jurisdiction in an action or proceeding to which the Company and the
Participants were parties.
7.2 Nothing in this Article VII shall preclude the commingling of Trust
assets for investment.
VIII. RESPONSIBILITY AND INDEMNIFICATION OF TRUSTEE
8.1 The duties and responsibilities of the Trustee shall be limited to
those expressly set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Trustee.
8.2 In addition to and without limiting any other provision of this
Agreement, on or after the date on which the Trust has become irrevocable, the
Trustee shall, based upon the written direction of the Fiduciary and any
payment schedules attached to this Agreement as Exhibits, carry out the duties
allocated to it by this Agreement in accordance with the terms of Section 8.4.
The Company hereby agrees that it will not contest, dispute or otherwise
challenge any decision made by the Trustee pursuant to the terms of this
Agreement.
8.3 If all or any part of the Trust assets are at any time attached,
garnished, or levied upon by any court order, or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in case any order, judgment or decree
shall be made or entered by a court affecting such property or any part of such
property, then and in any of such events the Trustee shall rely upon and comply
with any such order, judgment or decree, and it shall not be liable to the
Company or any Trust Beneficiary by reason of such compliance even though such
order, judgment or decree subsequently may be reversed, modified, annulled, set
aside or vacated.
8.4 The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to anyone for any action taken pursuant to a
direction, request, or approval given by the Company, the Fiduciary or any
Trust Beneficiary contemplated by and complying with the terms of this
Agreement. The Trustee shall discharge its responsibility for the investment,
management and control of the Trust assets solely in the interest of the Trust
Beneficiaries and for the exclusive purpose of assuring that, to the extent of
available Trust assets, and in accordance with the terms of this Agreement, all
payments of Supplemental Benefits are made when due to the Trust Beneficiaries.
8.5 The Trustee may consult with legal counsel (who may be counsel for the
Company) to be selected by it, and the Trustee shall not be liable for any
action taken or suffered by it in accordance with the advice of such counsel.
8.6 The Trustee shall be reimbursed by the Company for its reasonable
expenses incurred in connection with the performance of its duties (including,
but not limited to, the fees and expenses of counsel, accountants and others
incurred pursuant to Section 8.5, 8.11 or 12.2)
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and shall be paid reasonable fees for the performance of such duties in the
manner provided by Section 8.7.
8.7 The Company agrees to indemnify and hold harmless the Trustee from and
against any and all damages, losses, claims or expenses as incurred (including
expenses of investigation and fees and disbursements of counsel to the Trustee,
the fees and expenses of the Fiduciary and any taxes imposed on the Trust
assets or income of the Trust) arising out of or in connection with the
performance by the Trustee of its duties, other than such damages, losses,
claims or expenses arising out of the Trustee's gross negligence or willful
misconduct. The Trustee shall not be required to undertake or to defend any
litigation arising in connection with this Agreement unless it be first
indemnified by the Company against its prospective costs, expenses and
liabilities (including, without limitation, attorneys' fees and expenses), and
the Company agrees to indemnify the Trustee and be primarily liable for such
costs, expenses, and liabilities. Any amount payable to the Trustee under
Section 8.6 or this Section 8.7 or payable to the Fiduciary pursuant to Section
8.11 shall be paid by the Company promptly upon demand by the Trustee or, in
the event that the Company fails to make such payment within 30 days of such
demand, from the Trust assets. In the event that payment is made to the Trustee
or the Fiduciary from the Trust assets, the Trustee shall promptly notify the
Company in writing of the amount of such payment. The Company agrees that, upon
receipt of such notice, it will deliver to the Trustee to be held in the Trust
an amount in cash equal to any payments made from the Trust assets to the
Trustee pursuant to Section 8.6, 8.11 or this Section 8.7. The failure of the
Company to transfer any such amount shall not in any way impair the Trustee's
right to indemnification, reimbursement and payment pursuant to Section 8.6 or
this Section 8.7.
8.8 The Trustee may vote any stock or other securities and exercise any
right appurtenant to any stock, other securities or other property held
hereunder, either in person or by general or limited proxy, power of attorney
or other instrument.
8.9 The Trustee may hold securities in bearer form and may register
securities and other property held in the Trust fund in its own name or in the
name of a nominee, combine certificates representing securities with
certificates of the same issue held by the Trustee in other fiduciary
capacities, and deposit, or arrange for deposit of, property with any
depository; provided that the books and records of the Trustee shall at all
times show that all such securities are part of the assets of the Trust.
8.10 The Trustee may exercise all rights appurtenant to any letter of
credit made payable to the Trustee of the Trust for the benefit of the Trust in
accordance with the terms of such letter of credit.
8.11 (a) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals, who may be agents,
accountants, actuaries, investment advisors, financial consultants, or
otherwise act in a professional capacity, as the case may be, for the Company
or with respect to the Plan, to assist the Trustee in performing any of its
duties.
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(b) Without limiting the foregoing, the Trustee shall retain an
independent third party (the "Fiduciary") to provide services, as described in
a separate fiduciary services agreement, to the Trustee in connection with the
administration of the Trustee's obligations under this Agreement. The duties,
responsibilities and obligations of the Fiduciary shall be set forth in a
separate fiduciary services agreement between the Fiduciary and the Trustee as
set forth in an exhibit ("Exhibit C") hereto or as subsequently agreed to by
the Fiduciary, the Trustee and the Company. The initial Fiduciary will be CRG
Fiduciary Services, Inc., a California corporation. Any successor Fiduciary
shall be appointed by the Trustee, as directed by a majority of the
Participants. The Fiduciary shall be reimbursed by the Company for its
reasonable expenses incurred in connection with the performance of its services
pursuant to the fiduciary services agreement and shall be paid such fees by the
Company as may be prescribed by such agreement. See Section 13.11, regarding
the effectiveness of the Fiduciary's services.
8.12 The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law unless expressly provided otherwise in this
Agreement.
8.13 Notwithstanding any other provision of this Agreement, in the event of
the termination of the Trust, or the resignation or discharge of the Trustee,
the Trustee shall have the right to a settlement of its accounts in accordance
with the procedures set forth in Section 7.1, which may be made, at the option
of the Trustee, either (a) by a judicial settlement in a court of competent
jurisdiction, or (b) by agreement of settlement, release and indemnity from the
Company to the Trustee.
8.14 Notwithstanding any powers granted to the Trustee pursuant to this
Agreement or applicable law, the Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Treasury Regulation ss. 301.7701-2.
IX. AMENDMENTS, ETC., TO PLAN AND EXHIBITS
9.1 The Company shall furnish the Trustee and the Fiduciary with any
amendments, restatements, or other changes in the Plan, and the Company shall
from time to time prescribe or amend, as the case may be, Exhibit B hereto to
reflect any such amendment, restatement, or other change, or any changes in the
compensation of the Participants, or otherwise.
9.2 The Company shall furnish to the Trustee any amendment to Exhibit A and
any corresponding amendment to Exhibit B required as a result of such amendment
to Exhibit A; provided, however, that on or after the date on which the Trust
becomes irrevocable, any amendment to Exhibit A must be (a) approved by the
Fiduciary, and (b) in the case of an amendment that adds a new Participant as a
Trust Beneficiary, accompanied by the deposit into the Trust by the Company, on
or before the effective date on which the new Participant would become a Trust
Beneficiary, an amount sufficient to pay such new Participant's Supplemental
Benefits hereunder (with such sufficiency determined on the same actuarial
basis as that used to determine sufficiency with respect to the Supplemental
Benefits as in effect hereunder immediately prior to the addition of such new
Participant).
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9.3 Notwithstanding the foregoing provisions of this Article IX, any
amendment, restatement, successor or other change in the Plan or the addition
of a new Plan that would materially increase the responsibilities or
liabilities of the Trustee or materially change its duties shall also require
the consent of the Trustee, which consent shall not be unreasonably withheld.
X. REPLACEMENT OF TRUSTEE
10.1 The Trustee may resign and be discharged from its duties hereunder
after providing not less than 90 days' notice in writing to the Company. On or
after the date on which the Trust becomes irrevocable, the Trustee shall also
provide notice of its resignation to the Fiduciary. Prior to the date on which
the Trust becomes irrevocable, the Trustee may be removed at any time upon
notice in writing by the Company. On or after such date, such removal shall
also require the approval of the Fiduciary. Prior to the date on which the
Trust becomes irrevocable, a replacement or successor trustee shall be
appointed by the Company. On or after such date, such appointment shall also
require the approval of the Fiduciary. No such removal or resignation shall
become effective until the effectiveness of the acceptance of the trust by a
successor trustee designated in accordance with this Article X. If the Trustee
should resign, and within 45 days of the notice of such resignation the Company
and, if required, the Fiduciary shall not have notified the Trustee of an
agreement as to a replacement trustee, the Trustee shall petition a court of
competent jurisdiction to appoint a successor trustee. Upon the acceptance of
the trust by a successor trustee, the Trustee shall release all of the moneys
and other property in the Trust to its successor, who shall thereafter for all
purposes of this Agreement be considered to be the "Trustee." In the event of
its removal or resignation, the Trustee shall duly file with the Company and,
after the Trust becomes irrevocable, the Fiduciary, a written statement or
statements of accounts and proceedings as provided in Section 7.1 for the
period since the last previous annual accounting of the Trust, and if written
objection to such account is not filed as provided in Section 7.1, the Trustee
shall to the maximum extent permitted by applicable law be forever released and
discharged from all liability and accountability with respect to the propriety
of its acts and transactions shown in such account. The successor trustee shall
not be responsible for, and the Company shall indemnify and defend the
successor trustee from any claim or liability resulting from any action or
inaction of any prior trustee or from any other past event, or any condition
existing at the time it becomes successor trustee. In the event that no party
is then serving as a Fiduciary, this Section 10.1 shall be applied by
substituting the Participants for the Fiduciary and approval by a majority of
the Participants for approval by the Fiduciary.
XI. AMENDMENT OR TERMINATION OF AGREEMENT
11.1 This Agreement may be amended at any time and to any extent by a
written instrument executed by the Trustee and the Company and, after the Trust
has become irrevocable, approved by the Fiduciary; provided, however, that no
amendment shall have the effect of (a) making the Trust revocable after it has
become irrevocable in accordance with Section 1.2 or (b) altering Section 11.2.
Notwithstanding the previous sentence, amendments contemplated by Article IX
shall be made as therein provided.
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11.2 The Trust shall terminate (a) prior to the date on which the Trust has
become irrevocable, upon the written request of the Company, and (b) on or
after such date, upon the earliest to occur of (i) a determination by the
Fiduciary that no Trust Beneficiary is or will be entitled to any further
payment of Supplemental Benefits; (ii) such time as the Trust no longer
contains any assets, or contains assets that, in the sole judgment of the
Trustee, are insubstantial in relation to the actual and potential liabilities
of the Trustee to pay Supplemental Benefits under the terms of this Agreement
and any other amounts to be paid from the assets of the Trust, including,
without limitation, the fees and expenses of the Trustee, the Fiduciary and
counsel; or (iii) notwithstanding anything to the contrary contained in the
Plan, such time as the Trustee shall have received consents from the Fiduciary
and a majority of the Participants to the termination of this Agreement.
Notwithstanding the previous sentence (other than clause (ii) thereof), if
payments under the Plan with respect to a Trust Beneficiary are the subject of
litigation or arbitration, the Trust shall not terminate and the funds held in
the Trust with respect to such Trust Beneficiary shall continue to be held by
the Trustee until the final resolution of such litigation or arbitration. The
Trustee may assume that the Plan is not the subject of such litigation or
arbitration unless the Trustee receives written notice from a Trust Beneficiary
or the Company with respect to such litigation or arbitration. The Trustee may
rely upon written notice from a Trust Beneficiary as to the final resolution of
such litigation or arbitration.
11.3 Upon a termination of the Trust as provided in Section 11.2, any
assets remaining in the Trust, less all payments, expenses, taxes and other
charges under this Agreement as of such date of termination, shall be returned
to the Company in such amounts and in the manner instructed by the Company,
whereupon the Trustee shall be released and discharged from all obligations
under this Agreement. From and after the date of termination, and until final
distribution of the Trust assets, the Trustee shall continue to have all of the
powers provided in this Agreement as are necessary or expedient for the orderly
liquidation and distribution of the Trust.
XII. SPECIAL DISTRIBUTIONS
12.1 It is intended that (a) the creation of, transfer of assets to, and
irrevocability of, the Trust will not cause the Plan to be other than
"unfunded" for purposes of title I of ERISA; (b) transfers of assets to the
Trust or the Trust becoming irrevocable will not be transfers of property for
purposes of section 83 of the Code, or any successor provision thereto, nor
will such transfers or irrevocability cause a currently taxable benefit to be
realized by a Trust Beneficiary pursuant to the "economic benefit" doctrine;
and (c) pursuant to section 451 of the Code, or any successor provision
thereto, amounts will be includible as compensation in the gross income of a
Trust Beneficiary in the taxable year or years in which such amounts are
actually distributed or made available to such Trust Beneficiary by the
Trustee.
12.2 Notwithstanding anything to the contrary contained in the Plan, if the
Trustee obtains an opinion of tax counsel selected by the Trustee to the effect
that based upon any of the following occurring after the date of this
Agreement:
(a) a change in the federal tax or revenue laws, (b) a decision in a
controlling case, (c) a published ruling or similar announcement issued by
the Internal Revenue Service, (d) a
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regulation issued by the Secretary of the Treasury, (e) a decision by a
court of competent jurisdiction involving a Trust Beneficiary, or (f) a
closing agreement made under section 7121 of the Code that is approved by
the Internal Revenue Service and involves a Trust Beneficiary,
it is more likely than not that an amount is includible in the gross income of
a Trust Beneficiary in a taxable year that is prior to the taxable year or
years in which such amount would, but for this Section 12.2, otherwise actually
be distributed or made available to such Trust Beneficiary by the Trustee, then
the Trustee shall promptly distribute to each affected Trust Beneficiary an
amount equal to the amount determined to be includible in gross income in such
prior taxable year. The Trustee shall seek such an opinion of tax counsel if
and only if requested to do so by the Fiduciary.
12.3 Notwithstanding anything to the contrary contained in the Plan, if a
Trust Beneficiary provides evidence satisfactory to the Trustee demonstrating
that, as a result of an assertion by the Internal Revenue Service, a final
nonappealable binding determination has been made with respect to a taxable
year of such Trust Beneficiary that an amount is includible in the gross income
of such Trust Beneficiary in a taxable year that is prior to the taxable year
in which such amount would, but for this Section 12.3, otherwise actually be
distributed or made available to such Trust Beneficiary by the Trustee, then
the Trustee shall promptly distribute to such Trust Beneficiary an amount equal
to such amount determined by the Internal Revenue Service to be includible in
gross income in such prior taxable year.
XIII. GENERAL PROVISIONS
13.1 The Company shall, at any time and from time to time, upon the
reasonable request of the Trustee, provide information, execute and deliver
such further instruments and do such further acts as may be necessary or proper
to effectuate the purposes of this Trust.
13.2 Each Exhibit referred to in this Agreement shall become a part of this
Agreement and is expressly incorporated herein by reference.
13.3 This Agreement sets forth the entire understanding of the parties with
respect to its subject matter and supersedes any and all prior agreements,
arrangements and understandings. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and legal
representatives.
13.4 This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, other than and without reference to any
provisions of such laws regarding choice of laws or conflict of laws.
13.5 In the event that any provision of this Agreement or the application
of any provision to any person or circumstances shall be determined by a court
of competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or
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unenforceable, shall not be affected, and each provision of this Agreement
shall be valid and enforced to the maximum extent permitted by law.
13.6 (a) The preamble to this Agreement shall be considered a part of the
agreement of the parties as if set forth in a section of this Agreement.
(b) The headings and table of contents contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement.
(c) Unless otherwise noted, all section and article references are to
sections and articles of this Agreement.
(d) Any reference to a provision of a statute, regulation or rule
shall also include any successor to such statute, regulation or rule.
13.7 The right of any Trust Beneficiary to any benefit or to any payment
hereunder may not be anticipated, assigned (either at law or in equity),
alienated or subject to attachment, garnishment, levy, execution or other legal
or equitable process except as required by law. Any attempt by any Trust
Beneficiary to anticipate, alienate, assign, sell, transfer, pledge, encumber
or charge the same shall be void. The Trust assets shall not in any manner be
subject to the debts, contracts, liabilities, engagement or torts of any Trust
Beneficiary and payments hereunder shall not be considered an asset of the
Trust Beneficiary in the event of the insolvency or bankruptcy of such Trust
Beneficiary.
13.8 Each Participant is an intended beneficiary under this Trust, and as
an intended beneficiary shall be entitled to enforce all terms and provisions
with the same force and effect as if such person had been a party to this
Agreement.
13.9 Notwithstanding any other provision, the parties' respective rights
and obligations under Section 13.8 and all releases and indemnities provided in
this Agreement shall survive any termination or expiration of this Agreement.
13.10 This Agreement may be executed in two or more counterparts, each of
which shall be considered an original agreement, but all of which together
shall constitute one agreement.
13.11 The provisions in this Agreement regarding the Fiduciary (including
the last sentence of Section 10.1) shall become effective only as set forth in
the fiduciary services agreement described in Section 8.11(b). In the absence
of such fiduciary services agreement or prior to the effectiveness of the
Fiduciary's services as set forth in such agreement, the Company shall be
treated as the Fiduciary for all purposes of this Agreement.
XIV. NOTICES
14.1 For all purposes of this Agreement, any communication, including
without limitation, any notice, consent, report, demand or waiver required or
permitted to be given
-13-
<PAGE> 17
hereunder shall be in writing and, unless otherwise provided in this Agreement,
shall be deemed to have been duly given when hand delivered or dispatched or
transmitted by electronic facsimile (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been dispatched by a nationally recognized overnight courier
service to the appropriate party at the address specified below:
If to the Company, to: Greyhound Lines, Inc.
15110 North Dallas Parkway, Suite 600
Dallas, Texas 75248
Attention: General Counsel
If to the Trustee, to: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Senior Vice President
Employee Benefits Group
If to a Participant, to: the address of such Participant as
listed next to such Participant's
name on Exhibit A hereto,
provided, however, that if any party or such party's successors shall have
designated a different address by notice to the other parties, then to the last
address so designated.
-14-
<PAGE> 18
IN WITNESS WHEREOF, the Company and the Trustee caused this Agreement to be
executed on its behalf as of the date first above written.
Attested GREYHOUND LINES, INC.
By: By:
------------------------------- ---------------------------------
Its: Its:
--------------------------- -----------------------------
Attested LASALLE NATIONAL BANK
By: By:
------------------------------- ---------------------------------
William Kursar
Its: Its: Senior Vice President
--------------------------- -----------------------------
-15-
<PAGE> 19
Exhibit A
<TABLE>
<CAPTION>
Employee Address Soc. Sec. No.
- -------- ------- -------------
<S> <C> <C>
</TABLE>
<PAGE> 20
Exhibit B
<PAGE> 21
Exhibit C
Fiduciary Services Agreement
<PAGE> 1
EXHIBIT 10.38
SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT
This SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") dated
as of the 16th day of March, 1999, but effective as provided herein, by and
between GREYHOUND LINES, INC. (together with its successors, the "Company"),
LAIDLAW, INC. (together with its successors, the "Parent") and CRAIG R.
LENTZSCH (the "Executive").
WHEREAS, the Executive has served as the Chief Executive Officer of
the Company since November 15, 1994, and has considerable experience, expertise
and training in management related to the types of services offered by the
Company; and
WHEREAS, the Executive and the Company entered into a First Amended
Executive Employment Agreement (the "Prior Agreement"), effective November 15,
1998; and
WHEREAS, pursuant to the Agreement and Plan of Merger dated as of
October 16, 1998 (the "Merger Agreement") by and among Parent, Laidlaw Transit
Acquisition Corp., a wholly-owned subsidiary of Parent, and the Company, as
amended, at the Effective Time of the Merger (the "Effective Time"), as defined
in the Merger Agreement, Laidlaw Transit Acquisition Corp. will be merged with
and into the Company, with the Company as the surviving entity (the "Merger");
and
WHEREAS, the Company and Parent desire and intend to continue the
employment of the Executive as Chief Executive Officer of the Company pursuant
to the terms and conditions set forth in this Agreement; and
WHEREAS, in view of the changes in the nature and scope of the duties
and responsibilities of the Executive that will occur as a result of the
Merger, the Company, Parent and the Executive desire to amend and restate
certain of the terms and conditions of the Executive's employment with the
Company as set forth in the Prior Agreement;
WHEREAS, the Company, Parent and the Executive have read and
understood the terms and provisions set forth in this Agreement, and have been
afforded a reasonable opportunity to review this Agreement and have been
advised to do so with their respective legal counsel.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in this Agreement, the Executive, Parent and the Company agree as
follows:
1. COMPENSATION: During his employment pursuant to this Agreement, the Company
agrees to provide the Executive the following compensation:
a. BASE SALARY: From the Effective Time until changed as provided in this
section, the Company agrees to pay the Executive an annual salary of
$500,000.00 (the "Base Salary"), payable in at least equal monthly installments
in accordance with the Company's ordinary payroll policies and procedures for
executive compensation. The Company and the Executive acknowledge that during
the employment of the Executive pursuant to this Agreement, the Executive's
Base Salary will be subject to an annual review and adjustment by the Board of
Directors of the Company (the
<PAGE> 2
"Board of Directors") but, in no event, will the Executive's annual Base Salary
be less than the amount set forth in this section.
b. BUSINESS EXPENSES: The Company agrees that the Executive shall be
entitled to reimbursement by the Company for all reasonable expenses (including
first class air travel) that the Executive may incur in the performance of his
duties and obligations under this Agreement, consistent with the Company's
policies for documentation and payment.
c. ANNUAL BONUS: The Company agrees that the Executive shall be entitled to
additional bonus compensation (the "Incentive Compensation") on terms not less
favorable than those applicable to other officers of the Company. The Executive
shall be eligible for annual incentive bonus consideration under the successor
to the Company's 1998 Management Incentive Plan beginning at the Effective Time
and continuing for the duration of this Agreement with an Annual Target Award
of at least 55% of Base Salary and a maximum award of 110% of Base Salary. For
the period beginning on the Effective Time and ending August 31, 1999,
Executive's Incentive Compensation shall be pro-rated to reflect the partial
year. The Company shall honor and pay all Incentive Compensation accruing
and/or payable for the period while the Prior Agreement was in effect.
d. EMPLOYEE BENEFITS: The parties acknowledge and agree that certain
employee benefits will be provided to the Executive incident to his employment
as Chief Executive Officer of the Company. Except as specifically modified by
this section, these employee benefits shall be governed by the applicable
documents, and the Executive shall be entitled to participate in all benefits
provided to officers of the Company on terms not less favorable than to other
officers of the Company. These employee benefits shall continue without
amendment or change, except changes that increase compensation, for a period of
not less than 12 months following the Effective Time. Thereafter, benefits may
be amended, terminated or replaced, provided that the employee benefits
provided to the Executive shall provide, in the aggregate, not less than a
substantially equivalent level of benefits to the Executive. The Company agrees
to the extent not prohibited by law, that it will provide the benefits listed
below and that the following provisions shall apply to any employee benefits
provided by the Company:
(1) 401K PLAN: For purposes of the Greyhound Lines, Inc. and Affiliated
Companies Master Salaried Employees' Cash or Deferred Profit Sharing Plan (the
"401 k Plan"), the Executive's prior service with Buslease, Inc. and any
predecessor of Greyhound Lines, Inc. shall be deemed to be service with the
Company for purposes of determining eligibility and vesting under the 401k
Plan. Subject to the terms of the 401 k Plan, the Company will match fifty
percent (50%) of the first six (6%) of Executive's contributions to such 401 k
Plan. If the Plan is amended with respect to such matching, Executive will
receive matching contributions consistently with that of other participants in
the Plan.
(2) MEDICAL PLAN: For purposes of the Greyhound Lines, Inc. Medical,
Dental and Vision Plan (the "Medical Plan"), the following shall apply:
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<PAGE> 3
(a) The Executive and his dependents, as defined in the Medical Plan
("Dependents"), shall immediately be provided coverage under the Medical Plan
under the option elected by the Executive.
(b) The Medical Plan's provisions limiting coverage of pre-existing
conditions shall not be applied to the Executive or his Dependents.
(c) During the time period in which the Executive and his dependents are
entitled to participate in the Medical Plan, the Company will reimburse the
Executive for one hundred percent (100%) of all medical expenses (both for the
Executive and his dependents) that are not otherwise reimbursable under the
Medical Plan option selected by the Executive; provided, however, that the
total payments made by the Company to or on behalf of any person under this
Subsection shall not exceed the highest "Lifetime Maximum" benefit (per covered
person) available under the Medical Plan on the Effective Date of this
Agreement.
(3) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN: For purposes of the Greyhound
Lines, Inc. Supplemental Executive Retirement Plan (the "SERP"), all of the
Executive's service with Buslease, Inc. and any predecessor of Greyhound Lines,
Inc. shall be treated for all purposes under the SERP as service with Greyhound
Lines, Inc. (as defined in the SERP), the Executive shall continue to be a
designated person eligible for coverage and benefits under the SERP, and the
Executive shall be entitled to an annual contribution equal to 20% of
Executive's annual Base Salary. At the Effective Time, to the extent not
theretofore in effect, the Company shall establish and fully fund, at the
Company's option, in cash, a letter of credit of Parent, or any combination
thereof, a so-called "rabbi" trust for the benefit of the Executive to secure
the payment of benefits provided to the Executive under this Subsection. Not
less frequently than annually thereafter, the Company shall contribute
sufficient additional assets to such trust to fund any increase in the
liabilities of the SERP attributable to the Executive.
(4) ESTATE, TAX AND FINANCIAL PLANNING: During the term of his employment
with the Company, the Executive shall be entitled to $20,000.00 per year for
reimbursement for estate, tax and financial planning. Such reimbursement
payments shall be paid by the Company within a reasonable time after such
expenses are incurred by the Executive.
(5) AUTOMOBILE ALLOWANCE: During the term of his employment with the
Company, the Executive shall be entitled to a $1,000.00 per month automobile
allowance.
(6) COUNTRY CLUB ALLOWANCE: The Company agrees to pay all initiation fees
and monthly membership dues on behalf of the Executive at a country club
mutually selected by the Executive and the Company.
(7) VACATION: The Company will provide vacation to the Executive on terms
not less favorable than that provided to executive officers of the Company. For
purposes of determining the amount of vacation, Executive's prior service with
Buslease, Inc. and any predecessor of Greyhound Lines, Inc. shall be deemed to
be service with the Company.
3
<PAGE> 4
(8) LIFE INSURANCE: At all times during the term of this Agreement,
Executive will receive life insurance coverage as provided by the Company on
terms not less favorable than that provided to other executives of the Company.
In addition to any life insurance provided pursuant to the preceding sentence,
the Executive will be provided with Company-paid life insurance which will
provide death benefits in the event of his death in an amount of at least
$2,000,000.00 payable to the beneficiary or beneficiaries named by the
Executive. The Company shall have the right to purchase insurance to fund its
obligations to the Executive under this section; provided, however, that any
insurance company or companies selected by the Company to fund its obligations
under this Subsection must be the company or companies that underwrite life
insurance benefits covering other officers of the Company.
(9) LONG TERM DISABILITY: The Company will provide Executive long-term
disability coverage and benefits on terms which are not less favorable than
that provided to other executives of the Company but which will provide an
annual disability benefit to the Executive of at least fifty percent (50%) of
his expected annual Base Salary, payable for the year during which Executive
was disabled.
(10) OTHER BENEFITS: For purposes of any and all other benefits provided
by the Company to its Chief Executive Officer, the Executive shall be eligible
for such benefits to the same extent Executive was eligible for such benefits
immediately prior to the Effective Time. Additionally, for purposes of
determining eligibility, funding or vesting with respect to any other benefits,
the Executive's prior service with Buslease, Inc. and any predecessor of
Greyhound Lines, Inc. shall be deemed to be service with the Company.
2. DURATION: The duration of this Agreement shall be defined and determined as
follows:
a. INITIAL TERM: This Agreement shall continue in full force and effect for
three (3) years (the "Initial Term"), commencing on the Effective Time and
expiring on the third anniversary thereof (the "Expiration Date"), unless
terminated prior to the Expiration Date in accordance with Subsection 2(c).
b. RENEWAL: Notwithstanding Subsection 2(a), this Agreement shall
automatically renew for two (2) years (the "Renewal Term") on the Expiration
Date unless either party gives effective written notice to the other party of
the party's intention not to renew this Agreement ("Notice of Non-Renewal"), at
least ninety (90) days prior to the Expiration Date. At the expiration of each
Renewal Term, this Agreement shall automatically renew for another two (2) year
Renewal Term, unless and until either party gives Notice of Non-Renewal. If any
Change of Control (as hereafter defined) occurs on or after the first
anniversary of the Effective Time, this Agreement will be deemed to have
renewed for a two (2) year period, and in such event, the Expiration Date(s)
will occur every two years from the date of such Change of Control.
c. TERMINATION AND NON-RENEWAL: This Agreement may be terminated as follows:
(1) DEATH: This Agreement will terminate in the event of the Executive's
death, provided, however, that the Executive's estate shall be paid (a) the
Base Salary through the date of death and (b) a pro rata portion of the entire
Annual Target Award of Incentive Compensation (based
4
<PAGE> 5
upon the Executive's annual Base Salary), payable when the Incentive
Compensation payments are made to other executives of the Company. The pro rata
share will be calculated by the month of the date of death. In addition, the
Executive's designated beneficiaries shall be entitled to receive any life
insurance benefits provided to the Executive in accordance with the applicable
plan documents and/or insurance policies governing such benefits.
(2) DISABILITY: The Company shall be entitled to terminate this Agreement
in the event the Executive becomes "disabled," as that term is defined in the
Greyhound Lines, Inc. Employee Long Term Disability Plan ("the LTD Plan"), and
is unable to perform the essential functions of his position, with reasonable
accommodation, for a period of one hundred eighty (180) consecutive days. The
Executive will be paid his Base Salary through the expiration of such one
hundred eighty day period and a pro rata portion of the entire Annual Target
Award of Incentive Compensation (based upon the Executive's annual Base Salary)
in accordance with the previous Subsection.
(3) GOOD CAUSE:
(a) The Company shall be entitled to terminate this Agreement by
providing the Executive with written notice that the Company is terminating the
Agreement for Good Cause, as defined herein ("Notice of Termination for Good
Cause") at any time during his employment (including any time within ninety
(90) days prior to the Expiration Date or the expiration of any renewal term).
(b) The Company shall be entitled to terminate this Agreement by
communicating Notice of Non-Renewal for Good Cause, as defined herein, at least
ninety (90) days prior to the Expiration Date, or at least ninety (90) days
prior to the expiration of any renewal term.
(c) For purposes of this Agreement, "Good Cause" shall be defined as
follows:
i) Any act or omission constituting fraud under the law of the
State of Texas; or
ii) Conviction of, or a plea of nolo contendere to, a felony; or
iii) Use of illegal drugs; or
iv) Embezzlement of Company property or funds; or
v) The material breach of any provision of this Agreement; or
continued gross neglect of his duties under this Agreement; or
unauthorized competition with the Company during his employment
pursuant to this Agreement; or unauthorized use of Confidential
Information (as defined in Section 9); which, in any event, is
materially detrimental to the Company;
5
<PAGE> 6
(d) In the event the Company believes "Good Cause" exists for
terminating this Agreement pursuant to this Subsection, the Company shall be
required to give the Executive written Notice of the acts or omissions
constituting "Good Cause" ("Cause Notice"), and, in regard to Section
2(c)(3)(c)(v), no Notice of Termination or Notice of Non-Renewal for Good Cause
shall be communicated by the Company unless and until the Executive fails to
cure such acts or omissions within thirty (30) days after receipt of the Cause
Notice.
(e) In the event the Company communicates Notice of Termination For
Good Cause or Notice of Non-Renewal for Good Cause pursuant to this section,
the Executive shall have the right to a hearing before the Board of Directors,
on a date determined by the Board of Directors not later than thirty (30) days
after the date such Notice is received, to contest the alleged "Good Cause" for
the Notice of Termination or Notice of Non-Renewal. The Board shall provide the
Executive with written notice of its decision resolving any contest under this
section, and no termination or non-renewal of this Agreement shall be deemed to
be effective until such written notice is received by the Executive. In the
event that the Board of Directors affirms the "Good Cause" for termination or
non-renewal, the Executive shall have the right to the Dispute Resolution
procedures set forth in Section 10.
(4) WITHOUT GOOD CAUSE:
(a) The Company shall be entitled to terminate the Executive's
employment under this Agreement by providing ninety (90) days written notice
(or ninety (90) days pay at the Base Salary Rate then in effect in lieu of
notice) to the Executive that the Company is terminating the Agreement Without
Good Cause, as defined herein ("Notice of Termination Without Good Cause"), at
any time during his employment (including any time within ninety (90) days
prior to the Expiration Date or the expiration of any renewal term); provided,
however, that the Company shall be required to pay Severance Pay in accordance
with the Severance provisions in Section 5.
(b) The Company shall be entitled to terminate the Executive's
employment under this Agreement by providing a written Notice of Non-Renewal
Without Good Cause, as defined herein, at least ninety (90) days prior to the
Expiration Date or at least ninety (90) days prior to the expiration of any
renewal term; provided, however, that the Company shall be required to pay
Severance Pay in accordance with the Severance provisions in Section 5.
(c) Any termination of employment or non-renewal of this Agreement
which is not for "Good Cause," as defined above in Subsection 2(c)(3), or which
does not result from the death or retirement of the Executive, or the
disability of the Executive, shall be deemed to be a termination or nonrenewal
"Without Good Cause." Furthermore, in the event that the Company communicates a
Notice of Termination for Good Cause or a Notice of Non-Renewal for Good Cause,
and either the Board of Directors (under Subsection 2(c)(3)(e)) or an
arbitration or a final, non-appealable judicial proceeding (under Section 10)
determine that no Good Cause exists or existed for the Notice of Termination or
Notice of Non-Renewal that was originally communicated, then such Notice of
Termination or Notice of Non-Renewal shall be deemed to have been communication
of a Notice of Termination Without Good Cause or Notice of Non-Renewal Without
Good Cause, as appropriate for all purposes under this Agreement.
6
<PAGE> 7
(5) RESIGNATION: The Executive shall be entitled to terminate his
employment under this Agreement by providing the Company with a written Notice
of Resignation at least ninety (90) days prior to his intended resignation
date, subject to the following provisions:
(a) RESIGNATION FOR GOOD REASON: The Executive shall have the
right to resign for any "Good Reason," as defined herein, and such resignation
shall be deemed to be a termination "Without Good Cause" as defined in
Subsection 2(c)(4) for all purposes under this Agreement, including the "Change
of Control" provisions set forth in Section 4 and the Severance provisions set
forth in Section 5. For purposes of this Section, the term "Good Reason" shall
be defined as:
i) The Company's failure to perform any material provision of
this Agreement; or
ii) Any material changes by the Board of Directors in the
authority, duties, or responsibilities of the Executive under
this Agreement, other than termination for Good Cause,
without the written consent of the Executive; or
iii) The hiring or promotion by the Board of Directors of
another executive employee to a position of equal or greater
responsibility for the management of the Company without the
written consent of the Executive;
iv) Any request by the Board of Directors that the Executive
perform, assist, abet or approve any act which is or could be
construed to be illegal under any federal, state or local
law; or
v) Any requirement by the Board of Directors that the
Executive relocate from Dallas County, Texas, without his
consent; or
vi) In the event the Company fails to maintain adequate
liability insurance coverage or an acceptable letter of
credit to fund any self-insured liabilities, in accordance
with Section 8 of this Agreement, without the written consent
of the Executive.
(b) OPPORTUNITY TO CURE: In the event the Executive believes
"Good Reason" exists for his resignation, he shall be required to give the
Board of Directors written notice of the acts or omissions constituting Good
Reason, and no Notice of Resignation with Good Reason shall be communicated to
the Company unless and until the Company fails to cure such acts or omissions
within thirty (30) days after receipt of the notice described in this sentence.
Any Notice of Resignation with Good Reason shall be deemed to be effective
immediately, and no other notice or opportunity to cure shall be required.
(c) RESIGNATION WITHOUT GOOD REASON: Any resignation by the
Executive for any reason other than "Good Reason," as defined above, shall be
deemed to be a resignation
7
<PAGE> 8
"Without Good Reason." In the event of a Resignation Without Good Reason, the
Change of Control provisions in Section 4 (except during the thirteenth month
following the Change of Control as provided in Section 4) and the Severance
provisions in Section 5 shall be inapplicable.
3. RESPONSIBILITIES:
a. The Executive and the Company acknowledge and agree that the Executive
shall be employed as President and Chief Executive Officer of the Company. The
Executive covenants and agrees that he will faithfully devote his best efforts
and such portion of his time, attention and skill to the business of the
Company as is necessary to perform his obligations under this Agreement;
provided, however, that the Executive is permitted, consistent with the
preceding sentence, to remain on the boards of directors of Enginetech, Inc.
and Hastings Entertainment, Inc. (and to receive compensation for such
services) during his employment pursuant to this Agreement. The Executive may
undertake other business responsibilities or obligations during the term of
this Agreement but shall advise, in writing, the Chairman of the Board before
such responsibilities or obligations are undertaken.
b. The Executive and the Company acknowledge and agree that, as President
and Chief Executive Officer of the Company, the Executive shall be responsible
for actively supervising the overall management and development and execution
of the business strategy of the inter-city coach, coach charter, and line haul
and any other related business thereto of Parent and its subsidiaries subject
to and in accordance with the authority and direction of the President and
Chief Executive Officer of Parent. Without limiting the foregoing, Executive
shall be delegated the authority to commit the Company and/or its subsidiaries
to up to $5 million in capital or operating expenses per project or
transaction; provided that such expenditures are included in the Company's
approved annual budgets.
4. CHANGE OF CONTROL: The parties acknowledge that the Executive has agreed to
continue in the position of Chief Executive Officer of the Company and to enter
into this Agreement based upon his confidence in the current shareholder of the
Company, the support of the Board of Directors, and the continued execution of
the current business strategy of the Company. Accordingly, if the Company
should undergo a "Change of Control," as defined in this section, or in the
case of Section 4(d), in all events, the parties agree as follows:
a. VESTING OF STOCK INCENTIVES AND AWARDS: At the Effective Time and in the
event of a Change of Control, as defined in this section, all Stock Incentives
and Awards provided in Section 6 of this Agreement shall immediately become
vested and exercisable, all other equity incentive awards held by the Executive
shall become fully vested and all other stock options held by the Executive
shall become fully exercisable, effective at the Effective Time and on the date
of the Change of Control, as the case may be, or at such other time as is
necessary to permit the Executive to be treated with respect to vesting and
exercisability no less favorably than other shareholders.
b. COMPENSATION: In the event that the employment of the Executive is
terminated:
(1) at any time within twenty four (24) months after the date of a Change
of Control, as defined in this section, by: (i) the Company communicating a
Notice of Termination
8
<PAGE> 9
Without Good Cause; (ii) the Company communicating a Notice of Non-Renewal
Without Good Cause, or (iii) the Executive communicating a Notice of
Resignation for Good Reason; or
(2) by the resignation of the Executive, whether with or without Good
Reason, within thirty (30) days of the first Anniversary Date (i.e., one year
from the date) of a Change of Control,
the Company agrees to pay to the Executive a lump sum cash payment equal to
three (3) times the sum of: (x) an amount equal to the Executive's then
current, annualized Base Salary, and (y) the greater of: (a) the applicable
Annual Payout of Incentive Compensation paid for the Plan Year immediately
prior to the termination, or (b) the full, non-pro rata Annual Target Award for
Incentive Compensation based upon Executive's annual Base Salary for the Plan
Year in which the termination occurs, which payment shall be paid within thirty
(30) days after the effective date of termination, non-renewal or resignation.
The Company further agrees to continue benefits to the Executive as provided in
Subsection 5(c) for a period of thirty-six (36) months.
c. DEFINITIONS: For purposes of this Agreement and notwithstanding anything
in this Agreement to the contrary, a "Change of Control" shall be deemed to
exist in the event that any of the following occurs:
(1) Parent ceases to be the beneficial owner, directly or indirectly, of
51% or more of the voting shares of the Company or Parent and its subsidiaries
sell or cause to be sold all or substantially all of the assets of the Company;
or
(2) Any individual, or incorporated or unincorporated entity or group of
the foregoing acting jointly and in concert acquires beneficial ownership,
directly or indirectly, of 30% or more of Parent's voting shares; or
(3) A majority of the individuals who serve as directors of Parent at the
commencement of any 18 month period are replaced other than by replacement
directors who became directors at the initiative of management or pursuant to a
management proxy solicitation.
For the purpose of this Agreement, the acquisition of the Company by Parent is
not a Change of Control.
For purposes of this Subsection, a sale of all or substantially all of the
assets of the Company shall be deemed to occur if any corporation, person or
group acting in concert (a "Person") as described in Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended, acquires (or during the 12-month
period on the date of the most recent acquisition by such Person, has acquired)
gross assets of the Company that have an aggregate fair market value equal to
50% of the fair market value of all of the gross assets of the Company
immediately prior to such acquisition(s).
d. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(1) Anything in this Agreement to the contrary notwithstanding, but
subject to Section 4(d)(8), in the event that it shall be determined (as
hereafter provided) that any payment
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<PAGE> 10
(other than the Gross-Up payments provided for in this Section 4(d)) or
distribution by Parent, the Company or any of their affiliates to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise pursuant to
or by reason of any other agreement, policy, plan, program or arrangement,
including without limitation any stock option, performance share, performance
unit, stock appreciation right or similar right, or the lapse or termination of
any restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any successor
provision thereto) by reason of being considered "contingent on a change in
ownership or control" of the Company or of Parent, within the meaning of
Section 280G of the Code (or any successor provision thereto) or to any similar
tax imposed by state or local law, or any interest or penalties with respect to
such tax (such tax or taxes, together with any such interest and penalties,
being hereafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"); provided, however, that no Gross-up
Payment shall be made with respect to the Excise Tax, if any, attributable to
(a) any incentive stock option, as defined by Section 422 of the Code ("ISO")
granted prior to the initial execution of the Original Agreement (as such term
is defined in the Prior Agreement), or (b) any stock appreciation or similar
right, whether or not limited, granted in tandem with any ISO described in
clause (a). The Gross-Up Payment shall be in an amount such that, after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
(2) Subject to the provisions of Section 4(d)(6), all
determinations required to be made under this Section 4(d), including whether
an Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting
Firm to submit its determination and detailed supporting calculations to both
the Company and the Executive within 30 calendar days after the date of
termination of the Executive's employment, if applicable, and any such other
time or times as may be requested by the Company or the Executive. If the
Accounting Firm determines that any Excise Tax is payable by the Executive, the
Company shall pay the required Gross-Up Payment to the Executive within five
business days after receipt of such determination and calculations with respect
to any Payment to the Executive. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it shall, at the same time as it makes
such determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his
federal, state or local income or other tax return. As a result of the
uncertainty in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
4(d)(6) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations
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<PAGE> 11
to both the Company and the Executive as promptly as possible. Any such
Underpayment shall be promptly paid by the Company to, or for the benefit of,
the Executive within five business days after receipt of such determination and
calculations.
(3) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 4(d)(2). Any determination by the
Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon
the Company and the Executive.
(4) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his federal income tax return as filed
with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(5) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations contemplated by Section
4(d)(2) shall be borne by the Company. If such fees and expenses are initially
paid by the Executive, the Company shall reimburse the Executive the full
amount of such fees and expenses within five business days after receipt from
the Executive of a statement therefor and reasonable evidence of his payment
thereof.
(6) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment.
Such notification shall be given as promptly as practicable but no later than
10 business days after the Executive actually receives notice of such claim and
the Executive shall further apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid (in each case, to the
extent known by the Executive). The Executive shall not pay such claim prior to
the earlier of (a) the expiration of the 30-calendar-day period following the
date on which he gives such notice to the Company and (b) the date that any
payment of amount with respect to such claim is due. If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including without limitation accepting
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<PAGE> 12
legal representation with respect to such claim by an attorney competent
in respect of the subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 4(d)(6), the Company shall control all proceedings taken in
connection with the contest of any claim contemplated by this Section 4(d)(6)
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim (provided, however, that the Executive may participate
therein at his own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income or other tax, including interest or penalties with respect thereto,
imposed with respect to such advance; and provided further, however, that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which the contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of any such contested claim shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(7) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 4(d)(6), the Executive receives any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 4(d)(6)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after any taxes applicable thereto). If, after the receipt by the Executive of
an amount advanced by the Company pursuant to Section 4(d)(6), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial or refund prior to the expiration of 30 calendar
days after such determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of any such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid by
the Company to the Executive pursuant to this Section 4(d).
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<PAGE> 13
(8) Notwithstanding any provision of this Agreement to the
contrary, if (a) but for this sentence, the Company would be obligated to make
a Gross-Up Payment to the Executive, (b) the aggregate "present value" of the
"parachute payments" to be paid or provided to the Executive under this
Agreement or otherwise does not exceed 1.15 multiplied by three times the
Executive's "base amount," and (c) but for this sentence, the net after-tax
benefit to the Executive of the Gross-Up Payment would not exceed $50,000
(taking into account both income taxes and any Excise Tax), then the payments
and benefits to be paid or provided under this Agreement will be reduced to the
minimum extent necessary (but in no event to less than zero) so that no portion
of any payment or benefit to the Executive, as so reduced, constitutes an
"excess parachute payment." For purposes of this Section 4(d)(8), the terms
"excess parachute payment," "present value," "parachute payment," and "base
amount" will have the meanings assigned to them by Section 280G of the Code.
The determination of whether any reduction in such payments or benefits to be
provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or
the Company, by the Accounting Firm. The fact that the Executive's right to
payments or benefits may be reduced by reason of the limitations contained in
this Section 4(d)(8) will not of itself limit or otherwise affect any other
rights of the Executive other than pursuant to this Agreement. In the event
that any payment or benefit intended to be provided under this Agreement or
otherwise is required to be reduced pursuant to this Section 4(d)(8), the
Executive will be entitled to designate the payments and/or benefits to be so
reduced in order to give effect to this Section 4(d)(8). The Company will
provide the Executive with all information reasonably requested by the
Executive to permit the Executive to make such designation. In the event that
the Executive fails to make such designation within 10 business days of the
date of termination of the Executive's employment, the Company may effect such
reduction in any manner it deems appropriate.
5. SEVERANCE: In the event that the Company communicates Notice of Termination
Without Good Cause or Notice of Non-Renewal Without Good Cause, or the
Executive communicates Notice of Resignation for Good Reason, the Company
agrees to pay the Executive the following severance compensation (the
"Severance Pay"):
a. CALCULATION OF SEVERANCE PAY. The Company shall pay the Executive a lump
sum payment equal to three (3) times the sum of: (i) an amount equal to his
then current, annualized Base Salary, and (ii) the greater of: (x) the
applicable Annual Payout of Incentive Compensation paid for the Plan Year
immediately prior to the termination, or (y) the full, non-pro rata Annual
Target Award for Incentive Compensation based upon Executive's annual Base
Salary for the Plan Year in which the termination occurs.
b. TERMS OF PAYMENT: Severance Pay required pursuant to this section shall
be payable in cash in full within thirty (30) days after the Notice of
Termination Without Good Cause, the Notice of Non-Renewal Without Good Cause,
or the Notice of Resignation for Good Reason is communicated.
c. CONTINUATION OF BENEFITS: In the event of a Non-Renewal Without Good
Cause or a Termination Without Good Cause or a Resignation For Good Reason, the
Company agrees to continue any and all Employee Benefits provided in
Subsections 1(d)(2), (4), (5), (6), (7), (8), and (9) received by the Executive
during his employment with the Company, as modified pursuant to
13
<PAGE> 14
the terms of Subsection l(d), for twenty-four (24) months after the effective
date of termination, non-renewal or resignation. If the Executive cannot
continue coverage under the Medical Plan, the Company agrees to purchase
medical, dental, and vision insurance for the Executive and his dependents that
is substantially equivalent to the benefits provided to Executive in Subsection
1(d)(2). Additionally, Executive shall be permitted to continue participation
in the benefits provided in Subsection 1(d)(1) to the extent permitted by law
so as not to cause disqualification of the 401 k Plan and 1(d)(3) without
further Company contributions, except earnings on contributions made prior to
termination and except contributions the Company is required to make to ensure
that such benefits are fully funded for service prior to termination.
d. EXCEPTIONS: Severance Pay shall not be payable under this section in any
of the following circumstances:
(1) In the event that this Agreement is terminated as a result of the
death or disability of the Executive, as provided in Subsections 2(c)(1)-(2);
or
(2) In the event that this Agreement is terminated pursuant to a Notice
of Termination For Good Cause or a Notice of Non-Renewal for Good Cause
communicated by the Company, as provided in Subsection 2(c)(3), and such
termination or non-renewal is affirmed by a proceeding under Section 10; or
(3) In the event the provisions of Section 4 are applicable as a result
of a "Change of Control" having occurred, and the payments provided for in
Section 4 are paid by the Company; or
(4) In the event that the Executive communicates Notice of Resignation
Without Good Reason as defined in Subsection 2(c)(5).
e. EXCLUSIVITY: The Company and the Executive acknowledge and agree that the
Severance Payments required under this section are intended to be exclusive and
to supersede any severance pay plans or policies adopted by the Company and
that the Executive shall not be entitled to any additional severance
compensation under any other severance plan or policy adopted by the Company.
f. MITIGATION: The payment of the severance compensation by the Company to
the Executive in accordance with Sections 4 and 5 of this Agreement is hereby
acknowledged by the Company to be reasonable, and the Executive will not be
required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor will any profits, income,
earnings or other benefits from any source whatsoever create any mitigation,
offset, reduction or any other obligation on the part of the Executive
hereunder or otherwise.
6. STOCK INCENTIVES AND AWARDS: In addition to the other compensation set forth
in this Agreement, Executive shall be entitled to participate in such stock
options plans, incentives and awards on terms applicable to other officers and
directors of Parent, except that Parent may provide for additional benefits,
incentives, or awards to Executive and except that the following shall apply to
any options granted to Executive after the Effective Time:
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<PAGE> 15
a. DEATH AND DISABILITY. If Executive dies or becomes disabled during the
term of this Agreement, (1) all unvested options as of the date of such death
or disability shall vest immediately; and (2) Executive (or his legal
representative or Estate) may exercise such options in accordance with the
exercise period prescribed in the stock option plan or twelve (12) months from
such death or disability, whichever is longer.
b. RETIREMENT. If Executive retires (as defined in the 401 k plan, except
that, for purposes of this Section, the service requirement will be modified to
be no more than ten (10) years and the age requirement will be no more than age
55), (1) all unvested options as of the date of such retirement shall vest
immediately; and (2) Executive (or his Estate) may exercise such options in
accordance with the exercise period prescribed in the stock incentive and award
plan or thirty-six (36) months, whichever is longer.
Further, notwithstanding anything to the contrary herein, nothing in this
Agreement will affect to the Executive's disadvantage any non-qualified stock
options previously granted to Executive, whether under an Executive Employment
Agreement between Executive and the Company or otherwise.
7. SUCCESSORS AND ASSIGNS: The parties acknowledge and agree that this
Agreement may not be assigned by either party without the written consent of
the other party. In the event of a "Change of Control" as defined in Subsection
4(c), the Company shall be entitled to assign this Agreement to any successor
or assignee; provided, however, that such assignment shall not or be construed
to, in any way whatsoever, release, limit or excuse the Company from the
performance of its obligations and the payment of its liabilities under this
Agreement, regardless of whether such obligations or liabilities accrued or
accrue before, after or as a result of such assignment, and regardless of
whether such obligations or liabilities are or were assumed by any successor or
assignee. In the event of the Executive's death, this Agreement shall be
enforceable by the Executive's estate, executors or legal representatives, but
only to the extent that such persons may collect any compensation (including
stock options) due to the Executive under this Agreement.
8. INDEMNIFICATION: During and after the employment of the Executive pursuant
to this Agreement, the Company shall indemnify the Executive against all
judgments, penalties, fines, assessments, losses, amounts paid in settlement
and reasonable expenses (including, but not limited to, attorneys' fees) for
which the Executive may become liable as a result of his performance of his
duties and responsibilities pursuant to this Agreement and shall advance and
pay any expenses incurred in defending such claims, to the fullest extent
permissible under the laws of the State of Delaware. In addition, the Company
agrees to purchase officer and director liability insurance, with such
reasonable exclusions that are acceptable to the Executive, for any such
judgments, penalties, fines, assessments, losses, amounts paid in settlement
and reasonable expenses (including, but not limited to, attorneys' fees) for
which the Executive may become liable as a result of his performance of his
duties and responsibilities pursuant to this Agreement in an amount not less
than the amount of director and officer liability insurance in effect at the
Effective Time. In the event that the Company elects to self-insure for any
judgments, penalties, fines, assessments, losses, amounts paid in settlement,
and reasonable expenses (including, but not limited to, attorneys' fees), for
which the Executive may become liable as a result of the performance of his
duties as an officer and director of the Company, the Company agrees to
purchase and maintain an adequate, secured letter of credit
15
<PAGE> 16
from an institution acceptable to the Executive as security for the Company's
performance under this section and to fully indemnify the Executive for any
such liabilities, as provided herein.
9. NON-COMPETITION AND NON-DISCLOSURE: The Company and the Executive agree as
follows:
a. During the term of this Agreement, the Company agrees that it will
disclose to Executive Confidential Information, as defined in this section, to
the extent necessary for Executive to carry out his obligations to the Company.
During and after his employment by the Company, the Executive agrees that he
shall not directly or indirectly disclose any Confidential Information, as
defined in this section, unless such disclosure is: (i) to an employee or a
member of the Board of Directors of, Parent, the Company or its subsidiaries;
or (ii) to a person to whom disclosure is reasonably necessary or appropriate
in connection with the performance of his duties as an executive of the
Company; or (iii) authorized in writing by the Board of Directors; or (iv)
required by law.
b. In the event that Executive's employment under this Agreement is
terminated for any reason, the Executive agrees that he shall promptly return
all records, files, documents, materials and copies relating to the business of
the Company or its subsidiaries which came into the possession of the Executive
during his employment pursuant to this Agreement; provided, however, that
nothing in this section shall be construed as any limitation on the Executive's
right to retain any documents or other information which was in the possession
of the Executive prior to the Effective Date of the Original Agreement (as such
terms are defined in the Prior Agreement).
c. For purposes of this Agreement, the term "Confidential Information" shall
be defined as any information relating to the business of the Company or its
subsidiaries which is not generally available to the public and which the
Company takes affirmative steps to maintain as confidential. The term shall not
include any information that the Executive was aware of prior to November 15,
1994, information that is a matter of any public record, information contained
in any document filed or submitted to any governmental entity, any information
that is common knowledge in any industry in which the Company does business,
any information that has previously been made available to persons who are not
employees of the Company or any information that is known to the Company's
competitors.
d. In the event that the Executive's employment with the Company is
terminated as a result of either: (i) Notice of Termination for Good Cause or
Notice of Non-Renewal for Good Cause, as defined in Subsection 2(c)(3); or (ii)
the resignation of the Executive "Without Good Reason," as defined by
Subsection 2(c)(5), the Executive covenants and agrees not to compete with the
Company for twelve (12) calendar months subsequent to such termination or
resignation from employment, in the business of providing inter-city transport
of passengers or cargo by automobile or motorbus in any city in which the
Company engaged in such business during the twelve (12) calendar months prior
to such termination or resignation. This provision shall not apply in the event
that the employment of the Executive is terminated for any reason other than
"Good Cause" or a "Resignation Without Good Reason."
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<PAGE> 17
e. Unless the Board of Directors provides prior written approval, for one
(1) year following the termination of the Executive's employment, the Executive
shall not, directly or indirectly:
(1) solicit, entice, persuade or induce any employee of the Company, or
its subsidiaries, to terminate his/her employment with the Company, or its
subsidiaries, or to become employed by any Person other than the Company, or
its subsidiaries; or
(2) approach any such employee for any of the foregoing purposes; or
(3) authorize or assist in the taking of such actions by any third party.
10. DISPUTE RESOLUTION: The Company and the Executive agree as follows:
a. Any claim or controversy arising out of or relating to this Agreement, or
any breach of this Agreement, shall be submitted to non-binding arbitration in
the city of Dallas, Texas in accordance with procedures or rules established by
the American Arbitration Association. The Executive and the Company agree that
either party must request such non-binding arbitration of any claim or
controversy on or before the earlier of: (i) the fifteenth (15th) business day
after the termination or non-renewal of this Agreement becomes effective; or
(ii) the sixtieth (60th) business day after the date the claim or controversy
first arises, by giving written notice of the party's request for non-binding
arbitration ("Arbitration Notice"). If both parties fail to give such
Arbitration Notice, either party may proceed to seek judicial relief in a court
of competent jurisdiction located in Dallas County, Texas.
b. In the event that any dispute arising under this Agreement concerns the
amount of any payment required to be made under any provision of this
Agreement, either party agrees to pay the undisputed portion of the payment to
the other party and deposit the disputed portion of the payment in an interest
bearing account with a financial institution acceptable to the other party
within five (5) days after either party effectively communicates its
Arbitration Notice or files an original petition or complaint in a court of
competent jurisdiction.
c. At the election of both the Executive and the Company, all claims or
controversies subject to arbitration under this Agreement may be submitted to
final and binding arbitration in accordance with the applicable Rules of the
American Arbitration Association.
d. In any dispute arising under the terms of this Agreement, without regard
to whether such dispute proceeds to arbitration or litigation, the Company will
reimburse the Executive for reasonable and necessary attorney's fees up to a
maximum amount of Forty Thousand Dollars ($40,000.00), unless a court of
competent jurisdiction (or the Arbitrator, if the parties so elect according to
Subsection 10(c)), finds that the Executive's position in such proceeding was
frivolous.
11. RULES OF CONSTRUCTION: The following provisions shall govern the
interpretation and enforcement of this Agreement:
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<PAGE> 18
a. SEVERABILITY: The parties acknowledge and agree that each provision of
this Agreement shall be enforceable independently of every other provision.
Furthermore, the parties acknowledge and agree that, in the event any provision
of this Agreement is determined to be unenforceable for any reason, the
remaining covenants and/or provisions will remain effective, binding and
enforceable.
b. WAIVER. The parties acknowledge and agree that the failure of either to
enforce any provision of this Agreement shall not constitute a waiver of that
particular provision, or of any other provisions, of this Agreement.
c. CHOICE OF LAW: The parties acknowledge and agree that except as
specifically provided otherwise in this Agreement, the law of Texas will govern
the validity, interpretation and effect of this Agreement and any other dispute
relating to, or arising out of, the employment relationship between the Company
and the Executive.
d. MODIFICATION: The parties acknowledge and agree that, except as expressly
provided herein, this Agreement constitutes the complete and entire agreement
between the parties; that the parties have executed this Agreement based upon
the express terms and provisions set forth herein; that the parties have not
relied on any representations, oral or written, which are not set forth in this
Agreement; that no previous agreement, either oral or written, shall have any
effect on the terms or provisions of this Agreement; and that all previous
agreements, either oral or written, are expressly superseded and revoked by
this Agreement. In addition, the parties acknowledge and agree that the
provisions of this Agreement may not be modified by any subsequent agreement
unless the modifying agreement (i) is in writing (ii) contains an express
provision referencing this Agreement (iii) is signed by the Executive and (iv)
is approved by the Board of Directors and by Parent.
e. EXECUTION: The parties agree that this Agreement may be executed in
multiple counterparts, each of which shall be deemed an original for all
purposes.
f. HEADINGS: The parties agree that the subject headings set forth at the
beginning of each section in this Agreement are provided for ease of reference
only, and shall not be utilized for any purpose in connection with the
construction, interpretation or enforcement of this Agreement.
12. LEGAL CONSULTATION: The parties acknowledge and agree that all parties have
been accorded a reasonable opportunity to review this Agreement with legal
counsel prior to executing the agreement.
13. NOTICES: The parties acknowledge and agree that any and all Notices
required to be delivered under the terms of this Agreement shall be forwarded
by personal delivery or certified U.S. mail. Either party may change their
respective address for the purpose of receiving notices only by providing
written notification via certified mail, five (5) days in advance of such
change.
Notices shall be deemed to be communicated and effective on the day of receipt.
Such Notices shall be addressed to each party as follows:
18
<PAGE> 19
<TABLE>
<S> <C> <C>
Craig R. Lentzsch Greyhound Lines Inc. Laidlaw, Inc.
6606 Waggoner Drive 15110 North Dallas Parkway 3221 North Service
Dallas, Texas 75230 Dallas, Texas 75248 Burlington, Ontario
Attn: General Counsel Canada L7R 3Y8
Attn: General Counsel
With a copy to: With a copy to: With a copy to:
Robert E. Sheeder, Esq. Chairman of the Board of Directors President and Chief
1445 Ross Avenue, Suite 3200 Board of Directors Executive Officer
Dallas, Texas 75202 Greyhound Lines Inc. Laidlaw, Inc.
15110 North Dallas Parkway 3221 North Service
Dallas, Texas 75248 Burlington, Ontario
Dallas, Texas 75248 Canada L7R 3Y8
Attn: General Counsel
</TABLE>
14. EFFECTIVENESS; PRIOR AGREEMENT: This Agreement will become effective upon
and the Prior Agreement will terminate immediately prior to, the Effective
Time. Notwithstanding any other provision of this Agreement, if the Merger
Agreement is terminated prior to the Effective Time, this Agreement will have
no further force or effect, and the Prior Agreement will remain in full force
and effect as though this Agreement had not been entered into.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written, but effective as provided in Section 14.
CRAIG R. LENTZSCH
-------------------------------------
GREYHOUND LINES, INC.
By:
----------------------------------
Title:
-------------------------------
LAIDLAW, INC.
By:
----------------------------------
Title:
-------------------------------
19
<PAGE> 1
EXHIBIT 10.39
SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT
This SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") dated
as of the 16th day of March, 1999, but effective as provided herein, by and
between GREYHOUND LINES, INC. (together with its successors, the "Company"),
LAIDLAW, INC. (together with its successors, the "Parent") and JOHN WERNER
HAUGSLAND (the "Executive").
WHEREAS, the Executive has considerable experience, expertise and
training in management related to the types of services offered by the Company;
and
WHEREAS, the Executive and the Company entered into a First Amended
Executive Employment Agreement (the "Prior Agreement"), which was effective May
15, 1995; and
WHEREAS, pursuant to the Agreement and Plan of Merger dated as of
October 16, 1998 (the "Merger Agreement") by and among Parent, Laidlaw Transit
Acquisition Corp., a wholly-owned subsidiary of Parent, and the Company, as
amended, at the Effective Time of the Merger (the "Effective Time"), as defined
in the Merger Agreement, Laidlaw Transit Acquisition Corp. will be merged with
and into the Company, with the Company as the surviving entity (the "Merger");
and
WHEREAS, the Company and Parent desire and intend to continue to
employ the Executive as the Executive Vice President and Chief Operating
Officer of the Company pursuant to the terms and conditions set forth in this
Agreement; and
WHEREAS, in view of the changes in the nature and scope of the duties
and responsibilities of the Executive that will occur as a result of the
Merger, the Company, Parent and the Executive desire to amend and restate
certain of the terms and conditions of the Executive's employment with the
Company as set forth in the Prior Agreement;
WHEREAS, the Company, Parent and the Executive have read and
understood the terms and provisions set forth in this Agreement, and have been
afforded a reasonable opportunity to review this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in this Agreement, the Executive, Parent and the Company agree as
follows:
1. COMPENSATION: During his employment pursuant to this Agreement, the
Company agrees to provide the Executive the following compensation:
a. BASE SALARY: From the Effective Time until changed as provided in
this section, the Company agrees to pay the Executive an annual salary of
$305,000.00 (the "Base Salary"), payable in at least equal monthly installments
in accordance with the Company's ordinary payroll policies and procedures for
executive compensation. The Company and the Executive acknowledge that during
the employment of the Executive pursuant to this Agreement, the Executive's
Base Salary will be subject to an annual review and adjustment by the Board of
Directors of the Company (the
<PAGE> 2
"Board of Directors") but, in no event, will the Executive's annual Base Salary
be less than the amount set forth in this section.
b. BUSINESS EXPENSES: The Company agrees that the Executive shall be
entitled to reimbursement by the Company for all reasonable expenses (including
first class air travel) that the Executive may incur in the performance of his
duties and obligations under this Agreement, consistent with the Company's
policies for documentation, reimbursement and payment.
c. INCENTIVE BONUS: The Company agrees that the Executive shall be
entitled to additional bonus compensation (the "Incentive Compensation") on
terms not less favorable than those applicable to other officers of the Company
(other than the President and Chief Executive Officer of the Company). For the
year ending August 31, 1999, Executive's Incentive Compensation shall be
determined on the same basis as prior years, except that such Incentive
Compensation shall be pro-rated to approximately reflect the partial year. For
subsequent years, the Executive shall be eligible for annual incentive bonus
consideration under the successor to the 1998 Management Incentive Plan for the
duration of this Agreement with an annual Target Award of at least 45% of Base
Salary and a maximum award of 90% of Base Salary for each respective year.
d. EMPLOYEE BENEFITS: The parties acknowledge and agree that certain
employee benefits will be provided to the Executive incident to his employment
as Chief Operating Officer of the Company. Except as specifically modified by
this section, these employee benefits shall be governed by the applicable plan
documents, and the Executive shall be entitled to participate in all benefits
provided to officers of the Company on terms not less favorable than to other
officers of the Company (other than the President and Chief Executive Officer
of the Company). These employee benefits shall continue without amendment or
change, except changes that increase compensation, for a period of not less
than 12 months following the Effective Time. Thereafter, benefits may be
amended, terminated or replaced, provided that the employee benefits provided
to the Executive shall provide, in the aggregate, not less than a substantially
equivalent level of benefits to the Executive. The Company agrees, however,
that to the extent not prohibited by law, the Company will provide Executive
the benefits listed in this Subsection and that the following provisions shall
apply to any employee benefits provided by the Company:
(1) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN: For purposes of
the Greyhound Lines, Inc. Supplemental Executive Retirement Plan (the "SERP"),
all of the Executive's prior service with Greyhound Lines, Inc. will be
credited for all purposes under the SERP, the Executive shall continue to be a
designated person eligible for coverage and benefits under the SERP, and the
Executive shall be entitled to an annual contribution of 20% of Executive's
annual Base Salary. At the Effective Time, to the extent not theretofore in
effect, the Company shall establish and fully fund, at the Company's option, in
cash, a letter of credit of Parent, or any combination thereof, a so-called
"rabbi" trust for the benefit of the Executive to secure the payment of
benefits provided to the Executive under this Subsection. Not less frequently
than annually thereafter, the Company shall contribute sufficient additional
assets to such trust to fund any increase in the liabilities of the SERP
attributable to the Executive.
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(2) AUTOMOBILE ALLOWANCE: During the term of his employment
with the Company, the Executive shall be entitled to an automobile allowance,
of not less than $1,000.00 per month.
(3) LIFE INSURANCE: At all times during the term of this
Agreement, Executive will receive life insurance coverage as provided by the
Company on terms not less favorable than that provided to other executives of
the Company. In addition to any life insurance provided pursuant to the
preceding sentence, the Executive will be provided with Company-paid life
insurance which will provide death benefits in the event of his death in an
amount of at least $1,500,000.00 payable to the beneficiary or beneficiaries
named by the Executive. The Company shall have the right to purchase insurance
to fund its obligations to the Executive under this section; provided, however,
that any insurance company or companies selected by the Company to fund its
obligations under this Subsection must be the company or companies that
underwrite life insurance benefits covering other officers of the Company.
(4) PHYSICAL EXAMINATIONS: At least once a year, the
Executive will be entitled to a Company-paid physical examination at a clinic
or doctor mutually acceptable to the Executive and the Company.
(5) COUNTY CLUB DUES: The Company agrees to pay all
initiation fees and monthly membership dues on behalf of the Executive at a
country club mutually selected by the Executive and the Company.
(6) ESTATE, TAX AND FINANCIAL PLANNING: During the term of
his employment with the Company, the Executive shall be entitled to $15,000 per
year for estate, tax and financial planning. Such reimbursement payments shall
be paid by the Company within a reasonable time after such expenses are
incurred by the Executive.
(7) LONG TERM DISABILITY: The Company will provide Executive
long-term disability coverage and benefits on terms which are not less
favorable than that provided to other executives of the Company but which will
provide an annual disability benefit to the Executive of at least fifty percent
(50%) of his expected annual Base Salary, payable for the year during which
Executive was disabled.
(8) VACATION: The Company will provide vacation to the
Executive on terms not less favorable than that provided to executive officers
of the Company. For purposes of determining the amount of vacation, Executive's
prior service with Greyhound Lines, Inc. (or any affiliate of Greyhound Lines,
Inc.) shall be deemed to be service with the Company.
(9) OTHER BENEFITS: For purposes of any and all other
benefits provided by the Company to its Chief Operating Officer, the Executive
shall be eligible for such benefits to the same extent Executive was eligible
for such benefits immediately prior to the Effective Time. Additionally, for
purposes of determining eligibility, funding or vesting with respect to any
other benefits, the Executive's prior service with Greyhound Lines, Inc. shall
be deemed to be prior service with the Company.
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2. DURATION: The duration of this Agreement shall be defined and determined as
follows:
a. INITIAL TERM: This Agreement shall continue in full force and
effect for three (3) years (the "Initial Term"), commencing on the Effective
Time and expiring on the third anniversary thereof (the "Expiration Date"),
unless terminated prior to the Expiration Date in accordance with Subsection
2(c).
b. RENEWAL: Notwithstanding Subsection 2(a), this Agreement shall
automatically renew for a period of two (2) years (the "Renewal Term") on the
Expiration Date unless either party gives effective written notice to the other
party of the party's intention not to renew this Agreement ("Notice of
Non-Renewal"), with or without Good Cause, at least ninety (90) days prior to
the Expiration Date. At the expiration of each Renewal Term, this Agreement
shall automatically renew for another two (2) year Renewal Term, unless and
until either party terminates the Agreement in accordance with Subsection 2(c).
If any Change of Control (as hereafter defined) occurs on or after the first
anniversary of the Effective Time, this Agreement will be deemed to have
renewed for a two (2) year period, and in such event, the Expiration Date(s)
will occur every two years from the date of such Change of Control.
c. TERMINATION AND NON-RENEWAL: This Agreement may be terminated as
follows:
(1) DEATH: The Agreement will terminate in the event of the
Executive's death, provided, however, that the Executive's estate shall be paid
(a) the Base Salary through the date of death and (b) a pro rata portion of the
entire Annual Target Award of Incentive Compensation (based upon the
Executive's annual Base Salary), payable when the Incentive Compensation
payments are made to other executives of the Company. The pro rata share will
be calculated by the month of the date of death. In addition, the Executive's
designated beneficiaries shall be entitled to receive any life insurance
benefits provided to the Executive in accordance with the applicable plan
documents and/or insurance policies governing such benefits, including but not
limited to, the Life Insurance benefits set forth in Subsection l(d)(3) of this
Agreement.
(2) DISABILITY: The Company shall be entitled to terminate
this Agreement in the event the Executive becomes "disabled," as that term is
defined in the Greyhound Lines, Inc. Employee Long Term Disability Plan ("the
LTD Plan"), and is unable to perform the essential functions of his position,
with reasonable accommodation, for a period of one hundred eighty (180)
consecutive days. The Executive will be paid his Base Salary through the
expiration of such one hundred eighty day period and a pro rata portion of the
entire Annual Target Award of Incentive Compensation (based upon the
Executive's annual Base Salary) in accordance with the previous Subsection.
(3) GOOD CAUSE:
(a) The Company shall be entitled to terminate this
Agreement by providing the Executive with written notice that the Company is
terminating the Agreement for Good Cause, as defined herein ("Notice of
Termination for Good Cause") at any time during his employment.
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(b) The Company shall be entitled to terminate this
Agreement by communicating Notice of Non-Renewal for Good Cause, as defined
herein, at least ninety (90) days prior to the Expiration Date, or at least
ninety (90) days prior to the expiration of any Renewal Tenn or Extension.
(c) For purposes of this Agreement, "Good Cause"
shall be defined as follows:
i) Any act or omission constituting fraud
under the law of the State of Texas; or
ii) Conviction of, or a plea of nolo
contendere to, a felony; or
iii) Use of illegal drugs; or
iv) Embezzlement of Company property or
funds; or
v) The material breach of any provision of
this Agreement; or continued gross neglect of his
duties under this Agreement; or unauthorized
competition with the Company during his employment
pursuant to this Agreement; or unauthorized use of
Confidential Information (as defined in Section 9);
which, in any event, is materially detrimental to the
Company;
(d) In the event the Company believes "Good Cause"
exists for terminating this Agreement pursuant to Subsection (c)(v), the Company
shall be required to give the Executive written Notice of the acts or omissions
constituting "Good Cause" ("Cause Notice").
(e) No Notice of Termination for Good Cause or Notice
of Non-Renewal for Good Cause pursuant to Subsection (c)(v) shall be
communicated by the Company unless and until the Executive fails to cure such
acts or omissions within thirty (30) days after receipt of the Cause Notice.
(f) In the event the Company communicates a Notice of
Termination For Good Cause or Notice of Non-Renewal for Good Cause pursuant to
this section, the Executive shall have the right to a hearing before the
President/Chief Executive Officer, on a date determined by the President/Chief
Executive Officer not later than thirty (30) days after the date such Notice is
received, to contest the alleged "Good Cause" for the Notice of Termination or
Notice of Non-Renewal. The President/Chief Executive Officer shall provide the
Executive with written notice of his decision resolving any contest under this
section, and no termination or non-renewal of this Agreement shall be deemed to
be effective until such written notice is received by the Executive. In the
event that the President/Chief Executive Officer affirms the "Good Cause" for
termination or non-renewal, the Executive shall have the right to the Dispute
Resolution procedures set forth in Section 10.
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(4) WITHOUT GOOD CAUSE:
(a) The Company shall be entitled to terminate the
Executive's employment under this Agreement by providing a written Notice of
Termination "Without Good Cause" at any time during his employment, or by
providing a written Notice of Non-Renewal "Without Good Cause," as defined
herein, at least ninety (90) days prior to the Expiration Date or at least
ninety (90) days prior to the expiration of any Renewal Term or Extension.
Provided, however, that in the event of any Notice of Termination Without Good
Cause or Notice of Non-Renewal Without Good Cause, the Company shall be required
to pay Severance Pay in accordance with the Severance provisions in Section 5.
(b) Any termination of employment or non-renewal of
this Agreement which is not for "Good Cause," as defined above in Subsection
2(c)(3), or which does not result from the death of the Executive, or the
disability of the Executive, shall be deemed to be a termination or non-renewal
"Without Good Cause." Furthermore, in the event that the Company communicates a
Notice of Termination for Good Cause or a Notice of Non-Renewal for Good Cause,
and either the President/Chief Executive Officer (under Subsection 2(c)(3)(f))
or an arbitration or a final, non-appealable judicial proceeding (under Section
10) determine that no Good Cause exists or existed for the Notice of Termination
or Notice of Non-Renewal that was originally communicated, then such Notice of
Termination or Notice of Non-Renewal shall be deemed to have been communication
of a Notice of Termination Without Good Cause or Notice of Non-Renewal Without
Good Cause, as appropriate, for all purposes under this Agreement.
(5) RESIGNATION: The Executive shall be entitled to terminate
his employment under this Agreement by providing the Company with a written
Notice of Resignation at least ninety (90) days prior to his intended
resignation date, subject to the following provisions:
(a) RESIGNATION FOR GOOD REASON: The Executive shall
have the right to resign for any "Good Reason," as defined herein, and such
resignation shall be deemed to be a termination "Without Good Cause" as defined
in Subsection 2(c)(4) for all purposes under this Agreement, including the
Change of Control provisions set forth in Section 4 and the Severance provisions
set forth in Section 5. For purposes of this Section, the term "Good Reason"
shall be defined as:
i) The Company's failure to perform any
material provision of this Agreement; or
ii) Any material changes by the Company or
the Board of Directors in the authority, duties, or
responsibilities of the Executive under this
Agreement, without the written consent of the
Executive, other than a termination or non-renewal
for "Good Cause," as defined herein; or
iii) Any request by the Board of Directors
that the Executive perform, assist, abet or approve
any act which is or could be construed to be illegal
under any federal, state or local law; or
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iv) Any requirement by the Board of
Directors that the Executive relocate from the
Dallas, Texas, metropolitan area without his consent;
or
v) In the event the Company fails to
maintain adequate liability insurance coverage in
accordance with Section 8 of this Agreement, without
the written consent of the Executive.
(b) OPPORTUNITY TO CURE: In the event he believes
"Good Reason" exists for his resignation, the Executive shall be required to
give the President/Chief Executive Officer of the Company written notice of the
acts or omissions constituting Good Reason, and no Notice of Resignation with
Good Reason shall be communicated to the Company unless and until the Company
fails to cure such acts or omissions within thirty (30) days after receipt of
the notice described in this sentence. Any Notice of Resignation with Good
Reason shall be deemed to be effective immediately, and no other notice or
opportunity to cure shall be required.
(c) RESIGNATION WITHOUT GOOD REASON: Any resignation
by the Executive for any reason other than "Good Reason," as defined above,
shall be deemed to be a resignation "Without Good Reason." In the event of a
Resignation Without Good Reason, the Change of Control provisions in Section 4
(except during the thirteenth month following the Change of Control as provided
in Section 4) and the Severance provisions in Section 5 shall be inapplicable.
3. RESPONSIBILITIES: The Executive and the Company acknowledge and agree that
the Executive shall be employed as Executive Vice President and Chief Operating
Officer of the Company. Executive's responsibilities shall include the
inter-city coach, coach charter and line haul and any other related business
thereto of Parent and its subsidiaries in the United States. The Executive
covenants and agrees that he will faithfully devote his best efforts and full
time, attention and skill to the business of the Company as is necessary to
perform his obligations under this Agreement. The Executive shall report to the
President and Chief Executive Officer of the Company. The Executive shall have
or perform no other business responsibilities or obligations during the term of
this Agreement without the prior written approval of the President of the
Company.
4. CHANGE OF CONTROL: The parties acknowledge that the Executive has agreed to
continue in the position of Executive Vice President and Chief Operating
Officer of the Company and to enter into this Agreement based upon his
confidence in the current shareholder of the Company, the support of the Board
of Directors, and the continued execution of the current business strategy of
the Company. Accordingly, if the Company should undergo a "Change of Control"
while the Executive is employed by the Company or any parent or subsidiary
corporation of the Company, or in the case of Section 4(d), in all events, the
parties agree as follows:
a. VESTING OF STOCK INCENTIVES AND AWARDS: At the Effective Time and
in the event of a Change of Control, as defined in this section, all Stock
Incentives and Awards provided in Section 6 of this Agreement shall immediately
become vested and exercisable, all other equity incentive awards held by the
Executive shall become fully vested and all other stock options held by the
Executive shall become fully exercisable, effective at the Effective Time and
on the date of the
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Change of Control, as the case may be, or at such other time as is necessary to
permit the Executive to be treated with respect to vesting and exercisability
no less favorably than other shareholders.
b. COMPENSATION: In the event that the employment of the Executive is
terminated:
(1) at any time within twenty four (24) months after the date
of a Change of Control, as defined in this section, by: (i) the Company
communicating a Notice of Termination Without Good Cause; (ii) the Company
communicating a Notice of Non-Renewal Without Good Cause, or (iii) the
Executive communicating a Notice of Resignation for Good Reason; or
(2) by the resignation of the Executive, whether with or
without Good Reason, within thirty (30) days of the first Anniversary Date
(i.e., one year from the date) of a Change of Control,
the Company agrees to pay to the Executive a lump sum cash payment equal to
three (3) times the sum of: (x) an amount equal to the Executive's then
current, annualized Base Salary, and (y) the greater of: (a) the applicable
Annual Payout of Incentive Compensation paid for the Plan Year immediately
prior to the termination, or (b) the full, non-pro rata Annual Target Award for
Incentive Compensation based upon Executive's annual Base Salary for the Plan
Year in which the termination occurs, which payment shall be paid within thirty
(30) days after the effective date of termination, non-renewal or resignation.
The Company further agrees to pay benefits to the Executive as provided in
Subsection 5(d) for a period of thirty-six (36) months.
c. DEFINITIONS: For purposes of this Agreement and notwithstanding
anything in this Agreement to the contrary, a "Change of Control" shall be
deemed to exist in the event that any of the following occurs:
(1) Parent ceases to be the beneficial owner, directly or
indirectly, of 51% or more of the voting shares of the Company or Parent and
its subsidiaries sell or cause to be sold all or substantially all of the
assets of the Company; or
(2) Any individual, or incorporated or unincorporated entity
or group of the foregoing acting jointly and in concert acquires beneficial
ownership, directly or indirectly, of 30% or more of Parent's voting shares; or
(3) A majority of the individuals who serve as directors of
Parent at the commencement of any 18 month period are replaced other than by
replacement directors who became directors at the initiative of management or
pursuant to a management proxy solicitation.
For the purpose of this Agreement, the acquisition of the Company by Parent is
not a Change of Control.
For purposes of this Subsection, a sale of all or substantially all of the
assets of the Company shall be deemed to occur if any corporation, person or
group acting in concert (a "Person") as described in Subsection 14(d)(2) of the
Securities Exchange Act of 1934, as amended, acquires (or during the 12-month
period on the date of the most recent acquisition by such Person, has acquired)
gross assets
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of the Company that have an aggregate fair market value equal to 50% of the
fair market value of all of the gross assets of the Company immediately prior
to such acquisition(s).
d. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(1) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 4(d)(8), in the event that it shall be
determined (as hereafter provided) that any payment (other than the Gross-Up
payments provided for in this Section 4(d)) or distribution by Parent, the
Company or any of their affiliates to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without limitation any stock
option, performance share, performance unit, stock appreciation right or
similar right, or the lapse or termination of any restriction on or the vesting
or exercisability of any of the foregoing (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any successor provision thereto) by reason of being
considered "contingent on a change in ownership or control" of the Company or
of Parent, within the meaning of Section 280G of the Code (or any successor
provision thereto) or to any similar tax imposed by state or local law, or any
interest or penalties with respect to such tax (such tax or taxes, together
with any such interest and penalties, being hereafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment or payments (collectively, a "Gross-Up Payment"); provided,
however, that no Gross-up Payment shall be made with respect to the Excise Tax,
if any, attributable to (a) any incentive stock option, as defined by Section
422 of the Code ("ISO") granted prior to the initial execution of the Original
Agreement (as such term is defined in the Prior Agreement), or (b) any stock
appreciation or similar right, whether or not limited, granted in tandem with
any ISO described in clause (a). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(2) Subject to the provisions of Section 4(d)(6), all
determinations required to be made under this Section 4(d), including whether
an Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting
Firm to submit its determination and detailed supporting calculations to both
the Company and the Executive within 30 calendar days after the date of
termination of the Executive's employment, if applicable, and any such other
time or times as may be requested by the Company or the Executive. If the
Accounting Firm determines that any Excise Tax is payable by the Executive, the
Company shall pay the required Gross-Up Payment to the Executive within five
business days after receipt of such determination and calculations with respect
to any Payment to the Executive. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it shall, at the same time as it makes
such determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his
federal, state or local income or other tax return. As a result of the
uncertainty in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of
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similar uncertainty regarding applicable state or local tax law at the time of
any determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made (an "Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts or fails to pursue its
remedies pursuant to Section 4(d)(6) and the Executive thereafter is required
to make a payment of any Excise Tax, the Executive shall direct the Accounting
Firm to determine the amount of the Underpayment that has occurred and to
submit its determination and detailed supporting calculations to both the
Company and the Executive as promptly as possible. Any such Underpayment shall
be promptly paid by the Company to, or for the benefit of, the Executive within
five business days after receipt of such determination and calculations.
(3) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 4(d)(2). Any determination by the
Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon
the Company and the Executive.
(4) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his federal income tax return as filed
with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(5) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 4(d)(2) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(6) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment.
Such notification shall be given as promptly as practicable but no later than
10 business days after the Executive actually receives notice of such claim and
the Executive shall further apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid (in each case, to the
extent known by the Executive). The Executive shall not pay such claim prior to
the earlier of (a) the expiration of the 30-calendar-day period following the
date on which he gives such notice to the Company and (b) the date that any
payment
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of amount with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably requested
by the Company;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 4(d)(6), the Company shall control all proceedings taken in
connection with the contest of any claim contemplated by this Section 4(d)(6)
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim (provided, however, that the Executive may participate
therein at his own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income or other tax, including interest or penalties with respect thereto,
imposed with respect to such advance; and provided further, however, that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which the contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of any such contested claim shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(7) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 4(d)(6), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 4(d)(6)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after any taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 4(d)(6),
a determination is made that the Executive
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shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial
or refund prior to the expiration of 30 calendar days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of any such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid by the Company to the Executive
pursuant to this Section 4(d).
(8) Notwithstanding any provision of this Agreement to the
contrary, if (a) but for this sentence, the Company would be obligated to make
a Gross-Up Payment to the Executive, (b) the aggregate "present value" of the
"parachute payments" to be paid or provided to the Executive under this
Agreement or otherwise does not exceed 1.15 multiplied by three times the
Executive's "base amount," and (c) but for this sentence, the net after-tax
benefit to the Executive of the Gross-Up Payment would not exceed $50,000
(taking into account both income taxes and any Excise Tax), then the payments
and benefits to be paid or provided under this Agreement will be reduced to the
minimum extent necessary (but in no event to less than zero) so that no portion
of any payment or benefit to the Executive, as so reduced, constitutes an
"excess parachute payment." For purposes of this Section 4(d)(8), the terms
"excess parachute payment," "present value," "parachute payment," and "base
amount" will have the meanings assigned to them by Section 280G of the Code.
The determination of whether any reduction in such payments or benefits to be
provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or
the Company, by the Accounting Firm. The fact that the Executive's right to
payments or benefits may be reduced by reason of the limitations contained in
this Section 4(d)(8) will not of itself limit or otherwise affect any other
rights of the Executive other than pursuant to this Agreement. In the event
that any payment or benefit intended to be provided under this Agreement or
otherwise is required to be reduced pursuant to this Section 4(d)(8), the
Executive will be entitled to designate the payments and/or benefits to be so
reduced in order to give effect to this Section 4(d)(8). The Company will
provide the Executive with all information reasonably requested by the
Executive to permit the Executive to make such designation. In the event that
the Executive fails to make such designation within 10 business days of the
date of termination of the Executive's employment, the Company may effect such
reduction in any manner it deems appropriate.
5. SEVERANCE: Severance shall be paid as follows:
a. NON-RENEWAL WITHOUT GOOD CAUSE: In the event that the Agreement is
not renewed by the Company (except where the renewal is for Good Cause), the
Company shall pay the severance required by Subsection 5(b) in accordance with
Subsection 5(c) and continue the benefits as required by Subsection 5(d).
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b. RESIGNATION FOR GOOD REASON OR TERMINATION WITHOUT GOOD CAUSE: In
the event the Company terminates this Agreement without "Good Cause," as
defined in Subsection 2(c)(3), or the Executive resigns for "Good Reason," the
Executive shall be entitled to receive a lump sum payment equal to three (3)
times the sum of: (i) an amount equal to his then current, annualized Base
Salary, and (ii) the greater of: (x) the applicable Annual Payout of Incentive
Compensation paid for the Plan Year immediately prior to the termination, or
(y) the full non-pro rata Annual Target Award for Incentive Compensation based
upon Executive's annual Base Salary for the Plan Year in which the termination
occurs.
c. TERMS OF PAYMENT: Severance Pay required pursuant to this section
shall be payable in cash in full within thirty (30) days after the termination
date, non-renewal date or resignation date of the Executive's employment.
d. CONTINUATION OF BENEFITS: In the event of a Non-Renewal Without
Good Cause or a Termination Without Good Cause or a Resignation For Good
Reason, the Company agrees to continue any and all benefits as provided in the
Greyhound Lines, Inc. Medical Plan and Subsections 1(d)(2) through (8) of this
Agreement, as modified pursuant to the terms of Subsection l(d), for
twenty-four (24) months after the effective date of termination, non-renewal or
resignation. Additionally, Executive shall be permitted to continue
participation in the benefits provided in Subsection 1(d)(1) to the extent
permitted by law so as not to cause disqualification of the 401 k Plan and
1(d)(3) without further Company contributions, except earnings on contributions
made prior to termination and except contributions the Company is required to
make to ensure that such benefits are fully funded for service prior to
termination.
e. EXCEPTIONS: Severance Pay shall not be payable under this section
in any of the following circumstances:
(1) In the event that this Agreement is terminated as a
result of the death or disability of the Executive, as provided in Subsections
2(c)(1)-(2); or
(2) In the event that this Agreement is terminated pursuant
to a Notice of Termination For Good Cause or a Notice of Non-Renewal for Good
Cause communicated by the Company, as provided in Subsection 2(c)(3), and such
termination or non-renewal is affirmed by both the President/Chief Executive
Officer (if applicable), and by the Dispute Resolution procedures set forth in
Section 10; or
(3) In the event the provisions of Section 4 are applicable
as a result of a "Change of Control" having occurred, and the payments provided
for in Section 4 are paid by the Company; or
(4) In the event that the Executive communicates Notice of
Resignation Without Good Reason as defined in Subsection 2(c)(5).
13
<PAGE> 14
f. EXCLUSIVITY: The Company and the Executive acknowledge and agree
that the Severance Payments required under this section are intended to be
exclusive and to supersede any severance pay plans or policies adopted by the
Company and that the Executive shall not be entitled to any additional
severance compensation under any other severance plan or policy adopted by the
Company.
g. MITIGATION: The payment of the severance compensation by the
Company to the Executive in accordance with Sections 4 and 5 of this Agreement
is hereby acknowledged by the Company to be reasonable, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise.
6. STOCK INCENTIVES AND AWARDS: In addition to the other compensation set forth
in this Agreement and in addition to stock incentives and awards that were
granted under the terms of the Original Agreement (as such term is defined in
the Prior Agreement), Executive shall be entitled to participate in such stock
incentives and awards plans on terms not less favorable than to other officers
and directors of the Company (except for the President and Chief Executive
Officer of the Company), except that Parent may provide for additional
benefits, incentives, or awards to Executive and except that the following
shall apply to any options granted to Executive after the Effective Time:
a. DEATH AND DISABILITY: If Executive dies or becomes disabled during
the term of this Agreement, (1) all unvested options as of the date of such
death or disability shall vest immediately; and (2) Executive (or his legal
representative or Estate) may exercise such options in accordance with the
exercise period prescribed in the stock incentive and award plan or twelve (12)
months from such death or disability, whichever is longer.
b. RETIREMENT: If Executive retires (as defined in the 401 k plan,
except that, for purposes of this Section, the service requirement will be
modified to be no more than ten (10) years and the age requirement will be no
more than age 55), (1) all unvested options as of the date of such retirement
shall vest immediately; and (2) Executive (or his Estate) may exercise such
options in accordance with the exercise period prescribed in the stock
incentive and award plan or thirty-six (36) months, whichever is longer.
Further, notwithstanding anything to the contrary herein, nothing in this
Agreement will affect to the Executive's disadvantage any non-qualified stock
incentive and awards previously granted to Executive, whether under the
Original Agreement between Executive and the Company or otherwise.
7. SUCCESSORS AND ASSIGNS: The parties acknowledge and agree that this
Agreement may not be assigned by either party without the written consent of
the other party. In the event of a "Change of Control" as defined in Subsection
4(c), the Company shall be entitled to assign this Agreement to any successor
or assignee; provided, however, that such assignment shall not or be construed
to, in any way whatsoever, release, limit or excuse the Company from the
performance of its obligations and the payment of its liabilities under this
Agreement, regardless of whether such obligations or liabilities accrued or
accrue before, after or as a result of such assignment, and
14
<PAGE> 15
regardless of whether such obligations or liabilities are or were assumed by
any successor or assignee. In the event of the Executive's death, this
Agreement shall be enforceable by the Executive's estate, executors or legal
representatives, but only to the extent that such persons may collect any
compensation (including stock incentives and awards) due to the Executive under
this Agreement.
8. INDEMNIFICATION: During and after the employment of the Executive pursuant
to this Agreement, the Company shall indemnify the Executive against all
judgments, penalties, fines, assessments, losses, amounts paid in settlement
and reasonable expenses (including, but not limited to, attorneys' fees) for
which the Executive may become liable as a result of his performance of his
duties and responsibilities pursuant to this Agreement and shall advance and
pay any expenses incurred in defending such claims, to the fullest extent
permissible under the laws of the State of Delaware. In addition, the Company
agrees to purchase liability insurance for any such judgments, penalties,
fines, assessments, losses, amounts paid in settlement and reasonable expenses
(including, but not limited to, attorneys' fees) for which the Executive may
become liable as a result of his performance of his duties and responsibilities
pursuant to this Agreement in an amount not less than the amount of director
and officer liability insurance in effect at the Effective Time, and consistent
with coverage provided to other officers of the Company.
9. NON-COMPETITION AND NON-DISCLOSURE: The Company and the Executive agree as
follows:
a. During the term of this Agreement, the Company agrees that it will
disclose to Executive Confidential Information, as defined in this section, to
the extent necessary for Executive to carry out his obligations to the Company.
During and after his employment by the Company, the Executive agrees that he
shall not directly or indirectly disclose any Confidential Information, as
defined in this section, unless such disclosure is: (i) to an employee or a
member of the Board of Directors of, Parent, the Company or its subsidiaries;
or (ii) to a person to whom disclosure is reasonably necessary or appropriate
in connection with the performance of his duties as an executive of the
Company; or (iii) authorized in writing by the Board of Directors; or (iv)
required by law.
b. In the event that Executive's employment under this Agreement is
terminated for any reason, the Executive agrees that he shall promptly return
all records, files, documents, materials and copies relating to the business of
the Company or its subsidiaries which came into the possession of the Executive
during his employment pursuant to this Agreement; provided, however, that
nothing in this section shall be construed as any limitation on the Executive's
right to retain any documents or other information which was in the possession
of the Executive prior to the Effective Date of the Original Agreement (as such
terms are defined in the Prior Agreement).
15
<PAGE> 16
c. For purposes of this Agreement, the term "Confidential Information"
shall be defined as any information relating to the business of the Company or
its subsidiaries which is not generally available to the public and which the
Company takes affirmative steps to maintain as confidential. The term shall not
include any information that the Executive was aware of prior to May 15, 1995,
information that is a matter of any public record, information contained in any
document filed or submitted to any governmental entity, any information that is
common knowledge in any industry in which the Company does business, any
information that has previously been made available to persons who are not
employees of the Company or any information that is known to the Company's
competitors.
d. Both the Company and the Executive recognize that in his employment
at the Company, the Executive will be provided with Confidential Information,
as defined above. Both the Company and the Executive recognize that the
disclosure of such Confidential Information to a competitor of the Company
could place the Company at a competitive disadvantage. Accordingly, in
consideration of the Company agreeing to provide Confidential Information to
him, and to prevent the disclosure or use of such information to the
competitive disadvantage of the Company, the parties agree that in the event
that the Executive's employment with the Company is terminated as a result of
either: (i) Notice of Termination for Good Cause or Notice of Non-Renewal for
Good Cause, as defined in Subsection 2(c)(3); or (ii) the resignation of the
Executive "Without Good Reason," as defined by Subsection 2(c)(5), the
Executive covenants and agrees not to compete with the Company for twelve (12)
calendar months subsequent to such termination, non-renewal or resignation from
employment, in the business of providing inter-city transport of passengers or
cargo by automobile or motorbus in any city in which the Company engaged in
such business during the twelve (12) calendar months prior to such termination,
nonrenewal or resignation. This provision shall not apply in the event that the
employment of the Executive is terminated for any reason other than "Good
Cause" or in the event of a "Resignation for Good Reason."
e. Unless the Board of Directors provides prior written approval, for
one (1) year following the termination of the Executive's employment by the
Company, the Executive shall not, directly or indirectly:
(1) solicit, entice, persuade or induce any employee of the
Company, or its subsidiaries, to terminate his/her employment with the Company,
or its subsidiaries, or to become employed by any Person other than the
Company, or its subsidiaries; or
(2) approach any such employee for any of the foregoing
purposes; or
(3) authorize or assist in the taking of such actions by any
third party.
10. DISPUTE RESOLUTION: The Company and the Executive agree as follows:
a. Any claim or controversy arising out of or relating to this
Agreement, or any breach of this Agreement, shall be submitted to non-binding
arbitration in the city of Dallas, Texas in accordance with procedures or rules
established by the American Arbitration Association. The Executive and the
Company agree that either party must request such non-binding arbitration of
any claim or controversy on or before the earlier of: (i) the fifteenth (15th)
business day after the
16
<PAGE> 17
termination or non-renewal of this Agreement becomes effective; or (ii) the
sixtieth (60th) business day after the date the claim or controversy first
arises, by giving written notice of the party's request for non-binding
arbitration ("Arbitration Notice"). If both parties fail to give such
Arbitration Notice, either party may proceed to seek judicial relief in a court
of competent jurisdiction located in Dallas County, Texas.
b. In the event that any dispute arising under this Agreement concerns
the amount of any payment required to be made under any provision of this
Agreement, either party agrees to pay the undisputed portion of the payment to
the other party and deposit the disputed portion of the payment in an interest
bearing account with a financial institution acceptable to the other party
within five (5) days after either party effectively communicates its
Arbitration Notice or files an original petition or complaint in a court of
competent jurisdiction.
c. At the election of both the Executive and the Company, all claims
or controversies subject to arbitration under this Agreement may be submitted
to final and binding arbitration in accordance with the applicable Rules of the
American Arbitration Association.
d. In any dispute arising under the terms of this Agreement, without
regard to whether such dispute proceeds to arbitration or litigation, the
Company will reimburse the Executive for reasonable and necessary attorney's
fees up to a maximum amount of Forty Thousand Dollars ($40,000.00), unless a
court of competent jurisdiction (or the Arbitrator, if the parties so elect
according to Section 10), finds that the Executive's position in such
proceeding was frivolous.
11. RULES OF CONSTRUCTION: The following provisions shall govern the
interpretation and enforcement of this Agreement:
a. SEVERABILITY: The parties acknowledge and agree that each provision
of this Agreement shall be enforceable independently of every other provision.
Furthermore, the parties acknowledge and agree that, in the event any provision
of this Agreement is determined to be unenforceable for any reason, the
remaining covenants and/or provisions will remain effective, binding and
enforceable.
b. WAIVER: The parties acknowledge and agree that the failure of
either to enforce any provision of this Agreement shall not constitute a waiver
of that particular provision, or of any other provisions, of this Agreement,
except as otherwise stated in this Agreement.
c. CHOICE OF LAW: The parties acknowledge and agree that except as
specifically provided otherwise in this Agreement, the law of Texas will govern
the validity, interpretation and effect of this Agreement and any other dispute
relating to, or arising out of, the employment relationship between the Company
and the Executive.
d. MODIFICATION: The parties acknowledge and agree that, except as
expressly provided herein, this Agreement constitutes the complete and entire
agreement between the parties; that the parties have executed this Agreement
based upon the express terms and provisions set forth herein; that the parties
have not relied on any representations, oral or written, which are not set
forth in this Agreement; that no previous agreement, either oral or written,
shall have any effect on the terms or
17
<PAGE> 18
provisions of this Agreement; and that all previous agreements, either oral or
written, are expressly superseded and revoked by this Agreement. In addition,
the parties acknowledge and agree that the provisions of this Agreement may not
be modified by any subsequent agreement unless the modifying agreement (i) is
in writing (ii) contains an express provision referencing this Agreement (iii)
is signed by the Executive and (iv) is approved by the Board of Directors and
by Parent.
e. EXECUTION: The parties agree that this Agreement may be executed in
multiple counterparts, each of which shall be deemed an original for all
purposes.
f. HEADINGS: The parties agree that the subject headings set forth at
the beginning of each section in this Agreement are provided for ease of
reference only, and shall not be utilized for any purpose in connection with
the construction, interpretation or enforcement of this Agreement.
12. LEGAL CONSULTATION: The parties acknowledge and agree that all parties have
been accorded a reasonable opportunity to review this Agreement with legal
counsel prior to executing the agreement.
13. NOTICES: The parties acknowledge and agree that any and all Notices
required to be delivered under the terms of this Agreement shall be forwarded
by personal delivery or certified U.S. mail. Either party may change their
respective address for the purpose of receiving notices only by providing
written notification via certified mail, five (5) days in advance of such
change. Notices shall be deemed to be communicated and effective on the day of
receipt. Such Notices shall be addressed to each party as follows:
<TABLE>
<S> <C> <C>
John Werner Haugsland Greyhound Lines, Inc. Laidlaw, Inc.
17824 Cedar Creek Canyon 15110 No. Dallas Parkway 3221 North Service
Dallas, Texas 75252 Dallas, Texas 75248 Burlington, Ontario
Attn: General Counsel Canada L7R 3Y8
Attn: General Counsel
With a copy to: With a copy to: With a copy to:
Robert E. Sheeder, Esq. Craig R. Lentzsch President and Chief
1445 Ross Avenue, Suite 3200 President and Chief Executive Executive Officer
Dallas, Texas 75202 Officer Laidlaw, Inc.
Greyhound Lines, Inc. 3221 North Service
15110 North Dallas Parkway Burlington, Ontario
Dallas, Texas 75248 Canada L7R 3Y8
Attn: General Counsel
</TABLE>
18
<PAGE> 19
14. EFFECTIVENESS; PRIOR AGREEMENT: This Agreement will become effective upon
and the Prior Agreement will terminate immediately prior to, the Effective
Time. Notwithstanding any other provision of this Agreement, if the Merger
Agreement is terminated prior to the Effective Time, this Agreement will have
no further force or effect, and the Prior Agreement will remain in full force
and effect as though this Agreement had not been entered into.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written, but effective as provided in Section 14.
JOHN WERNER HAUGSLAND
------------------------------------
GREYHOUND LINES, INC.
By:
---------------------------------
Title:
------------------------------
LAIDLAW, INC.
By:
---------------------------------
Title:
------------------------------
19
<PAGE> 1
EXHIBIT 21
Greyhound Lines. Inc.
Amarillo Trailways Bus Center Inc. (75%)
Atlantic Greyhound Lines of Virginia, Inc. (100%)
Continental Panhandle Lines, Inc. (50%)
Gateway Ticketing Systems, Inc. (25%)
GLI Holding Company (100%)
ASI Associations, Inc. (100%)
Carolina Associates, Inc. (100%)
Carolina Coach Company (100%)
Wilmington Union Bus Station Corporation (3%)
Red Bus Systems, Inc. (100%)
Seashore Transportation Company (100%)
Wilmington Union Bus Station Corporation (39.5%)
PRB Acquisition, LLC (99%)
Texas New Mexico & Oklahoma Coaches, Inc. (100%)
T.N.M.&O. Tours, Inc. (100%)
Vermont Transit Co. Inc. (100%)
Valley Garage Company (100%)
Valley Transit Co., Inc. (100%)
Greyhound de Mexico, S.A. de C.V. (99.9%)
PRB Acquisition, LLC (1%)
SET Acquisition Corp. (100%)
Sistema Internacional De Transporte de Autobuses, Inc. (100%)
American Bus Sales Associates, Inc. (100%)
Americanos U.S.A., LLC (51%)
Autobus Leasing Co., LLC (51%)
Autobuses Americanos, S.A. de C. V. (49%)
Autobuses Amigos, LLC (51%)
Autobuses Amigos, S.A. de C. V. (49%)
Autobuses Crucero, S.A. de C. V. (49%)
Gonzalez, Inc. d/b/a Golden State Transportation (51%)
Grupo Centro, Inc. (100%)
Los Buenos Leasing Co., Inc. (100%)
Los Rapidos, Inc. (51%)
Omnibus Americanos, S.A. de C. V. (49%)
Transportation Reality Income Partners, L.P. (48.9%)
Union Bus Station of Oklahoma City, Oklahoma (40%)
Wilmington Union Bus Station Corporation (24.6%)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FOR 12-MOS 10-K
</LEGEND>
<CIK> 0000813040
<NAME> GREYHOUND LINES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,736
<SECURITIES> 0
<RECEIVABLES> 40,972
<ALLOWANCES> 198
<INVENTORY> 5,705
<CURRENT-ASSETS> 93,374
<PP&E> 513,885
<DEPRECIATION> 151,468
<TOTAL-ASSETS> 643,378
<CURRENT-LIABILITIES> 135,623
<BONDS> 225,688
0
60,000
<COMMON> 603
<OTHER-SE> 157,410
<TOTAL-LIABILITY-AND-EQUITY> 643,378
<SALES> 0
<TOTAL-REVENUES> 845,996
<CGS> 0
<TOTAL-COSTS> 512,179
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,899
<INCOME-PRETAX> 18,932
<INCOME-TAX> (16,856)
<INCOME-CONTINUING> 35,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,048
<EPS-PRIMARY> .50
<EPS-DILUTED> .47
</TABLE>
