<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 1998.
REGISTRATION NO. 333-50433
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7521 06-1269403
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
800 SUPERIOR AVENUE
CLEVELAND, OHIO 44114-2601
(216)522-0700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<S> <C>
Copies of all communications to:
A. PETTER OSTBERG ADAM O. EMMERICH, ESQ.
VICE PRESIDENT WACHTELL, LIPTON, ROSEN & KATZ
AP HOLDINGS, INC. 51 WEST 52ND STREET
800 SUPERIOR AVENUE NEW YORK, NEW YORK 10019
CLEVELAND, OHIO 44114-2601 (212) 403-1000
(216) 522-0700
(NAME, ADDRESS, INCLUDING ZIP CODE AND
TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: Upon
consummation of the Exchange Offer referred to herein.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 11, 1998
[APCOA/STANDARD PARKING LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING
11 1/4% SENIOR DISCOUNT NOTES DUE 2008
($70,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
11 1/4% NEW SENIOR DISCOUNT NOTES DUE 2008
($70,000,000 PRINCIPAL AMOUNT)
OF
AP HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON , 1998, UNLESS EXTENDED
AP Holdings, Inc., a Delaware corporation ("Holdings"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange up to an aggregate principal amount of $70,000,000 of
its 11 1/4% New Senior Discount Notes due 2008 (the "New Notes") for an equal
principal amount of its outstanding 11 1/4% Senior Discount Notes due 2008 (the
"Notes"), in integral multiples of $1,000. The New Notes will be general
unsecured obligations of Holdings and are substantially identical (including
principal amount, interest rate, maturity and redemption rights) to the Notes
for which they may be exchanged pursuant to this offer, except that (i) the
offering and sale of the New Notes will have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and (ii) holders of
New Notes will not be entitled to certain rights of holders under a Registration
Rights Agreement of Holdings dated as of March 30, 1998 (the "Registration
Rights Agreement"). The Notes have been, and the New Notes will be, issued under
an Indenture dated as of March 30, 1998 (the "Indenture"), among Holdings and
State Street Bank & Trust Company, as trustee (the "Trustee"). See "Description
of New Notes." There will be no proceeds to Holdings from this offering;
however, pursuant to the Registration Rights Agreement, Holdings will bear
certain offering expenses.
------------------------
SEE "RISK FACTORS," COMMENCING ON PAGE 16, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE OFFER OR
IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
(cover page continued)
<PAGE> 3
Holdings will accept for exchange any and all validly tendered Notes on or
prior to 12:00 midnight, New York City time, on , 1998, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 12:00 midnight, New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. State Street Bank &
Trust Company will act as Exchange Agent with respect to the Notes (in such
capacity, the "Exchange Agent") in connection with the Exchange Offer. The
Exchange Offer is not conditioned upon any minimum principal amount of Notes
being tendered for exchange, but is otherwise subject to certain customary
conditions.
The Notes were sold by Holdings on March 30, 1998 in transactions not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act. A portion of the Notes were subsequently
resold to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act, to a limited number of institutional accredited investors in a
manner exempt from registration under the Securities Act and to persons outside
the United States in reliance on Regulation S under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred in
the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The New Notes are being offered hereunder in order to satisfy certain
obligations of Holdings under the Registration Rights Agreement. See "The
Exchange Offer."
The New Notes will accrete at a rate of 11 1/4% compounded semi-annually to
an aggregate principal amount of $70,000,000 at March 15, 2003. Thereafter, the
New Notes will accrue interest at the rate of 11 1/4% per annum, payable
semi-annually on March 15 and September 15 of each year, commencing September
15, 2003. The New Notes will be redeemable at the option of Holdings, in whole
or in part, at any time on or after March 15, 2003 in cash at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of redemption. In addition, at any time
prior to March 15, 2001, Holdings may redeem the New Notes, in whole but not in
part, at the option of Holdings, at a redemption price of 111.25% of the
accreted value (determined at the date of redemption), with the net cash
proceeds of a Public Equity Offering. See "Description of New Notes -- Optional
Redemption," and "Prospectus Summary -- Summary of Terms of New Notes."
Upon the occurrence of a Change of Control (as defined in the Indenture),
each Holder (as defined herein) of New Notes will have the right to require
Holdings to repurchase all or any part of such Holder's New Notes at an offer
price in cash equal to 101% of the Accreted Value (determined at the date of
redemption) thereof on the date of repurchase (if such date of repurchase is
prior to March 15, 2003) or 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of repurchase (if such date of repurchase is on or after March 15, 2003). See
"Description of New Notes -- Repurchase at the Option of Holders." There can be
no assurance that, in the event of a Change of Control, Holdings would have
sufficient funds to repurchase all New Notes tendered. See "Risk
Factors -- Payment Upon a Change of Control."
The New Notes will be general, unsecured obligations of Holdings, will rank
pari passu in right of payment with all existing and future senior indebtedness
of Holdings and will rank senior in right of payment to all subordinated
indebtedness of Holdings. As indebtedness of Holdings, however, the Notes will
be effectively subordinated to all indebtedness of APCOA/Standard Parking, Inc.,
a Delaware Corporation formerly known as APCOA, Inc. and a majority owned
subsidiary of Holdings (as combined with Standard (as defined) after giving
effect to the Combination (as defined) the "Company"). As of March 31, 1998, on
a pro forma basis, after giving effect to the Combination, the related
financings and other transactions described herein, including, without
limitation, the Note Offering and the application of the net proceeds therefrom,
the Notes would have been effectively subordinate to approximately $150.2
million of indebtedness of the Company.
Based on an interpretation by the staff of the SEC (as defined herein) set
forth in no-action letters issued to third parties, Holdings believes that New
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
(i) a broker-dealer that acquired Notes directly from Holdings or (ii) any such
holder which is an "affiliate" of Holdings within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the
(cover page continued)
2
<PAGE> 4
ordinary course of such holder's business and that such holder does not intend
to participate in the distribution of such New Notes.
Notwithstanding the foregoing, each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with the initial resale of such New Notes.
The Letter of Transmittal delivered with this Prospectus states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. Holdings has
agreed that for a period of 120 days after the consummation of the Exchange
Offer, it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. Notwithstanding the foregoing, broker-dealers
that acquired Notes directly from Holdings may not resell New Notes received in
exchange for such Notes without complying with the registration and prospectus
delivery requirements of the Securities Act.
Any Holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the New
Notes cannot rely on the position of the staff of the SEC enunciated in Exxon
Capital Holdings Corporation (available April 13, 1989), or Morgan Stanley &
Co., Inc. (available June 5, 1991) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
resale of the New Notes. Failure to comply with such requirements in such
instance may result in such Holder incurring liability under the Securities Act
for which the Holder is not indemnified by Holdings.
Holdings does not intend to list the New Notes on any securities exchange
or to seek admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ" or the "Initial Purchaser") has advised Holdings
that it intends to make a market in the New Notes; however, it is not obligated
to do so and any market-making may be discontinued at any time. As a result,
Holdings cannot determine whether an active public market will develop for the
New Notes.
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF AND HOLDINGS
WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES GENERALLY WILL NOT
HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR
OTHERWISE. SEE "THE EXCHANGE OFFER -- CONSEQUENCES OF FAILURE TO EXCHANGE."
The New Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global New Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depositary"
or "DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global New Notes representing the New Notes will be
shown on, and transfers thereof will be effected through, records maintained by
the Depositary and its participants. Notwithstanding the foregoing, Notes held
in certificated form will be exchanged solely for New Notes in certificated
form. After the initial issuance of the Global New Notes, New Notes in
certificated form will be issued in exchange for the Global New Notes only on
the terms set forth in the Indenture. See "Description of New Notes --
Book-Entry, Delivery and Form."
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY HOLDINGS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THE NEW NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
3
<PAGE> 5
AVAILABLE INFORMATION
Holdings has filed with the Securities and Exchange Commission (the "SEC"
or the "Commission") a Registration Statement on Form S-4 under the Securities
Act for the registration of the New Notes offered hereby (the "Registration
Statement"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the SEC. For
further information with respect to Holdings or the New Notes offered hereby,
reference is made to the Registration Statement, including the exhibits and
financial statement schedules thereto, which may be inspected without charge at
the public reference facility maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies of which may be obtained from the
SEC at prescribed rates. Statements made in this Prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each such document filed with the SEC as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
Such documents and other information filed by Holdings can be inspected and
copied at the public reference facilities of the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at the website maintained by the SEC
(http://www.sec.gov), and at the regional offices of the SEC located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at its public reference facilities in New York,
New York and Chicago, Illinois at prescribed rates.
Holdings is not currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of
the offering of the New Notes, Holdings will become subject to the informational
requirements of the Exchange Act. Holdings will fulfill its obligations with
respect to such requirements by filing periodic reports with the Commission. In
addition, Holdings will send to each Holder of New Notes copies of annual
reports and quarterly reports containing the information required to be filed
under the Exchange Act.
So long as Holdings is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the SEC to the Trustees and the Holders of the Notes and the New Notes.
Holdings has agreed that, even if it is not required under the Exchange Act to
furnish such information to the SEC, it will nonetheless continue to furnish
information that would be required to be furnished by Holdings under Section 13
of the Exchange Act to the Trustees and the Holders of the Notes or New Notes as
if it were subject to such periodic reporting requirements.
In addition, Holdings has agreed that, for so long as any of the Notes
remain outstanding, it will make available to any prospective purchaser of the
Notes or Holder of the Notes in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM AP
HOLDINGS, INC., 800 SUPERIOR AVENUE, CLEVELAND, OHIO 44114-2601, (216) 522-0700;
ATTENTION: ROBERT N. SACKS. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY , 1998.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all references in this Prospectus to Holdings'
business and all pro forma data give effect to the Transactions described below.
An index of certain defined terms used herein can be found on page 102. Unless
the context indicates or otherwise requires, references in this Prospectus to
(i) "Holdings" are to AP Holdings, Inc., and its subsidiaries; (ii) "APCOA" are
to APCOA/Standard Parking, Inc., and its subsidiaries; (iii) "Standard" are to
the combined operations of the group of affiliated entities controlled by the
Standard Owners as defined in "The Transactions--The Combination"; and (iv) the
"Company" are to APCOA and Standard, on a combined basis after giving effect to
the Combination.
HOLDINGS
Following consummation of the Transactions, capital stock of the Company
accounts for all of Holdings' assets. Holdings owns 84.0% of the Company's
common stock and all of the Company's preferred stock, which preferred stock
consists only of that issued by the Company in the Preferred Stock Contribution.
Holdings conducts substantially all of its business through the Company.
THE COMPANY
The Company is a leading national provider of parking facility management
services. The Company provides on-site management services at multi-level and
surface parking facilities in the two major markets of the parking industry:
urban parking and airport parking. Following consummation of the Combination,
the Company manages approximately 1,100 parking facilities, containing
approximately 580,000 parking spaces in over 45 cities across the United States
and Canada. The Company's pro forma gross customer collections, pro forma
parking services revenue, pro forma EBITDA and pro forma net loss for the year
ended December 31, 1997 were $948.6 million, $186.1 million, $19.9 million and
$2.8 million, respectively. In addition, due to interest expense on the Notes,
Holdings pro forma net loss for the year ended December 31, 1997 was $7.5
million.
The Company believes that its superior management services coupled with its
focus on increasing market share in select core cities leads to higher
profitability per parking facility than its competitors. The Company believes
that it enhances its leading position by providing: (i) Ambiance in Parking(R),
an approach to parking that includes a number of premium, on-site, value-added
services and amenities; (ii) state-of-the-art information technology, including
Client View(C), a proprietary client reporting system which allows the Company
to provide clients with real-time access to site-level financial and operating
information; and (iii) award-winning training programs for on-site employees
that promote customer service and client retention. In addition, the Company
believes that it distinguishes itself from its competitors because of its
ability to leverage its long-standing experience in securing contracts,
particularly with regard to the airport parking market.
The Company's diversified client base includes some of the nation's largest
owners and developers of major office building complexes, shopping centers,
sports complexes, hotels and hospitals. In addition, the Company manages parking
operations at many of the major airports in North America. In the urban parking
market, the Company's clients include CB Commercial Real Estate Group, Equity
Office Properties, the Taubman Company, Harvard Medical School, Northwestern
University, Children's Memorial Medical Center in Chicago and Cedars Sinai
Medical Center in Los Angeles. Parking facilities managed by the Company include
the CNN Center in Atlanta, the Kennedy Center for the Performing Arts in
Washington, D.C. and the Gateway Sports Complex in Cleveland. In the airport
parking market, the Company's clients include Chicago O'Hare International and
Chicago Midway, Cleveland-Hopkins International, Minneapolis-St. Paul
International and Detroit Metropolitan airports.
The Company operates its clients' parking properties through two types of
arrangements: management contracts and leases. The Company does not own any
parking facilities and, as a result, the Company assumes
5
<PAGE> 7
fewer of the risks of real estate ownership. Under a management contract, the
Company typically receives a base monthly fee for managing the property, and may
also receive an incentive fee based on the achievement of facility revenues
above a base amount. In some instances, the Company also receives certain fees
for ancillary services. Typically, all of the underlying revenues and expenses
under a management contract flow through to the property owner, not to the
Company. Under lease arrangements, the Company generally pays either a fixed
annual rental, a percentage of gross customer collections, or a combination
thereof to the property owner. The Company collects all revenues under lease
arrangements and is responsible for most operating expenses, but it is typically
not responsible for major maintenance or capital expenditures. As of March 31,
1998, the Company operated approximately 73% of its approximately 1,100 parking
facilities under management contracts and approximately 27% under leases.
Renewal rates for the Company's management contracts and leases were
approximately 96% for each of the last three years.
RECENT DEVELOPMENTS
THE COMBINATION
Pursuant to the terms of the Combination Agreement, on March 30, 1998,
APCOA acquired all of the outstanding capital stock, partnership and other
equity interests of Standard for consideration consisting of $65 million in
cash, 16% of the common stock of the Company, and the assumption of certain
liabilities, subject to certain adjustments. In connection with the Combination,
APCOA recorded a $14.1 million restructuring charge in the first quarter of
1998. This charge included $5.4 million of severance costs, $5.0 million of
relocation costs, the write-off of $2.4 million of assets that will no longer be
used in the business and $1.3 million in other restructuring costs. See "The
Transactions -- The Combination" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Holdings."
THE FINANCING
In connection with, and concurrently with the consummation of, the
Combination, on March 30, 1998, Holdings (a) consummated the Note Offering and
(b) contributed $40.7 million of cash to the Company (the "Preferred Stock
Contribution") in exchange for $40.7 million initial liquidation preference of
new preferred stock of the Company. Concurrently, the Company consummated the
Senior Subordinated Notes Offering and entered into the New Credit Facility. The
net proceeds from the Senior Subordinated Notes Offering, together with the
Preferred Stock Contribution, were used by the Company: (i) to fund the cash
portion of the consideration payable in connection with the Combination; (ii) to
repay certain indebtedness; (iii) for general corporate purposes, including
working capital needs and future acquisitions; (iv) to redeem preferred stock
held by Holberg; and (v) to pay fees and expenses in connection with the
Transactions. See "Use of Proceeds" and "The Transactions -- The Financing."
OTHER ACQUISITIONS
On May 1, 1998, the Company acquired the remaining 76% interest in
Executive Parking Industries LLC, a Delaware limited liability company ("EPI"),
through the acquisition of all of the outstanding capital stock of S&S Parking,
Inc., a California corporation ("S&S Parking"), the sole asset of which was such
76% interest in EPI, for $7.0 million in cash. In addition, on June 1, 1998, the
Company acquired all of the outstanding capital stock of Century Parking, Inc.,
a California corporation ("Century Parking"), and Sentry Parking Corporation, a
California corporation ("Sentry Parking"), for consideration consisting of $5.2
million in cash at closing and $1.0 million payable on the third anniversary of
the closing date. The Company has also entered into an agreement to make an
additional acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Holdings -- Summary of Operating
Facilities" and "-- Pro Forma Liquidity and Capital Resources."
6
<PAGE> 8
REPURCHASE OF HOLDINGS COMMON STOCK
As of August 4, 1998, Holdings repurchased the shares of its common stock,
representing 10% of the issued and outstanding common stock of Holdings, and
warrants to purchase additional shares held by Delaware North Companies,
Incorporated ("Delaware North") for $4.0 million in cash. See "Summary
Historical and Unaudited Pro Forma Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Holdings -- Pro Forma Liquidity and Capital Resources" and "Certain
Relationships and Related Party Transactions -- Holdings Stockholders
Agreement."
THE INDUSTRY
The International Parking Institute, a trade organization of parking
professionals, estimates that there are 35,000 parking facilities in the United
States generating over $26.0 billion in gross customer collections. The parking
industry is highly fragmented, with over 1,700 commercial parking operators in
the United States, as estimated by the Parking Market Research Company, an
independent research company. Industry participants, the vast majority of which
are privately-held companies, consist of relatively few nationwide companies and
a large number of small regional or local operators, including a substantial
number of companies providing parking as an ancillary service in connection with
property management or ownership. Clients of parking facility managers include
the owners of office buildings, major airports, shopping centers, sports
complexes, hotels and hospitals, which provide parking to customers.
The parking industry is comprised of two major markets: urban parking and
airport parking. The urban parking market consists of many sub-markets with
differing clients including commercial, office, residential, event,
entertainment, retail, shopping centers, hospitals and hotels. In contrast, the
airport parking market consists of a relatively small number of clients with
large revenue-generating parking operations and similar needs that are unique to
airport parking facilities.
THE COMBINATION AND EXPECTED BENEFITS
Pursuant to the terms of the Combination Agreement, APCOA has combined its
operations with the operations of Standard (the "Combination"). After
consummation of the Combination, the Company is one of the largest parking
facility managers in the United States, operating approximately 1,100 parking
locations, providing first-class, customer-oriented parking services, and using
proprietary, award-winning management information systems and technology to
improve services and reduce costs. Through the Combination, the Company believes
that it will be able to achieve approximately $6.3 million of annualized cost
savings within 12 to 18 months following the Combination as a result of the
elimination of certain duplicative costs and achievement of operating
efficiencies. Specific anticipated benefits include:
- Reduced Personnel Expenses. Subsequent to the Combination, the Company
intends to consolidate headquarters in Chicago and eliminate redundant
corporate functions. In addition, the Company expects to reduce the
number of field managers and administrative staff with overlapping
functions in certain core cities. The Company also expects to realize
additional net savings from the restructuring of certain executive
compensation packages.
- Operational Improvements and Elimination of Redundant Services Provided
by Third Parties. The Company plans to rely on APCOA's state-of-the-art
proprietary management information and reporting systems to perform many
services which Standard previously outsourced to third parties, such as
payroll and accounts receivable processing. The Company also expects to
realize purchasing economies and eliminate redundant services from
consolidating certain third-party service providers.
In addition, since January 1, 1997, the Company completed six small
acquisitions (the "Other Acquisitions" as defined below under "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Holdings") and entered into an agreement to acquire a seventh company. The
Company expects to realize $1.9 million of cost savings related to the Other
Acquisitions.
7
<PAGE> 9
Of the aggregate potential $8.2 million in annualized cost savings
discussed above, approximately $4.9 million are reflected in the Pro Forma
Condensed Consolidated Financial Statements included elsewhere herein. Actual
cost savings achieved by the Company may vary considerably from the estimates
discussed above. See "Summary Historical and Unaudited Pro Forma Consolidated
Financial Data" and "Risk Factors--Ability to Integrate Acquisitions."
BUSINESS STRATEGY & COMPETITIVE ADVANTAGES
The Company believes its innovative parking facility amenities, services
and management, coupled with its state-of-the-art information technology and
reporting systems, position the Company to enhance its standing as a leading
provider of parking services. Specific elements of the Company's business
strategy and competitive advantages include:
- Focus on Core Cities. Part of the Company's business strategy is to
focus on increasing system-wide profitability by maximizing operating
leverage. As part of this strategy, the Company operates in certain core
cities and realizes certain economies of scale, including the ability to
spread administrative overhead costs across a large number of parking
facilities in a single market. As a result, the Company has been able to
significantly increase profitability per contract. For example, in 1997,
management estimates that the Company's average profit per contract in
cities in which it operated more than 35 parking locations was nearly
double the Company's profit per contract in cities in which it operated
fewer than 35 locations.
- Strong Operating Performance and Stable Cash Flow. From 1993 to 1997,
the Company's EBITDA increased from $7.2 million to $15.0 million,
representing a compounded annual growth rate ("CAGR") of 20.0%. The
Company's cash flow from operating activities increased from $3.2 million
to $6.0 million from 1993 to 1997. Over the same period, the Company's
capital expenditures averaged less than $3.0 million per year. In
addition, the Company reduced exposure to increasing cost of parking
services by (i) increasing the proportion of its management contracts,
which generally pass cost of parking services onto the Company's clients,
and (ii) maintaining low minimum rental commitments under its
non-cancelable leases. The Company's average management and lease
contract renewal rate over the last three years was approximately 96%. As
a result of the Company's operating performance, as well as the low
capital expenditure requirements and low risk portfolio of management
contracts and leases, the Company has been able to generate consistent
cash flow. After giving pro forma effect to the Transactions and the
Other Acquisitions, the Company's and Holdings' earnings would have been
inadequate to cover fixed charges by $2.4 million and $7.1 million,
respectively, for the year ended December 31, 1997.
- Strategic Growth Through Acquisitions. The parking industry is highly
fragmented, with over 1,700 industry participants. In addition to
pursuing individual contracts, the Company is seeking to capitalize on
this industry fragmentation by pursuing a focused acquisition strategy
which includes: (i) acquiring parking management companies within core
cities and target cities where the Company believes it can attain a
significant market share, and (ii) acquiring larger, regional parking
management companies. As a part of this strategy, APCOA and Standard,
combined, have successfully acquired and integrated 6 companies with 138
new facilities and 252 net individual contracts over the past five years.
- Leading Client Base. The Company's diversified, long-standing customer
base comprises many of the premier national property management and
ownership organizations in the United States and Canada. The Company is a
market leader in airport parking, operating approximately 100 parking
facilities at airports in the United States and Canada. Management
believes that the Company's focus on select core cities enables the
Company to maintain broader and stronger relationships with the local
client base and improves its client retention rates and its ability to
compete for new contracts.
- Value-Added Services and Award-Winning Information Systems. The Company
believes that it can continue to increase profitability and attract new
clients by providing: (i) Ambiance in Parking(R); (ii) state-of-the-art
information technology, including Client View(C); and (iii) award-winning
training
8
<PAGE> 10
programs for on-site employees. Management believes that these
capabilities facilitate development opportunities that typically lead to
long-term lease and management contracts on new facilities. Also, the
Company has developed state-of-the-art information technology systems
which connect local offices across the country to its corporate office.
These systems, which received the 1994 Esprit Award sponsored by
Booz-Allen & Hamilton and CIO magazine, enable a centralized staff to
eliminate inefficient duplication of administrative and accounting
functions at the field level and also help provide key operational
information to clients. Management believes that these systems will
enable the Company to add many new clients and contracts without
incurring additional administrative staff and expense.
- Experienced Management Team. Myron C. Warshauer, the Company's Chief
Executive Officer and the third generation of his family to direct
Standard, has over 35 years of industry experience. G. Walter Stuelpe,
Jr., the Company's President, has been with APCOA for over 25 years,
serving as Chief Executive Officer since 1986. Other members of the
Company's executive team are the most experienced, talented executives
from both companies. Overall, the members of the Company's executive team
have an average of over 15 years of industry experience.
THE TRANSACTIONS
In connection with the Combination, Holdings consummated the Note Offering.
Concurrently, the Company: (i) consummated the offering of $140.0 million of
9 1/4% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes
Offering"); (ii) entered into the New Credit Facility; and (iii) received the
Preferred Stock Contribution. The Combination, the issuance of the Notes, the
Senior Subordinated Notes Offering, the New Credit Facility, the Preferred Stock
Contribution, the application of proceeds therefrom and the payment of related
fees and expenses are collectively referred to herein as the "Transactions."
------------------------
Holdings' principal executive offices are presently located at 800 Superior
Avenue, Cleveland, Ohio 44114-2601, and its telephone number is (216) 522-0700.
Holdings expects to move its principal executive offices to Michigan Avenue in
Chicago, Illinois in the fall of 1998.
9
<PAGE> 11
THE NOTE OFFERING
The Notes.................. The Notes were sold by Holdings on March 30, 1998
and were subsequently resold to qualified
institutional buyers pursuant to Rule 144A under the
Securities Act, to institutional investors that are
accredited investors in a manner exempt from
registration under the Securities Act and to persons
in transactions outside the United States in
reliance on Regulation S under the Securities Act
(the "Note Offering").
Registration Rights
Agreement.................. In connection with the Note Offering, Holdings
entered into the Registration Rights Agreement,
which grants holders of the Notes certain exchange
and registration rights, which generally terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered......... $70.0 million in aggregate principal amount of
Holdings' 11 1/4% New Senior Discount Notes due
2008.
The Exchange Offer......... $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of the Notes. As of the
date hereof, $70.0 million aggregate principal
amount of Notes are outstanding. Holdings will issue
the New Notes to Holders on or promptly after the
Expiration Date.
Expiration Date............ 12:00 midnight, New York City time, on
, 1998, unless the Exchange Offer is
extended, in which case the term "Expiration Date"
means the latest date and time to which the Exchange
Offer is extended.
Interest on the New Notes
and the Notes............ The New Notes will accrete at a rate of 11 1/4%
compounded semi-annually to an aggregate principal
amount of $70,000,000 at March 15, 2003. Thereafter,
the New Notes will accrue interest at the rate of
11 1/4% per annum, payable semi-annually on March 15
and September 15 of each year, commencing September
15, 2003.
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by Holdings. See
"The Exchange Offer -- Conditions."
Procedures for
Tendering Notes.......... Each Holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the relevant
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Notes and any other
required documentation to the relevant Exchange
Agent at the address set forth in the Letter of
Transmittal. The Letter of Transmittal should be
used to tender Notes. By executing the Letter of
Transmittal, each Holder will represent to Holdings
that, among other things, the Holder or the person
receiving such New Notes, whether or not such person
is the Holder, is acquiring the New Notes in the
ordinary course of business and that neither the
Holder nor any such other person has any arrangement
or understanding with any person to participate in
the distribution of such New Notes. In lieu of
physical delivery of the certificates representing
Notes, tendering Holders may transfer Notes pursuant
to the procedure for book-entry transfer as set
forth under "The Exchange Offer -- Procedures for
Tendering."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes
10
<PAGE> 12
to tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial
owner's own behalf, such beneficial owner must,
prior to completing and executing the Letter of
Transmittal and delivering its Notes, either make
appropriate arrangements to register ownership of
the Notes in such beneficial owner's name or obtain
a properly completed bond power from the registered
Holder. The transfer of registered ownership may
take considerable time.
Guaranteed Delivery
Procedures............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 12:00
midnight, New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Terms of the Exchange Offer."
Acceptance of Notes and
Delivery of New Notes.... Holdings will accept for exchange any and all Notes
that are properly tendered in the Exchange Offer
prior to 12:00 midnight, New York City time, on the
Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Federal Income Tax
Consequences............. The issuance of the New Notes to Holders of the
Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no gain
or loss would be recognized by Holders of the Notes
upon receipt of the New Notes. See "Certain Federal
Income Tax Consequences of the Exchange Offer."
Use of Proceeds............ There will be no proceeds to Holdings from the
exchange of Notes pursuant to the Exchange Offer.
Effect on Holders of
Notes...................... As a result of the making of this Exchange Offer,
Holdings will have fulfilled certain of its
obligations under the Registration Rights Agreement,
and Holders of Notes who do not tender their Notes
will generally not have any further registration
rights under the Registration Rights Agreement or
otherwise. Such Holders will continue to hold the
untendered notes and will be entitled to all the
rights and subject to all the limitations applicable
thereto under the Indentures, except to the extent
such rights or limitations, by their terms,
terminate or cease to have further effectiveness as
a result of the Exchange Offer. All untendered Notes
will continue to be subject to certain restrictions
on transfer. Accordingly, if any Notes are tendered
and accepted in the Exchange Offer, the trading
market for the untendered Notes could be adversely
affected.
Exchange Agent............. State Street Bank and Trust Company is serving as
exchange agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange Agent."
11
<PAGE> 13
SUMMARY OF TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Notes (which they will replace) except that (i) the New Notes have been
registered under the Securities Act, and, therefore, will not bear legends
restricting the transfer thereof and (ii) the Holders of the New Notes generally
will not be entitled to further registration rights under the Registration
Rights Agreement, which rights generally will be satisfied when the Exchange
Offer is consummated. The New Notes will evidence the same debt as the Notes and
will be entitled to the benefits of the Indenture. See "Description of New
Notes."
Securities Offered......... $70.0 million in principal amount of 11 1/4% New
Senior Discount Notes due 2008.
Maturity Date.............. March 15, 2008.
Accretion.................. The New Notes will accrete at a rate of 11 1/4%,
compounded semi-annually to an aggregate principal
amount of $70.0 million at March 15, 2003.
Interest Rate.............. The New Notes will accrue interest at the rate of
11 1/4% per annum, payable semi-annually in cash on
March 15 and September 15 of each year, commencing
September 15, 2003.
Optional Redemption........ The New Notes will be redeemable at the option of
Holdings, in whole or in part, at any time on or
after March 15, 2003 in cash at the redemption
prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages (as defined), if
any, thereon to the date of redemption. In
addition, at any time prior to March 15, 2001,
Holdings may redeem the New Notes, in whole, but
not in part, at the option of Holdings, at a
redemption price of 111.25% of the Accreted Value
(determined at the date of redemption), with the
net cash proceeds of a Public Equity Offering (as
defined). See "Description of New Notes--Optional
Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined), each holder of New Notes will have the
right to require Holdings to repurchase all or any
part of such holder's New Notes at an offer price
in cash equal to 101% of the Accreted Value thereof
on the date of repurchase (if such date of
repurchase is prior to March 15, 2003) or 101% of
the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages,
if any, thereon to the date of repurchase (if such
date of repurchase is on or after March 15, 2003).
See "Description of New Notes--Repurchase at the
Option of Holders--Change of Control." There can be
no assurance that, in the event of a Change of
Control, Holdings would have sufficient funds to
purchase all New Notes tendered. See "Risk
Factors--Payment Upon a Change of Control."
Ranking.................... The New Notes will be general unsecured obligations
of Holdings, will rank pari passu in right of
payment with all existing and future senior
indebtedness of Holdings and will rank senior in
right of payment to all subordinated indebtedness
of Holdings. As indebtedness of Holdings, however,
the New Notes will be effectively subordinated to
all indebtedness of the Company. As of March 31,
1998, on a pro forma basis, after giving effect to
the Transactions, the New Notes would have been
effectively subordinate to approximately $150.2
million of indebtedness of the Company. See "Risk
Factors--Holding Company Structure; Effective
Subordination."
12
<PAGE> 14
Certain Covenants.......... The Indenture contains certain covenants that
limit, among other things, the ability of Holdings
and its Restricted Subsidiaries to: (i) pay
dividends, redeem capital stock or make certain
other restricted payments or investments; (ii)
incur additional indebtedness or issue preferred
equity interests; (iii) merge, consolidate or sell
all or substantially all of its assets; (iv) create
liens on assets; and (v) enter into certain
transactions with affiliates or related persons.
See "Description of New Notes--Certain Covenants."
Original Issue Discount.... The New Notes are being issued with original issue
discount for U.S. federal income tax purposes.
Thus, although interest will not be payable on the
New Notes prior to March 15, 2003, holders will be
required to include amounts in gross income for
U.S. federal income tax purposes in advance of
receipt of the cash payments to which such income
is attributable. See "Description of Certain
Federal Income Tax Consequences--Original Issue
Discount."
Form and Denomination...... The certificates representing the New Notes will be
issued in fully registered form, deposited with a
custodian for and registered in the name of a
nominee of the Depository in the form of a Global
New Note. Beneficial interests in the certificates
representing the Global New Notes will be shown on,
and transfers thereof will be effected through,
records maintained by the Depository and its
Participants. See "Book Entry, Delivery and Form."
Exchange Offer Registration
Rights................... If any Holder of an aggregate of at least $2.0
million in principal amount of Notes notifies
Holdings within 20 days of the consummation of the
Exchange Offer that (A) such Holder is prohibited
by law or SEC policy from participating in the
Exchange Offer, or (B) such Holder may not resell
the New Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and
the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or
available for such resales by such Holder, or (C)
such Holder is a broker-dealer and holds Notes
acquired directly from Holdings or one of its
respective affiliates, then Holdings will be
required to provide a shelf registration statement
(the "Shelf Registration Statement") to cover
resales of the Notes by the Holders thereof.
Notwithstanding the foregoing, at any time after
consummation of the Exchange Offer, Holdings may
allow the Shelf Registration Statement to cease to
be effective and usable if (i) the Board of
Directors of Holdings determines in good faith that
it is in the best interests of Holdings not to
disclose the existence of or facts surrounding any
proposed or pending material corporate transaction
involving Holdings, and Holdings notifies the
Holders within a certain period of time after the
Board of Directors makes such determination, or
(ii) the prospectus contained in the Shelf
Registration Statement contains an untrue statement
of a material fact necessary in order to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading. Holdings will pay certain liquidated
damages to Holders of Notes and Holders of New
Notes if Holdings is not in compliance with its
obligations under the Registration Rights
Agreement. See "Exchange Offer; Registration
Rights."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PARTICIPANTS IN THE EXCHANGE OFFER OR IN CONNECTION WITH AN INVESTMENT IN THE
NEW NOTES, SEE "RISK FACTORS."
13
<PAGE> 15
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary historical financial data of
Holdings at and for the year ended December 31, 1997 and at and for the three
months ended March 31, 1998 and summary unaudited pro forma consolidated income
statement data of Holdings for the year ended December 31, 1997 and the three
months ended March 31, 1998. The historical financial data at and for the year
ended December 31, 1997, have been derived from the audited financial statements
of Holdings, and the historical financial data at and for the three months ended
March 31, 1998, have been derived from the unaudited financial statements of
Holdings. The pro forma consolidated balance sheet data at March 31, 1998 give
effect to the acquisition of EPI as if it had occurred on March 31, 1998. The
pro forma consolidated income statement data and other data for the year ended
December 31, 1997 and the three months ended March 31, 1998 give effect to the
Transactions and the Other Acquisitions, excluding Century Parking and Sentry
Parking, as if they had occurred at the beginning of the period presented. The
acquisition of Century Parking and Sentry Parking was not material to Holdings
and is not reflected in the unaudited pro forma financial statements of
Holdings. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Holdings," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Standard," the audited financial
statements of Holdings, the unaudited financial statements of Holdings, the
unaudited pro forma financial statements of Holdings, the historical financial
statements of Standard and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Parking services revenue...................... $115,676 $186,078 $ 28,804 $ 44,769
Cost of parking services...................... 92,818 146,165 23,576 35,571
General and administrative expenses........... 13,528 20,045 3,460 5,131
Restructuring charge.......................... -- -- 14,100 14,100
Depreciation and amortization................. 3,767 7,496 1,055 1,860
-------- -------- -------- --------
Operating income (loss)....................... 5,563 12,372 (13,387) (11,893)
Interest expense, net......................... 3,243 19,441 888 4,812
Minority interest............................. 321 321 143 143
Income tax expense............................ 140 140 30 30
-------- -------- -------- --------
Income (loss) before extraordinary item....... $ 1,859 $ (7,530) $(14,448) $(16,878)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA
AT DECEMBER AT MARCH AT MARCH
31, 1997 31, 1998 31, 1998
----------- -------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 3,322 $ 60,480 $ 54,078
Working capital (deficiency)............................ (17,059) 28,091 20,732
Total assets............................................ 59,095 213,810 215,436
Total debt.............................................. 38,283 190,806 190,904
Redeemable preferred stock of subsidiary................ 8,728 -- --
Common stock of subsidiary (the Company) subject to
put/call rights(1)................................... -- 4,589 4,589
Common stock and warrants subject to put/call
rights(2)............................................ 4,000 4,000 4,000
Stockholders' equity (deficit).......................... (26,259) (49,306) (49,306)
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
OTHER DATA:
Gross customer collections.................... $476,183 $948,612 $128,591 $250,256
EBITDA(3)..................................... 9,330 19,868 (12,332) (10,033)
Capital expenditures.......................... 2,357 2,849 1,600 1,600
Net cash provided by (used in):
Operating activities....................... 931 N/A (5,017) N/A
Investing activities....................... (3,592) N/A (72,869) N/A
Financing activities....................... 3,451 N/A 135,044 N/A
Ratio of earnings to fixed charges(4)......... 1.5x N/A N/A N/A
</TABLE>
- ------------------------------
(1) In accordance with the Stockholders Agreement (as defined below under
"Certain Relationships and Related Party Transactions -- Stockholders
Agreement"), the Company will be obligated under certain circumstances to
repurchase shares of common stock issued in connection with the Combination.
The Company will not be obligated to repurchase such common stock prior to
the third anniversary of the consummation of the Combination.
(2) In accordance with an agreement (the "Put/Call Agreement"), between Holdings
and Delaware North, Holdings has the right to repurchase the shares of its
common stock and warrants held by Delaware North. As of August 4, 1998,
Holdings repurchased the common stock and warrants held by Delaware North
for $4.0 million in cash.
(3) EBITDA represents operating income plus depreciation and amortization.
Historical and pro forma EBITDA for the three months ended March 31, 1998
have been reduced by a one-time restructuring charge of $14.1 million taken
by the Company in connection with the Combination.
EBITDA is presented because management believes it is a widely accepted
financial indicator used by certain investors and analysts to analyze and
compare companies on the basis of operating performance. EBITDA, as prepared
by Holdings, however, may not necessarily be comparable to similarly titled
measures prepared by other companies within the industry. Holdings
understands that EBITDA is not intended to represent (a) cash flow for the
period, (b) a source of liquidity or (c) funds to be used for discretionary
purposes, nor has it been presented as an alternative to operating income as
an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes and minority interest plus fixed charges. Fixed charges consist
of interest expense, amortization of deferred financing costs and one-third
of the rent expense from operating leases, which management believes is a
reasonable approximation of the interest factor of the rent. For the year
ended December 31, 1997, on a pro forma basis, earnings were inadequate to
cover fixed charges by $7.1 million. For the three months ended March 31,
1998, on a historical and pro forma basis, earnings were inadequate to cover
fixed charges by $14.3 million and $16.7 million, respectively.
15
<PAGE> 17
RISK FACTORS
Holders of the Notes and prospective purchaser of New Notes should consider
carefully the factors set forth below, as well as the other information set
forth elsewhere in this Prospectus, before making a decision to tender into the
Exchange Offer or making an investment in the New Notes. This Prospectus
includes forward-looking statements, including statements concerning Holdings'
business strategy, operations, cost savings initiatives, economic performance,
financial condition and liquidity and capital resources. Such statements are
subject to various risks and uncertainties. Holdings' actual results may differ
materially from the results discussed in such forward-looking statements because
of a number of factors, including those identified in this "Risk Factors"
section and elsewhere in this Prospectus. See "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Holdings," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Standard" and "Business." The
forward-looking statements are made as of the date of this Prospectus, and
Holdings assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS
Holdings is and will continue to be highly leveraged as a result of the
substantial indebtedness it has incurred in connection with the Transactions.
After giving pro forma effect to the acquisition of EPI, Holdings would have had
total indebtedness of $190.9 million and a stockholders' deficit of $46.0
million as of March 31, 1998, and Holdings' earnings would have been inadequate
to cover fixed charges by $7.1 million for the year ended December 31, 1997 and
$16.7 million for the three months ended March 31, 1998. The pro forma ratio of
total indebtedness to total capitalization would have been 1.3x as of March 31,
1998. Holdings may incur additional indebtedness in the future, subject to
limitations imposed by the Indenture and the New Credit Facility. See
"Capitalization," "Unaudited Pro Forma Combined Financial Statements," "The
Transactions -- The Combination" and "Description of Indebtedness."
Holdings' ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the New Notes) depends
on its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond its control. Based upon the current level of operations and anticipated
growth, management of Holdings believes that the cash flow and available cash of
its subsidiaries, together with available borrowings under the New Credit
Facility, will be adequate to meet anticipated future requirements for working
capital, capital expenditures, scheduled payments of principal of and interest
on its indebtedness, and interest on the New Notes. However, all or a portion of
the principal payments at maturity on the New Notes may require refinancing.
There can be no assurance that Holdings will generate sufficient cash flow from
operations or that future borrowings will be available in an amount sufficient
to enable Holdings to service its indebtedness, including the New Notes, or to
make necessary capital expenditures, or that any refinancing would be available
on commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Holdings -- Liquidity and Capital Resources."
The degree to which Holdings is now leveraged and will continue to be
leveraged following the Note Offering could have important consequences to
holders of the New Notes, including, but not limited to, the following: (i)
approximately $13.0 million of Holdings' annual cash flow from operations will
be required to service interest on the Company's Senior Subordinated Notes and
will not be available for other purposes; (ii) Holdings' ability to obtain
additional financing in the future could be limited; and (iii) the Indenture
contains financial and restrictive covenants that limit the ability of Holdings
to, among other things, borrow additional funds, dispose of assets or pay cash
dividends. Failure by Holdings to comply with such covenants could result in an
event of default, which, if not cured or waived, could have a material adverse
effect on Holdings.
16
<PAGE> 18
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
Holdings is a holding company and does not have any material operations or
assets other than ownership of 84.0% of the Company Common Stock and $40.7
million of preferred stock of the Company as a result of the Preferred Stock
Contribution. Accordingly, the New Notes will be effectively subordinated to all
existing and future liabilities of Holdings' subsidiaries including indebtedness
under the New Credit Facility and the Company's Senior Subordinated Notes. As of
March 31, 1998, on a pro forma basis after giving effect to the Transactions,
the aggregate amount of indebtedness of Holdings' subsidiaries to which the
holders of the Notes would be effectively subordinated would have been
approximately $150.2 million. Holdings and its subsidiaries may incur additional
indebtedness in the future, subject to certain limitations contained in the
instruments governing their indebtedness.
Any right of Holdings to participate in any distribution of assets of its
subsidiaries upon the liquidation, reorganization or insolvency of any such
subsidiary (and the consequent right of the holders of the New Notes to
participate in the distribution of those assets) will be subject to the prior
claims of the respective subsidiary's creditors. The obligations of the Company
under the New Credit Facility are secured by substantially all of its assets.
Additionally, Holdings guarantees the Company's obligations under the New Credit
Facility and such guarantee is secured by a first priority pledge of all the
capital stock of the Company owned by Holdings. See "Description of
Indebtedness--New Credit Facility."
LIMITATION ON THE PAYMENT OF FUNDS TO HOLDINGS BY ITS SUBSIDIARIES
Holdings' cash flow, and consequently its ability to pay dividends and to
service debt, including its obligations under the New Notes, is dependent upon
the cash flows of its subsidiaries and the payment of funds by such subsidiaries
to Holdings in the form of loans, dividends or otherwise. Holdings' subsidiaries
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
the New Notes or to make any funds available therefor. In addition, the
Company's New Credit Facility and the indenture governing the Company's Senior
Subordinated Notes impose, and agreements entered into in the future may impose,
significant restrictions on the payment of dividends and the making of loans by
the Company to Holdings. Under the New Credit Facility, subject to certain
financial covenants, the Company is permitted to pay dividends to Holdings equal
to the semi-annual interest payments due on the New Notes; provided that upon a
notice of a default or event of default under the New Credit Facility, Holdings'
subsidiaries are prohibited from paying such dividends until the earlier of the
180th day following such notice and the date such default or event of default is
cured or waived. Accordingly, repayment of the New Notes may depend upon the
ability of Holdings to effect an offering of capital stock or to refinance the
New Notes.
ASSET ENCUMBRANCES
In connection with the New Credit Facility, Holdings has granted the
lenders thereunder a first priority lien on all of the capital stock of the
Company owned by it as security for its guarantee of the Company's obligations
under the New Credit Facility. In the event of a default under the New Credit
Facility or such guarantee, the lenders under the New Credit Facility could
foreclose upon the assets pledged to secure the New Credit Facility, including
such capital stock, and the holders of the New Notes might not be able to
receive any payments until any payment default was cured or waived, any
acceleration was rescinded, or the indebtedness under the New Credit Facility
was discharged or paid in full.
DEPENDENCE ON MANAGEMENT CONTRACTS AND LEASES
The principal sources of the Company's revenues are management contracts
and leases covering parking facilities. For the years ended December 31, 1996
and December 31, 1997, gross profits from management contracts accounted for
43.8% and 42.5%, respectively, of the Company's total gross profits, and for the
years ended December 31, 1996 and December 31, 1997, gross profits from leased
facilities accounted for 56.2% and 57.5%, respectively, of the Company's total
gross profits. Under a management contract, the Company typically receives a
base monthly fee for managing the property, and may also receive an incentive
fee based on the achievement of facility revenues above a base amount. In some
instances, the Company also receives
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certain fees for ancillary services. Typically, all of the underlying revenues
and expenses under a management contract flow through to the property owner, not
to the Company. Leases generally are for three to ten year terms. Certain of
Standard's management contracts and leases contain provisions allowing the
property owner to terminate such management contract or lease in the event of a
transaction such as the Combination. There can be no assurance that property
owners will not terminate such management contracts or leases upon consummation
of the Combination, nor that any such terminations would not have a material
adverse effect on the Company and its business, operations or financial
condition. There also can be no assurance that the Company will be able to
maintain or renew its management contracts and leases on favorable terms. In
addition, because certain management contracts and leases are with state, local
and quasi-governmental entities, changes to certain governmental entities'
approaches to contracting regarding parking facilities could affect such
contracts. The loss, or renewal on less favorable terms, of a substantial number
of management contracts or leases could have a material adverse effect on the
Company. In addition, a material reduction in the profit margins associated with
ancillary services provided by the Company under its management contracts and
leases, including increases in costs or claims associated with, or reductions in
the number of clients purchasing, insurance provided by the Company, could have
a material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Holdings,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Standard" and "Business--Insurance."
DEPENDENCE ON PROPERTY PERFORMANCE
The Company's leases generally require the Company to make a fixed monthly
lease payment regardless of the parking fees collected. Some management
contracts provide for payment to the Company based on a percentage of revenues
generated by the parking facility. Accordingly, the Company's revenues and net
income are dependent on the performance of the parking facilities it leases and
manages. Such performance depends, in part, on the ability to negotiate
favorable contract terms, the ability to control operating expenses, financial
conditions prevailing generally and in areas where parking facilities are
located, the nature and extent of competitive parking facilities in the area,
weather conditions at certain properties (particularly with respect to
airports), government-mandated security measures at airport parking facilities
and the real estate market generally. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Holdings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Standard."
EXPANSION OF BUSINESS; ABILITY TO INTEGRATE ACQUISITIONS
The Company will have to integrate Standard's and APCOA's businesses, as
well as the Other Acquisitions. While this process has already begun and the
Company believes that such integration provides significant opportunities to
reduce costs, there can be no assurance that the Company will be able to meet
performance expectations or successfully integrate these businesses on a timely
basis without disruption in the quality and reliability of service to its
customers or clients or diversion of management resources. In addition, while
each of APCOA and Standard has made acquisitions successfully before, the
Combination is substantially larger than any of such prior acquisitions.
Further, the Company intends to expand its business by adding leases and
management contracts and by acquiring additional parking management companies.
The Company's growth will be directly affected by results of operations of added
parking facilities, which will depend, in turn, upon the Company's ability to
obtain suitable financing, contract terms, government licenses and approvals,
and the competitive environment for acquisitions. In that regard, the nature of
licenses and approvals, and the timing and likelihood of obtaining them, vary
widely from state to state and from country to country. Some of the acquired
operations may be located in geographic markets in which the Company has little
or no presence. Successful integration and management of additional facilities
will depend on a number of factors, many of which are beyond the Company's
control. There can be no assurance that suitable acquisition candidates will be
identified, that such acquisitions can be consummated, or that the acquired
operations can be integrated successfully. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Holdings--Liquidity
and Capital Resources," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Standard--Liquidity and Capital
Resources," "Business--Business Strategy and Competitive Advantages" and
"--Regulation."
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ENVIRONMENTAL AND OTHER REGULATIONS
Under various federal, state, and local environmental laws, ordinances, and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under, or in such property. Such laws typically impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In connection with the operation
of parking facilities, the Company may be potentially liable for such costs.
Although the Company is currently not aware of any material environmental claims
pending or threatened against it or any of its operated parking facilities, no
assurances can be given that a material environmental claim will not be asserted
against the Company or against the parking facilities it operates. The cost of
defending against claims of liability, or of remediating a contaminated
property, could have a material adverse effect on the results of operations or
financial condition of the Company.
Various other governmental regulations affect the Company's operation of
parking facilities, both directly and indirectly, including air quality laws,
licensing laws and the Americans with Disabilities Act of 1990 (the "ADA").
Under the ADA, all public accommodations, including parking facilities, are
required to meet certain federal requirements related to access and use by
disabled persons. Although management believes that the parking facilities it
operates are in substantial compliance with these requirements, a determination
that the Company or the facility owner is not in compliance with the ADA could
result in the imposition of fines or damage awards against the Company. See
"Business--Regulation."
COMPETITION
The parking industry is highly competitive with limited barriers to entry.
The Company's competitors range from small single-lot operators to large
regional and national multi-facility operators, and include municipal and other
governmental entities. Some of the Company's present and potential competitors
have or may obtain greater financial and marketing resources than those of the
Company. Furthermore, the Company competes for qualified management personnel
with other parking facility operators, with property management companies, and
with property owners. The Company competes for acquisitions with other parking
facility operators. There can be no assurance that the Company will not
encounter increased competition for acquisitions in the future and that such
competition will not have an adverse effect on the Company's ability to complete
acquisitions or on prices paid for acquisitions. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's and Holdings' success is, and will continue to be,
substantially dependent upon the continued services of the Company's management
team.
The loss of the services of one or more members of senior management could
have a material adverse effect on Holdings' financial condition and results of
operations. Although the Company has entered into employment agreements with,
and historically has been successful in retaining the services of, its senior
management, there can be no assurance that the Company will be able to retain
such personnel in the future. In addition, the Company's continued growth
depends on the ability to attract and retain skilled operating managers and
employees and the ability of its key personnel to manage the Company's growth
and consolidate and integrate its operations. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDER
Holberg Industries, Inc. ("Holberg") owns 93.9% of the issued and
outstanding common stock of Holdings. See "Security Ownership of Certain
Beneficial Holders and Management." Holberg has sufficient rights and/or voting
power to elect the majority of the Board of Directors of each of Holdings, and
through Holdings, the Company, and thereby exercise control over the business,
policies and affairs of Holdings, and, in general, determine the outcome of any
corporate transaction or other matters submitted to stockholders for approval,
such as any amendment to the certificate of incorporation of Holdings (the
"Certificate of Incorporation"), the authorization of additional shares of
capital stock, and any merger, consolidation or sale
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of all or substantially all of the assets of Holdings, all of which could
adversely affect Holdings and holders of the New Notes. See "Security Ownership
of Certain Beneficial Holders and Management."
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes may
require Holdings to repurchase all or a portion of such holder's New Notes at
101% of the Accreted Value thereof on the date of repurchase (if such date of
repurchase is prior to March 15, 2003) or 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest, if any, and Liquidated
Damages, if any, to the date of repurchase (if such date of repurchase is on or
after March 15, 2003). In addition, the New Credit Facility provides that, if a
Change of Control (as defined therein) occurs, it will constitute an event of
default under the New Credit Facility. In the event of such a Change of Control,
the Company would be required to repay the indebtedness outstanding under the
New Credit Facility and the Company may be required to repay its Senior
Subordinated Notes. There can be no assurance that the Company and Holdings
would have the resources necessary to repay their respective indebtedness or
that a Change of Control would not have a material adverse effect on the value
of the New Notes or the ability of Holdings to repay the indebtedness under the
New Notes. See "Description of New Notes--Repurchase at the Option of
Holders--Change of Control" and "--Holding Company Structure; Effective
Subordination."
FRAUDULENT CONVEYANCE RISKS
Management of Holdings believes that the indebtedness represented by the
New Notes is being, and by the Notes for which New Notes are exchanged was,
incurred for proper purposes and in good faith, and that, based on present
forecasts, asset valuations and other financial information, after the
consummation of the Exchange Offer, and the Transactions, Holdings will be, and
was, solvent, will, and did, have sufficient capital for carrying on its
business and will be, and was, able to pay its debts as they mature. See
"--Substantial Leverage and Debt Service Requirements." Notwithstanding
management's belief, however, if a court of competent jurisdiction in a suit by
an unpaid creditor or a representative of creditors (such as a trustee in
bankruptcy or a debtor-in-possession) were to find that, at the time of the
incurrence of such indebtedness (either under the New Notes or the Notes for
which New Notes are exchanged), Holdings was insolvent, was rendered insolvent
by reason of such incurrence, was engaged in a business or transaction for which
its remaining assets constituted unreasonably small capital, intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, or intended to hinder, delay or defraud its creditors, and that
the indebtedness was incurred for less than reasonably equivalent value, then
such court could, among other things, (i) void all or a portion of Holdings'
obligations to the holders of the New Notes, the effect of which would be that
the holders of the New Notes may not be repaid in full and/or (ii) subordinate
Holdings' obligations to the holders of the New Notes to other existing and
future indebtedness of Holdings to a greater extent than would otherwise be the
case, the effect of which would be to entitle such other creditors to be paid in
full before any payment could be made on the New Notes.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES; RESTRICTIONS ON TRANSFERS
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Exchange Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for the New Notes. The New Notes will constitute a new issue of
securities with no established trading market. Although the New Notes will
generally be permitted to be resold or otherwise transferred by Holders who are
not affiliates of Holdings without compliance with the registration requirements
under the Securities Act, Holdings does not intend to list the New Notes on any
securities exchange or to seek admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. Although DLJ has
advised Holdings that it currently intends to make a market in the New Notes, it
is not obligated to do so and may discontinue such market making at any time
without notice. If a trading market does not develop or is not maintained,
holders of the New Notes may experience difficulty in reselling the New Notes or
may be unable to sell them at all. If a market for the New Notes develops, any
such market may be discontinued at any time. In addition, such market making
activity will be subject to the limits
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<PAGE> 22
imposed by the Exchange Act. See "Description of New Notes -- Registration
Rights; Liquidated Damages." Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes.
COMPLIANCE WITH EXCHANGE OFFER PROCEDURES; RESTRICTIONS ON RESALES
Issuance of the New Notes in exchange for Notes pursuant to the Exchange
Offer will be made only after a timely receipt by the Exchange Agent of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, Holders of the Notes desiring to tender
such Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. Holdings is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any Holder of Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives New Notes for its
own account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
the initial resale of such New Notes. To the extent that Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Notes could be adversely affected. See "The Exchange Offer."
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements, including statements
concerning Holdings and the Company's business strategy, operations, cost
savings initiatives, economic performance, financial condition and liquidity and
capital resources. Such statements are subject to various risks and
uncertainties. Holdings and the Company's actual results may differ materially
from the results discussed in such forward-looking statements because of a
number of factors, including those identified in the sections of this Prospectus
captioned "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Holdings,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Standard" and "Business." Forward-looking statements are made as
of the date of this Prospectus, and Holdings assumes no obligation to update the
forward-looking statements, or to update the reasons why actual results could
differ from those projected in the forward-looking statements.
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes what Holdings believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by Holdings on March 30, 1998, and were subsequently
resold to qualified institutional buyers pursuant to Rule 144A under the
Securities Act, to institutional investors that are accredited investors in a
manner exempt from registration under the Securities Act and to persons outside
the United States in reliance on Regulation S under the Securities Act. In
connection with the Note Offering, Holdings entered into the Registration Rights
Agreement, which requires, among other things, that promptly following the
completion of the Note Offering, Holdings: (i) file with the SEC a registration
statement under the Securities Act with respect to an issue of new Notes of
Holdings identical in all material respects to the Notes, (ii) use its best
efforts to cause such registration statement to become effective under the
Securities Act and (iii) upon the effectiveness of that registration statement,
offer to the Holders of the Notes the opportunity to exchange their Notes for a
like principal amount of New Notes, which would be issued without a restrictive
legend and may be reoffered and resold by the holder without restrictions or
limitations under the Securities Act (other than any such holder that is an
"affiliate" of Holdings within the meaning of Rule 405 under the Securities
Act). A copy of the Registration Rights Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The term
"Holder" with respect to the Exchange Offer means any person in whose name the
Notes are registered on the books of Holdings or any other person who has
obtained a properly completed bond power from the registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount of
Notes outstanding. Following the consummation of the Exchange Offer, Holders of
the Notes who did not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement, and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected. The Notes
are currently eligible for sale pursuant to Rule 144A through the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") System of
the National Association of Securities Dealers, Inc. Because Holdings
anticipates that most holders of Notes will elect to exchange such Notes for New
Notes due to the absence of restrictions on the resale of New Notes under the
Securities Act, Holdings anticipates that the liquidity of the market for any
Notes remaining after the consummation of the Exchange Offer may be
substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Holdings will accept any and all Notes validly
tendered and not withdrawn prior to 12:00 midnight, New York City time, on the
Expiration Date. Holdings will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of outstanding Notes accepted in the
Exchange Offer. Holders may tender some or all of their Notes pursuant to the
Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the New Notes are the same as the form and terms of
the Notes except that (i) the New Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the New Notes generally will not be entitled to certain
rights under the Registration Rights Agreement, which rights generally will
terminate upon consummation of the Exchange Offer. The New Notes will evidence
the same debt as the Notes and will be entitled to the benefits of the
Indentures.
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Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. Holdings intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder, including Rule 14e-1 thereunder.
Holdings shall be deemed to have accepted validly tendered Notes when, as
and if Holdings has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering Holders for the purpose
of receiving the New Notes from Holdings.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. Holdings will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 12:00 midnight, New York City time,
on , 1998, unless Holdings, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, Holdings will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
Holdings reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by Holdings to
constitute a material change, Holdings will promptly disclose such amendment by
means of a prospectus supplement that will be distributed to the registered
Holders, and, depending upon the significance of the amendment and the manner of
disclosure to the registered Holders, Holdings will extend the Exchange Offer
for five to ten business days if the Exchange Offer would otherwise expire
during such five to ten business-day period.
If Holdings does not consummate the Exchange Offer, or, in lieu thereof,
Holdings does not file and cause to become effective a resale shelf registration
for the New Notes within the time periods set forth herein, liquidated damages
will accrue and be payable on the New Notes either temporarily or permanently.
See "Description of New Notes -- Registration Rights; Liquidated Damages."
INTEREST ON NEW NOTES
The New Notes will not bear interest prior to September 15, 2003.
Thereafter, interest will be payable in cash semi-annually on March 15 and
September 15 of each year, commencing on September 15, 2003.
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the relevant
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Notes
and any other required documents, to the Exchange Agent so as to be received by
the Exchange Agent at the address set forth below prior to 12:00 midnight, New
York City time, on the Expiration Date. The Letter of Transmittal must be used
to tender Notes.
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Delivery of the Notes may be made by book-entry transfer in accordance with
the procedures described below. Confirmation of such book-entry transfer must be
received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to Holdings
the representation set forth below in the second paragraph under the heading
"-- Resale of New Notes."
The tender by a Holder and the acceptance thereof by Holdings will
constitute an agreement between such Holder and Holdings in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO HOLDINGS. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES
TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by Holdings, evidence
satisfactory to Holdings of their authority to so act must be submitted with the
Letter of Transmittal.
Holdings understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Notes at the Depositary for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the Depositary's system may make book-entry delivery of the Notes
by causing the Depositary to transfer such Notes into the Exchange Agent's
account with respect to the Notes in accordance with the Depositary's procedures
for such transfer. Although delivery of the Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Depositary, an
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the Depositary does not
constitute delivery to the Exchange Agent.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by Holdings in its sole discretion, which determination will be final
and binding. Holdings reserves the absolute right to reject any and all Notes
not properly tendered or any Notes Holdings' acceptance of which would, in the
opinion of counsel for Holdings, be unlawful. Holdings also reserves the right
to waive any defects, irregularities or conditions of tender as to particular
Notes. Holdings' interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must be cured within such time as Holdings
shall determine. Although Holdings intends to notify Holders of defects or
irregularities with respect to tenders of Notes, none of Holdings, the Exchange
Agent or any other person shall incur any liability for failure to give such
notification. Tenders of Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the relevant Exchange Agent or
(iii) who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Depositary) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depositary) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 12:00 midnight, New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 12:00 midnight, New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Depositary to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes
25
<PAGE> 27
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Notes
register the transfer of such Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Notes are to be registered,
if different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by Holdings, whose determination shall be final and binding on all parties. Any
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no New Notes will be issued with respect thereto
unless the Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Holdings shall not be
required to accept for exchange, or to exchange New Notes for, any Notes, and
may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if any law, statute, rule, regulation or
interpretation by the staff of the SEC is proposed, adopted or enacted, which,
in the reasonable judgment of Holdings, might materially impair the ability of
Holdings to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to Holdings.
If Holdings determines in its reasonable judgment that any of the
conditions are not satisfied, Holdings may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes (see
"-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, Holdings will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, Holdings will extend the Exchange Offer for a period of five
to ten business days if the Exchange Offer would otherwise expire during such
five to ten business-day period.
EXCHANGE AGENT
State Street Bank & Trust Company will act as Exchange Agent for the
Exchange Offer with respect to the Notes (the "Exchange Agent").
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
<TABLE>
<S> <C> <C>
By Mail By Facsimile Transmission: By Hand or Overnight Courier:
(registered or certified mail (617) 664-5395
recommended):
State Street Bank and
State Street Bank and Confirm by Telephone Trust Company
Trust Company or for Information Call: Corporate Trust Department
Corporate Trust Department (617) 664-5587 4th floor
P.O. Box 778 Attn.: Kellie Mullen Two International Place
Boston, MA 02102-0078 Boston, MA 02110
</TABLE>
26
<PAGE> 28
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Holdings. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone, facsimile or in person by officers and regular
employees of Holdings and its affiliates.
Holdings has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. Holdings, however, will pay the
Exchange Agents reasonable and customary fees for their services and will
reimburse them for their reasonable out-of-pocket expenses in connection
therewith and pay other registration expenses, including fees and expenses of
the Trustees, filing fees, blue sky fees and printing and distribution expenses.
Holdings will pay all transfer taxes, if any, applicable to the exchange of
the Notes pursuant to the Exchange Offer. If, however, certificates representing
the New Notes or the Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered Holder of the Notes tendered, or if tendered Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of the Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Notes,
which is the aggregate principal amount in the case of the Notes, as reflected
in Holdings' accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
New Notes.
RESALE OF NEW NOTES
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, Holdings believes that New Notes issued
pursuant to the Exchange Offer in exchange for Notes may be offered for resale,
resold and otherwise transferred by any Holder of such New Notes (other than (i)
a broker-dealer that acquired Notes directly from Holdings or (ii) any such
Holder which is an "affiliate" of Holdings within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such Holder's business and such Holder does
not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of such New Notes. Any Holder who
tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the New Notes may not rely on the
position of the staff of the SEC enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989) and Morgan Stanley & Co., Incorporated
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holder's information required by Item 507 or 508 of
Regulation S-K of the Securities Act, as applicable. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, may be a
statutory underwriter and must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. Notwithstanding the foregoing,
broker-dealers that acquired Notes directly from Holdings may not resell New
Notes received in exchange for such Notes without complying with the
registration and prospectus delivery requirements of the Securities Act.
By tendering in the Exchange Offer, each Holder will represent to Holdings
that, among other things, (i) the New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
27
<PAGE> 29
business of the person receiving such New Notes, whether or not such person is a
Holder, (ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes and (iii) the Holder and such other person acknowledge that if they
participate in the Exchange Offer for the purpose of distributing the New Notes
(a) they must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the New Notes and cannot rely on the no-action
letters referenced above and (b) failure to comply with such requirements in
such instance could result in such Holder incurring liability under the
Securities Act for which such Holder is not indemnified by Holdings. Further, by
tendering in the Exchange Offer, each Holder that may be deemed an "affiliate"
(as defined under Rule 405 of the Securities Act) of Holdings will represent to
Holdings that such Holder understands and acknowledges that the New Notes may
not be offered for resale, resold or otherwise transferred by that Holder
without registration under the Securities Act or an exemption therefrom.
As set forth above, (i) broker-dealers that acquired Notes directly from
Holdings or (ii) affiliates of Holdings are not entitled to rely on the
foregoing interpretations of the staff of the SEC with respect to resales of the
New Notes without compliance with the registration and prospectus delivery
requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, Holdings will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for New Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indentures, except to the extent that such rights or limitations, by their
terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
The Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to Holdings (upon redemption thereof or otherwise), (ii) pursuant to an
effective registration statement under the Securities Act, (iii) so long as the
Notes are eligible for resale pursuant to Rule 144A, to a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, (iv) outside the United
States to a foreign person pursuant to the exemption from the registration
requirements of the Securities Act provided by Regulation S thereunder, (v)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available), or (vi) to an institutional accredited
investor in a transaction exempt from the registration requirements of the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States. See "Risk Factors -- Restrictions on
Transfer."
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
Holdings may in the future seek to acquire untendered Notes in open market
or privately negotiated transactions, through subsequent exchange offers or
otherwise. Holdings has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
28
<PAGE> 30
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Each Holder of a
Note should consult his, her or its own tax advisor as to the particular tax
consequences of exchanging such Holder's Notes for New Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the New Notes to Holders of the Notes pursuant to the terms
set forth in this Prospectus will not constitute an exchange for federal income
tax purposes. Consequently, no gain or loss would be recognized by Holders of
the Notes upon receipt of the New Notes, and ownership of the New Notes will be
considered a continuation of ownership of the Notes. For purposes of determining
gain or loss upon the subsequent sale or exchange of the New Notes, a Holder's
basis in the New Notes should be the same as such Holder's basis in the Notes
exchanged therefor. A Holder's holding period for the New Notes should include
the Holder's holding period for the Notes exchanged therefor. The issue price,
and other tax characteristics of the New Notes should be identical to the issue
price, and other tax characteristics of the Notes exchanged therefor.
See also "Description of Certain Federal Income Tax Consequences."
29
<PAGE> 31
THE TRANSACTIONS
In connection with, and concurrently with the consummation of, the
Combination on March 30, 1998, Holdings: (i) consummated the Note Offering and
(ii) effected the Preferred Stock Contribution. Concurrently, the Company: (i)
consummated the Senior Subordinated Notes Offering, (ii) received the Preferred
Stock Contribution, and (iii) entered into the New Credit Facility. The Senior
Subordinated Notes Offering, the Preferred Stock Contribution and the New Credit
Facility, collectively, will be referred to herein as the "Financing." The
Combination and the Financing will collectively be referred to as the "Company
Transactions" and, together with the Note Offering, the "Transactions." See
"Description of Indebtedness."
THE COMBINATION
Pursuant to the Combination Agreement, dated as of January 15, 1998 (the
"Combination Agreement"), by and among Myron C. Warshauer, Stanley Warshauer,
Steven A. Warshauer, Dosher Partners, L.P., a Delaware limited partnership, SP
Parking Associates, an Illinois general partnership, and SP Associates, an
Illinois general partnership (collectively, "Standard Owners") and APCOA, APCOA
has, subject to the terms and conditions contained in the Combination Agreement,
on March 30, 1998, acquired all of the outstanding capital stock, partnership
and other equity interests of Standard Parking Corporation, an Illinois
corporation; Standard Auto Park, Inc., an Illinois corporation; Standard Parking
Corporation MW, an Illinois corporation; Standard Parking, L.P., a Delaware
limited partnership; Standard Parking Corporation IL, an Illinois corporation;
and Standard/Wabash Parking Corporation, an Illinois corporation (all such
entities, collectively, "Standard") for consideration consisting of $65.0
million in cash, 5.0095230 shares, or 16%, of the common stock of the Company
("Company Common Stock") outstanding as of January 15, 1998, valued at $4.6
million, and the assumption of certain liabilities. In addition, on March 30,
1998, APCOA paid to the Standard Owners $2.8 million, generally representing
Standard's earnings through the date of the Combination and Standard's cash on
hand at such time. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Holdings--Pro Forma Liquidity and Capital
Resources."
Pursuant to the Combination Agreement, the company executed certain
agreements including (a) a stockholders agreement among the stockholders of the
Company, (b) an escrow agreement among the Company and the Standard Owners, (c)
an employment agreement between the Company and Myron C. Warshauer, and (d) a
consulting agreement between the Company and Sidney Warshauer.
The Combination Agreement contains customary representations and warranties
by the parties which generally survive for a period of two years after the
consummation of the Combination. The Standard Owners and APCOA have agreed to
indemnify each other for any loss resulting from such party's breach of a
representation, warranty or covenant made by such party; provided, however, that
such indemnity is limited, in the aggregate, to a basket of $2.0 million and is
limited to a cap of $10.0 million, except for an indemnity by the Standard
Owners related to taxes which shall not be subject to such limitations.
THE FINANCING
The Senior Subordinated Notes Offering. Concurrently with the Note
Offering, the Company offered $140.0 million in aggregate principal amount of
its 9 1/4% Senior Subordinated Notes due 2008. The net proceeds from the Senior
Subordinated Notes Offering, together with the other Financings, were used to
finance the Company Transactions.
The Preferred Stock Contribution. In connection with the Combination,
Holdings contributed $40.7 million of cash to the Company (the "Preferred Stock
Contribution") in exchange for $40.7 million initial liquidation preference of
new preferred stock of the Company. The new preferred stock has terms
substantially similar to those of the New Notes. See "Certain Relationships and
Related Party Transactions--Preferred Stock". The Preferred Stock Contribution
was financed with the proceeds of the Note Offering, the fees and expenses of
which were borne by the Company.
The New Credit Facility. Upon the closing of the Senior Subordinated Notes
Offering (the "Closing"), the Company entered into a $40.0 million secured
revolving credit facility (the "New Credit Facility") with The First National
Bank of Chicago (the "Agent"). Borrowings under the New Credit Facility bear
interest at variable rates based, at the Company's option, either on LIBOR, the
federal funds rate, or the Agent's base rate. See "Description of
Indebtedness--New Credit Facility."
30
<PAGE> 32
USE OF PROCEEDS
HOLDINGS
The gross proceeds from the sale of the Notes of approximately $40.7
million were used by Holdings to fund the Preferred Stock Contribution. The fees
and expenses of the Note Offering were borne by the Company.
THE COMPANY
(DOLLARS IN MILLIONS)
The Company used the net proceeds from the Senior Subordinated Notes
Offering (after deducting discounts and commissions and estimated expenses),
together with the Preferred Stock Contribution: (i) to fund the cash portion of
the consideration payable in connection with the Combination; (ii) to repay
certain indebtedness; (iii) for general corporate purposes, including working
capital needs and future acquisitions; (iv) to redeem preferred stock held by
Holberg; and (v) to pay fees and expenses in connection with the Transactions.
The existing indebtedness repaid in connection with the Senior Subordinated
Notes Offering included approximately $40.7 million of borrowings under APCOA's
then-existing credit facility and approximately $0.35 million of borrowings
under Standard's then-existing credit facility. See "Certain Relationships and
Related Party Transactions."
The following table sets forth the approximate sources and uses of funds in
connection with the Transactions:
<TABLE>
<S> <C>
SOURCES OF FUNDS:
9 1/4% Senior Subordinated Notes due 2008................. $140.0
Preferred Stock Contribution.............................. 40.7
------
Total sources of funds............................ $180.7
======
USES OF FUNDS:
Cash consideration to the Standard Owners................. $ 65.0
Refinance APCOA debt...................................... 40.7
Refinance Standard debt................................... 0.3
General corporation purposes.............................. 45.6
Consideration to EPI owners............................... 7.0
Redeem preferred stock.................................... 8.0
Fees and expenses......................................... 14.1
------
Total uses of funds............................... $180.7
======
</TABLE>
31
<PAGE> 33
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the actual cash and cash equivalents and
capitalization of Holdings as of March 31, 1998, which reflects the
Transactions, and on a pro forma basis, adjusted to reflect the acquisition of
EPI, and in each case on a consolidated basis. This table should be read in
conjunction with the historical financial statements of Holdings and the related
notes thereto, the historical financial statements of Standard and the related
notes thereto and the unaudited pro forma financial statements of Holdings and
the related notes thereto, each included elsewhere herein. See "The
Transactions."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------
ACTUAL PRO FORMA
-------- ---------
<S> <C> <C>
Cash and cash equivalents................................... $ 60,480 $ 54,078
======== ========
Long-term debt (including current portion):
New Credit Facility(1).................................... $ 497 $ 497
11 1/4% Senior Discount Notes due 2008.................... 40,683 40,683
9 1/4% Senior Subordinated Notes due 2008................. 140,000 140,000
Other debt................................................ 9,626 9,724
-------- --------
Total long-term debt................................... 190,806 190,904
Common stock of subsidiary (the Company) subject to put/call
rights(2)................................................. 4,589 4,589
Common stock and warrants subject to put/call rights(3)..... 4,000 4,000
Stockholders' equity (deficit):
Preferred stock........................................... 25,957 25,957
Common stock and additional paid-in capital............... 2,089 2,089
Retained earnings (deficit)............................... (77,352) (77,352)
-------- --------
Total stockholders' equity (deficit)................... (49,306) (49,306)
-------- --------
Total capitalization.............................. $150,089 $150,187
======== ========
</TABLE>
- ------------------------------
(1) $40.0 million is available under the New Credit Facility for working capital
and general corporate purposes, including the issuance of letters of credit,
$4.9 million of which were issued at Closing, which occurred on March 30,
1998, subject to the achievement of certain financial ratios and compliance
with certain conditions. See "Description of Indebtedness--New Credit
Facility."
(2) In accordance with the Stockholders Agreement (as defined below under
"Certain Relationships and Related Party Transactions--Stockholders
Agreement") the Company will be obligated under certain circumstances to
repurchase shares of common stock issued in connection with the Combination.
The amount reflected herein has been calculated based on the formula in the
Stockholders Agreement. The Company will not be obligated to repurchase such
common stock prior to the third anniversary of the consummation of the
Combination.
(3) In accordance with the Put/Call Agreement between Holdings and Delaware
North, Holdings has the right under certain circumstances to repurchase the
shares of its common stock and common stock warrants held by Delaware North.
As of August 4, 1998, Holdings repurchased the common stock and warrants
held by Delaware North for $4.0 million in cash.
32
<PAGE> 34
SELECTED HISTORICAL FINANCIAL DATA OF HOLDINGS
(DOLLARS IN THOUSANDS)
The following table presents selected historical consolidated financial
data of Holdings at and for the fiscal years 1993, 1994, 1995, 1996 and 1997
which have been derived from the audited financial statements of Holdings,
audited by Ernst & Young LLP, and at and for the three months ended March 31,
1997 and 1998, which have been derived from the unaudited financial statements
of Holdings. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Holdings" and the historical consolidated financial
statements of Holdings and the notes thereto included elsewhere herein. In the
opinion of management, the interim financial statements at and for the three
months ended March 31, 1997 and 1998 reflect all adjustments (consisting only of
normal recurring adjustments) necessary to fairly present the information
presented for such periods. The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of the results of operations to be
expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Parking services revenue............... $150,280 $148,398 $141,540 $135,752 $115,676 $ 27,019 $ 28,804
Cost of parking services............... 132,598 129,175 120,215 113,501 92,818 22,547 23,576
General and administrative expenses.... 10,712 10,879 12,121 13,017 13,528 2,940 3,460
Restructuring charge................... -- -- -- -- -- -- 14,100
Depreciation and amortization.......... 8,486 8,749 8,772 4,888 3,767 1,110 1,055
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)................ (1,516) (405) 432 4,346 5,563 422 (13,387)
Interest expense, net.................. 2,021 2,350 2,705 2,877 3,243 767 888
Other expense.......................... 500 125 -- -- -- -- --
Minority interest...................... 496 850 604 424 321 38 143
Income tax expense..................... 126 169 240 106 140 60 30
Extraordinary loss..................... -- -- -- -- -- -- 2,816
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ (4,659) $ (3,899) $ (3,117) $ 939 $ 1,859 $ (443) $(17,264)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Gross customer collections............. $352,466 $389,556 $408,952 $430,696 $476,183 $108,474 $128,591
Capital expenditures................... 1,577 2,002 2,782 2,552 2,357 257 1,600
Net cash provided by (used in):
Operating activities................. 3,062 3,403 4,340 2,042 931 (4,216) (5,017)
Investing activities................. (3,013) (4,647) (4,917) (3,349) (3,592) (658) (72,869)
Financing activities................. (98) 1,068 1,107 1,288 3,451 6,304 135,044
Ratio of earnings to fixed
charges(1)........................... N/A N/A N/A 1.3x 1.5x N/A N/A
Number of managed locations............ 173 197 227 207 318 217 813
Number of leased locations............. 232 223 260 243 252 240 303
Number of total locations.............. 405 420 487 450 570 457 1,116
Number of parking spaces............... 268,000 235,000 226,000 225,000 273,000 243,000 595,000
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.............. $ 2,197 $ 2,021 $ 2,551 $ 2,532 $ 3,322 $ 3,962 $ 60,480
Working capital (deficiency)........... (24,065) (20,795) (20,990) (19,455) (17,059) (13,626) 28,091
Total assets........................... 52,788 51,544 51,605 52,823 59,095 56,101 213,810
Total debt............................. 24,829 27,700 30,461 32,795 38,283 39,099 190,806
Redeemable preferred stock of
subsidiary (the Company)............. 6,000 6,330 7,045 7,841 8,728 8,063 --
Common stock of subsidiary (the
Company) subject to put/call
rights............................... -- -- -- -- -- -- 4,589
Common stock and warrants subject to
put/call rights...................... 2,317 3,315 3,664 3,856 4,000 3,856 4,000
Stockholders' equity (deficit)......... (16,454) (22,857) (27,038) (27,087) (26,259) (27,752) (49,306)
</TABLE>
- ------------------------------
(1) For purposes of computing this ratio, earnings consist of income before
income taxes, minority interest and extraordinary item plus fixed charges.
Fixed charges consist of interest expense, amortization of deferred
financing costs and one-third of the rent expense from operating leases,
which management believes is a reasonable approximation of the interest
factor of the rent. For the years ended December 31, 1993, 1994 and 1995,
and the three months ended March 31, 1997 and 1998, earnings were inadequate
to cover fixed charges by $4,037, $2,880 and $2,273, $345 and $14,275,
respectively.
33
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOLDINGS
The following discussion of Holdings' results of operations should be read
in conjunction with the consolidated financial statements of Holdings and the
notes thereto included elsewhere herein. Following consummation of the
Transactions, Holdings' assets consist solely of capital stock of the Company,
and Holdings conducts all of its business through the Company.
OVERVIEW
APCOA operates facilities under two types of arrangements: management
contracts and leases. APCOA does not own any parking facilities and, as a
result, APCOA assumes few of the risks of real estate ownership. Under a
management contract, APCOA typically receives a base monthly fee for managing
the property, and may also receive an incentive fee based on the achievement of
facility revenues above a base amount. In some instances, APCOA also receives
certain fees for ancillary services. Typically, all of the underlying revenues,
expenses and capital expenditures under a management contract flow through to
the property owner, not to APCOA. Under lease arrangements, APCOA generally pays
to the property owner either a fixed annual rental, a percentage of gross
customer collections or a combination thereof. APCOA collects all revenues under
lease arrangements and is responsible for most operating expenses, but it is
typically not responsible for major maintenance or capital expenditures. As of
March 31, 1998, the Company (giving effect to the Combination and the Other
Acquisitions excluding Century Parking and Sentry Parking) operated
approximately 73% of its approximately 1,100 parking facilities under management
contracts and approximately 27% under leases.
Gross customer collections. Gross customer collections consist of gross
receipts collected at all leased and managed properties, including
unconsolidated affiliates.
Parking services revenue--leases. Lease parking services revenues consist
of all revenues received at a leased facility.
Parking services revenue--management contracts. Management contract
revenues consist of management fees, including both fixed and revenue-based, and
fees for ancillary services such as accounting, equipment leasing, consulting,
and other value-added services with respect to managed locations, but exclude
gross customer collections at such locations. Management contracts generally
provide APCOA a management fee regardless of the operating performance of the
underlying facility.
Cost of parking services--leases. Cost of parking services under lease
arrangements consist of (i) contractual rental fees paid to the facility owner
and (ii) all operating expenses incurred in connection with operating the leased
facility. Contractual fees paid to the facility owner are based on either a
fixed contractual amount or a percentage of gross revenue, or a combination
thereof. Generally under a lease arrangement, APCOA is not responsible for major
capital expenditures or property taxes.
Cost of parking services--management contracts. Cost of parking services
under management contracts are generally passed through to the facility owner.
Most management contracts have no cost of parking services related to them as
all costs are reimbursable to APCOA by the client. Several APCOA contracts,
however, require APCOA to pay for certain costs which are offset by larger
management fees. These contracts tend to be large airport properties with high
cost structures.
General and administrative expenses. General and administrative expenses
include primarily salaries, wages, travel and office related expenses for the
headquarters and field employees.
SUMMARY OF OPERATING FACILITIES
Pursuant to the terms of the Combination Agreement, APCOA paid to the
Standard Owners $65.0 million in cash and 16.0% of the Company Common Stock
outstanding as of January 15, 1998. In addition to the Combination, the Company
completed six acquisitions since January 1, 1997, as follows: (i) Colonial
Richmond (March 1, 1997); (ii) Metropolitan Parking (June 1, 1997); (iii) the
remaining 50% interest in
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<PAGE> 36
APCOA Parking Management & Development, Ltd. (November 1, 1997); (iv) Dixie
Parking (January 22, 1998); (v) S&S Parking (the remaining 76% interest in EPI)
(May 1, 1998); and (vi) Century Parking and Sentry Parking (June 1, 1998) (the
"Other Acquisitions"). The Other Acquisitions, excluding Century Parking and
Sentry Parking, contributed 233 additional parking locations as of March 31,
1998. In addition, the Company has entered into an agreement to acquire a
seventh company. See "-- Pro Forma Liquidity and Capital Resources" below.
The following table reflects the Company's facilities at the end of the
periods indicated taking into consideration the Combination and the Other
Acquisitions, on a pro forma basis:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED MARCH 31,
--------------------- ---------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Managed facilities:
APCOA..................................... 227 207 263 217 262
Standard.................................. 233 295 344 303 364
Other Acquisitions........................ N/A N/A 187 31 187
--- --- ----- ---- -----
Combined............................... 460 502 794 551 813
Leased facilities:
APCOA..................................... 260 243 227 240 224
Standard.................................. 32 32 35 30 33
Other Acquisitions........................ N/A N/A 46 22 46
--- --- ----- ---- -----
Combined............................... 292 275 308 292 303
--- --- ----- ---- -----
Total facilities............................ 752 777 1,102 843 1,116
=== === ===== ==== =====
Contract retention rate..................... 96% 96% 96% N/A N/A
</TABLE>
RESULTS OF OPERATIONS
APCOA has made a strategic decision to pursue management contracts
primarily because its target client base generally prefers such arrangements
and, therefore, management believes that there are greater growth opportunities
in this area.
In analyzing gross margins of APCOA, it should be noted that the cost of
parking services in connection with the provision of management services is
generally paid by the clients. Margins for lease arrangements are significantly
impacted by variables other than operating performance, such as the ability to
charge higher parking rates in different cities and widely varying space
utilization by parking facility type.
The following table sets forth, for the periods indicated, Holdings'
results of operations expressed in thousands of dollars:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED MARCH 31,
-------------------------------- --------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Gross customer
collections............... $408,952 $430,696 $476,183 $108,474 $128,591
======== ======== ======== ======== ========
Parking services revenue:
Lease contracts........... $128,745 $120,286 $ 99,594 $ 23,371 $ 24,663
Management contracts...... 12,795 15,466 16,082 3,648 4,141
-------- -------- -------- -------- --------
141,540 135,752 115,676 27,019 28,804
Cost of parking services:
Lease contracts........... 113,337 104,718 83,327 20,158 21,315
Management contracts...... 6,878 8,783 9,491 2,389 2,261
-------- -------- -------- -------- --------
120,215 113,501 92,818 22,547 23,576
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED MARCH 31,
-------------------------------- --------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
General and administrative
expenses.................. $ 12,121 $ 13,017 $ 13,528 $ 2,940 $ 3,460
Restructuring charge........ -- -- -- -- 14,100
Depreciation and
amortization.............. 8,772 4,888 3,767 1,110 1,055
-------- -------- -------- -------- --------
Operating income (loss)..... 432 4,346 5,563 422 (13,387)
Interest expense, net....... 2,705 2,877 3,423 767 888
Minority interest........... 604 424 321 38 143
Income tax expense.......... 240 106 140 60 30
Extraordinary loss.......... -- -- -- -- 2,816
-------- -------- -------- -------- --------
Net income (loss)........... $ (3,117) $ 939 $ 1,859 $ (443) $(17,264)
======== ======== ======== ======== ========
</TABLE>
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
Gross customer collections. Gross customer collections increased $20.1
million, or 18.5%, to $128.6 million in the first quarter of 1998 compared to
$108.5 in the first quarter of 1997. This increase is attributable to the net
addition of 14 management contracts plus the acquisition of 55 managed locations
and 25 leased locations during the period.
Parking services revenue -- leases. Lease revenue increased $1.3 million,
or 5.5%, to $24.7 million during the first quarter of 1998 as compared to $23.4
million in the first quarter of 1997. This increase was driven by core business
growth of $2.2 million and revenue from acquisitions of $0.4 million, offset
somewhat by the impact of the loss of a large airport lease in January 1997 that
had revenue of $1.3 million in the first quarter of 1997.
Parking services revenue -- management contracts. Management contract
revenue increased $0.5 million, or 13.5%, to $4.1 million in the first quarter
of 1998 as compared to $3.6 million in the first quarter of 1997. This increase
resulted from improvement in management fees at existing locations of $0.3
million, and the impact of management contracts added through acquisitions of
$0.2 million.
Cost of parking services -- leases. Cost of parking for leases increased
$1.1 million, or 5.7%, to $21.3 million in the first quarter of 1998 from $20.2
million in the first quarter of 1997. This increase resulted from increases in
costs at existing locations of $2.3 million and costs associated with acquired
leases of $0.3 million offset by expenses at an airport that was lost in 1997 of
$1.4 million. Gross margin for leases remained relatively flat for the first
quarter of 1998 at 13.6% of lease revenue compared to 13.7% for the first
quarter of 1997.
Cost of parking services -- management contracts. Cost of parking for
management contracts decreased by $0.1 million, or 5.4%, to $2.3 million in the
first quarter of 1998 from $2.4 million in the first quarter of 1997. This
improvement resulted from $0.2 million of cost reductions at existing accounts
offset by $0.1 million of additional costs for acquired management contracts.
Gross margin for management contracts improved to 45.4% in the first quarter of
1998 compared to 34.5% for the first quarter of 1997. This improvement resulted
from the relative mix of locations that were added compared to those already in
the contract portfolio. Management contracts added to the contract portfolio
relating to new locations do not carry any cost of parking services because all
of such costs are paid by the client while some of the older management
contracts in the contract portfolio do carry costs of parking services. The
addition of management contracts relating to new locations dilutes the impact of
the costs borne by the Company in respect of older management contracts and
thereby improves gross margin as a percent of management contract revenue.
General and administrative expenses. General and administrative costs
increased $0.6 million, or 17.7%, to $3.5 million for the first quarter of 1998
as compared to $2.9 million for the first quarter of 1997. This
36
<PAGE> 38
increase resulted primarily from inflation and increases in field administrative
costs associated with the acquisitions made in 1997.
Restructuring charge. APCOA recorded a $14.1 million restructuring charge
in the first quarter of 1998 which was based upon a thorough analysis of the
costs associated with implementing the planned consolidation of the Company's
headquarters in Chicago and the costs related to APCOA staff reductions. The
charge included (A) $5.0 million of relocation costs in connection with the
relocation and consolidation of the headquarters of the Company, the relocation
of two other offices, moving the families of 20 Cleveland headquarters staff
members to Chicago and the relocation of one individual from Columbus to
Houston, (B) $5.4 million in severance costs consisting of cash compensation to
54 people whose employment was terminated, (C) the write-off of $2.4 million of
assets that will no longer be used in the business consisting of $0.7 million of
capitalized legal and start-up costs incurred in connection with APCOA's
previous plan to expand into international markets which was abandoned as a
result of the Combination and $1.7 million of software development costs and (D)
$1.3 million of other restructuring costs, the largest component of which was a
$1.0 million increase in insurance reserves resulting from a planned buyout of
the insurance program of APCOA in connection with the combination of the APCOA
and Standard insurance programs. The $11.7 million cash component of this
restructuring charge is expected to be disbursed by the third quarter of 1998.
Other income and expenses. Net interest expense for the first quarter of
1998 increased $0.1 million to $0.9 million from $0.8 million in the first
quarter of 1997. During the first quarter of 1998, the Company recorded an
extraordinary loss of $2.8 million which was comprised of $2.1 million from a
prepayment penalty for early extinguishment of debt and $0.7 million from a
write-off of the unamortized balance of deferred financing costs associated with
the extinguished debt. Minority interest expense for the first quarter of 1998
totaled $0.1 million.
FISCAL 1997 COMPARED TO FISCAL 1996
Gross customer collections. Gross customer collections increased $45.5
million, or 10.6%, to $476.2 million in fiscal 1997 from $430.7 million in
fiscal 1996. This increase resulted primarily from the net addition of 120
leased and managed locations, as well as a combination of rate increases and
higher utilization of parking spaces at existing facilities.
Parking services revenue--leases. Lease revenue decreased $20.7 million,
or 17.2%, to $99.6 million in fiscal 1997 from $120.3 million in fiscal 1996.
This decrease resulted from the loss of an airport lease ($31.7 million)
partially offset by improvements at other lease facilities ($6.9 million) and
new leases acquired in connection with the Other Acquisitions ($4.1 million).
Parking services revenue--management contracts. Management contract
revenue increased $0.6 million, or 4.0%, to $16.1 million in fiscal 1997 from
$15.5 million in fiscal 1996. This increase resulted primarily from increased
revenues at existing facilities ($0.4 million) and new contracts acquired in
connection with the Other Acquisitions ($1.1 million), offset by APCOA's Los
Angeles facilities that were contributed to EPI ($0.9 million).
Cost of parking services--leases. Cost of parking for leases decreased
$21.4 million, or 20.4%, to $83.3 million in fiscal 1997 from $104.7 million in
fiscal 1996. The reduction in cost of parking services leases was due to the
loss of a large airport lease ($31.2 million) partially offset by increases in
costs at existing lease locations ($6.6 million) and new leases acquired in
connection with the Other Acquisitions ($3.8 million). Gross margin for leases
improved to 16.3% of lease revenue in 1997 from 12.9% in 1996. This improvement
in gross margin resulted from the termination of a large airport lease with a
low gross margin.
Cost of parking services--management contracts. Cost of parking for
management contracts increased $0.7 million, or 8.1%, to $9.5 million in fiscal
1997 from $8.8 million in fiscal 1996. Most management contracts have no cost of
parking services related to them as all costs are reimbursable to APCOA.
However, several contracts (primarily large airport properties), require APCOA
to pay for certain costs which are offset by larger management fees. The
increase in cost of parking for management contracts was related to growth at
two airport facilities ($0.8 million), costs related to new management contracts
and the acquisition of Metropolitan in June 1997 ($0.4 million), offset by
APCOA's Los Angeles facilities that were contributed to EPI ($0.5 million).
Gross margin for management contracts declined to 41.0% of management contract
37
<PAGE> 39
revenue in 1997 from 43.2% in 1996. This decline resulted from the addition of a
location in 1997 that had a small loss in its initial contract year.
General and administrative expenses. General and administrative expenses
increased $0.5 million, or 3.9%, to $13.5 million in fiscal 1997 from $13.0
million in fiscal 1996. This increase was primarily a result of inflation.
Depreciation and amortization expense. Depreciation and amortization
expense decreased $1.1 million, or 22.9%, to $3.8 million in fiscal 1997 from
$4.9 million in fiscal 1996. This decrease resulted primarily from the declining
balance of the leasehold contracts which were amortized over seven years. The
leasehold contracts were recorded in 1989 at their fair value in connection with
the acquisition of APCOA by Holberg.
Other income and expenses. Net interest expense for 1997 increased $0.3
million, or 12.7%, to $3.2 million from $2.9 million in 1996. The increase was
due to an increased level of indebtedness resulting from the incurrence of debt
to fund working capital needs and acquisitions that occurred in 1997. Minority
interest expense for 1997 declined by $0.1 million to $0.3 million compared to
$0.4 million in 1996. Income taxes were $0.1 million in both 1997 and 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Gross customer collections. Gross customer collections increased $21.7
million, or 5.3%, to $430.7 million in fiscal 1996 from $409.0 million in fiscal
1995. This increase resulted primarily from a combination of rate increases and
higher utilization of parking spaces at existing facilities.
Parking services revenue--leases. Lease revenue decreased $8.4 million, or
6.6%, to $120.3 million in fiscal 1996 from $128.7 million in fiscal 1995. This
decrease resulted from a strategic shift from leases to management contracts,
particularly the conversion of one large airport lease ($10.7 million). This
decrease was partially offset by growth in existing revenues at other locations
($2.3 million).
Parking services revenue--management contracts. Management contract
revenue increased $2.7 million, or 20.9%, to $15.5 million in fiscal 1996 from
$12.8 million in fiscal 1995. This increase resulted from the conversion of one
large lease to a management contract ($0.2 million), significant growth at two
large airports ($1.4 million) and the increased revenues at existing facilities
primarily as a result of rate increases ($1.1 million).
Cost of parking services--leases. Cost of parking for leases decreased
$8.6 million, or 7.6%, to $104.7 million in fiscal 1996 from $113.3 million in
fiscal 1995. The reduction in cost of parking services for leases is primarily
related to the conversion of one airport lease to a management contract ($10.4
million). Gross margin for leases improved to 12.9% of lease revenue in 1996
from 12.0% in 1995 due to an improvement in the average profit per contract and
growth in the number of urban contracts which generally earn a higher margin
than airport leases.
Cost of parking services--management contracts. Cost of parking for
management contracts increased $1.9 million, or 27.7%, to $8.8 million in fiscal
1996 from $6.9 million in fiscal 1995. The increase in cost of parking services
for management contracts reflects the significant growth at two airport
facilities ($0.9 million), and additional costs at other management accounts
($1.0 million). Gross margin for management contracts declined to 43.2% of
management contract revenue in 1996 from 46.2% in 1995. This change resulted
from the addition of an airport shuttle contract under which APCOA is obligated
to pay payroll expenses out of its management fee, thereby reducing the gross
margin of the contract.
General and administrative expenses. General and administrative expenses
increased $0.9 million, or 7.4%, to $13.0 million in fiscal 1996 from $12.1
million in fiscal 1995. This increase was primarily a result of additions to the
airport administrative staff designed to stimulate growth in that segment.
Depreciation and amortization. Depreciation and amortization expenses
decreased $3.9 million, or 44.3%, to $4.9 million in fiscal 1996 from $8.8
million in fiscal 1995. This decrease resulted primarily from the declining
balance of the leasehold contracts which were amortized over seven years. The
leasehold contracts were recorded in 1989 at their fair value in connection with
the acquisition of APCOA by Holberg.
38
<PAGE> 40
Other income and expenses. Net interest expense for 1996 increased $0.2
million, or 6.4%, to $2.9 million from $2.7 million in 1995. The increase
resulted from minor fluctuations in interest rates during the period. Minority
interest expense for 1996 decreased $0.2 million to $0.4 million from $0.6
million in 1995. Income taxes declined to $0.1 million in 1996 from $0.2 million
in 1995.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
As a result of day-to-day activity at the parking locations, APCOA collects
significant amounts of cash. Under lease contracts, this revenue is deposited
into APCOA's bank account, with a portion remitted to the clients in the form of
rental payments according to the terms of the leases. Under management
contracts, some clients require APCOA to deposit the daily receipts into an
APCOA bank account while others require the deposit into a client account. The
locations with revenues deposited into the APCOA banks result in the Company
operating with a negative working capital. This negative working capital arises
from the liability that is created for the amount of revenue that will be
remitted to the clients in the form of rents or net profit distributions
subsequent to month end, after the books are closed and reconciled. Since the
Company operates with a revolving working capital facility, all funds held for
future remittance to the clients are used to reduce the line until the payments
are made to the clients.
Holdings had $28.1 million of working capital at March 31, 1998 as compared
to $13.6 million of negative working capital at March 31, 1997. This significant
increase resulted primarily from an increase in the cash balance to $60.5
million at March 31, 1998, from $4.0 million at March 31, 1997, resulting from
the retention of excess cash from the proceeds of the debt offerings consummated
by the Company and Holdings in March 1998, partially offset by an increase in
accrued liabilities as a result of the restructuring charge of $14.1 million
recorded in March 1998 and other purchase accounting reserves that were recorded
in March 1998. The majority of the balance in these accruals will be disbursed
during the remainder of 1998.
Net cash used in operating activities totaled $5.0 million for the first
quarter of 1998 compared to $4.2 million for the first quarter of 1997. This
increase in cash used resulted from a $2.1 million prepayment penalty for early
extinguishment of debt offset by improved operating profit.
Cash used in investing activities totaled $72.9 million in the first
quarter of 1998 compared to $0.4 million in the same period in 1997. The change
was a result of the acquisition of Standard and Dixie Parking by APCOA in the
first quarter of 1998. In addition, APCOA expended $1.6 million in capital
purchases in the first quarter of 1998 compared to $0.3 million in the first
quarter of 1997. This increase related to the acquisition of a leasehold in
March 1998.
Cash from financing activities totaled $135.0 million in the first quarter
of 1998 compared to $6.3 million for the same quarter in 1997. The financing
activities in the first quarter of 1998 included $189.6 million of proceeds from
the issuance of debt, $40.7 million in debt repayments and $8.0 million for the
redemption of preferred stock. These transactions were completed in conjunction
with the combination with Standard. Cash from financing activities for the first
quarter of 1997 included primarily an increase in the working capital revolver
due to seasonal working capital swings.
Holdings had $17.1 million of negative working capital at December 31, 1997
as compared to $19.5 million at December 31, 1996. The reduction in negative
working capital in fiscal 1997 resulted primarily from an increase in cash and
accounts receivable attributable to the addition of management contracts during
the year. This is partially offset by the increase in current portion of
long-term debt which totaled $4.1 million at December 31, 1997 and $0.7 million
at December 31, 1996.
Net cash provided by operating activities totaled $0.9 million for fiscal
1997 and $2.0 million for fiscal 1996. The reduction of $1.1 million resulted
from working capital uses primarily related to adding new management contracts
and reductions in accrued rent and insurance reserves. The new management
contracts were concentrated in the type that require the Company to deposit the
receipts into the client's account. The reductions in accrued rent were
primarily a result of a location that was lost in a competitive bid. Insurance
reserves declined due to a concerted effort to close out old claims.
39
<PAGE> 41
Cash used in investing activities totaled $3.6 million in 1997 and $3.3
million in 1996. The primary use is for capital expenditures which are used to
extend lease contracts, obtain new contracts and for management information
system equipment and upgrades. The Company has historically expended about $2.0
million annually on capital expenditures at parking properties. These
expenditures are generally used to acquire parking equipment, booths, or install
paving or fencing. The average expenditure is $50,000 to $60,000 per project. In
addition, the Company spends approximately $250,000 to $500,000 per year on
management information system upgrades.
Cash from financing activities totaled $3.5 million in 1997 up from $1.3
million in 1996. The primary reason for the increase was the acquisition of
three small parking companies in 1997 that were funded partially with promissory
notes issued by APCOA to the sellers in these transactions.
Holdings had $19.5 million of negative working capital at December 31, 1996
as compared to $21.0 million at December 31, 1995. The change resulted from a
small decline in accounts payable and accrued insurance.
Net cash provided by operating activities totaled $2.0 million for 1996
compared to $4.3 million for 1995. This reduction resulted primarily from
changes in working capital including a decrease in accounts payable of $2.9
million.
Cash used in investing activities totaled $3.3 million in 1996 compared to
$4.9 million in 1995. The reduction in spending resulted from lower capital
expenditures during 1996.
Cash provided by financing activities totaled $1.3 million in 1996 compared
to $1.1 million in 1995. During 1996, APCOA refinanced its revolver with a new
bank.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
In connection with the Offering, the Company has $54.1 million of
additional cash on its balance sheet as of March 31, 1998. The Company
anticipates using this cash to finance working capital needs, as well as for
future acquisitions.
The Company has lease commitments of $51.4 million for fiscal 1998. The
leased properties generate sufficient cash flow to meet the base rent payments.
In addition, following the Combination APCOA paid to the Standard Owners $2.8
million, generally representing Standard's earnings through the date of the
Combination and Standard's cash on hand at such time. See "The Transactions--The
Combination."
The pro forma results of operations for the first quarter of 1998, assuming
the Transactions had occurred as of January 1, 1998, include $37.9 million in
lease parking services revenues, $6.9 million in management contract revenues,
$33.0 million in cost of parking services under lease arrangements, $2.6 million
in cost of parking services under management contracts and $5.1 million in
general and administrative expenses. In addition, the pro forma statement of
operations for the first quarter of 1998 reflects a $14.1 million restructuring
charge, depreciation and amortization of $1.9 million and $4.9 million of
interest expense.
Pro forma results of operations for 1997, assuming the Transactions had
occurred as of January 1, 1997, include $159.8 million in lease parking services
revenues, $26.3 million in management contract revenues, $136.7 million in cost
of parking services under lease arrangements, $9.5 million in cost of parking
services under management contracts and $20.0 million in general and
administrative expenses. In addition, the pro forma statement of operations for
1997 reflects $7.5 million of depreciation and amortization and $19.7 million of
interest expense.
The Company entered into the New Credit Facility for $40.0 million of
secured revolving credit. Borrowings under the New Credit Facility will bear
interest at variable rates based, at the Company's option, either on LIBOR,
overnight federal funds rate, or the bank's base rate. The New Credit Facility
contains certain covenants with which the Company must comply, including
restrictions on debt limits relative to EBITDA, capital expenditures, and other
customary requirements.
The Company's primary capital requirements are for working capital, capital
expenditures and debt service. In addition, the Company will be relocating its
headquarters offices to Michigan Avenue in Chicago, Illinois in the fall of
1998. It is expected that the costs to improve the space for the new office will
approximate
40
<PAGE> 42
$3.5 million which will be capitalized as expended. The Company believes that
cash flow from operating activities, cash and cash equivalents and borrowings
under the New Credit Facility will be adequate to meet the Company's short-term
and long-term liquidity requirements prior to the maturity of its long-term
indebtedness, although no assurance can be provided in this regard. If the
Company identifies investment opportunities requiring cash in excess of the
Company's cash flows and the net proceeds from the Senior Subordinated Notes
Offering, the Company may borrow under the New Credit Facility, or may seek
additional sources of capital including the sale or issuance of Company Common
Stock. The Company has in the past and expects in the future to pursue a
strategy of growth through acquisition. Effective June 1, 1998, the Company
completed the acquisition of Century Parking and Sentry Parking for
consideration consisting of $5.2 million in cash at closing and $1.0 million
payable on the third anniversary of the closing date. The results of operations
of Century Parking and Sentry Parking prior to acquisition were not material to
the Company. In addition, the Company has entered into an agreement to acquire
the capital stock of Virginia Parking Services, Inc. ("Virginia Parking") for
$2.7 million in cash, subject to adjustment, plus an additional aggregate amount
of up to $1.25 million payable over the five-year period immediately following
the closing. The Company expects to consummate such transaction by the end of
the third quarter of 1998. Upon consummation of such transaction, the results of
operations of Virginia Parking prior to acquisition will not be material to the
Company. The Company is currently in negotiations with respect to several
additional possible acquisitions, none of which are "probable" as of the date
hereof. There can be no assurance as to the Company's ability to effect future
acquisitions, nor as to the effect of any such acquisition on the Company's
operations, financial condition and profitability.
As of August 4, 1998, Holdings repurchased the shares of its common stock
and warrants held by Delaware North for $4.0 million in cash. The repurchase was
funded by an inter-company loan from the Company.
On a pro forma basis, Holdings would have had total indebtedness of $190.9
million as of March 31, 1998. The degree to which Holdings is now leveraged and
will continue to be leveraged following the Note Offering could have important
consequences to holders of the New Notes, including, but not limited to, the
following: (i) approximately $13.0 million of Holdings' annual cash flow from
operations will be required to service interest on the Company's Senior
Subordinated Notes and will not be available for other purposes; (ii) Holdings'
ability to obtain additional financing in the future could be limited and (iii)
the Indenture contains financial and restrictive covenants that limit the
ability of Holdings to, among other things, borrow additional funds, dispose of
assets or pay cash dividends. Failure by Holdings to comply with such covenants
could result in an event of default, which, if not cured or waived, could have a
material adverse effect on Holdings.
IMPACT OF INFLATION AND CHANGING PRICES
The primary sources of revenues to APCOA are parking revenues from leased
locations and management contract revenue on managed parking facilities. APCOA
believes that inflation has had a limited impact on its overall operations for
fiscal years 1995, 1996 and 1997.
YEAR 2000
The Company has tested its computer systems and applications for compliance
with Year 2000 issues and believes that its computer systems and applications
are Year 2000 compliant and that Year 2000 issues will not have a significant
impact on its operations or liquidity.
41
<PAGE> 43
SELECTED HISTORICAL FINANCIAL DATA OF STANDARD
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of Standard
at and for the fiscal years 1993, 1994, 1995, 1996 and 1997. The selected
historical financial data of Standard at and for the fiscal years 1994, 1995,
1996 and 1997 have been derived from the audited financial statements of
Standard, audited by Altschuler, Melvoin and Glasser LLP. The selected
historical financial data of Standard at and for the fiscal year 1993 have been
derived from the unaudited financial statements of Standard. The selected
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Standard" and the historical consolidated financial statements of Standard and
the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Parking services revenue.......... $ 21,537 $ 35,787 $ 45,201 $ 50,275 $ 63,652
Cost of parking services.......... 12,213 25,901 35,168 37,838 50,142
General and administrative
expenses....................... 9,074 6,095 6,798 7,547 7,857
Depreciation and amortization..... 119 184 316 376 464
-------- -------- -------- -------- --------
Operating income.................. 131 3,607 2,919 4,514 5,189
Interest income, net.............. 16 9 59 56 85
-------- -------- -------- -------- --------
Net income........................ $ 147 $ 3,616 $ 2,978 $ 4,570 $ 5,274
======== ======== ======== ======== ========
OTHER DATA:
Gross customer collections........ $217,734 $250,081 $339,234 $412,114 $462,261
Capital expenditures.............. 196 306 547 336 492
Ratio of earnings to fixed
charges(1)..................... 2.9x 41.6x 26.9x 35.9x 41.6x
Number of managed locations....... 177 186 233 295 344
Number of leased locations........ 18 23 32 32 35
Number of total locations......... 195 209 265 327 379
Number of parking spaces.......... 155,000 174,000 192,000 235,000 249,000
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents......... $ 838 $ 2,774 $ 1,248 $ 2,968 $ 2,478
Working capital................... 2,305 2,615 1,697 3,453 3,449
Total assets...................... 5,642 6,672 6,956 9,130 10,176
Total debt........................ -- 248 529 470 590
Equity............................ 2,516 3,894 3,400 4,912 5,016
</TABLE>
- ------------------------------
(1) For purposes of computing this ratio, earnings consist of net income plus
fixed charges. Fixed charges consist of interest expense, amortization of
deferred financing costs and one-third of the rent expense from operating
leases, which management believes is a reasonable approximation of the
interest factor of the rent.
42
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF STANDARD
The following discussion of Standard's results of operations should be read
in conjunction with the Standard Consolidated Financial Statements and Notes
thereto.
OVERVIEW
For a general discussion of parking revenues, costs and expenses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Holdings--Overview."
As of December 31, 1997, Standard operated 344 facilities under management
contracts and 35 facilities pursuant to leases. A summary of Standard's
facilities is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1995 1996 1997
<S> <C> <C> <C>
Managed facilities......................................... 233 295 344
Leased facilities.......................................... 32 32 35
--- --- ---
Total facilities (end of period)........................... 265 327 379
Contract retention rate.................................... 97% 97% 96%
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, Standard's
results of operations expressed in thousands of dollars:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1995 1996 1997
<S> <C> <C> <C>
Gross customer collections................................. $339,234 $412,114 $462,261
======== ======== ========
Parking services revenue:
Leases................................................... $ 38,418 $ 41,770 $ 54,801
Management contracts..................................... 6,783 8,505 8,851
-------- -------- --------
45,201 50,275 63,652
Cost of parking services:
Leases................................................... 35,168 37,838 50,142
Management contracts..................................... -- -- --
-------- -------- --------
35,168 37,838 50,142
General and administrative expenses........................ 6,798 7,547 7,857
Depreciation and amortization.............................. 316 376 464
-------- -------- --------
Operating income........................................... 2,919 4,514 5,189
Interest income, net....................................... 59 56 85
-------- -------- --------
Net income................................................. $ 2,978 $ 4,570 $ 5,274
======== ======== ========
</TABLE>
Standard does not incur any net expenses in providing services for
management contracts. The facility owner pays all of the property-level
expenses. Any costs advanced by Standard as agent on behalf of the facility
owner are fully reimbursed. Such reimbursements include (but are not limited to)
all payroll and related expenses for all supervisory, bookkeeping and accounting
personnel performing services at the managed locations.
FISCAL 1997 COMPARED TO FISCAL 1996
Gross customer collections. Gross customer collections increased $50.2
million, or 12.2%, to $462.3 million in fiscal 1997 from $412.1 million in
fiscal 1996. This increase resulted primarily from the net addition of
43
<PAGE> 45
52 leased and managed locations as well as from a combination of rate increases
and higher utilization of parking spaces at existing facilities.
Parking services revenue--leases. Lease revenue increased $13.0 million,
or 31.1%, to $54.8 million in fiscal 1997 compared to $41.8 million in fiscal
1996. This increase resulted from the net addition of two large leased
properties.
Parking services revenue--management contracts. Revenue at managed
locations increased $0.4 million, or 4.1%, to $8.9 million in fiscal 1997 from
$8.5 million in fiscal 1996. This increase resulted from the net addition of 49
managed locations.
Cost of parking services. Cost of parking services increased $12.3
million, or 32.5%, to $50.1 million in fiscal 1997 from $37.8 million in fiscal
1996. This increase resulted from a net addition of two large leased properties.
There are no cost of parking services for management contracts because all such
costs are reimbursed by the parking facility owner.
General and administrative expenses. General and administrative expenses
increased $0.4 million, or 4.1%, to $7.9 million in fiscal 1997 from $7.5
million in fiscal 1996. This modest increase was primarily due to an increase in
employee compensation.
Depreciation and amortization expenses. Depreciation and amortization
expenses were $0.5 million in fiscal 1997 and $0.4 in fiscal 1996.
Interest income, net. Interest income, net of interest expense, was $0.1
million in fiscal 1997 and fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Gross customer collections. Gross customer collections increased $72.9
million, or 21.5%, to $412.1 million in fiscal 1996 from $339.2 million in
fiscal 1995. This increase resulted primarily from the net addition of 62 leased
and managed locations as well as from a combination of rate increases and higher
utilization of parking spaces at existing facilities.
Parking services revenue--leases. Lease revenue increased $3.4 million, or
8.7%, to $41.8 million in fiscal 1996 from $38.4 in fiscal 1995. This increase
resulted from rate increases and increased volume.
Parking services revenue--management contracts. Management contract
revenue increased $1.7 million, or 25.4%, to $8.5 million in fiscal 1996 from
$6.8 million in fiscal 1995. This increase resulted from the net addition of 62
managed locations.
Cost of parking services. Cost of parking services increased $2.6 million,
or 7.6%, to $37.8 million in fiscal 1996 from $35.2 million in fiscal 1995. This
increase was due to increased volume.
General and administrative expenses. General and administrative expenses
increased $0.7 million, or 11.0%, to $7.5 million in fiscal 1996 from $6.8
million in fiscal 1995. This increase was primarily a result of increased
compensation of key employees.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased $0.1 million, or 19.0%, to $0.4 million in fiscal 1996 from
$0.3 million in fiscal 1995. This increase resulted primarily from the
headquarters office relocation late in 1995.
Interest income, net. Interest income, net of interest expense, was $0.1
million in fiscal 1996 and fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, Standard generated cash flows from operating activities
of $5.1 million compared to $5.3 million in fiscal 1996. This decrease in cash
flow from operating activities resulted primarily from net changes in the
components of working capital.
Net cash used in investing activities was $0.5 million for the years ended
December 31, 1997 and December 31, 1996. The primary use of these funds was the
acquisition of capital assets.
44
<PAGE> 46
Net cash used by financing activities was $5.0 million for the year ended
December 31, 1997 and $3.1 million for the year ended December 31, 1996. The
primary use of these funds was distributions to partners.
During fiscal 1996, Standard generated cash flows from operating activities
of $5.3 million compared to $2.8 million in fiscal 1995. This increase in cash
flow from operating activities resulted primarily from an increase in net income
and net changes in the components of working capital.
Net cash used in investing activities was $0.5 million for the year ended
December 31, 1996 and $1.3 million for the year ended December 31, 1995. This
decrease in net cash used in investing activities was primarily due to the
purchase of 19 management contracts in fiscal 1995.
Net cash used by financing activities was $3.1 million for the years ended
December 31, 1996 and December 31, 1995. The primary use of these funds was
distributions to partners.
Standard has lease commitments of $23.3 million for fiscal 1998. The lease
commitments are in the form of a fixed base rent with the majority of leases on
a year-to-year renewal. The leased properties generate sufficient cash flow in
order to meet the base rent payments.
YEAR 2000
Standard has considered the impact of Year 2000 issues on its computer
systems and applications and believes the impact of the Year 2000 will not have
a significant impact on its operations or liquidity. As part of the Combination,
Standard will convert to the APCOA computer system which has been tested to
comply with Year 2000 issues.
45
<PAGE> 47
BUSINESS
GENERAL
The Company is a leading national provider of parking facility management
services. The Company provides on-site management services at multi-level and
surface parking facilities in the two major markets of the parking industry:
urban parking and airport parking. Following consummation of the Combination,
the Company manages approximately 1,100 parking facilities, containing
approximately 580,000 parking spaces in over 45 cities across the United States
and Canada. The Company's pro forma gross customer collections, pro forma
parking services revenue, pro forma EBITDA and pro forma net loss for the year
ended December 31, 1997 were $948.6 million, $186.1 million, $19.9 million and
$2.8 million, respectively. In addition, due to interest expense on the Notes,
Holdings pro forma net loss for the year ended December 31, 1997 was $7.5
million.
The Company believes that its superior management services coupled with its
focus on increasing market share in select core cities leads to higher
profitability per parking facility than its competitors. The Company believes
that it enhances its leading position by providing: (i) Ambiance in Parking(C),
an approach to parking that includes a number of premium, on-site, value-added
services and amenities; (ii) state-of-the-art information technology, including
Client View(C), a proprietary client reporting system which allows the Company
to provide clients with real-time access to site-level financial and operating
information; and (iii) award-winning training programs for on-site employees
that promote customer service and client retention. In addition, the Company
believes that it distinguishes itself from its competitors because of its
ability to leverage its long-standing experience in securing contracts,
particularly with regard to the airport parking market.
The Company's diversified client base includes some of the nation's largest
owners and developers of major office building complexes, shopping centers,
sports complexes, hotels and hospitals. In addition, the Company manages parking
operations at many of the major airports in North America. In the urban parking
market, the Company's clients include CB Commercial Real Estate Group, Equity
Office Properties, the Taubman Company, Harvard Medical School, Northwestern
University, Children's Memorial Medical Center in Chicago and Cedars Sinai
Medical Center in Los Angeles. Parking facilities managed by the Company include
the CNN Center in Atlanta, the Kennedy Center for the Performing Arts in
Washington, D.C. and the Gateway Sports Complex in Cleveland. In the airport
parking market, the Company's clients include Chicago O'Hare International and
Chicago Midway, Cleveland-Hopkins International, Minneapolis-St. Paul
International and Detroit Metropolitan airports.
The Company operates its clients' parking properties through two types of
arrangements: management contracts and leases. The Company does not own any
parking facilities and, as a result, the Company assumes fewer of the risks of
real estate ownership. Under a management contract, the Company typically
receives a base monthly fee for managing the property, and may also receive an
incentive fee based on the achievement of facility revenues above a base amount.
In some instances, the Company also receives certain fees for ancillary
services. Typically, all of the underlying revenues and expenses under a
management contract flow through to the property owner, not to the Company.
Under lease arrangements, the Company generally pays either a fixed annual
rental, a percentage of gross customer collections, or a combination thereof to
the property owner. The Company collects all revenues under lease arrangements
and is responsible for most operating expenses, but it is typically not
responsible for major maintenance or capital expenditures. As of March 31, 1998,
the Company operated approximately 73% of its approximately 1,100 parking
facilities under management contracts and approximately 27% under leases.
Renewal rates for the Company's management contracts and leases were
approximately 96% for each of the last three years.
INDUSTRY OVERVIEW
General. The International Parking Institute, a trade organization of
parking professionals, estimates that there are 35,000 parking facilities in the
United States generating over $26.0 billion in gross customer collections. The
parking industry is highly fragmented, with over 1,700 commercial parking
operators in the
46
<PAGE> 48
United States, as estimated by the Parking Market Research Company, an
independent research company. Industry participants, the vast majority of which
are privately-held companies, consist of a relatively few nationwide companies
and a large number of small regional or local operators, including a substantial
number of companies providing parking as an ancillary service in connection with
property management or ownership. Clients of parking facility managers include
the owners of office buildings, major airports, shopping centers, sports
complexes, hotels and hospitals, which provide parking to customers.
Operating Arrangements. Parking facilities operate under three general
types of arrangements: management contracts, leases and fee ownership. The
general terms and benefits of these three types of arrangements are as follows:
Management Contracts. Under a management contract, the facility
manager generally receives a base monthly fee for managing the facilities
and often receives an incentive fee based on the achievement of facility
revenues above a base amount. Facility managers generally charge fees for
various ancillary services such as accounting, equipment leasing and
consulting. Responsibilities under a management contract include hiring,
training and staffing parking personnel, and providing collections,
accounting, record-keeping, insurance and facility marketing services. In
general, the facility manager is not responsible for structural or
mechanical repairs, and typically is not responsible for providing security
or guard services. Under typical management contracts, the facility owner
is responsible for operating expenses such as taxes, license and permit
fees, insurance premiums, payroll and accounts receivable processing and
wages of personnel assigned to the facility. In addition, the facility
owner is responsible for non-routine maintenance, repair costs and capital
improvements. The typical management contract is for a term of one to three
years (though the owner often reserves the right to terminate, without
cause, on 30 days' notice) and may contain a renewal clause.
Leases. Under a lease arrangement, the parking facility operator
generally pays either a fixed annual rent, a percentage of gross customer
collections, or a combination thereof to the property owner. The parking
facility operator collects all revenues and is responsible for most
operating expenses, but is typically not responsible for major maintenance.
In contrast to management contracts, lease arrangements are typically for
terms of three to ten years and typically contain a renewal term, and
provide for a fixed payment to the facility owner regardless of the
operating earnings of the parking facility. As a result, the leased
facilities generally require a longer commitment and a larger capital
investment by the parking facility operator than do managed facilities.
Fee Ownership. Under fee ownership arrangements, the parking facility
operator owns the property and fixtures. Ownership of parking facilities,
either independently or through joint ventures, typically requires a larger
capital investment than managed or leased facilities but provides maximum
control over the operation of the parking facility, and all increases in
revenue flow directly to the owner. Ownership provides the potential for
realizing capital gains from the appreciation in the value of the
underlying real estate, but it also subjects the property owner to risks
including reduction in value of the property and additional potential
liabilities, as well as additional costs such as real estate taxes and
structural, mechanical or electrical maintenance or repairs.
Parking Industry Markets. The parking industry is comprised of two major
markets: urban parking and airport parking. The urban parking market consists of
many sub-markets with differing clients including commercial, office,
residential, event, entertainment, retail, shopping centers, hospitals and
hotels. In contrast, the airport parking market consists of a relatively small
number of clients with large revenue-generating parking operations and similar
needs that are unique to airport parking facilities.
Industry Growth Dynamics. A number of opportunities for growth exist for
parking facility operators:
Industry Consolidation. There are many opportunities for industry
consolidation, both domestically and abroad. Consolidation is essential to
growth in the parking industry because of the limitations on growth in
revenues of existing operations. While some growth in revenues from
existing operations is possible through redesign, increased operational
efficiency or increased facility use and prices, such growth is ultimately
limited by the size of a facility and market conditions. The net effect of
the
47
<PAGE> 49
consolidation in the urban parking market is that the typical buyer in this
market is becoming larger and increasingly sophisticated. This increase in
sophistication has placed greater demands on parking management firms and
has driven the trend toward management contracts where clients require
high-level management and reporting systems, site-specific services and
quality control.
Privatization of Government-Owned and Operated Facilities. Additional
growth in the industry has been a function of the trend for parking owners
to move from owner-operation to outsourcing the management of operations to
private operators. This is particularly true in the case of privatization
of government operations and facilities, which is resulting in new
opportunities for the parking industry. The Company believes that cities
and municipal authorities are increasingly retaining private firms to
operate facilities and parking-related services in an effort to reduce
operating budgets and increase efficiency.
Expanding Relationships with Large Property Managers, Owners and
Developers. Generally, the overall parking industry expansion is created
by new construction of parking facilities by property managers, owners and
developers. While new construction in the United States slowed in the late
1980s and has only gradually begun to increase in recent years, growth for
parking facility operators during such period generally resulted from more
established parking facility operators leveraging their relationships with
property managers and owners to take market share from smaller companies.
As new construction of parking facilities increases, the Company believes
that facility operators with established relationships with such parking
facility developers can leverage such relationships to capture incremental
market share.
BUSINESS STRATEGY AND COMPETITIVE ADVANTAGES
The Company believes its innovative parking facility amenities, services
and management, coupled with its state-of-the-art information technology and
reporting systems, position the Company to enhance its standing as a leading
provider of parking services. Specific elements of the Company's business
strategy and competitive advantages include:
Focus on Core Cities. Part of the Company's business strategy is to
focus on increasing system-wide profitability by maximizing operating
leverage. As part of this strategy, the Company operates in certain core
cities and realizes certain economies of scale, including the ability to
spread administrative overhead costs across a large number of parking
facilities in a single market. As a result, the Company has been able to
increase significantly profitability per contract. For example, management
estimates that in 1997 the Company's average profit per contract in cities
in which it operated more than 35 parking locations was nearly double the
Company's profit per contract in cities in which it operated fewer than 35
locations.
Strong Operating Performance and Stable Cash Flow. From 1993 to 1997,
the Company's EBITDA increased from $7.2 million to $15.0 million,
representing a CAGR of 20.0%. The Company's cash flows from operating
activities increased from $3.2 million to $6.0 million from 1993 to 1997.
Over the same period, the Company's capital expenditures averaged less than
$3.0 million per year. In addition, the Company reduced exposure to
increasing cost of parking services by (i) increasing the proportion of its
management contracts, which generally pass cost of parking services onto
the Company's clients, and (ii) maintaining low minimum rental commitments
under its non-cancelable leases. The Company's average management and lease
contract renewal rate over the last three years was approximately 96%. As a
result of the Company's operating performance, as well as the low capital
expenditure requirements and low risk portfolio of management contracts and
leases, the Company has been able to generate consistent cash flow.
Strategic Growth Through Acquisitions. The parking industry is highly
fragmented, with over 1,700 industry participants. In addition to pursuing
individual contracts, the Company is seeking to capitalize on this industry
fragmentation by pursuing a focused acquisition strategy which includes:
(i) acquiring parking management companies within core cities and target
cities where the Company believes it can attain a significant market share,
and (ii) acquiring larger, regional parking management companies. As a part
of this strategy, APCOA and Standard, combined, have successfully acquired
and integrated 6 companies with 138 new facilities and also added 252 net
individual contracts over the past five years.
48
<PAGE> 50
Leading Client Base. The Company's diversified, long-standing
customer base comprises many of the premier national property management
and ownership organizations in the United States and Canada. The Company is
a market leader in airport parking, operating approximately 100 parking
facilities at airports in the United States and Canada. The Company's focus
on select core cities enables the Company to maintain broader and stronger
relationships with the local client base, which the Company believes
improves its client retention rates and its ability to compete for new
contracts.
Value-Added Services and Award-Winning Information Systems. The
Company believes that it can continue to increase profitability and attract
new clients by providing: (i) Ambiance in Parking(R); (ii) state-of-the-art
information technology, including Client View(C); and (iii) award-winning
training programs for on-site employees. In addition, these capabilities
facilitate development opportunities that typically lead to long-term lease
and management contracts on new facilities. Also, the Company has developed
state-of-the-art information technology systems which connect local offices
across the country to its corporate office. These systems, which received
the 1994 Esprit Award sponsored by Booz-Allen & Hamilton and CIO magazine,
enable a centralized staff to eliminate inefficient duplication of
administrative and accounting functions at the field level and also help
provide key operational information to clients. Management believes that
these systems will enable the Company to add many new clients without
incurring additional administrative staff and expense.
Experienced Management Team. Myron C. Warshauer, the Company's Chief
Executive Officer and the third generation of his family to direct
Standard, has over 35 years of industry experience. G. Walter Stuelpe, Jr.,
the Company's President, has been with APCOA for over 25 years, serving as
Chief Executive Officer since 1986. The Company's other executive team
members are comprised of the most experienced, talented executives from
both companies. Overall, the members of the Company's executive team have
an average of over 15 years of industry experience.
AMBIANCE IN PARKING(R)
The Company offers a comprehensive package of value-added, on-site parking
services and amenities which the Company characterizes as Ambiance in Parking(R)
which includes:
Patented Musical Theme Floor Reminder System. The Company's patented
musical theme floor reminder system is designed to help customers remember
the garage level on which they had parked. A different song is played on
each floor of the parking garage which also displays distinctive signs and
graphics which correspond with the floor's theme. For example, in one
garage with U.S. cities as a theme, songs played include "I Left My Heart
in San Francisco" on one floor and "New York, New York" on a different
floor. Other garages have themes such as college fight songs, broadway
shows, classic movies and professional sports teams.
Books-To-Go(R). Books-To-Go(R) is an audiotape library which is
provided free-of-charge for monthly parkers.
ParkNet(R). The ParkNet(R) traffic information system allows parking
customers to obtain continuous, site-specific traffic reports relating to
current traffic conditions on area expressways as well as the routes
utilized to get from the specific parking facility to the expressways.
CarCare(R). The CarCare(R) service program is provided in conjunction
with Midas(R). Parking customers can have their cars picked up from the
parking facility, serviced and returned before the end of the business day.
Standard Parking Exchange(TM). The Standard Parking Exchange(TM)
program entitles monthly parkers at participating locations to free parking
for one hour per day at all other participating locations.
Complimentary Windshield and Headlight Cleaning. During off-peak
hours, the Company's parking attendants clean windshields and headlights of
cars and place a card on the windshield informing the parking customer that
this service has been provided.
Emergency Car Services. The Company offers complimentary services
such as battery starts, lost car assistance, tire inflation, tire change,
escort service and key retrieval.
49
<PAGE> 51
STATE-OF-THE-ART INFORMATION TECHNOLOGY
The Company's information technology provides valuable benefits to the
Company's clients. Client View(C), a proprietary Windows(R)-based client
reporting system, allows the Company's clients to access, on a real-time basis,
site-level financial and operating information.
The Company has created advanced information systems that connect local
offices across the country to its corporate office. A centralized staff provides
accounting and administrative expertise and controls that eliminate duplication
of administrative and accounting functions at the field level. ParkStat(C), one
of the Company's proprietary software tools, enhances the performance of parking
facilities managed by the Company. By automatically polling information from
on-site collection devices, ParkStat(C) uses location-specific information to
calculate the impact of pricing alternatives, optimize staffing levels, improve
forecasting and assist in long-range planning.
Technological innovations such as an automated credit card lane and a
radio-activated hands-free parking access system allow fast and hassle-free
service for parking customers.
AWARDS
In 1994, the Company received the prestigious Esprit Award sponsored by CIO
magazine and Booz-Allen & Hamilton for its proprietary state-of-the-art
information technology systems which connect local offices across the country to
the Company's corporate office. These systems enable a centralized staff to
eliminate inefficient duplication of administrative and accounting functions at
the field level and also help provide key operational, financial and demographic
information to clients. No other parking facility manager has ever received this
award.
Over the past five years various elements of the Company's training program
have received industry awards for outstanding content and production, including:
- National Association of Industrial and Office Properties' Outstanding
Literature and Video Award;
- two Telly Awards, a prestigious national award in the field of
advertising, film and video productions;
- BPAA Bronze Tower Award which recognizes business-to-business
communications in Business/Professional Advertising; and
- Great-Lakes Sho-Me Award which recognizes outstanding business
communication in Greater Cleveland.
50
<PAGE> 52
PARKING FACILITIES
The Company operates parking facilities in 35 states, Washington D.C. and
three provinces of Canada pursuant to management contracts or leases. The
Company does not currently own any parking facilities. The following table
summarizes certain information regarding the Company's facilities as of March
31, 1998, giving effect to the Combination and the Other Acquisitions excluding
Century Parking and Sentry Parking:
<TABLE>
<CAPTION>
NUMBER OF LOCATIONS NUMBER OF SPACES
------------------------- -----------------------------
STATES/PROVINCES AIRPORTS AND URBAN CITIES AIRPORT URBAN TOTAL AIRPORT URBAN TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama Airports 3 3 1,430 1,430
Arizona Phoenix 13 13 13,392 13,392
British Columbia Vancouver 5 5 2,236 2,236
California Los Angeles, San Diego, San 6 177 183 23,779 51,866 75,645
Francisco, San Jose, Santa
Barbara and Airports
Colorado Denver and Airports 3 13 16 363 7,625 7,988
Connecticut Stamford and Airport 1 6 7 4,351 4,332 8,683
Delaware Wilmington 1 1 500 500
District of Columbia Washington D.C. 10 10 7,577 7,577
Florida Miami, Orlando and Airports 4 13 17 4,340 6,085 10,425
Georgia Atlanta and Airports 2 33 35 2,142 9,405 11,547
Hawaii Honolulu 53 53 21,735 21,735
Idaho Airport 1 1 376 376
Illinois Chicago and Airport 2 150 152 26,800 86,116 112,916
Indiana Indianapolis and Airport 1 19 20 619 4,420 5,039
Kentucky Louisville and Airport 2 1 3 3,071 395 3,466
Louisiana New Orleans and Airport 2 42 44 984 8,546 9,530
Maine Airport 2 2 1,299 1,299
Maryland Baltimore, Bethesda 19 19 4,597 4,597
Massachusetts Boston and Airports 2 97 99 645 63,362 64,007
Michigan Detroit and Airports 6 1 7 1,412 132 1,544
Minnesota Minneapolis and Airports 8 36 44 13,495 11,219 24,714
Missouri Kansas City and Airports 2 74 76 9,848 13,367 23,215
Montana Great Falls and Airports 5 4 9 2,432 1,966 4,398
Nebraska Airport 1 1 1,361 1,361
Nevada Las Vegas 1 1 286 286
New York Buffalo, Hamburg, Hawthorne and 10 3 13 8,678 16,060 24,738
Airports
North Dakota Airports 2 2 1,415 1,415
Ohio Cleveland, Columbus and Airports 9 96 105 7,492 39,515 47,007
Ontario East York, North York, Oshawa, 1 34 35 3,171 23,912 27,083
Scarsborough, Toronto and Airport
Oregon Airport 1 1 433 433
Pennsylvania Philadelphia, Pittsburgh and 2 3 5 1,331 2,181 3,512
Airports
Quebec Airports 3 3 8,591 8,591
South Carolina Airport 1 1 4,987 4,987
South Dakota Airport 2 2 1,508 1,508
Tennessee Memphis and Airports 2 13 15 3,077 5,226 8,303
Texas Houston, Dallas, Fort Worth and 4 57 61 2,862 29,176 32,038
Airports
Virginia Richmond and Airport 5 36 41 3,468 8,776 12,244
Washington Seattle and Airports 2 3 5 822 1,195 2,017
Wisconsin Milwaukee and Airports 3 3 6 1,512 1,948 3,460
--- ----- ----- ------- ------- -------
TOTALS 100 1,016 1,116 148,094 447,148 595,242
=== ===== ===== ======= ======= =======
</TABLE>
The Company has interests in 18 joint ventures that each operate a single
parking facility. The Company is the general partner of three limited
partnerships which operate a single parking facility and one limited partnership
which operates five parking facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Holdings--Summary
of Operating Facilities."
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<PAGE> 53
COMPETITION
The parking industry is fragmented and highly competitive, with limited
barriers to entry. The Company faces direct competition for additional
facilities to manage or lease and the facilities currently operated by the
Company face competition for employees and customers. The Company competes with
a variety of other companies to add new operations. Although there are
relatively few large, national parking companies that compete with the Company,
developers, hotel companies, and national financial services companies also have
the potential to compete with parking companies. Municipalities and other
governmental entities also operate parking facilities that compete with the
Company. The Company also faces competition from local owner-operators of
facilities who are potential clients for the Company's management services.
Construction of new parking facilities near the Company's existing facilities
could adversely affect the Company's business. See "Risk Factors--Competition."
REGULATION
The Company's business is not substantially affected by direct governmental
regulation, although parking facilities are sometimes directly regulated by both
municipal and state authorities. The Company is affected by laws and regulations
(such as zoning ordinances) that are common to any business that deals with real
estate and by regulations (such as labor and tax laws) that affect companies
with a large number of employees. In addition, several state and local laws have
been passed in recent years that encourage car pooling and the use of mass
transit, including, for example, a Los Angeles, California law prohibiting
employers from reimbursing employee parking expenses. Laws and regulations that
reduce the number of cars and vehicles being driven could adversely impact the
Company's business.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws typically impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In connection with the operation
of parking facilities, the Company may be potentially liable for any such costs.
Although the Company is currently not aware of any material environmental claims
pending or threatened against it or any of the parking facilities which it
operates, there can be no assurance that a material environmental claim will not
be asserted against the Company or against the parking facilities which it
operates. The cost of defending against claims of liability, or of remediating a
contaminated property, could have a material adverse effect on the Company's
financial condition or result of operations.
Various other governmental regulations affect the Company's operation of
parking facilities, both directly and indirectly, including the ADA. Under the
ADA, all public accommodations, including parking facilities, are required to
meet certain federal requirements related to access and use by disabled persons.
For example, the ADA requires parking facilities to include handicapped spaces,
headroom for wheelchair vans, attendants' booths that accommodate wheelchairs,
and elevators that are operable by disabled persons. When negotiating management
contracts and leases with clients, the Company generally has the property owner
contractually assume responsibility for any ADA liability in connection with the
property; however, there can be no assurance that the property owner has assumed
such liability for any given property and there can be no assurance that the
Company would not be held liable despite assumption of responsibility for such
liability by the property owner. Management believes that the parking facilities
the Company operates are in substantial compliance with ADA requirements.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 8,000 individuals,
including approximately 4,200 full-time and 3,800 part-time employees. The
Company believes that its employee relations are good. Approximately 2,600
employees are represented by unions. Most union employees are represented by the
Teamsters Union. The largest union facilities are in the Chicago metropolitan
area and in airport parking facilities located in Detroit, Michigan, San Jose,
California, Minneapolis, Minnesota, Cleveland, Ohio and Hartford, Connecticut.
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INTELLECTUAL PROPERTY
The APCOA name and logo and the Standard name and logo are registered with
the United States Patent and Trademark Office. In addition, the Company has
registered the names and, as applicable, the logos of all material subsidiaries
and divisions of the Company in the United States Patent and Trademark Office or
the equivalent State registry, including the right to the exclusive use of the
name Central Park in the Chicago metropolitan area. The Company has also
obtained a United States patent for its Multi-Level Vehicle Parking Facility
(the Musical Theme Floor Reminder System) and trademark protection for its
proprietary parker programs, such as Books-To-Go(C) and Ambiance in Parking(C).
Proprietary software developed by the Company, such as Client View(C), Hand Held
Program(C), License Plate Inventory Program(C) and Parkstat(C) are registered in
the United States Copyright Office.
LITIGATION
The provision of services to the public entails an inherent risk of
liability. The Company is engaged in routine litigation incidental to its
business. There is no legal proceeding to which the Company is a party which, if
decided adversely, would be material to the Company's financial condition,
liquidity, or results of operations. The Company attempts to disclaim liability
for personal injury and property damage claims by printing disclaimers on its
ticket stubs and by placing warning signs in the facilities it operates. The
Company also carries liability insurance that management believes meets or
exceeds industry standards; however, there can be no assurance that any future
legal proceedings (including any related judgments, settlements or costs) will
not have a material adverse effect on the financial condition, liquidity, or
results of operations of the Company.
INSURANCE
The Company purchases comprehensive liability insurance covering the
parking facilities that it leases and manages. The Company also purchases
workers' compensation insurance with respect to all its employees, whether such
persons are employed at leased or managed facilities. The Company's insurance
program insulates its clients against any additional annual premium charges in
the event of adverse claims experience. Due to the magnitude of the Company's
parking operations, the Company's management believes that the rates at which it
purchases such insurance represent a discount to the rates that would be charged
to parking facility owners on a stand-alone basis. Recognizing the benefits and
protection afforded by the Company's insurance program, a significant majority
of the Company's clients historically have purchased liability insurance through
the Company. However, the clients of the Company have the option of purchasing
their own policies, provided that the Company is adequately protected. A
significant reduction in the number of clients that purchase insurance through
the Company could have a material adverse effect on operating earnings. In
addition, although the cost of insurance has not fluctuated significantly in
recent years for the Company, a material increase either in the Company's
insurance costs or in the magnitude of its claims could have a material adverse
effect on the Company's operating earnings.
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MANAGEMENT
HOLDINGS
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to each
person who is an executive officer or director of Holdings, as indicated below:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
John V. Holten................. 41 Director and Chairman
G. Walter Stuelpe, Jr.......... 53 Director, President and Chief Executive Officer
Gunnar E. Klintberg............ 49 Director and Assistant Secretary
A. Petter Ostberg.............. 36 Vice President
Michael J. Celebrezze.......... 41 Treasurer
Robert N. Sacks................ 45 Secretary
</TABLE>
John V. Holten. Mr. Holten joined Holdings as a Chairman, President and
Secretary in 1989. Mr. Holten has served as Chairman and Chief Executive Officer
of Holberg since its inception in 1986, and as a Director and Chairman of APCOA
since 1989. Mr. Holten was Managing Director of DnC Capital Corporation, a
merchant banking firm in New York City, from 1984 to 1986. Mr. Holten received
his M.B.A. from Harvard University in 1982 and he graduated from the Norwegian
School of Economics and Business Administration in 1980.
G. Walter Stuelpe, Jr. Mr. Stuelpe joined Holdings as Vice President,
Treasurer and Assistant Secretary in 1989. Mr. Stuelpe has been associated with
APCOA for over 25 years, serving as the Company's President since 1986. His
prior executive positions have included sales and marketing, corporate
development and strategic planning, as well as having headed up different
operational divisions in a variety of cities in the United States and Europe.
Mr. Stuelpe is an alumnus of Indiana University, class of 1967. Mr. Stuelpe has
since participated in numerous executive programs specifically designed to
address managing business change and growth. He has also had an active
leadership role in industry-related associations, having served as president,
chairman and now as a member of the Board of the National Parking Association as
well as the International Parking Institute, and is a full member of the Urban
Land Institute.
Gunnar E. Klintberg. Mr. Klintberg joined Holdings as Vice President,
Treasurer and Assistant Secretary in 1989. Mr. Klintberg has served as Vice
Chairman of Holberg since its inception in 1986, and as a Director of APCOA
since 1989. Mr. Klintberg was a Managing Partner of DnC Capital Corporation, a
merchant banking firm in New York City, from 1983 to 1986. From 1975 to 1983,
Mr. Klintberg held various management positions with the Axel Johnson Group,
headquartered in Stockholm, Sweden. Mr. Klintberg headed up the Axel Johnson
Group's headquarters in Moscow from 1976 to 1979 and served as assistant to the
President of Axel Johnson Group's $1 billion operation in the U.S.,
headquartered in New York City, from 1979 to 1983. Mr. Klintberg received his
undergraduate degree from Dartmouth College in 1972 and a degree in Business
Administration and Economics from the University of Uppsala, Sweden in 1974.
A. Petter Ostberg. Mr. Ostberg joined Holdings as Vice President in 1998.
Mr. Ostberg joined Holberg in 1994 and was appointed Chief Financial Officer of
Holberg in 1997. Mr. Ostberg is currently a Vice President of APCOA. Prior to
joining Holberg, Mr. Ostberg held various finance positions from 1990 to 1994
with New York Cruise Lines, Inc., including Group Vice President, Treasurer and
Secretary. Prior to joining New York Cruise Lines, Inc., Mr. Ostberg was General
Manager of Planter Technology Ltd. in Mountain View, California, and from 1985
to 1987, Mr. Ostberg was a Financial Analyst with Prudential Securities, Inc. in
New York. Mr. Ostberg received a B.A. in International Relations and Economics
from Tufts University in 1985, and an M.B.A. from Stanford University Graduate
School of Business in 1989.
Michael J. Celebrezze. Mr. Celebrezze joined Holdings as Treasurer in
1989. Mr. Celebrezze joined APCOA in 1984 as Manager, Treasury and Financial
Planning. Since then he has held the positions of Vice President, Controller
and, since 1995, Senior Vice President, Chief Financial Officer and Treasurer.
His
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<PAGE> 56
responsibilities included the operations of accounting, tax, management
information systems, corporate security, financial planning, insurance and risk
management, real estate finance and banking. Mr. Celebrezze graduated cum laude
from Kent State University with a Degree in Business Administration, majoring in
Accounting and he subsequently earned a Masters in Business Administration from
John Carroll University. He is a Certified Public Accountant in the State of
Ohio.
Robert N. Sacks. Mr. Sacks joined Holdings as Secretary in 1989. Mr. Sacks
joined APCOA in 1988, serving as General Counsel and Secretary since 1988,
serving as Vice President, Secretary, and General Counsel since 1989 and serving
as Senior Vice President, Secretary and General Counsel since 1997. Mr. Sacks
has overall responsibility for the Legal Department, which includes negotiation,
documentation and approval of parking and corporate contracts, financing
documentation and coordination of outside counsel. In his position, Mr. Sacks is
also responsible for maintaining field compliance with corporate legal and
financial policies. Mr. Sacks received his B.A. Degree, cum laude, from
Northwestern University in 1976 and, in 1979, received his J.D. Degree from
Suffolk University. Mr. Sacks has spoken on legal issues concerning the parking
industry at the National Parking Association National Convention and the
Institutional and Municipal Parking Congress.
THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to each
person who is an executive officer or director of the Company following
consummation of the Combination, as indicated below (biographical information
for those persons who are also officers or directors of Holdings is not
repeated):
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
John V. Holten................. 41 Director and Chairman
Myron C. Warshauer............. 58 Director and Chief Executive Officer
G. Walter Stuelpe.............. 53 Director and President
Michael J. Celebrezze.......... 41 Executive Vice President -- Chief Financial Officer
Douglas R. Warshauer........... 30 Executive Vice President -- Marketing/Business Development
Steven A. Warshauer............ 43 Executive Vice President -- Operations
Michael K. Wolf................ 48 Executive Vice President -- Chief Administrative Officer
and Associate General Counsel
James A. Wilhelm............... 44 Executive Vice President -- Operations
Herbert W. Anderson, Jr. ...... 39 Executive Vice President -- Operations
Robert N. Sacks................ 45 Executive Vice President -- General Counsel and Secretary
Patrick J. Meara............... 35 Director
Gunnar E. Klintberg............ 49 Director, Vice President
A. Petter Ostberg.............. 36 Vice President
</TABLE>
Myron C. Warshauer. Mr. Warshauer has served as President and Chief
Executive Officer of Standard since 1973, and has been associated with Standard
since 1963. Mr. Warshauer received his B.S. Degree in Finance from the
University of Illinois in 1962, and received a Masters Degree in Business
Administration from Northwestern University in 1963.
Douglas R. Warshauer. Mr. Warshauer joined Standard in 1994, initially
serving as Vice President. Upon receiving his Masters of Management Degree with
distinction from the J.L. Kellogg School of Management at Northwestern
University, Mr. Warshauer became Standard's Executive Vice President for
Finance. Mr. Warshauer also holds a Bachelors Degree with highest honors in
Social Science from the University of California at Berkeley.
Steven A. Warshauer. Mr. Warshauer joined Standard in 1982, initially
serving as Vice President, then becoming Senior Vice President and, since
January 1, 1998, serving as Executive Vice President.
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<PAGE> 57
Mr. Warshauer is a Certified Public Accountant and a member of both the American
Institute of Certified Public Accountants and the Illinois Society of Certified
Public Accountants. Mr. Warshauer received his Bachelor of Science Degree from
the University of Northern Colorado in 1976 with dual majors in Accounting and
Finance. Prior to joining Standard, he practiced with a national accounting
firm.
Michael K. Wolf. Mr. Wolf joined Standard as Senior Vice President and
General Counsel in 1990, after sixteen years in the private practice of law. Mr.
Wolf was subsequently appointed Executive Vice President of Standard. Prior to
joining Standard, Mr. Wolf was a partner of the international law firm of Jones,
Day, Reavis & Pogue, resident in the Chicago office, where his primary
concentration was in the field of real estate. Mr. Wolf received his B.A. Degree
in 1971 from the University of Pennsylvania, and in 1974 received his J.D.
Degree from Washington University, where he served as Notes and Comments editor
of the Washington University Law Quarterly. Upon graduation from law school, Mr.
Wolf was elected to the Order of the Coif.
James A. Wilhelm. Mr. Wilhelm joined Standard in 1985, serving as
Executive Vice President since January 1, 1998. Mr. Wilhelm is currently
responsible for managing Standard's Midwest and Western Regions, which include
parking facilities in Chicago and sixteen other cities throughout the United
States and Canada. Mr. Wilhelm received his B.A. Degree from Northeastern
Illinois University in 1976. Mr. Wilhelm is a member of the National Parking
Association and the International Parking Institute.
Herbert W. Anderson, Jr. Mr. Anderson joined APCOA in 1994, and has served
as Corporate Vice President--Urban Properties since 1995. Mr. Anderson graduated
from LaSalle University and began his career in the parking industry in 1984.
Mr. Anderson is a member of the Board of the National Parking Association.
Patrick J. Meara. Mr. Meara became a director of the Company upon
consummation of the Combination. Mr. Meara is a Senior Vice President of JMB
Realty Corporation, which held an interest in Standard prior to the Combination,
and acquired an interest in the Company as a result of the Combination.
EXECUTIVE COMPENSATION
Holdings has no paid employees. The following table sets forth information
for 1995, 1996 and 1997 with regard to compensation for services rendered in all
capacities (a) to APCOA by the Chief Executive Officer and the other four most
highly compensated executive officers of APCOA and (b) to Standard by two
executive officers of Standard for each of whom disclosure would have been
provided but for the fact that he was not serving as an executive officer of
APCOA at the end of the last completed fiscal year (collectively, the "Named
Executive Officers"). Except as otherwise noted, information set forth in the
table reflects compensation earned by such individuals for services with APCOA
or its respective subsidiaries.
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<PAGE> 58
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL ALL OTHER
COMPEN- COMPEN-
FISCAL SALARY BONUS SATION SATION
NAME AND PRINCIPAL POSITION YEAR ($) $ $ ($)
--------------------------- ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
G. Walter Stuelpe, Jr................. 1997 420,942(1) 183,500 -- 21,000(2)
Chief Executive Officer 1996 405,129(1) 216,600 -- 17,000(2)
and President 1995 393,834(1) 222,100 -- 17,000(2)
James V. LaRocco, Jr.(4).............. 1997 189,396(1) 62,390 -- 22,000(2)
Executive Vice President, 1996 172,006(1) 64,539 -- 19,300(2)
Corporate Development 1995 164,063(1) 61,710 -- 19,300(2)
Trevor R. Van Horn(5)................. 1997 140,399(1) 45,741 -- --
Corporate Vice President, 1996 98,654(1) 29,798 17,033(3) --
Airport Properties 1995 -- -- -- --
Herbert W. Anderson, Jr............... 1997 130,250(1) 45,448 21,241(3) 7,900(2)
Corporate Vice President, 1996 121,944(1) 49,050 17,695(3) --
Urban Properties 1995 101,334(1) 26,972 -- --
Michael J. Celebrezze................. 1997 128,477(1) 43,750 -- 8,500(2)
Senior Vice President, Chief 1996 116,386(1) 45,911 -- 7,900(2)
Financial Officer and 1995 108,227(1) 38,304 -- 2,400(2)
Treasurer
Myron C. Warshauer(6)................. 1997 98,265 -- 41,229(7) 42,102(8)
Chief Executive Officer and 1996 53,290 -- 28,795(7) 41,630(8)
President of Standard 1995 37,950 -- 18,740(7) 46,169(8)
Michael K. Wolf(6).................... 1997 376,400 -- -- --
Executive Vice President and 1996 313,800 -- -- --
General Counsel of Standard 1995 254,800 -- -- --
</TABLE>
- ------------------------------
(1) The amount shown includes amounts contributed by APCOA to its 401(k) plan
under a contribution matching program.
(2) The amount shown reflects deposits made by APCOA on behalf of Named
Executive Officers into a supplemental pension plan pursuant to which the
Named Executive Officers will be entitled to monthly cash retirement and
death benefit payments.
(3) The amount shown includes car allowances, club dues and moving expenses paid
by APCOA.
(4) As of March 30, 1998, Mr. LaRocco is no longer an executive officer of the
Company.
(5) As of February 26, 1998, Mr. Van Horn is no longer an employee of the
Company.
(6) All compensation information set forth in the table for this individual
reflects compensation earned for services with Standard or its respective
subsidiaries.
(7) The amount shown includes car allowances, club dues, health insurance
premiums and legal fees related to estate planning paid by Standard.
(8) The amount shown reflects premiums paid by Standard on behalf of Myron C.
Warshauer for life insurance policies to which Mr. Warshauer is entitled to
the cash surrender value.
DIRECTOR COMPENSATION
Directors of Holdings do not receive compensation for serving on Holdings'
Board of Directors. Directors of the Company do not receive compensation for
serving on the Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Holdings did not have a Compensation Committee in the year ended December
31, 1997. During 1997, no executive officer of Holdings served as a member of
the Compensation Committee of another entity.
The Company did not have a Compensation Committee in the year ended
December 31, 1997. The Company intends to form a Compensation Committee in 1998.
The members of such committee have not yet
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<PAGE> 59
been determined. During 1997, no executive officer of the Company served as a
member of the Compensation Committee of another entity.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Mr. Stuelpe's current employment agreement with the Company provides for an
initial four-year term with default annual renewals, and is scheduled to lapse
on December 31, 2000. The agreement also provides for an annual base salary of
$423,306 in 1998, plus an annual bonus equal to eight percent of an amount
substantially based on the amount by which the Company's EBITDA, subject to
certain adjustments, exceeds a certain floor amount, as well as certain other
benefits. Mr. Stuelpe agrees not to disclose confidential information if such
disclosure would have a material adverse effect on the Company. During the term
of the employment agreement, and for two years after its termination, or, under
certain circumstances, until receipt of the final salary payment due under the
terms of the agreement, Mr. Stuelpe shall not render services to, or have any
ownership interest in, any business which is competitive with the Company.
If Mr. Stuelpe's employment is terminated by reason of his death or
Disability (as defined in the agreement), the Company is obligated to pay Mr.
Stuelpe's designated beneficiary, in the case of termination by reason of death,
and Mr. Stuelpe, in the case of termination by reason of Disability, (i) an
amount equal to Mr. Stuelpe's annual base salary at the time of his death; (ii)
the annual bonus for the year in which the termination of employment occurred,
prorated for the numbers of days Mr. Stuelpe was employed during that year; and
(iii) certain other benefits.
If Mr. Stuelpe's employment is terminated other than for death or
Disability, and without Cause (as defined in the agreement) or within six months
following a Change of Control (as defined in the agreement), the Company is
required to pay Mr. Stuelpe (a) his salary (i) through the date that the
agreement was scheduled to terminate as if Mr. Stuelpe had continued to be
employed by the Company, in the case of a termination without Cause and (ii) for
a minimum period of twenty-four months after the termination of employment, in
the case of a Change of Control; (b) the annual bonus for the year in which the
termination of employment occurred, prorated for the number of days Mr. Stuelpe
was employed during that year; and (c) certain other benefits.
Mr. LaRocco's employment agreement with the Company was terminated
effective March 30, 1998, in connection with the Combination. Effective April 1,
1998, the Company and Mr. LaRocco entered into a transition employment agreement
for an eighteen-month term, scheduled to end on September 30, 1999. This
agreement provides for annual payments of not less than $190,000, plus other
payments in the following amounts: severance pay of $157,872, paid on April 10,
1998, a severance bonus of $66,500 payable on September 30, 1998, $76,000
payable in April 1999 and up to $76,000 payable in April 2000, as well as
certain other benefits. Mr. LaRocco has agreed not disclose confidential
information for any reason whatsoever. During the term of the agreement, and for
one year after its termination if the agreement is terminated other than without
Cause (as defined in the agreement), Mr. LaRocco shall not render services to,
or have any ownership interest in, any business which is competitive with the
Company. The agreement does not contain change of control provisions.
If the agreement is terminated by reason of Mr. LaRocco's death or
Disability (as defined in the agreement), the Company is obligated to pay Mr.
LaRocco's designated beneficiary, in the case of termination by reason of death,
and Mr. LaRocco, in the case of termination by reason of Disability, (i) an
amount equal to Mr. LaRocco's annual base payments at the time of his death plus
$9,600, which represents the estimated annual value of the right to use a
company automobile, (ii) the other payments due for the year of termination and
(iii) certain other benefits.
Mr. Van Horn's employment agreement with the Company terminated as of
February 26, 1998. In connection with such termination, the Company provided Mr.
Van Horn with a severance package the total value of which was $218,251 and
pursuant to which the Company paid Mr. Van Horn (i) thirty weeks' severance pay;
(ii) a thirty-five percent Severance Retention Bonus; and (iii) $25,000 in
relocation and related expenses. In addition, the Company transferred to Mr. Van
Horn the title to Mr. Van Horn's company automobile and company computer, and
will continue providing insurance benefits to Mr. Van Horn for a certain time
after such termination.
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<PAGE> 60
Mr. Anderson's current employment agreement with the Company provides for a
three-year term, scheduled to lapse on March 30, 2001, default annual renewals,
and an annual base salary of not less than $175,000, subject to annual review,
plus an annual bonus of up to forty percent of the annual base salary and a
$250,000 housing differential loan bearing interest at an annual rate of 5.39%
with a term of three years, of which one-third of the principal balance and the
accrued interest due thereon shall be forgiven by the Company, and treated as
additional compensation to Mr. Anderson in the year of such forgiveness, for
each year Mr. Anderson remains in the continual employ of the Company (and the
Company shall make Mr. Anderson whole with respect to the tax consequences of
any such forgiveness), as well as certain other benefits.
Mr. Anderson shall not communicate, divulge or disseminate confidential
information at any time during or after his employment with the Company, except
with the prior written consent of the Company or as required by law or legal
process. During the term of the employment agreement and for one year after its
termination, Mr. Anderson shall not render services to, or have any ownership
interest in, any business which is competitive with the Company in geographic
areas in which the Company, or its affiliates, is then conducting, or is in the
process of developing prospects to conduct, business. Mr. Anderson's employment
agreement does not contain change of control provisions.
If Mr. Anderson's employment is terminated by reason of his death, the
Company is obligated to pay Mr. Anderson's estate an amount equal to the sum of
(i) Mr. Anderson's annual base salary through the end of the calendar month in
which death occurs and (ii) any earned and unpaid annual bonus, vacation pay and
other vested benefits. If Mr. Anderson's employment is terminated by reason of
his Disability (as defined in the agreement), the Company is obligated to pay
Mr. Anderson or his legal representative (a) Mr. Anderson's annual base salary
for the duration of the employment period in effect on the date of termination,
reduced by amounts received under any disability benefit program and (b) any
earned and unpaid annual bonus and other vested benefits.
If Mr. Anderson's employment is terminated by the Company other than for
death, Disability or Cause (as defined in the agreement) or if Mr. Anderson
terminates his employment for Good Reason (as defined in the agreement), the
Company is required to continue (A) to pay Mr. Anderson for the remainder of the
employment period in effect immediately before the date of termination his
annual base salary and annual bonus(es) through the end of the then-current
employment period and (B) to provide Mr. Anderson and/or his family with certain
other benefits.
If Mr. Anderson's employment is terminated by the Company for Cause, or by
Mr. Anderson without Good Reason, Mr. Anderson shall be obligated to repay the
remaining principal balance of, and any accrued and unpaid interest on, the
housing differential loan within thirty days from the date of such termination.
If Mr. Anderson's employment is terminated by the Company for any reason other
than Cause, or by Mr. Anderson for Good Reason, any remaining principal balance
and any accrued and unpaid interest on the housing differential loan shall be
forgiven by the Company, and the Company shall make Mr. Anderson whole for any
tax consequences of such forgiveness.
Mr. Celebrezze's current employment agreement with the Company provides for
a three-year term, scheduled to lapse on March 30, 2001, default renewals for
additional two year periods, an annual base salary of not less than $180,000,
subject to annual review, plus an annual bonus of at least 35% of Mr.
Celebrezze's annual base salary and a $250,000 housing differential loan bearing
interest at an annual rate of 5.39% with a term of three years, of which
one-third of the principal balance and the accrued interest due thereon shall be
forgiven by the Company, and treated as additional compensation to Mr.
Celebrezze in the year of such forgiveness, for each year Mr. Celebrezze remains
in the continual employ of the Company (and the Company shall make Mr.
Celebrezze whole with respect to the tax consequences of any such forgiveness),
as well as certain other benefits.
Mr. Celebrezze shall not communicate, divulge or disseminate confidential
information at any time during or after his employment with the Company, except
with the prior written consent of the Company or as required by law or legal
process. During the term of the employment agreement and for two years after its
termination, Mr. Celebrezze shall not render services to, or have any ownership
interest in, any business which is competitive with the Company in geographic
areas in which the Company, or its affiliates, is then
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conducting, or is in the process of developing prospects to conduct, business.
Mr. Celebrezze's employment agreement does not contain change of control
provisions.
If Mr. Celebrezze's employment is terminated by reason of his death, the
Company is obligated to pay Mr. Celebrezze's estate an amount equal to the sum
of (i) Mr. Celebrezze's annual base salary through the end of the calendar month
in which death occurs and (ii) any earned and unpaid annual bonus, vacation pay
and other vested benefits. If Mr. Celebrezze's employment is terminated by
reason of his Disability (as defined in the agreement), the Company is obligated
to pay Mr. Celebrezze or his legal representative (a) Mr. Celebrezze's annual
base salary for the duration of the employment period in effect on the date of
termination, reduced by amounts received under any disability benefit program
and (b) any earned and unpaid annual bonus and other vested benefits.
If Mr. Celebrezze's employment is terminated by the Company other than for
death, Disability or Cause (as defined in the agreement) or if Mr. Celebrezze
terminates his employment for Good Reason (as defined in the agreement), the
Company is required to continue (A) to pay Mr. Celebrezze for the remainder of
the employment period in effect immediately before the date of termination his
annual base salary and annual bonus(es) through the end of the then-current
employment period and (B) to provide Mr. Celebrezze and/or his family with
certain other benefits, provided that in the event of a termination of
employment by Mr. Celebrezze for Good Reason, the annual base salary, annual
bonus and benefit continuation period shall be two years from the date of such
termination. In addition, under the foregoing circumstances, any remaining
principal balance and any accrued and unpaid interest on the housing
differential loan shall be forgiven by the Company, and the Company shall make
Mr. Celebrezze whole for any tax consequences of such forgiveness.
If Mr. Celebrezze's employment is terminated by the Company any time before
the third anniversary of the employment agreement for any reason other than for
Cause, or if the Company gives notice of its intention not to renew the
agreement for an additional two-year term beginning on the third anniversary of
the agreement, the Company is obligated to (x) pay Mr. Celebrezze his annual
base salary and annual bonus for the remaining balance of the initial three-year
term, if any, and for an additional two years and (y) to continue to provide Mr.
Celebrezze with certain other benefits for the same period.
Mr. Wolf's current employment agreement with the Company provides for a
three-year term, scheduled to lapse on March 26, 2001, default annual renewals,
and an annual base salary of not less than $376,400, subject to annual review,
plus an annual bonus based on a percentage of the annual base salary to be
mutually agreed upon by the Company and Mr. Wolf, as well as certain other
benefits. Mr. Wolf shall hold all confidential information in strict confidence
and not publish or otherwise disclose any portion thereof to any person
whatsoever except with the prior written consent of the Company. During the term
of the employment agreement and for two years after its termination (or eighteen
months if such termination follows a Change in Control (as defined in the
agreement)), Mr. Wolf shall not render services to, or have any ownership
interest in, any business which is competitive with the Company in certain
geographic areas.
If Mr. Wolf's employment is terminated by reason of his death, the Company
is obligated to pay Mr. Wolf's estate an amount equal to the sum of (i) Mr.
Wolf's annual base salary through the end of the calendar month in which death
occurs and (ii) any earned and unpaid annual bonus, vacation pay and other
vested benefits.
If Mr. Wolf's employment is terminated by reason of his Disability (as
defined in the agreement), the Company is obligated to pay Mr. Wolf or his legal
representative (a) an amount equal to Mr. Wolf's annual base salary for the
duration of the employment period in effect on the date of termination, reduced
by amounts received under any disability benefit program and (b) any earned and
unpaid annual bonus and other vested benefits.
If Mr. Wolf's employment is terminated by the Company other than for death
or Disability and without Cause (as defined in the agreement), the Company is
required to continue (A) to pay Mr. Wolf for the remainder of the employment
period in effect immediately before the date of termination his annual base
salary and annual bonus(es) through the end of the then-current employment
period and (B) to provide Mr. Wolf and/or his family with certain other
benefits.
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If Mr. Wolf's employment is terminated by the Company for any reason other
than Cause during the three-year period following a Change in Control (as
defined in the agreement), the Company is obligated to (x) pay Mr. Wolf an
amount ("Severance Pay") equal to the greater of (1) one and one-half times the
sum of (I) Mr. Wolf's current annual base salary plus (II) the amount of any
bonus paid to Mr. Wolf in the preceding twelve months and (2) the annual base
salary and annual bonuses through the end of the then-current employment period
and (y) continue to provide Mr. Wolf with certain other benefits for a certain
period of time. If Mr. Wolf terminates his employment voluntarily following a
Change in Control, he shall not be entitled to Severance Pay, provided, however,
that any such termination by Mr. Wolf for Good Reason (as defined in the
agreement) shall not be considered a voluntary termination and Mr. Wolf will be
treated as if he had been terminated by the Company other than for Cause.
Consummation of the Combination was conditioned, among other things, upon
the execution of an employment agreement between the Company and Myron C.
Warshauer.
Employment Agreement with Myron C. Warshauer. The Employment Agreement
between the Company and Myron C. Warshauer (the "Warshauer Employment
Agreement") provides that Myron C. Warshauer serve as Chief Executive Officer of
the Company, and be appointed as a member of the Board of Directors of the
Company (the "Board") and each committee of the Board, for a period beginning on
the date of the consummation of the Combination and ending on Myron C.
Warshauer's 65th birthday (the "Employment Period"). Myron C. Warshauer will
receive during the Employment Period an annual base salary of $600,000 ("Annual
Base Salary"). The Warshauer Employment Agreement also provides for certain
perquisites.
Under the Warshauer Employment Agreement, if Myron C. Warshauer's
employment were to be terminated by Myron C. Warshauer for Good Reason (as
defined below), or by the Company other than for Cause (as defined below), death
or Disability (as defined below), the Company would be obligated to (i) pay
Myron C. Warshauer a lump sum cash payment in an amount equal to the aggregate
Annual Base Salary that he would have received for the remainder of the
Employment Period, reduced to present value using as a discount rate the
"applicable federal rate," as defined in Section 1274(d) of the Internal Revenue
Code of 1986, as amended, and (ii) continue to provide for the same period
welfare benefits to Myron C. Warshauer and/or his family, at least as favorable
as those that would have been provided to them under the Warshauer Employment
Agreement if Myron C. Warshauer's employment had continued until the end of the
Employment Period, provided, however, that during any period when Myron C.
Warshauer is eligible to receive such benefits under another employer-provided
plan, such benefits provided by the Company may be made secondary to those
provided under such other plan. If Myron C. Warshauer's employment were to be
terminated by reason of his Disability during the Employment Period, the Company
would be obligated to pay Myron C. Warshauer, or his legal representative, as
applicable, the Annual Base Salary for the duration of the Employment Period in
effect at the time of the termination of employment.
In addition to the above compensation and benefits, if Myron C. Warshauer's
employment were to be terminated for any reason other than by the Company for
Cause, the Company would be obligated, beginning on the date of such termination
in the case of a voluntary termination by Myron C. Warshauer, and beginning on
Myron C. Warshauer's 65th birthday in all other cases, and ending on the first
to occur of Myron C. Warshauer's 75th birthday and Myron C. Warshauer's death
(such ending date, the "Cutoff Date"), to (i) pay Myron C. Warshauer $200,000
annually, adjusted for inflation and (ii) provide Myron C. Warshauer with an
executive office and secretarial services. In consideration for such benefits,
Myron C. Warshauer is obligated to provide reasonable consulting services to the
Company from the date of termination of his employment through the Cutoff Date.
As used in the Warshauer Employment Agreement: (i) "Cause" means (a)
illegal conduct, or gross misconduct, that results in material damage to the
business or reputation of the Company; or (b) any willful and continued failure
by Myron C. Warshauer to perform his duties under the Warshauer Employment
Agreement, (ii) "Disability" means that Myron C. Warshauer has been unable, for
a period of 180 consecutive days, or for periods aggregating 180 business days
in any period of twelve months, to perform a material portion of his duties
under the Warshauer Employment Agreement, as a result of physical or mental
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illness or injury, and a physician selected by the Company has determined that
Myron C. Warshauer's incapacity is total and permanent, and (iii) "Good Reason"
means (a) the relocation of Myron C. Warshauer's principal place of business
outside of the central business district and northern suburbs of Chicago; (b) a
material reduction in Myron C. Warshauer's responsibilities; (c) the assignment
to Myron C. Warshauer of duties inconsistent with his position as set forth in
the Warshauer Employment Agreement; (d) a change in Myron C. Warshauer's title
from that required under the Warshauer Employment Agreement; (e) a removal of
Myron C. Warshauer from the Board or any committee thereof; (f) a requirement
that Myron C. Warshauer report to anyone other than the Chairman of the Board;
or (g) any material breach by the Company of any other term of the Warshauer
Employment Agreement.
The Warshauer Employment Agreement also provides that during the period
beginning on the date of the consummation of the Combination and ending on Myron
C. Warshauer's 75th birthday (the "Noncompetition Period"), Myron C. Warshauer
shall not, without written consent of the Board, engage in or become associated
with any business or other endeavor that engages in construction, ownership,
leasing, design and/or management of parking lots, parking garages, or other
parking facilities or consulting with respect thereto, provided, however, that
Myron C. Warshauer may own or sell investments in certain parking facilities
("Permitted Investments") during the Noncompetition Period, and may own or sell
any interest in any other real estate ("Other Real Estate") at any time after
the Employment Period for the remainder of the Noncompetition Period. The
Warshauer Employment Agreement provides that, if such Permitted Investment or
Other Real Estate includes a parking facility, Myron C. Warshauer shall initiate
negotiations, or, under certain circumstances, use reasonable and good-faith
efforts to cause such negotiations, with the Company in an attempt to determine
mutually agreeable terms pursuant to which the Company will manage or lease the
parking facility and, if such negotiations fail, that, under certain
circumstances, the Company shall have a right of first refusal with respect to
any management agreement or lease that may be negotiated with any independent
third party.
Pursuant to the Warshauer Employment Agreement, within 120 days after the
Closing Date, the Company shall establish a stock option or phantom stock option
plan (the "Option Plan") providing for grants of actual or phantom options with
respect to the common stock of the Company ("Company Common Stock"), under which
Myron C. Warshauer will be granted options to purchase a number of shares of
Company Common Stock equal to 1.0% of the total number of shares of Company
Common Stock. All such options will have a term of 10 years from the date of the
grant.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
HOLDINGS
The following table sets forth certain information regarding the beneficial
ownership of the common stock of Holdings, par value $0.01 per share ("Holdings
Common Stock"), by (i) each person known to Holdings to own beneficially more
than 5% of Holdings Common Stock, (ii) each director of Holdings, (iii) each
Named Executive Officer of Holdings, and (iv) all executive officers and
directors of Holdings, as a group. All information with respect to beneficial
ownership has been furnished to Holdings by the respective stockholders of
Holdings. Except as otherwise indicated in the footnotes, each beneficial owner
has the sole power to vote and to dispose of all shares held by such holder.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OUTSTANDING
---------------- ----------------------- -----------
<S> <C> <C>
Holberg Industries, Inc.*................. 7,260 shares of Common Stock(1) 93.9%
G. Walter Stuelpe, Jr.**.................. 276.6 shares of Common Stock 3.6
Michael J. Celebrezze**................... 27.7 shares of Common Stock 0.4
Robert N. Sacks**......................... 27.7 shares of Common Stock 0.4
James V. LaRocco, Jr.**................... 138.3 shares of Common Stock 1.8
John V. Holten*........................... (2)
Orkla ASA ("Orkla")*...................... (3)
Gunnar E. Klintberg*...................... --
Directors and Executive Officers as a
Group................................... 71.8
</TABLE>
- ------------------------------
* The address of Holberg is 545 Steamboat Road, Greenwich, Connecticut 06830.
The address of Orkla and the business address of Messrs. Holten and
Klintberg is the same as that of Holberg.
** The business address of Messrs. Stuelpe, Celebrezze, Sacks and LaRocco is
800 Superior Avenue, Cleveland, Ohio 44114-2601.
(1) Holberg also owns the Holdings Preferred Stock. See "Certain Relationships
and Related Party Transactions--Preferred Stock."
(2) Mr. Holten owns all of the outstanding common stock of the corporate parent
of Holberg, which parent entity owns approximately 70% of the outstanding
common stock of Holberg, which in turn owns 93.9% of the outstanding common
stock of Holdings. The corporate parent of Holberg has an additional
interest in the common stock of Holberg of approximately 25% through certain
preferred stock convertible into common stock. The convertible interests
described in this note have been computed based upon the outstanding common
shares of Holberg, without taking into account any convertible interests of
Holberg. Holberg also owns the Holdings Preferred Stock. See "Certain
Relationships and Related Party Transactions--Preferred Stock."
(3) Orkla owns approximately 30% of the outstanding common stock of Holberg.
Orkla has an additional interest in the common stock of Holberg of
approximately 17% through certain preferred stock convertible into common
stock. The convertible interests described in this note have been computed
based upon the outstanding common shares of Holberg, without taking into
account any convertible interests of Holberg.
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THE COMPANY
The following table sets forth certain information regarding the beneficial
ownership of Company Common Stock by (i) each person known to the Company to own
beneficially more than 5% of Company Common Stock, (ii) each director of the
Company, (iii) each Named Executive Officer of APCOA and (iv) all executive
officers and directors of the Company, as a group (addresses set forth in the
preceding table are not repeated below). All information with respect to
beneficial ownership has been furnished to the Company by the respective
stockholders of the Company. Except as otherwise indicated in the footnotes,
each beneficial owner has the sole power to vote and to dispose of all shares
held by such holder.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OUTSTANDING
---------------- ----------------------- -----------
<S> <C> <C>
Holdings*................................. 26.3 shares of Common Stock 84.0%
John V. Holten............................ (1)
Orkla..................................... (2)
Dosher Partners, L.P.**................... 2.5 shares of Common Stock(3) 8.0
Myron C. Warshauer**...................... (3)
SP Associates***.......................... 2.5 shares of Common Stock(4) 8.0
G. Walter Stuelpe, Jr. ................... (5)
Michael J. Celebrezze..................... (6)
Robert N. Sacks........................... (7)
James V. LaRocco, Jr. .................... (8)
Directors and Executive Officers as a
Group................................... (1)(3)(5)(6)(7)(8)
</TABLE>
- ------------------------------
* The address of Holdings is 800 Superior Avenue, Cleveland, Ohio 44114-2601.
** The address of Dosher Partners, L.P. and the business address of Mr.
Warshauer is 200 East Randolph Drive, Suite 4800, Chicago, Illinois 60601.
*** The address of SP Associates is 900 North Michigan Avenue, Chicago,
Illinois 60611.
(1) Mr. Holten owns all of the outstanding common stock of the corporate parent
of Holberg, which parent entity owns approximately 70.0% of the outstanding
common stock of Holberg, which in turn owns 93.9% of the outstanding common
stock of Holdings. The corporate parent of Holberg has an additional
interest in the common stock of Holberg of approximately 25% through
certain preferred stock convertible into common stock. The convertible
interests described in this note have been computed based upon the
outstanding common shares of Holberg, without taking into account any
convertible interests of Holberg. Holberg also owns the Holdings Preferred
Stock. See "Certain Relationships and Related Party Transactions--Preferred
Stock."
(2) Orkla owns approximately 30.0% of the outstanding common stock of Holberg.
Orkla has an additional interest in the common stock of Holberg of
approximately 17% through certain preferred stock convertible into common
stock. The convertible interests described in this note have been computed
based upon the outstanding common shares of Holberg, without taking into
account any convertible interests of Holberg.
(3) All of the interests in Dosher Partners, L.P. are beneficially owned by
Myron C. Warshauer and trusts for the benefit of certain members of his
family. Mr. Warshauer disclaims beneficial ownership of the assets of
Dosher Partners, L.P., including the shares of Common Stock held by it, to
the extent those interests are held for the benefit of such trusts.
(4) SP Associates is a general partnership controlled by affiliates of JMB
Realty Corp.
(5) Mr. Stuelpe owns approximately 3.6% of the common stock of Holdings.
(6) Mr. Celebrezze owns less than 1.0% of the common stock of Holdings.
(7) Mr. Sacks owns less than 1.0% of the common stock of Holdings.
(8) Mr. LaRocco owns approximately 1.8% of the common stock of Holdings.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
COMPANY STOCKHOLDERS AGREEMENT
Upon consummation of the Combination, the Company entered into a
Stockholders Agreement (the "Company Stockholders Agreement") with Dosher
Partners, L.P. ("Dosher") and SP Associates (collectively, the "Standard
Parties") and Holberg and Holdings (collectively with the Standard Parties, the
"Company Stockholders"). The Company Stockholders Agreement provides, among
other things, for (i) prior to the earliest of (a) the seventh anniversary of
the consummation of the Combination, (b) the termination of Myron C. Warshauer's
employment with the Company under certain circumstances and (c) the consummation
of an initial public offering of Company Common Stock (as such offering will be
defined in the Company Stockholders Agreement), certain obligations of Holberg
to allow Dosher the opportunity to acquire all, but not less than all, of the
Company Common Stock held by Holberg and/or its affiliates before Holberg may
directly or indirectly sell an amount of Company Common Stock which would
constitute a Control Transaction (as will be defined in the Company Stockholders
Agreement); provided that, under certain circumstances, Holberg may sell such
shares to a party other than Dosher if the terms of such other party's offer are
more favorable to Holberg, (ii) until the consummation of an initial public
offering of Company Common Stock, certain rights of each Standard Party to
purchase shares of Company Common Stock to the extent necessary to maintain such
Standard Party's percentage ownership of the Company, (iii) the right of the
Standard Parties to participate in, and the right of Holberg to require the
Standard Parties to participate in, certain sales of Company Common Stock, (iv)
following the third anniversary of the consummation of the Combination and prior
to an initial public offering of Company Common Stock, certain rights of the
Company to purchase, and certain rights of the Standard Parties to require the
Company to purchase, shares of Company Common Stock at prices determined in
accordance with the Company Stockholders Agreement and (v) certain additional
restrictions on the rights of the Standard Parties to transfer shares of Company
Common Stock. The Company Stockholders Agreement also contains certain
provisions granting the Company Stockholders certain rights in connection with
registrations of Company Common Stock in certain offerings and provides for
indemnification and certain other rights, restrictions and obligations in
connection with such registrations.
HOLDINGS STOCKHOLDERS AGREEMENT
Holdings is party to a Stockholders Agreement with Holberg, Delaware North
and each of the members of APCOA management who is a stockholder of Holdings,
and an ancillary Put/Call Option Agreement (the "Put/Call Agreement") between
Holberg and Delaware North, which provide for, among other things, (i) a board
of directors consisting of three or more Holberg nominees, one Delaware North
nominee, and one management nominee, (ii) certain restrictions on the sale,
assignment, transfer, encumbrance or other disposition of the Holdings Common
Stock, (iii) certain first offer, repurchase and put/call rights with respect to
the Holdings Common Stock held by the management investors (a summary of which
is set forth below), (iv) certain pre-emptive rights in favor of the management
investors with respect to the issuance of Holdings Common Stock, and (v) certain
put/call rights with respect to the Holdings Common Stock held by Delaware
North. As of August 4, 1998, Holdings repurchased the Holdings Common Stock and
warrants held by Delaware North for $4.0 million in cash. In connection with
such repurchase, the Delaware North nominee to the Holdings Board of Directors
resigned as a director of Holdings.
The Holdings Stockholders Agreement provides that, subject to any direct or
indirect restrictions imposed by financing agreements or arrangements entered
into by Holdings or the Company, upon the termination of employment of a
management investor for death, retirement, complete disability, or otherwise,
(a) such management investor, or his estate or heir (in the case of death,
retirement or complete disability), shall have the right to cause Holdings to,
and (b) Holdings shall have the right to repurchase such management investor's
Holdings Common Stock, at a purchase price, which, under some circumstances, is
partially payable in subordinated notes, equal to, (X) in the case of a
termination of employment for death, retirement or complete disability or by
Holdings without Cause (as defined in the Holdings Stockholders Agreement) or a
voluntary termination of employment by such management investor, the greatest
of, or (Y)
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<PAGE> 67
in the case of a termination of employment by Holdings for Cause, the lowest of,
(i) the price per share paid by such management investor for such Holdings
Common Stock, (ii) the adjusted book value per share of Holdings Common Stock
and (iii) the sum, on a per share basis, of (x) product of the cash contribution
from operations of Holdings for the immediately preceding four fiscal quarters
multiplied by 6.84 minus (y) the amount of debt reflected in Holdings most
recent consolidated financial statements.
TAX SHARING AGREEMENT
Holdings is a party to the Tax Sharing Agreement, dated April 28, 1989, by
and among Holberg, Holdings and the Company (the "Tax Sharing Agreement"), which
applies to each of Holberg's consolidated return years beginning with 1989. The
Tax Sharing Agreement provides that each member of Holberg's affiliated group,
including Holdings, will pay to Holberg the amount of federal income tax that
such member would be required to pay on a separate return basis for the year in
question, except that the amount that Holdings is required to pay to Holberg
will not exceed the tax liabilities of Holdings on a separate return basis for
all taxable years to which the Tax Sharing Agreement applies and for which
Holdings joined in the Holberg consolidated return, computed as if Holdings had
actually filed separate returns for all such years and taking into account any
net operating loss carryforward Holdings would have had if it had filed a
separate return for all such years. Holberg is not required to make a payment to
Holdings by virtue of the utilization by the Holberg affiliated group of any net
operating loss generated by Holdings. In the event that the consolidated federal
income tax liability of the Holberg affiliated group is adjusted for any taxable
period, whether by means of an amended return, claim for refund, or tax audit by
the Internal Revenue Service, the liability of Holdings under the Tax Sharing
Agreement will be recomputed to give effect to such adjustments. The Combination
Agreement contemplates that the Tax Sharing Agreement may be amended prior to
consummation of the Combination as may be agreed by APCOA and the Standard
Owners.
PREFERRED STOCK
Holberg currently owns $25.2 million of Series A Cumulative Preferred Stock
of Holdings ("Holdings Preferred Stock"). Dividends on the Holdings Preferred
Stock are not payable in cash to the extent prohibited by any agreement of
Holdings, including the Indenture. Holdings Preferred Stock is redeemable at the
option of Holdings. Prior to the consummation of the Combination, Holberg held
$8.7 million of preferred stock of APCOA. A portion of the proceeds of the
Senior Subordinated Notes Offering was used to redeem $8.0 million of the
preferred stock. The remaining $0.7 million was contributed to the capital of
the Company.
The preferred stock issued by the Company to Holdings in respect of the
Preferred Stock Contribution has the same maturity as the New Notes, has an
initial liquidation preference equal to the issue price of the New Notes,
increases in liquidation preference at the same rate as the New Notes accrue
interest, such that the liquidation preference of the preferred stock will at
all times be equal to the then principal amount of the New Notes, and accrues
cash dividends commencing at such times as the New Notes commence to accrue cash
interest, at the same rate as the New Notes.
MANAGEMENT CONTRACTS AND RELATED ARRANGEMENTS WITH AFFILIATES
The Company has a management contract to operate one parking facility in
Chicago with an Illinois land trust which is beneficially owned by a partnership
in which Myron C. Warshauer, Steven A. Warshauer and Stanley Warshauer have an
equity interest. All expenses that are typically borne by a facility owner under
a management contract, such as salaries, wages and benefits associated with
employees at the parking facility and an allocable portion of such costs for
supervisory management personnel, the cost of uniforms, supplies, insurance,
utilities and other direct operating costs ("property-level expenses") are paid
by the facility owner. Pursuant to the management contract, the Company is
entitled to an annual management fee of approximately $40,700 in 1998. However,
certain subordination provisions in the loan agreement between the facility
owner and its lender have resulted in the non-payment of all or a portion of the
management fee for the past four years (aggregating approximately $140,000 at
December 31, 1997). The Company estimates that the management fee to which it is
entitled pursuant to this management contract is no less than would normally be
obtained through arm's-length negotiations.
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<PAGE> 68
The Company has a management contract with the Buckingham Plaza Limited
Partnership ("BPLP") to operate the parking facility at a condominium complex in
Chicago of which BPLP was the developer. Myron C. Warshauer and SP Associates
own an equity interest in one of BPLP's limited partners. The Company receives
an annual management fee of $20,200 pursuant to such management contract. The
Company estimates that such management fee is no less than would normally be
obtained through arm's-length negotiations.
The Company has management contracts to operate two surface parking lots in
Chicago. Myron C. Warshauer, Steven A. Warshauer, Michael K. Wolf and SP
Associates own membership interests in a limited liability company that is a
member of the limited liability companies that own such surface parking lots.
The Company receives a total of $39,300 in management fees annually under such
management contracts. The Company estimates that such management fees are no
less than would normally be obtained through arm's-length negotiations.
The Company operates the Clark Fullerton Self Park, a parking facility in
which Myron C. Warshauer has a 50% equity interest. The facility owner pays all
of the property-level expenses. The Company does not receive a management fee.
The Company estimates that in today's market it reasonably could expect to
receive an annual management fee ranging from $15,000 to $20,000 for providing
such services.
The Company provides office and related support services to Auditorium
Garage, Inc. ("Auditorium"), an Illinois corporation owned by Stanley Warshauer
and his wife, in conjunction with Auditorium's management of a parking facility.
Auditorium reimburses the Company for the general and administrative costs
associated with providing these services, which reimbursement totaled $32,200 in
1997.
Myron C., Stanley and Steven A. Warshauer own an equity interest in two
parking facilities in Chicago. One of those facilities is leased to the Company
on terms that the Company believes are no less favorable to the Company than
would normally be obtained through arm's-length negotiations. The Company earned
net lease income of $342,000 in 1997 at such facility. The other parking
facility (the "Tremont Facility") is leased to Standard/Tremont Parking
Corporation ("Standard Tremont"), an Illinois corporation that is owned by
Stanley Warshauer, Steven A. Warshauer and Myron C. Warshauer. The Company
provides office and related support services to Standard Tremont, in conjunction
with Standard Tremont's management of the Tremont Facility. Standard Tremont
reimburses the Company for the general and administrative costs associated with
providing these services, which reimbursement totaled $13,900 in 1997.
The Company pays 12.5% of the lease net operating income derived from one
parking facility to Warshauer Management Corporation for services rendered in
obtaining the right to operate the facility.
LIABILITY INSURANCE
The Company currently purchases a portion of its casualty insurance from an
affiliate of Holberg. The Company estimates that the premiums paid for such
insurance are comparable to premiums it would pay for comparable coverage from
an unrelated third party. See Note I to the Historical Consolidated Financial
Statements of Holdings included herein.
The Company purchases liability insurance covering certain parking
facilities from JMB Insurance Agency, Inc., an affiliate of JMB Realty Corp. The
Company estimates that the premiums paid for such insurance are comparable to
premiums it would pay for comparable coverage from an unrelated third party.
CONSULTING AGREEMENT WITH SIDNEY WARSHAUER
Consummation of the Combination was conditioned by Standard, among other
things, upon the execution of a Consulting Agreement (the "Agreement") between
the Company and Sidney Warshauer, the father of Myron C. Warshauer. Sidney
Warshauer is 83 years old.
The Agreement provides that Sidney Warshauer render such services as may be
requested, from time to time, by the Board of Directors of the Company (the
"Board") and/or the Chief Executive Officer of the Company, consistent with Mr.
Warshauer's past practices and experience, for a period beginning on the date
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of the consummation of the Combination and ending on Sidney Warshauer's death.
Sidney Warshauer will receive, during such period, annual payments of $552,000
along with certain other benefits.
The Agreement provides that, from the date of the closing of the
Combination until his death, Sidney Warshauer will not disclose Company
confidential information or compete with the Company. The Agreement is not
terminable by the Company for any reason other than the death of Sidney
Warshauer, or a breach by Sidney Warshauer of his obligations under the
Agreement with respect to non-disclosure of Company confidential information or
his obligation to refrain from engaging in competition with the Company. The
parties intended that all payments under the Agreement represent additional
purchase price in the form of supplemental retirement benefits in recognition of
Sidney Warshauer's significant contributions to Standard. The actuarial value,
as of March 30, 1998, of the payments under the Agreement is approximately $5.0
million. See Note L to the Consolidated Financial Statements of Holdings.
CERTAIN OTHER MATTERS RELATING TO HOLBERG
Holberg has received customary investment banking and advisory fees from
APCOA in connection with certain prior transactions, and received a $1.0 million
advisory fee (and reimbursement of expenses) upon consummation of the
Combination. The Company also may pay an annual management fee to Holberg and
otherwise reimburse Holberg for certain expenses incurred by Holberg on behalf
of the Company. In addition, the Company currently leases a plane on behalf of
Holberg. Holberg pays all costs under the lease other than amounts that may be
charged to the Company in connection with use of the plane and indemnifies the
Company for all obligations under the lease. All of these fees and other amounts
paid to Holberg are subject to the limits and restrictions imposed by the
Indenture. See "Description of New Notes--Affiliate Transactions."
APCOA and Holberg and its affiliates have periodically engaged in
bi-lateral loans and advances. These loans and advances were interest bearing at
a variable rate that approximated the prime interest rate. The accumulated
interest was added to, or deducted from (as appropriate), the balance in the
loan or advance account on a monthly basis. In connection with the Combination,
APCOA made a $6.5 million non-cash distribution to Holberg of the receivable in
such amount due from Holberg to APCOA, thereby eliminating all amounts due from
Holberg to APCOA. The Company may from time to time enter into such bi-lateral
loans and advances in the future as permitted under the Indenture. See Note 5 to
the Unaudited Pro Forma Consolidated Balance Sheet and "Description of New
Notes--Permitted Investments."
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DESCRIPTION OF INDEBTEDNESS
The following sets forth information concerning the Company's indebtedness.
NEW CREDIT FACILITY
The Company has entered into the New Credit Facility, pursuant to which the
Company has available a new $40 million revolving credit facility with a
six-year term. The New Credit Facility is available for working capital and
general corporate purposes, including the issuance of letters of credit. At the
Closing, the Company issued approximately $4.9 million of letters of credit
under the New Credit Facility.
The initial interest rate for borrowings under the New Credit Facility is,
at the option of the Company, LIBOR plus 2.50% or the Alternate Base Rate (as
defined below) plus 1.25%. The initial rates may be reduced or increased
according to a pricing grid. The Company may elect interest periods of one, two,
three or six months for LIBOR borrowings. The "Alternate Base Rate" is the
higher of (i) the Agent's corporate base rate and (ii) the federal funds rate
plus 1%. LIBOR will at all times include maximum statutory reserves.
Indebtedness under the New Credit Facility may be prepaid in whole or in part
without premium or penalty (subject in some cases to related breakage) and the
Company may reduce or terminate the Lenders' commitments upon such notice and in
such amounts as may be agreed upon.
All of the Company's existing and future wholly-owned domestic subsidiaries
guarantee indebtedness under the New Credit Facility. All extensions of credit
under the New Credit Facility to the Company and the guarantees of subsidiaries
of the Company's indebtedness under the New Credit Facility are secured, subject
to certain exceptions, by all existing and after-acquired personal property of
the Company and its subsidiaries, including all outstanding capital stock of the
Company's subsidiaries, and any intercompany debt obligations, and all existing
and after-acquired real property fee and leasehold interests and management
contracts, subject to prohibitions in certain of such arrangements relating to
collateral assignment. With certain exceptions, the Company and its subsidiaries
are prohibited from pledging any of their assets other than under the New Credit
Facility. Additionally, Holdings guarantees the Company's obligations under the
New Credit Facility and such guarantee is secured by a first priority pledge of
all the capital stock of the Company owned by Holdings.
Under the New Credit Facility, the initial letter of credit fee is 2.50%
per annum based upon the amount available for drawing under outstanding standby
letters of credit plus customary and reasonable issuing fees. The issuing bank
will retain 0.25% per annum from the fee for issuing the standby letters of
credit. There may be adjustments in the letter of credit fees described above
according to a pricing grid.
The New Credit Facility contains customary and appropriate representations
and warranties, including, without limitation, those relating to due
organization and authorization, no conflicts, financial condition, no material
adverse changes, title to properties, liens, litigation, payment of taxes,
compliance with laws, and full disclosure.
The New Credit Facility also contains customary and appropriate conditions
to all borrowings including requirements relating to prior written notice of
borrowing.
The New Credit Facility also contains customary affirmative and negative
covenants (including, where appropriate, certain exceptions and baskets),
including but not limited to furnishing information and limitations on asset
sales, other indebtedness, liens, investments, guarantees, restricted payments,
mergers and acquisitions, capital expenditures, and affiliate transactions. The
New Credit Facility also contains financial covenants including, without
limitation, those relating to: minimum interest coverage; minimum fixed charge
coverage; and maximum leverage.
Events of default under the New Credit Facility include those relating to:
(a) non-payment of interest, principal or fees payable under the New Credit
Facility; (b) non-performance of certain covenants; (c) cross default to other
material debt of the Company and its subsidiaries; (d) bankruptcy or insolvency;
(e) judgments in excess of specified amounts; (f) materially inaccurate or false
representations or warranties; and (g) change of control.
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ANY NOTES WHICH REMAIN OUTSTANDING FOLLOWING THE EXCHANGE OFFER WILL HAVE THE
SAME RIGHT, PRIVILEGES AND LIMITATIONS AS, AND WILL RANK PARI PASSU WITH, THE
NEW NOTES.
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued pursuant to the indenture (the "Indenture")
between Holdings and State Street Bank and Trust Company, as trustee (the
"Trustee"), under which the Notes were issued. The terms of the New Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The New Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. Copies
of the Indenture and Registration Rights Agreement are available as set forth
below under "-- Additional Information." The definitions of certain terms used
in the following summary are set forth below under "--Certain Definitions." For
purposes of this summary, the term "Holdings" refers to AP Holdings, Inc. and
not to any of its Subsidiaries.
The New Notes will be general unsecured obligations of Holdings, will rank
pari passu in right of payment with all existing and future senior indebtedness
of Holdings and will rank senior in right of payment to all existing and future
subordinated indebtedness of Holdings. As indebtedness of Holdings, however, the
New Notes will be effectively subordinated to all indebtedness of the Company.
As of March 31, 1998, on a pro forma basis, after giving effect to the
Combination, the related financings and other transactions described herein,
including, without limitation, the Note Offering and the application of the net
proceeds therefrom, the New Notes would have been effectively subordinate to
approximately $150.2 million of indebtedness of the Company.
The operations of Holdings are conducted through its Subsidiaries, and
Holdings, therefore, is dependent upon the cash flow of its Subsidiaries to meet
its debt obligations, including its obligations under the New Notes. Under
certain circumstances, Holdings is able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
In connection with the Exchange Offer, Holdings has obtained an opinion of
counsel as to the enforceability of the New Notes against Holdings. Holdings'
counsel expresses no opinion with respect to the lawfulness or enforceability of
provisions of the Indenture with respect to:
(1) delay or omission of enforcement of rights or remedies, waivers of
defenses, or waivers of benefits of any usury, appraisement, valuation,
stay, extension, moratorium, redemption, statutes of limitation, or
other non-waivable benefits bestowed by operation of law;
(2) exculpation, releases of unmatured claims, the purported waiver of
immaterial rights, severability, and other provisions similar to the
foregoing; and
(3) indemnification or contribution, to the extent such provisions purport
to relate to liabilities from or based upon negligence or any violation
of, or relate to rights of contribution or indemnification that are
violative of, any law, rule or regulation of the public policy
underlying any law, rule or regulation (including any federal, state or
foreign securities law, rule or regulation).
Such counsel is of the opinion that although certain remedial provisions
and waivers with respect to the New Notes contained in the Indenture may be
unenforceable in whole or in part, the inclusion of such provisions does not
affect the validity of the New Notes and the New Notes, together with the laws
of the State of New York, contain adequate provision for the practical
realization of the benefits of the obligations created thereby. Moreover, such
counsel expresses no opinion as to the effects on the Indenture, the New Notes
or on the opinions expressed in such opinion of counsel, of any provisions of
law relating to fraudulent
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conveyances, including those of the State of New York and those contained in the
United States Bankruptcy Code.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be limited in aggregate principal amount to $120.0
million at maturity of which $70.0 million were issued in the Note Offering and
will mature on March 15, 2008. The New Notes will accrete at a rate of 11 1/4%
per annum, compounded semi-annually to an aggregate principal amount of $70.0
million. Thereafter, interest on the New Notes will accrue at the rate of
11 1/4% per annum and will be payable semi-annually in arrears on March 15 and
September 15 of each year, commencing on September 15, 2003, to Holders of
record on the immediately preceding March 1 and September 1. No cash interest
will be payable prior to September 15, 2003. Interest on the New Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from September 15, 2003. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Additional notes
may be issued from time to time, subject to the provisions of the Indenture
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock." Principal, premium and Liquidated
Damages, if any, and interest on the New Notes will be payable at the office or
agency of Holdings maintained for such purpose within the City and State of New
York or, at the option of Holdings, payment of interest and Liquidated Damages,
if any, may be made by check mailed to the Holders of the New Notes at their
respective addresses set forth in the register of Holders of New Notes; provided
that all payments of principal, premium and Liquidated Damages, if any, and
interest with respect to New Notes the Holders of which have given wire transfer
instructions to Holdings will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by Holdings, Holdings' office or agency in New York
will be the office of the Trustee maintained for such purpose. The New Notes
will be issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The New Notes will not be redeemable at Holdings' option prior to March 15,
2003. Thereafter, the New Notes will be subject to redemption at any time at the
option of Holdings, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 15 of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
2003.................................................... 105.625%
2004.................................................... 103.750%
2005.................................................... 101.875%
2006 and thereafter..................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to March 15, 2001 Holdings
may redeem the New Notes, in whole but not in part, at the option of Holdings,
at a redemption price of 111.25% of the Accreted Value (determined at the date
of redemption), plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the redemption date, with the net cash proceeds of a Public Equity
Offering; provided that such redemption shall occur within 45 days of the date
of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no New Notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any New
Note is to be redeemed in part only, the
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notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new New Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. New Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on New Notes or portions of them called for
redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders,"
Holdings is not required to make mandatory redemption or sinking fund payments
with respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require Holdings to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the Accreted Value thereof on the date of purchase (if
such date of purchase is prior to March 15, 2003) or 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase (if such date of purchase is on or
after March 15, 2003) (the "Change of Control Payment"). Within 30 days
following any Change of Control, Holdings will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase New Notes on the date specified in such notice, which
date shall be no earlier than 30 days and no later than 60 days from the date
such notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in such notice. Holdings will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the New Notes as
a result of a Change of Control.
On the Change of Control Payment Date, Holdings will, to the extent lawful,
(1) accept for payment all New Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all New Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the New Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of New Notes or portions thereof being purchased
by Holdings. The Paying Agent will promptly mail to each Holder of New Notes so
tendered the Change of Control Payment for such New Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new New Note equal in principal amount to any unpurchased portion
of the New Notes surrendered, if any; provided that each such new New Note will
be in a principal amount of $1,000 or an integral multiple thereof. Holdings
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that Holdings
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar transaction.
Due to Change of Control repayment provisions in certain indebtedness of
Holdings' Subsidiaries and the existence of a Change of Control event of default
in the New Credit Facility, it is unlikely that Holdings would be able to
repurchase all of the New Notes upon the occurrence of a Change of Control. See
"Risk Factors -- Change of Control Payment." In addition, the New Notes will
rank pari passu in right of payment with other senior Indebtedness of Holdings.
The ability of Holdings to redeem all of the New Notes upon a Change of Control
may also be limited by restrictions on the ability of Holdings' Subsidiaries to
pay dividends to Holdings. Finally, the New Notes will be effectively
subordinated to Obligations of Subsidiaries of Holdings, including with respect
to Change of Control Payments. See "-- General."
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The Change of Control provision of the Indenture could have the effect of
deterring certain acquisition proposals which would constitute a Change of
Control even if such acquisition might be beneficial to certain Holders of New
Notes, as well as restricting the ability of Holdings to obtain additional
financing in the future.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that Holdings
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar transaction.
Holdings will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by Holdings and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Holdings and its Subsidiaries taken as a whole. Although there
is a developing body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of New Notes to require Holdings to
repurchase such New Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of Holdings and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
ASSET SALES
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) Holdings (or
the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 80% of the consideration therefor
received by Holdings or such Restricted Subsidiary is in the form of cash;
provided that the amount of (x) any liabilities (as shown on Holdings' or such
Restricted Subsidiary's most recent balance sheet), of Holdings or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases Holdings or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by
Holdings or any such Restricted Subsidiary from such transferee that are
converted by Holdings or such Restricted Subsidiary into cash within 180 days
(to the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Holdings may apply such Net Proceeds, at its option, (a) to permanently repay
Senior Debt (and to correspondingly reduce commitments with respect thereto in
the case of revolving borrowings), or (b) to the acquisition of a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets and parking facility agreements, in each
case, in a Permitted Business. Pending the final application of any such Net
Proceeds, Holdings may temporarily reduce the revolving Indebtedness under the
New Credit Facility or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $15.0 million, Holdings will be required to make an offer to
all Holders of New Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of New Notes that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the Accreted Value
thereof on the date of purchase (if such date of purchase is prior to March 15,
2003) or 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date of purchase (if such date of
purchase is on or after March 15, 2003), in each case, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of New Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, Holdings may use any remaining Excess Proceeds for general corporate
purposes. If the
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aggregate principal amount of New Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the New Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that from and after the date of the Indenture
Holdings will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of Holdings' or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving Holdings) or to the direct
or indirect holders of Holdings' or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of Holdings); (ii)
purchase, redeem or otherwise acquire or retire for value (including without
limitation, in connection with any merger or consolidation involving Holdings)
any Equity Interests of Holdings or any direct or indirect parent of Holdings;
(iii) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness of Holdings that is pari
passu with or subordinated to the New Notes (other than New Notes), except a
payment of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) Holdings would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Holdings and its Subsidiaries after the
date of the Indenture (excluding Restricted Payments permitted by clause
(ii) and (iii) of the next succeeding paragraph), is less than the sum of
(i) 50% of the Consolidated Net Income of Holdings for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of Holdings' most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by Holdings from the
issue or sale since the date of the Indenture of Equity Interests of
Holdings (other than Disqualified Stock) or of Disqualified Stock or debt
securities of Holdings that have been converted into such Equity Interests
(other than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of Holdings and other than Disqualified
Stock or convertible debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) if any Unrestricted Subsidiary (A) is redesignated as
a Restricted Subsidiary, the fair market value of such redesignated
Subsidiary (as determined in good faith by the Board of Directors) as of
the date of its redesignation or (B) pays any cash dividends or cash
distributions to Holdings or any of its Restricted Subsidiaries, 50% of any
such cash dividends or cash distributions made after the date of the
Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or
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subordinated Indebtedness or Equity Interests of Holdings in exchange for, or
out of the net cash proceeds of the substantially concurrent sale or issuance
(other than to a Restricted Subsidiary of Holdings) of, other Equity Interests
of Holdings (other than any Disqualified Stock); (iii) the defeasance,
redemption, repurchase or other acquisition of pari passu or subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted
Subsidiary of Holdings to the holders of its Equity Interests on a pro rata
basis; (v) the declaration or payment of dividends to Holberg in its capacity as
a holding company that are attributable to the operations of Holdings and its
Restricted Subsidiaries, including, without limitation, (a) customary salary,
bonus and other benefits payable to officers and employees of Holberg, (b) fees
and expenses paid to members of the Board of Directors of Holberg, (c) general
corporate overhead expenses of Holberg, (d) foreign, federal, state or local tax
liabilities paid by Holberg and (e) management, consulting or advisory fees paid
to Holberg not to exceed $2.0 million in any fiscal year, and (f) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of Holberg held by any member of Holdings' (or any of their
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement in effect as of the date of the
Indenture; provided, however, the aggregate amount paid pursuant to the
foregoing clauses (a) through (f) does not exceed $8.0 million; (vi) Investments
in any Person (other than the Company or a Wholly-Owned Restricted Subsidiary)
engaged in a Permitted Business in an amount taken together with all other
Investments made pursuant to this clause (vi) that are at that time outstanding
not to exceed $5.0 million; (vii) other Investments in Unrestricted Subsidiaries
having an aggregate fair market value, taken together with all other Investments
made pursuant to this clause (vii) that are at that time outstanding, not to
exceed $2.0 million; (viii) payments to Holberg pursuant to the tax sharing
agreement among Holberg and other members of the affiliated corporations of
which Holberg is the common parent; (ix) the designation of certain of the
Company's Subsidiaries as Unrestricted Subsidiaries immediately prior to the
date of the Indenture; (x) the redemption in connection with the Transactions of
the preferred stock of the Company held by Holberg; (xi) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of Holdings or the Company held by any member of Holdings' or the Company's (or
any of their Restricted Subsidiaries') management pursuant to any management
equity subscription agreement or stock option agreement or in connection with
the termination of employment of any employees or management of Holdings or the
Company or their Subsidiaries; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2.0 million in the aggregate plus the aggregate cash proceeds received
by Holdings or the Company after the date of the Indenture from any reissuance
of Equity Interests by Holdings or the Company to members of management of
Holdings or the Company and their Restricted Subsidiaries; and (xii) other
Restricted Payments in an aggregate amount not to exceed $10.0 million.
From and after the date of the Indenture, the Board of Directors may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such
determination, all outstanding Investments by Holdings and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market value of
such Investments at the time of such designation (as determined in good faith by
the Board of Directors). Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Holdings or such Subsidiary, as the case
may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined in good faith by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Trustee such determination to be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, Holdings shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon
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which the calculations required by the covenant "Restricted Payments" were
computed, together with a copy of any fairness opinion or appraisal required by
the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that Holdings will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that Holdings will not issue any Disqualified Stock and will
not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that Holdings may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio
for Holdings' most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Restricted Subsidiaries of Holdings of revolving
credit Indebtedness and letters of credit pursuant to New Credit Facility;
provided that the aggregate principal amount of all revolving credit
Indebtedness (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Restricted Subsidiaries of
Holdings thereunder) outstanding under the New Credit Facility after giving
effect to such incurrence does not exceed $40.0 million less the aggregate
amount of all Net Proceeds of Asset Sales applied to repay revolving credit
Indebtedness under the New Credit Facility pursuant to the covenant described
above under "--Repurchase at the Option of Holders--Asset Sales";
(ii) the incurrence by Holdings and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by Holdings and its Restricted Subsidiaries of
Indebtedness represented by the Notes offered in the Note Offering, the Senior
Subordinated Notes and the Senior Subordinated Note Guarantees, respectively;
(iv) the incurrence by Holdings or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of Holdings or such Restricted
Subsidiary (whether through the direct purchase of assets or the Capital Stock
of any Person owning such Assets), in an aggregate principal amount not to
exceed $7.5 million;
(v) the incurrence by Holdings or any of its Restricted Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new Restricted
Subsidiary; provided that such Indebtedness was incurred by the prior owner of
such assets or such Restricted Subsidiary prior to such acquisition by Holdings
or one of its Subsidiaries and was not incurred in connection with, or in
contemplation of, such acquisition by Holdings or one of its Subsidiaries;
provided further that the principal amount (or accreted value, as applicable) of
such Indebtedness, together with any other outstanding Indebtedness incurred
pursuant to this clause (v), does not exceed $5.0 million;
(vi) the incurrence by Holdings or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness that was permitted by the
Indenture to be incurred under the first paragraph hereof or clauses (i), (ii),
(iii), (iv), (v) or (xv) of this paragraph;
(vii) the incurrence by Holdings or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Holdings and any of its Wholly Owned
Restricted Subsidiaries; provided, however, that (i) if Holdings is the obligor
on such Indebtedness and the payee is not a Subsidiary Guarantor, such
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Indebtedness is expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being held by
a Person other than Holdings or a Wholly Owned Restricted Subsidiary and (B) any
sale or other transfer of any such Indebtedness to a Person that is not either
Holdings or a Wholly Owned Restricted Subsidiary shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(viii) the incurrence by Holdings or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
currency risk or interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be outstanding;
(ix) the guarantee by Holdings or any of its Restricted Subsidiaries of
Indebtedness of Holdings or a Restricted Subsidiary of Holdings that was
permitted to be incurred by another provision of this covenant;
(x) the incurrence by Holdings' Unrestricted Subsidiaries of Non-Recourse
Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse
Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of Holdings that was not
permitted by this clause (x);
(xi) Indebtedness incurred by Holdings or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including without limitation
to letters of credit in respect to workers' compensation claims or
self-insurance, surety bonds or other Indebtedness with respect to reimbursement
type obligations regarding workers' compensation claims, provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(xii) Indebtedness arising from agreements of Holdings or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with the
disposition of any business, asset or Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
provided that the maximum aggregate liability of all such Indebtedness shall at
no time exceed 50% of the gross proceeds actually received by Holdings;
(xiii) obligations in respect of performance and surety bonds and
completion guarantees provided by Holdings or any Restricted Subsidiary in the
ordinary course of business;
(xiv) guarantees incurred in the ordinary course of business in an
aggregate principal amount not to exceed $5.0 million; and
(xv) the incurrence by Holdings or any of its Restricted Subsidiaries of
additional Indebtedness, including Attributable Debt incurred after the date of
the Indenture, in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (xv), not to exceed $35.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xv) above or is
entitled to be incurred pursuant to the first paragraph of this covenant,
Holdings shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. The incurrence of Indebtedness pursuant
to the first paragraph of the covenant described above shall not be classified
as any of the items in clauses (i) through (xv) above. Accrual of interest and
the accretion of accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
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LIENS
The Indenture provides that Holdings will not and will not permit any of
its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind securing Indebtedness
or trade payables of Holdings that is subordinate to or pari passu with the New
Notes (other than Permitted Liens) upon any of their property or assets, now
owned or hereafter acquired.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to Holdings or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to Holdings or any of
its Restricted Subsidiaries, (ii) make loans or advances to Holdings or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
Holdings or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the New Credit Facility as in effect as
of the date of the Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof; provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive in the aggregate (as determined by the Credit Agent in good faith)
with respect to such dividend and other payment restrictions than those
contained in the New Credit Facility as in effect on the date of the Indenture,
(c) the Indenture and the New Notes, (d) any applicable law, rule, regulation or
order, (e) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Holdings or any of its Restricted Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired; provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) Permitted Refinancing Indebtedness; provided that the material
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (i) contracts for the sale of
assets, including without limitation customary restrictions with respect to a
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary, and (j) restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of business.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that Holdings may not consolidate or merge with or
into (whether or not Holdings is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) Holdings is the surviving corporation
or the entity or the Person formed by or surviving any such consolidation or
merger (if other than Holdings) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than Holdings) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of Holdings under the Notes and
the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) except in the case of a merger of Holdings
with or into a Wholly Owned Restricted Subsidiary of
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Holdings, Holdings or the entity or Person formed by or surviving any such
consolidation or merger (if other than Holdings), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-- Incurrence
of Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction")
unless (i) such Affiliate Transaction is on terms that are no less favorable to
Holdings or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by Holdings or such Restricted Subsidiary
with an unrelated Person and (ii) Holdings delivers to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that the following shall
not be deemed Affiliate Transactions: (q) any employment agreement entered into
by Holdings or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of Holdings or such Restricted
Subsidiary, (r) transactions between or among Holdings and/or its Restricted
Subsidiaries, (s) Permitted Investments and Restricted Payments that are
permitted by the provisions of the Indenture described above under the caption
"-- Restricted Payments," (t) customary loans, advances, fees and compensation
paid to, and indemnity provided on behalf of, officers, directors, employees or
consultants of Holdings or any of its Restricted Subsidiaries, (u) annual
management fees paid to Holberg Industries, Inc. not to exceed $5.0 million in
any one year, (v) transactions pursuant to any contract or agreement in effect
on the date of the Indenture as the same may be amended, modified or replaced
from time to time so long as any such amendment, modification or replacement is
no less favorable to Holdings and its Restricted Subsidiaries than the contract
or agreement as in effect on the date of the Indenture or is approved by a
majority of the disinterested directors of Holdings, (w) transactions between
Holdings or its Restricted Subsidiaries on the one hand, and Holberg on the
other hand, involving the provision of financial or advisory services by
Holberg; provided that fees payable to Holberg do not exceed the usual and
customary fees for similar services, (x) transactions between the Company or its
Restricted Subsidiaries on the one hand, and Donaldson, Lufkin & Jenrette
Securities Corporation or its Affiliates ("DLJ") on the other hand, involving
the provision of financial, advisory, placement or underwriting services by DLJ;
provided that fees payable to DLJ do not exceed the usual and customary fees of
DLJ for similar services, (y) the insurance arrangements between Holdings and
its Subsidiaries and an Affiliate of Holberg that are not less favorable to
Holdings or any of its Subsidiaries than those that are in effect on the date
hereof provided such arrangements are conducted in the ordinary course of
business consistent with past practices and (z) payments under the tax sharing
agreement among Holberg and other members of the affiliated group of
corporations of which it is the common parent.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that Holdings may enter into a sale and leaseback transaction if (i)
Holdings could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the covenant described above under the caption
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"--Incurrence of Additional Indebtedness and Issuance of Preferred Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Liens," (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market value
(as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of assets
in such sale and leaseback transaction is permitted by, and Holdings applies the
proceeds of such transaction in compliance with, the covenant described above
under the caption "--Asset Sales."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED
SUBSIDIARIES
The Indenture provides that Holdings (i) will not, and will not permit any
Wholly Owned Restricted Subsidiary of Holdings to, transfer, convey, sell, lease
or otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary of
Holdings to any Person (other than Holdings or a Wholly Owned Restricted
Subsidiary of Holdings), unless (a) such transfer, conveyance, sale, lease or
other disposition is of all the Capital Stock of such Wholly Owned Restricted
Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant described
above under the caption "--Asset Sales," and (ii) will not permit any Wholly
Owned Restricted Subsidiary of Holdings to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to Holdings or a Wholly Owned
Restricted Subsidiary of Holdings.
BUSINESS ACTIVITIES
Holdings will not, and will not permit any Restricted Subsidiary to, engage
in any business other than Permitted Businesses, except to such extent as would
not be material to Holdings and its Restricted Subsidiaries taken as a whole.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding,
Holdings will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if Holdings 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 Holdings' certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if Holdings were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, Holdings will file a
copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, Holdings has agreed that, for so long as any New Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the New Notes; (ii) default in payment when
due of the principal of or premium, if any, on the New Notes; (iii) failure by
the Company to comply with the provisions described under the captions
"-- Change of Control," "-- Asset Sales," or "-- Merger, Consolidation, or Sale
of Assets;" (iv) failure by Holdings for 30 days after notice from the Trustee
or at least 30% in principal amount of the New Notes then outstanding to comply
with the provisions described under the captions "-- Restricted Payments" or
"-- Incurrence of Indebtedness and Issuance of Preferred Stock;" (v) failure by
Holdings for 60 days after notice from the Trustee or at least 25% in principal
amount of the New Notes then outstanding to comply with any of its other
agreements in the Indenture or the Notes; (vi) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by Holdings or any of
its
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Subsidiaries (or the payment of which is guaranteed by Holdings or any of its
Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $15.0 million or more; (vii)
failure by Holdings or any of its Subsidiaries to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; and (viii) certain events of bankruptcy or
insolvency with respect to Holdings or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable immediately. Upon such
declaration, the principal of (or, if prior to March 15, 2003, the Accreted
Value of) premium, if any, and accrued and unpaid interest on the New Notes
shall be due and payable immediately. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to Holdings or any of its Subsidiaries all outstanding New Notes
will become due and payable without further action or notice. Holders of the New
Notes may not enforce the Indenture or the New Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding New Notes may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders of the New Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of Holdings with the
intention of avoiding payment of the premium that Holdings would have had to pay
if Holdings then had elected to redeem the New Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the New Notes. If an Event of Default occurs prior to March 15,
2003 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of Holdings with the intention of avoiding the prohibition on redemption
of the New Notes prior to March 15, 2003, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
New Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the New Notes.
Holdings is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and Holdings is required upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Holdings, as
such, shall have any liability for any obligations of Holdings under the New
Notes, the Indenture, or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of New Notes by accepting a New
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the New Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Holdings may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New
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Notes to receive payments in respect of the principal of, premium and Liquidated
Damages, if any, and interest on such New Notes when such payments are due from
the trust referred to below, (ii) Holdings' obligations with respect to the New
Notes concerning issuing temporary New Notes, registration of New Notes,
mutilated, destroyed, lost or stolen New Notes and the maintenance of an office
or agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and Holdings,
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, Holdings may, at its option and at any time, elect
to have the obligations of Holdings released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the New Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance: (i)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium and Liquidated Damages, if any, and interest on
the outstanding New Notes on the stated maturity or on the applicable redemption
date, as the case may be, and Holdings must specify whether the New Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, Holdings shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) Holdings has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding New Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, Holdings shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which Holdings or
any of its Subsidiaries is a party or by which Holdings or any of its
Subsidiaries is bound; (vi) Holdings must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) Holdings must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by Holdings with the intent of preferring
the Holders of New Notes over the other creditors of Holdings with the intent of
defeating, hindering, delaying or defrauding creditors of Holdings or others;
and (viii) Holdings must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and Holdings
may require a Holder to pay any taxes and fees required by law or permitted by
the Indenture. Holdings is not required to transfer or exchange any New Note
selected for redemption. Also,
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Holdings is not required to transfer or exchange any New Note for a period of 15
days before a selection of New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the New Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the New Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, New Notes), and any existing default
or compliance with any provision of the Indenture or the New Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding New Notes (including consents obtained in connection with a tender
offer or exchange offer for New Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any New Note or alter the provisions with respect to the redemption of the
New Notes (other than provisions relating to the covenants described above under
the caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of
or change the time for payment of interest on any New Note, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the New Notes (except a rescission of acceleration of the New Notes
by the Holders of at least a majority in aggregate principal amount of the New
Notes and a waiver of the payment default that resulted from such acceleration),
(v) make any New Note payable in money other than that stated in the New Notes,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of New Notes to receive payments of
principal of or premium, if any, or interest on the New Notes, (vii) waive a
redemption payment with respect to any New Note (other than a payment required
by one of the covenants described above under the caption "-- Repurchase at the
Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, Holdings and the Trustee may amend or supplement the Indenture or the New
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated New Notes in addition to or in place of certificated New Notes,
to provide for the assumption of Holdings' obligations to Holders of New Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of New Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of Holdings, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to AP Holdings, Inc.,
800 Superior Avenue, Cleveland, Ohio 44114; Attention: Robert N. Sacks.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes initially being issued in exchange for the Notes generally
will be represented by one or more fully-registered global notes without
interest coupons (collectively, "Global New Notes"). Notwithstanding the
foregoing, Notes held in certificated form will be exchanged solely for New
Notes in certificated form as discussed below. The Global New Notes will be
deposited upon issuance with The Depository Trust Company ("DTC"), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant as described below.
Except as set forth below, the Global New Notes may be transferred, in whole and
not in part, only to another nominee of the DTC or to a successor of the DTC or
its nominee. See "-- Exchange of Book-Entry New Notes for Certificated Notes."
The New Notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised Holdings that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised Holdings that pursuant to procedures established by
it, (i) upon deposit of the Global New Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the principal
amount of Global New Notes and (ii) ownership of such interests in the Global
New Notes will be shown on, and the transfer ownership thereof will be effected
only through, records maintained by DTC (with respect to Participants) or by
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global New Notes).
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NEW NOTES WILL
NOT HAVE NEW NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY
OF NEW NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages, if
any, and interest on a Global New Note registered in the name of DTC or its
nominee will be payable by the Trustee to DTC or its nominee in its capacity as
the registered holder under the Indenture. Under the terms of the Indenture,
Holdings and the Trustee will treat the persons in whose names the New Notes,
including the Global New Notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, none of Holdings, the Trustee nor any agent of
Holdings or the Trustee has or will have any responsibility or liability for (i)
any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global New Notes, or for maintaining, supervising or reviewing
any of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global New Notes or (ii)
any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants.
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DTC has advised Holdings that its current practice, upon receipt of any
payment in respect of securities such as the New Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global New Notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of New Notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or Holdings. Neither Holdings nor the
Trustee will be liable for any delay by DTC or its Participants in identifying
the beneficial owners of the New Notes, and Holdings and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the New Notes for all purposes.
DTC has advised Holdings that it will take any action permitted to be taken
by a holder of New Notes only at the direction of one or more Participants to
whose account DTC interests in the Global New Notes are credited and only in
respect of such portion of the aggregate principal amount of the New Notes as to
which such Participant or Participants have given direction. However, if there
is an Event of Default under the New Notes, DTC reserves the right to exchange
Global New Notes for legended New Notes in certificated form, and to distribute
such New Notes to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that Holdings believes to be reliable, but
Holdings takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global New Notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of Holdings, the Initial
Purchaser or the Trustee will have any responsibility for the performance by DTC
or its Participants or indirect Participants of its obligations under the rules
and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NEW NOTES FOR CERTIFICATED NEW NOTES
A Global New Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies Holdings that it is unwilling or
unable to continue as depositary for the Global New Note and Holdings thereupon
fails to appoint a successor depositary or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) Holdings, at its option, notifies
the Trustee in writing that it elects to cause the issuance of the New Notes in
certificated form or (iii) there shall have occurred and be continuing to occur
a Default or an Event of Default with respect to the New Notes. In addition,
beneficial interests in a Global New Note may be exchanged for certificated New
Notes upon request but only upon at least 20 days' prior written notice given to
the Trustee by or on behalf of DTC in accordance with customary procedures. In
all cases, certificated New Notes delivered in exchange for any Global New Note
or beneficial interest therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
Subject to the restrictions on the transferability of the New Notes
described in "Risk Factors -- Restrictions on Transfer," a New Note in
definitive form will be issued (i) in the Exchange Offer solely in exchange for
certificated Notes or (ii) following the Exchange Offer, upon the resale, pledge
or other transfer of any New Note or interest therein to any person or entity
that does not participate in the Depositary. The exchange of certificated Notes
in the Exchange Offer may be made only by presentation of the Notes, duly
endorsed, together with a duly completed Letter of Transmittal and other
required documentation as described under "The Exchange Offer -- Procedures for
Tendering" and "-- Guaranteed Delivery Procedures." Transfers of certificated
New Notes may be made only by presentation of New Notes, duly endorsed, to the
Trustees for registration of transfer on the Note Register maintained by the
Trustees for such purposes.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that Holdings
believes to be reliable, but Holdings takes no responsibility for the accuracy
thereof.
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CERTIFICATED NEW NOTES
Subject to certain conditions, any person having a beneficial interest in
the Global New Notes may, upon request to the Trustee, exchange such beneficial
interest for certificated New Notes ("Certificated New Notes"). Upon any such
issuance, the Trustee is required to register such Certificated New Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if (i) Holdings notifies the Trustee in
writing that the DTC is no longer willing or able to act as a depositary and
Holdings is unable to locate a qualified successor within 90 days or (ii)
Holdings, at its option, notifies the Trustee in writing that it elects to cause
the issuance of New Notes in the form of Certificated New Notes under the
Indenture, then, upon surrender by the Global New Note Holder of its Global New
Note, New Notes in such form will be issued to each person that the Global New
Note Holder and the DTC identify as being the beneficial owner of the related
Notes.
Neither Holdings nor the Trustee will be liable for any delay by the Global
New Note Holder or the DTC in identifying the beneficial owners of New Notes and
Holdings and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global New Note Holder or the DTC for all
purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes
represented by the Global New Notes (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Global New Note
Holder. With respect to Certificated New Notes, Holdings will make all payments
of principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. Holdings expects that secondary trading in the
Certificated New Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holdings and the Initial Purchaser entered into the Registration Rights
Agreement on the Closing date. Pursuant to the Registration Rights Agreement,
Holdings agreed to file with the Commission the Registration Statement of which
this Prospectus is a part on the appropriate form under the Securities Act with
respect to the New Notes. Pursuant to the Exchange Offer, Holdings is offering
to the Holders of Transfer Restricted Securities who are able to make certain
representations the opportunity to exchange their Transfer Restricted Securities
for New Notes. If any Holder of Transfer Restricted Securities notifies Holdings
prior to the 20th day following consummation of the Exchange Offer that (i) it
is prohibited by law or Commission policy from participating in the Exchange
Offer or (ii) that it may not resell the New Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Registration Statement is not appropriate or available for such
resales or (iii) that it is a broker-dealer and owns Notes acquired directly
from Holdings or an affiliate of Holdings, Holdings will file with the
Commission a Shelf Registration Statement to cover resales of the Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. Holdings will
use its best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until (i) the
date on which such Note has been exchanged by a person other than a
broker-dealer for a New Note in the Exchange Offer, (ii) following the exchange
by a broker-dealer in the Exchange Offer of a Note for a New Note, the date on
which such New Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of the Prospectus contained in the
Registration Statement, (iii) the date on which such Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides among other things, that (i)
unless the Exchange Offer would not be permitted by applicable law or Commission
policy, Holdings will have commenced the Exchange
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Offer and used its best efforts to issue on or prior to 30 business days after
the date on which the Registration Statement was declared effective by the
Commission, New Notes in exchange for all Notes tendered prior thereto in the
Exchange Offer and (ii) if obligated to file the Shelf Registration Statement,
Holdings will use its best efforts to file the Shelf Registration Statement with
the Commission on or prior to 45 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 120 days after such obligation arises. If Holdings (a) fails to file
any of the Registration Statements required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), or (c) fails
to consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Registration Statement, or (d) the Shelf
Registration Statement or the Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then Holdings will pay liquidated damages to each
Holder of Notes, with respect to the first 90-day period immediately following
the occurrence of the first Registration Default in an amount equal to $.05 per
week per $1,000 principal amount of Notes held by such Holder ("Liquidated
Damages"). The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal
amount of Notes. All accrued Liquidated Damages will be paid by Holdings on each
Damages Payment Date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated Notes
by wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to
Holdings (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, for each $1,000 face amount of Notes, as of any
date of determination prior to March 15, 2003, the sum of (i) the initial
offering price of each Note and (ii) that portion of the excess of the principal
amount of each Note over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis and compounded semi-annually on each March 15 and September 15 at the rate
of 11 1/4% per annum from the date of issuance of the Notes through the date of
determination.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the
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power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of Holdings and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by Holdings or any of its Restricted Subsidiaries of Equity
Interests of any of Holdings' Restricted Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $3.0 million or (b)
for net proceeds in excess of $3.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by the Company to a Wholly Owned Restricted Subsidiary or by
a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned
Restricted Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary to Holdings or to another Wholly Owned Restricted
Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Restricted Payments" will not be deemed to
be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the New Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, and (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition.
"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 Holdings and its Subsidiaries, taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of Holdings,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the
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Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 50% of the
Voting Stock of Holdings (measured by voting power rather than number of
shares), (iv) the first day on which a majority of the members of the Board of
Directors of Holdings are not Continuing Directors or (v) Holdings consolidates
with, or merges with or into, any Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with, or merges with or into, Holdings, in
any such event pursuant to a transaction in which any of the outstanding Voting
Stock of Holdings is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of Holdings
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person (immediately after giving effect to such
issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, plus (v) one-time charges related to the
Combination, to the extent that such charges were deducted in computing
Consolidated Net Income, plus (vi) in connection with any acquisition by
Holdings or a Restricted Subsidiary, projected quantifiable improvements in
operating results (on an annualized basis) due to cost reductions calculated in
good faith by Holdings or one of its Restricted Subsidiaries, as evidenced by
(A) in the case of cost reductions of less than $10.0 million, an Officers'
Certificate delivered to the Trustee and (B) in the case of cost reductions of
$10.0 million or more, a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, minus (vii) non-cash items
increasing such Consolidated Net Income for such period. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to Holdings by such
Subsidiary without prior governmental approval (that has not been obtained), and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of
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that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to
Holdings or one of its Restricted Subsidiaries for purposes of the covenant
described under the covenant "Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Holdings who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agent" means The First National Bank of Chicago, in its capacity as
Administrative Agent for the lenders party to the New Credit Facility or any
successor thereto or any person otherwise appointed.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature; provided, however,
that any Capital Stock that would not qualify as Disqualified Stock but for
change of control provisions shall not constitute Disqualified Stock if the
provisions are not more favorable to the holders of such Capital Stock than the
provisions described under "-- Change of Control" applicable to the Holders of
the Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of Holdings and its Subsidiaries
(other than Indebtedness under the New Credit Facility) in existence on the date
of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) to the extent paid by such Person, any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of Holdings, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that Holdings or any
of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge
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Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by Holdings or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Subsidiary organized and existing under the
laws of a jurisdiction other than those of any state or commonwealth in the
United States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Global Notes" means the Rule 144A Global Note, the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency rates.
"Holdings" means AP Holdings, Inc., a Delaware corporation and the parent
(but not 100% owner) of APCOA, Inc.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current
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payments of interest, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Holdings or any Restricted Subsidiary of Holdings sells or otherwise disposes
of any Equity Interests of any direct or indirect Restricted Subsidiary of
Holdings such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of Holdings, Holdings shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption
" -- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by Holdings or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement, dated as of the
date of the Indenture, by and among APCOA, Inc., the lenders and other parties
thereto from time to time and The First National Bank of Chicago, as agent,
together with all related documents executed or delivered pursuant thereto at
any time (including, without limitation, all mortgages, guarantees, security
agreements and all other collateral and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder provided that such increase in borrowings is within the definition of
Permitted Indebtedness or is otherwise permitted under the covenant described
"Incurrence of Indebtedness and Issuance of Preferred Stock" or adding
Subsidiaries as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness and other Obligations under such agreement or
agreements or any successor or replacement agreement or agreements, and whether
by the same or any other agent, lender or group of lenders.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither Holdings nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the Notes being
offered hereby) of Holdings or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of Holdings or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness, and in all cases whether now
outstanding or hereafter created, assumed or incurred and including, without
limitation, interest accruing subsequent to the filing of a petition in
bankruptcy at the rate provided in the relevant document, whether or not an
allowed claim, and any obligation to redeem or defease any of the foregoing.
"Permitted Business" means any of the businesses and any other businesses
related to the businesses engaged in by Holdings and its respective Restricted
Subsidiaries on the date of the Indenture.
"Permitted Investments" means (a) any Investment in APCOA or in a Wholly
Owned Restricted Subsidiary of Holdings that is engaged in a Permitted Business;
(b) any Investment in Cash Equivalents; (c) any Investment by Holdings or any
Restricted Subsidiary of Holdings in a Person, if as a result of such Investment
(i) such Person becomes a Wholly Owned Restricted Subsidiary of Holdings that is
engaged in a Permitted Business or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, Holdings or a Wholly Owned Restricted
Subsidiary of Holdings that is engaged in a Permitted Business; (d) any
Restricted Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption " -- Repurchase at the Option of Holders --
Asset Sales"; (e) any acquisition of assets solely in exchange for the issuance
of Equity Interests (other than Disqualified Stock) of Holdings; (f) loans and
advances made after the date of the Indenture to Holberg Industries, Inc. not to
exceed $10.0 million at any time outstanding; (g) make and permit to remain
outstanding travel and other like advances in the ordinary course of business
consistent with past practices to officers and employees of Holdings or a
Subsidiary of Holdings; (h) other Investments made after the date of the
Indenture in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause; and (h) that are at the time outstanding, not to exceed $10.0
million.
"Permitted Liens" means (i) Liens securing Obligations of Holdings and its
Restricted Subsidiaries under the New Credit Facility that were permitted by the
terms of the Indenture to be incurred; (ii) Liens in favor of Holdings; (iii)
Liens on property of a Person existing at the time such Person is merged into or
consolidated with Holdings or any Restricted Subsidiary of Holdings; provided
that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with Holdings; (iv) Liens on property existing at
the time of acquisition thereof by Holdings or any Restricted Subsidiary of
Holdings, provided that such Liens were in existence prior to the contemplation
of such acquisition; (v) Liens to secure the performance of bids, tenders,
contracts, statutory obligations, surety or appeal bonds, performance bonds or
other obligations of a like nature incurred in the ordinary course of business;
(vi) Liens existing on the date of the Indenture; (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (viii) Liens incurred in the ordinary course of business of
Holdings or any Restricted Subsidiary of Holdings with respect to obligations
that do not exceed $7.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of advances
or credit (other than trade
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credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by Holdings or such Restricted Subsidiary;
(ix) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt
of Unrestricted Subsidiaries; (x) Liens on the daily revenues in favor of
Persons other than Holdings and its Restricted Subsidiaries who are parties to
parking facility agreements for the amounts due to them pursuant thereto; (xi)
Liens arising by applicable law in respect of employees' wages, salaries or
commissions not overdue; and (xii) Liens arising out of judgments or awards not
in excess of $5.0 million with respect to which the Company or its Subsidiary
with respect to which Holdings or such Subsidiaries are prosecuting an appeal or
a proceeding or review and the enforcement of such lien is stayed pending such
appeal or review.
"Permitted Refinancing Indebtedness" means any Indebtedness of Holdings or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Holdings or any of its Restricted Subsidiaries; provided that:
(i) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by Holdings
or by the Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Holberg Industries, Inc. and John V. Holten.
"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of Holdings that results in net proceeds to the Company
of at least $25.0 million.
"Receivables" means, with respect to any Person or entity, all of the
following property and interests in property of such Person or entity, whether
now existing or existing in the future or hereafter acquired or arising: (i)
accounts, (ii) accounts receivable incurred in the ordinary course of business,
including without limitation, all rights to payment created by or arising from
sales of goods, leases of goods or the rendition of services no matter how
evidenced, whether or not earned by performance, (iii) all rights to any goods
or merchandise represented by any of the foregoing after creation of the
foregoing, including, without limitation, returned or repossessed goods, (iv)
all reserves and credit balances with respect to any such accounts receivable or
account debtors, (v) all letters of credit, security, or guarantees for any of
the foregoing, (vi) all insurance policies or reports relating to any of the
foregoing, (vii) all collection or deposit accounts relating to any of the
foregoing, (viii) all proceeds of the foregoing and (ix) all books and records
relating to any of the foregoing.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Notes" means the Regulation S Temporary Global Notes
or the Regulation S Permanent Global Notes as applicable.
"Regulation S Permanent Global Notes" means the permanent global notes that
are deposited with and registered in the name of the Depositary or its nominee,
representing a series of Notes sold in reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary global notes that
are deposited with and registered in the name of the Depositary or its nominee,
representing a series of Notes sold in reliance on Regulation S.
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"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that is deposited
with and registered in the name of the Depositary or its nominee, representing a
series of Notes sold in reliance on Rule 144A.
"Senior Subordinated Notes" means the 9 1/4% Senior Subordinated Notes due
2008 of APCOA/Standard Parking, Inc.
"Senior Subordinated Note Guarantees" means the guarantees by certain
Restricted Subsidiaries of the Company of the Obligations under the Senior
Subordinated Notes.
"Senior Subordinated Note Indenture" means the Indenture relating to
APCOA's Senior Subordinated Notes.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided
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that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption
"Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock," and (ii) no Default or Event of Default would be in existence following
such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes the material U.S. federal
income and estate tax aspects of the purchase, ownership and disposition of the
New Notes. This discussion is a summary of the material income tax consequences
only and does not consider all aspects of U.S. federal income tax that may be
relevant to the purchase, ownership and disposition of the New Notes by a
prospective investor in light of such investor's personal circumstances. This
discussion also does not address the U.S. federal income tax consequences or
ownership of New Notes not held as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"), or the U.S.
federal income tax consequences to investors subject to special treatment under
the U.S. federal income tax laws, such as dealers in securities or foreign
currency, tax-exempt entities, banks, thrifts, insurance companies, persons that
hold the New Notes as part of a "straddle," a "hedge" against currency risk or a
"conversion transaction," persons that have a "functional currency" other than
the U.S. dollar, and investors in pass-through entities. In addition, this
discussion is limited to the U.S. federal income tax consequences to initial
holders that purchase the New Notes for cash at their issue price (as defined
below) pursuant to the Note Offering. It does not describe any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing and proposed regulations
thereunder, IRS rulings and pronouncements and judicial decisions now in effect,
all of which are subject to change (possibly on a retroactive basis). Holdings
has not and will not seek any rulings from the U.S. Internal Revenue Service
(the "IRS") with respect to the matters discussed below. There can be no
assurance that the IRS will not take positions concerning the tax consequences
of the purchase, ownership or disposition of the New Notes which are different
from those discussed herein.
PROSPECTIVE HOLDERS OF NEW NOTES SHOULD CONSULT THEIR OWN ADVISORS
CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS
OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR
SITUATIONS.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a New Note that is (i) a citizen or
resident of the United States, (ii) a corporation, a partnership or other entity
created or organized under the laws of the United States or any political
subdivision thereof or therein, (iii) an estate or trust described in Section
7701(a)(30) of the Code or (iv) a person whose worldwide income or gain is
otherwise subject to U.S. federal income taxation on a net income basis (a "U.S.
Holder"). Certain U.S. federal income tax consequences relevant to a holder
other than a U.S. Holder are discussed separately below.
Interest and Original Issue Discount
The New Notes will be considered to have been issued with original issue
discount ("OID") for U.S. federal income tax purposes. OID is the excess of (i)
the stated redemption price at maturity of a New Note over (ii) its issue price.
The "stated redemption price at maturity" of a New Note is the sum of all
payments provided by the instrument. The "issue price" of a New Note is the
first price at which a substantial amount of the New Notes are sold to the
public (excluding sales to bond houses, brokers or similar persons or
organizations acting in the capacity as underwriters, placement agents or
wholesalers).
A U.S. Holder is required to include OID in gross income as ordinary
interest as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of such U.S. Holder's
regular method of accounting. A U.S. Holder will not be required to report
separately as taxable income actual distributions of stated interest with
respect to the New Notes; such stated interest will be included in income as OID
under the method described immediately below. In general, the amount of OID
included in income by the holder of a New Note is the sum of the daily portions
of OID for each day during the taxable year (or portion of the taxable year) on
which such holder held such Note, including the purchase date and excluding the
disposition date. The "daily portion" is determined by allocating the OID for an
accrual period equally to each day in that accrual period. The "accrual period"
for a Note may be of any length and may vary in length over the term of a New
Note, provided that each accrual period is no longer
97
<PAGE> 99
than one year and each scheduled payment of principal or interest occurs either
on the first or final day of an accrual period.
The amount of OID for an accrual period is generally equal to the product
of the New Note's adjusted issue price at the beginning of such accrual period
and its yield to maturity. The "adjusted issue price" of a New Note at the
beginning of any accrual period is the sum of the issue price of the New Note
plus the amount of OID allocable to all prior accrual periods minus the amount
of any prior payments on the New Note. Under those rules, a U.S. Holder
generally will have to include in income increasingly greater amounts of OID in
successive accrual periods. The "yield to maturity" of a New Note is the
discount rate that, when used in computing the present value of all payments to
be made on a New Note, produces an amount equal to the issue price of the New
Note.
In determining the yield and maturity of the New Notes, Holdings will be
deemed to exercise the unconditional call option in a manner that minimizes the
yield on the New Notes. If the New Notes are not in fact called on a presumed
exercise date, then, for purposes of the accrual of OID, the yield and maturity
of the New Notes are redetermined by treating the New Notes as retired and
reissued on that date for an amount equal to their adjusted issue price on that
date.
Additional Interest
Under certain circumstances described above, Holdings will be required to
pay an additional amount on the New Notes if it fails to comply with certain of
its obligations under the Registration Rights Agreement. Although the matter is
not free from doubt, Holdings believes that such additional amount should be
taxable to a U.S. Holder as ordinary income at the time it accrues or is
received in accordance with such holder's regular method of accounting. It is
possible, however, that the IRS may take a different position, in which case the
timing and the amount of such income may be different.
Applicable High Yield Discount Obligation
If the New Notes constitute "applicable high yield discount obligations,"
the OID on the New Notes will not be deductible by Holdings until paid. An
"applicable high yield discount obligation" is any debt instrument that (i) has
a maturity date which is more than five years from the date of issue, (ii) has a
yield to maturity which equals or exceeds the AFR (as set forth in Section
1274(d) of the Code) for the calendar month in which the obligation is issued
plus five percentage points and (iii) has "significant original issue discount."
The AFR is an interest rate, announced monthly by the IRS, that is based on the
yield of debt obligations issued by the U.S. Treasury. A debt instrument
generally has "significant original issue discount" if, as of the close of any
accrual period ending more than five years after the date of issue, the excess
of the interest (including OID) that has accrued on the obligation over the
interest (including OID) that is required to be paid thereunder exceeds the
product of the issue price of the instrument and its yield to maturity.
Moreover, if the New Notes' yield to maturity exceeds the AFR plus six
percentage points, a ratable portion of Holdings' deduction for OID (the
"Disqualified OID")(based on the portion of the yield to maturity that exceeds
the AFR plus six percentage points) will be characterized as a non-deductible
dividend with respect to Holdings to the extent of Holdings' current and
accumulated earnings and profits. For purposes of the dividends-received
deduction under Section 243 of the Code, the Disqualified OID will be treated as
a dividend to the extent it would have been so treated had such amount been
distributed by Holdings with respect to its stock.
Sale, Exchange or Redemption of the New Notes
Upon the sale, exchange, retirement or other disposition of a New Note, a
U.S. Holder generally will recognize taxable gain or loss equal to the
difference between (i) the amount realized on the disposition and (ii) the U.S.
Holder's adjusted tax basis in the New Note. A U.S. Holder's adjusted tax basis
in a New Note generally will equal the cost of the New Note to the U.S. Holder
increased by any OID included in income through the date of disposition and
decreased by any payments received on the New Notes. Such gain or loss will
generally constitute capital gain or loss. In the case of a U.S. Holder who is
an individual, any capital gain
98
<PAGE> 100
will be subject to tax at a maximum rate of 28% if the Note has been held for
more than 12 months but not more than 18 months at the time of the sale,
exchange, retirement or other disposition thereof, and a maximum rate of 20% if
the New Note has been held for more than 18 months.
A U.S. Holder will not recognize any taxable gain or loss on the exchange
of Notes for New Notes pursuant to the Exchange Offer.
Information Reporting and Backup Withholding
U.S. Holders may be subject, under certain circumstances, to information
reporting and "backup withholding" at a 31% rate with respect to cash payments
in respect of principal (and premium, if any), interest (including OID) and the
gross proceeds from dispositions of New Notes. Backup withholding applies only
if the U.S. Holder (i) fails to furnish its social security or other taxpayer
identification number ("TIN") within a reasonable time after a request therefor,
(ii) furnishes an incorrect TIN, (iii) fails to report properly interest or
dividends, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that it is not subject to backup withholding. Any amount withheld
from a payment to a U.S. Holder under the backup withholding rules is allowable
as a credit (and may entitle such holder to a refund) against such U.S. Holder's
U.S. federal income tax liability, provided that the required information is
furnished to the IRS. Certain persons are exempt from backup withholding,
including corporations and financial institutions. U.S. Holders of Notes should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such exemption.
Holdings will furnish annually to the IRS and to record holders of the New
Notes (to whom it is required to furnish such information) information relating
to the amount of OID and interest, as applicable.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a New Note that is not a U.S. Holder (a
"Non-U.S. Holder").
Subject to the discussion of backup withholding below, payments of interest
(including OID) on a New Note to any Non-U.S. Holder will generally not be
subject to U.S. federal income or withholding tax, provided that (1) the holder
is not (i) a direct or indirect owner of 10% or more of the total voting power
of all voting stock of Holdings, (ii) a controlled foreign corporation related
to Holdings through stock ownership or (iii) a foreign tax-exempt organization
or a foreign private foundation for U.S. federal income tax purposes, (2) such
interest payments are not effectively connected with the conduct by the Non-U.S.
Holder of a trade or business within the United States and (3) Holdings or its
paying agent receives (i) from the Non-U.S. Holder, a properly completed IRS
Form W-8 (or substitute IRS form W-8) under penalties of perjury which provides
the Non-U.S. Holder's name and address and certifies that the Non-U.S. Holder of
the New Note is a Non-U.S. Holder or (ii) from a security clearing organization,
bank or other financial institution that holds the New Notes in the ordinary
course of its trade or business (a "financial institution") on behalf of the
Non-U.S. Holder, certification under penalties of perjury that such an IRS Form
W-8 (or substitute IRS Form W-8) has been received by it, or by another such
financial institution, from the Non-U.S. Holder, and a copy of an IRS Form W-8
(or substitute IRS Form W-8) is furnished to the payor.
A Non-U.S. Holder that does not qualify for exemption from withholding
under the preceding paragraph generally will be subject to withholding of U.S.
federal income tax at the rate of 30% (or lower applicable treaty rate) on
payments of interest and/or OID on the Notes.
If the payments of interest and/or OID on a New Note are effectively
connected with the conduct by a Non-U.S. Holder of a trade or business in the
United States, such payments will be subject to U.S. federal income tax on a net
basis at the rates applicable to U.S. persons generally (and, with respect to
corporate holders, may also be subject to a 30% branch profits tax). If payments
are subject to U.S. federal income tax on a net basis in accordance with the
rules described in the preceding sentence, such payments will not be subject to
U.S. withholding tax so long as the holder provides Holdings or its paying agent
with a properly executed IRS Form 4224. Under recently finalized U.S. Treasury
regulations (the "Final Regulations"),
99
<PAGE> 101
which generally apply to interest paid on a New Note after December 31, 1998
(and to payments made after such date of proceeds from the sale or exchange of a
New Note) subject to certain transaction rules, such a Non-U.S. Holder will be
required to provide an IRS Form W-8.
Non-U.S. Holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax, exemption from or reduction of
branch profits tax, or other rules different from those described above.
Sale, Exchange or Redemption of New Notes
Subject to the discussion concerning backup withholding, any gain realized
by a Non-U.S. Holder on the sale, exchange, retirement or other disposition of a
New Note generally will not be subject to U.S. federal income tax, unless (i)
such gain is effectively connected with the conduct by such Non-U.S. Holder of a
trade or business within the United States, (ii) the Non-U.S. Holder is an
individual who is present in the United States for 183 days or more in the
taxable year of the disposition and certain other conditions are satisfied, or
(iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates.
Federal Estate Tax
New Notes held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his or her death will not be subject to U.S. federal
estate tax provided that (i) the individual does not actually or constructively
own 10% or more of the total voting power of all voting stock of Holdings and
(ii) income on the New Note was not effectively connected with the conduct by
such Non-U.S. Holder of a trade or business within the United States.
Information Reporting and Backup Withholding
Holdings must report annually to the IRS and to each Non-U.S. Holder any
interest (including OID) that is subject to withholding or that is exempt from
U.S. withholding tax. Copies of those information returns may also be made
available, under the provisions of a specific treaty or agreement, to the tax
authorities of the country in which the Non-U.S. Holder resides.
The regulations provide that backup withholding (which generally is a
withholding tax imposed at the rate of 31% on payments to persons that fail to
furnish certain required information) and information reporting will not apply
to payments made in respect of the New Notes by Holdings to a Non-U.S. Holder,
if the holder certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption (provided that neither Holdings nor its
paying agent has actual knowledge that the holder is a U.S. person or that the
conditions of any other exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of New Notes to or through
the United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as to its non-U.S. status under penalty of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through a non-U.S. office of a non-U.S. broker that is not a U.S.
related person will not be subject to information reporting or backup
withholding. For this purpose, a "U.S. related person" is (i) a "controlled
foreign corporation" for U.S. federal income tax purposes, (ii) a foreign person
50% or more of whose gross income from all sources for the three-year period
ending with the close of its taxable year preceding the payment (or for such
part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a U.S. trade or
business or (iii) in the case of payments made after December 31, 1998, a
foreign partnership (x) at least 50% of the capital or profit interests in which
are owned by U.S. persons or (y) that has a U.S. trade or business.
In the case of the payment of proceeds from the disposition of New Notes to
or through a non-U.S. office of a broker that is a U.S. related person, the
regulations require information reporting on the payment unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder and the
broker has no knowledge to the contrary. Backup withholding will not apply to
payments made through foreign offices of a
100
<PAGE> 102
broker that is a U.S. person or a U.S. related person (absent actual knowledge
that the payee is a U.S. person).
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
The Final Regulations do not significantly alter the substantive
withholding and information reporting requirements but rather unify current
certification procedures and forms and clarify reliance standards. Non-U.S.
Holders should consult their own tax advisors with respect to the impact, if
any, of the Final Regulations.
THE FOREGOING DISCUSSION IS NOT TAX ADVICE. ACCORDINGLY, EACH PROSPECTIVE
HOLDER OF NEW NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO THE PROSPECTIVE HOLDER OF THE NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-U.S. INCOME TAX LAWS AND
ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account
("Participating Broker-Dealer") pursuant to the Exchange Offer must acknowledge
that it will deliver a Prospectus in connection with the initial sales of such
New Notes. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with the sales
of New Notes received in exchange for Notes where such Notes were acquired as a
result of market-making activities or other trading activities. Holdings has
agreed that it will make this Prospectus, as amended or supplemented, available
to any Participating Broker-Dealer for use in connection with any such resale
and Participating Broker-Dealers shall be authorized to deliver this prospectus
for a period not exceeding 120 days after the Expiration Date. In addition,
until , 1998 (90 days after the date of this Prospectus), all dealers
effecting transactions in the New Notes may be required to deliver a prospectus.
Holdings will not receive any proceeds from any sales of the New Notes by
participating Broker-Dealers. New Notes received by Participating Broker-Dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time, in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such Participating Broker-Dealer that resells the New Notes that were
received by it for its own account pursuant to the Exchange Offer. Any broker or
dealer that participates in a distribution of such New Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and may profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
Holdings will promptly send additional copies of this Prospectus and any
amendment or supplement to this prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
DLJ has, from time to time, provided investment banking and other financial
advisory services to affiliates of Holdings for which it has received customary
compensation.
101
<PAGE> 103
LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for Holdings by Wachtell, Lipton, Rosen & Katz, New York, New
York.
EXPERTS
The consolidated financial statements of Holdings at December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and in the Registration Statement, and the
financial statement schedule for each of the three years in the period ended
December 31, 1997 included in the Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
herein in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Standard at December 31, 1996 and 1997 and for
each of the three years in the period ended December 31, 1997, appearing in this
Prospectus and in the Registration Statement have been audited by Altschuler,
Melvoin and Glasser LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
102
<PAGE> 104
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
accrual period.................... 97
ADA............................... 19
adjusted issue price.............. 98
Affiliate Transaction............. 79
Agent............................. 30
Alternate Base Rate............... 69
Annual Base Salary................ 61
APCOA............................. 5
applicable high yield discount
obligation...................... 98
Asset Sale Offer.................. 73
Auditorium........................ 67
Board............................. 61
BPLP.............................. 67
CAGR.............................. 8
Calculation Date.................. 91
Cause............................. 61
Century Parking................... 6
Certificate of Incorporation...... 19
Certificated New Notes............ 86
Change of Control Offer........... 72
Change of Control Payment......... 72
Change of Control Payment Date.... 72
Closing........................... 30
Code.............................. 97
Combination....................... 7
Combination Agreement............. 30
Commission........................ 4
Company........................... 2
Company Common Stock.............. 30
Company Stockholders.............. 65
Company Stockholders Agreement.... 65
Company Transactions.............. 30
Covenant Defeasance............... 82
Cutoff Date....................... 61
daily portion..................... 97
Delaware North.................... 7
Depositary........................ 3
Depositor......................... 25
Disability........................ 61
Disqualified OID.................. 98
DLJ............................... 3
Dosher............................ 65
DTC............................... 3
Effectiveness Target Date......... 87
Eligible Institution.............. 24
</TABLE>
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Employment Period................. 61
EPI............................... 6
Excess Proceeds................... 73
Exchange Act...................... 4
Exchange Agent.................... 2
Exchange Offer.................... 1
Expiration Date................... 2
financial institution............. 99
Final Regulations................. 99
Financing......................... 30
Global New Notes.................. 84
Good Reason....................... 62
Holberg........................... 19
Holdings.......................... 1
Holdings Common Stock............. 63
Holdings Preferred Stock.......... 66
incur............................. 76
Indenture......................... 1
Indirect Participants............. 84
Initial Purchaser................. 3
IRS............................... 29
issue price....................... 97
Legal Defeasance.................. 81
Letter of Transmittal............. 1
Liquidated Damages................ 87
Named Executive Officers.......... 56
New Credit Facility............... 30
New Notes......................... 1
Noncompetition Period............. 62
Non-U.S. Holder................... 99
Notes............................. 1
Note Offering..................... 10
OID............................... 97
Option Plan....................... 62
Orkla............................. 63
Other Acquisitions................ 35
Other Real Estate................. 62
Participants...................... 84
Participating Broker-Dealer....... 101
Payment Default................... 81
Permitted Debt.................... 76
Permitted Investments............. 62
PORTAL............................ 22
Preferred Stock Contribution...... 6
property-level expenses........... 66
</TABLE>
103
<PAGE> 105
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Put/Call Agreement................ 15
Registration Default.............. 87
Registration Rights Agreement..... 1
Registration Statement............ 4
Restricted Payments............... 74
S&S Parking....................... 6
SEC............................... 4
Securities Act.................... 1
Senior Subordinated Notes
Offering........................ 9
Sentry Parking.................... 6
Severance Pay..................... 61
Shelf Registration Statement...... 13
significant original issue
discount........................ 98
Standard.......................... 5
</TABLE>
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Standard Owners................... 30
Standard Parties.................. 65
Standard Tremont.................. 67
Tax Sharing Agreement............. 66
TIN............................... 99
Transactions...................... 9
Transfer Restricted Securities.... 86
Tremont Facility.................. 67
Trustee........................... 1
Trust Indenture Act............... 70
U.S. Holder....................... 97
Virginia Parking.................. 41
Warshauer Employment Agreement.... 61
yield to maturity................. 98
</TABLE>
104
<PAGE> 106
AP HOLDINGS, INC.
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Unaudited Pro Forma Consolidated Financial
Statements................................................ P-2
Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1998.................................................. P-3
Notes to Unaudited Pro Forma Consolidated Balance Sheet as
of March 31, 1998......................................... P-4
Unaudited Pro Forma Consolidated Statements of Operations
for the Year Ended December 31, 1997 and the Three Months
Ended March 31, 1998...................................... P-5
Notes to Unaudited Pro Forma Consolidated Statements of
Operations for the Year Ended December 31, 1997 and the
Three Months Ended March 31, 1998......................... P-7
</TABLE>
P-1
<PAGE> 107
AP HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1998 and Unaudited Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1997 and the three months ended March 31, 1998 are based
on the historical consolidated financial statements of Holdings. The Unaudited
Pro Forma Consolidated Balance Sheet is adjusted to give effect to the
acquisition of EPI as if this event had occurred on March 31, 1998. The
Unaudited Pro Forma Consolidated Statements of Operations is adjusted to give
effect to (1) the acquisition of Standard, (2) the Other Acquisitions, including
the acquisition of EPI, (3) the sale of the Company's Senior Subordinated Notes,
(4) the sale of the Notes, and (5) the application of the net proceeds
therefrom, as described under "Use of Proceeds," as if these events had occurred
as of January 1, 1997. The Unaudited Pro Forma Consolidated Statements of
Operations combine the historical operations of Holdings with the historical
operations of the acquired businesses prior to the date APCOA made such
acquisitions, using the purchase method of accounting. The actual allocation of
purchase price for each acquisition will be based on management's final
determination of the fair value of assets acquired or to be acquired and
liabilities assumed or to be assumed. Management believes that the final
allocation of the purchase price will not materially differ from the preliminary
estimated amounts. The pro forma operating results are not necessarily
indicative of the operating results that would have been achieved had the
acquisitions actually occurred at January 1, 1997, nor do they purport to
indicate the results of future operations.
The Unaudited Pro Forma Consolidated Financial Statements are based on the
assumptions set forth in the notes to such statements and should be read in
conjunction with the related consolidated financial statements and notes thereto
of Holdings and Standard included elsewhere in this Prospectus.
P-2
<PAGE> 108
AP HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
------------------ FOR EPI COMBINED
HOLDINGS EPI ACQUISITION(1) PRO FORMA
-------- ------ --------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................... $60,480 $ 598 $(7,000) $ 54,078
Notes and accounts receivable, net......................... 19,461 434 -- 19,895
Prepaid expenses........................................... 1,595 235 -- 1,830
-------- ------ ------- --------
Total current assets................................. 81,536 1,267 (7,000) 75,803
Equipment and leasehold improvements, net................... 9,749 408 -- 10,157
Cost of parking contracts, net.............................. 12,558 -- 935 13,493
Cost in excess of net assets acquired, net.................. 95,504 -- 6,424 101,928
Intangible and other assets, net............................ 12,497 -- (414) 12,083
Advances and deposits....................................... 1,966 6 -- 1,972
-------- ------ ------- --------
$213,810 $1,681 $ (55) $215,436
======== ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................... $16,578 $ 952 $ -- $ 17,530
Accrued expenses........................................... 35,784 576 -- 36,360
Current portion of long-term debt.......................... 1,083 98 -- 1,181
-------- ------ ------- --------
Total current liabilities............................ 53,445 1,626 -- 55,071
Long-term liabilities:
New credit facility........................................ 497 -- -- 497
11 1/4% Senior Discount Notes due 2008..................... 40,683 -- -- 40,683
9 1/4% Senior Subordinated Notes due 2008.................. 140,000 -- -- 140,000
Other debt................................................. 5,293 -- -- 5,293
Seller notes............................................... 3,250 -- -- 3,250
Other liabilities.......................................... 11,359 -- -- 11,359
-------- ------ ------- --------
Total long-term liabilities.......................... 201,082 -- -- 201,082
Common stock of subsidiary subject to put/call rights....... 4,589 -- -- 4,589
Common stock and warrants, subject to put/call rights....... 4,000 -- -- 4,000
Stockholders' equity (deficit):
Preferred stock............................................ 25,957 -- -- 25,957
Common stock............................................... 1 -- -- 1
Additional paid in capital................................. 2,088 -- -- 2,088
Retained earnings (deficit)................................ (77,352) -- -- (77,352)
Owners' equity............................................. -- 55 (55) --
-------- ------ ------- --------
Total stockholders' equity (deficit)................. (49,306) 55 (55) (49,306)
-------- ------ ------- --------
$213,810 $1,681 $ (55) $215,436
======== ====== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
P-3
<PAGE> 109
AP HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
(1) Represents the following adjustments to reflect the acquisition of EPI on
May 1, 1998 (the final purchase price allocation will be based upon a final
determination of fair values of the net assets acquired):
<TABLE>
<S> <C>
Historical net assets of EPI............................ $ 55
Less: Current APCOA investment in EPI................... (414)
------
Net deficit acquired............................... (359)
Cost of parking contracts............................... 935
Cost in excess of net assets acquired................... 6,424
------
Cash consideration payable from excess cash............. $7,000
======
</TABLE>
P-4
<PAGE> 110
AP HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL FOR COMBINED
-------------------------------------- STANDARD ADJUSTMENTS PRO FORMA
OTHER AND OTHER COMBINED FOR ADJUSTED
HOLDINGS STANDARD ACQUISITIONS(1) ACQUISITIONS PRO FORMA OFFERING FOR OFFERING
--------- -------- --------------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parking services
revenue................ $115,676 $63,652 $6,750 $ -- $186,078 $ -- $186,078
Cost and expenses:
Cost of parking
services............ 92,818 50,142 3,205 -- 146,165 -- 146,165
General and
administrative...... 13,528 7,857 3,566 (2,987)(2) 20,045 -- 20,045
(1,919)(3)
Depreciation and
amortization........ 3,767 464 -- 1,302(4) 7,676 (180)(8) 7,496
2,143(5)
-------- ------- ------ ------- -------- ------- --------
Total costs and
expenses..... 110,113 58,463 6,771 (1,461) 173,886 (180) 173,706
-------- ------- ------ ------- -------- ------- --------
Operating income......... 5,563 5,189 (21) 1,461 12,192 180 12,372
Other expense (income):
Interest expense....... 3,713 45 -- 7,124(6) 10,882 8,808(9) 19,690
Interest income........ (470) (130) -- 351(7) (249) -- (249)
-------- ------- ------ ------- -------- ------- --------
Income (loss) before
income taxes and
minority interest...... 2,320 5,274 (21) (6,014) 1,559 (8,628) (7,069)
Minority interest........ 321 -- -- -- 321 -- 321
Income tax expense....... 140 -- -- -- 140 -- 140
-------- ------- ------ ------- -------- ------- --------
Net income (loss)........ 1,859 5,274 (21) (6,014) 1,098 (8,628) (7,530)
Preferred stock
dividends.............. (3,697) -- -- 887(10) (2,810) -- (2,810)
-------- ------- ------ ------- -------- ------- --------
Net income (loss)
available for common
stockholders........... $ (1,838) $ 5,274 $ (21) $(5,127) $ (1,712) $(8,628) $(10,340)
======== ======= ====== ======= ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
P-5
<PAGE> 111
AP HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL FOR COMBINED
-------------------------------------- STANDARD ADJUSTMENTS PRO FORMA
OTHER AND OTHER COMBINED FOR ADJUSTED
HOLDINGS STANDARD ACQUISITIONS(1) ACQUISITIONS PRO FORMA OFFERING FOR OFFERING
--------- -------- --------------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parking services
revenue................. $ 28,804 $14,590 $1,375 $ -- $ 44,769 $ -- $ 44,769
Cost and expenses:
Cost of parking
services............. 23,576 11,212 783 -- 35,571 -- 35,571
General and
administrative....... 3,460 2,012 494 (575)(2) 5,131 -- 5,131
(260)(3)
Restructuring charge.... 14,100 -- -- -- 14,100 -- 14,100
Depreciation and
amortization......... 1,055 52 -- 290(4) 1,908 (48)(8) 1,860
511(5)
-------- ------- ------ ------- -------- ------- --------
Total costs and
expenses...... 42,191 13,276 1,277 (34) 56,710 (48) 56,662
-------- ------- ------ ------- -------- ------- --------
Operating income (loss)... (13,387) 1,314 98 34 (11,941) 48 (11,893)
Other expense (income):
Interest expense........ 1,037 5 -- 1,687(6) 2,729 2,126(9) 4,855
Interest income......... (149) (7) -- 113(7) (43) -- (43)
-------- ------- ------ ------- -------- ------- --------
Income (loss) before
income taxes, minority
interest and
extraordinary item...... (14,275) 1,316 98 (1,766) (14,627) (2,078) (16,705)
Minority interest......... 143 -- -- -- 143 -- 143
Income tax expense........ 30 -- -- -- 30 -- 30
-------- ------- ------ ------- -------- ------- --------
Income (loss) before
extraordinary item...... (14,448) 1,316 98 (1,766) (14,800) (2,078) (16,878)
Preferred stock
dividends............... (756) -- -- -- (756) -- (756)
-------- ------- ------ ------- -------- ------- --------
Income (loss) available
for common
stockholders............ $(15,204) $ 1,316 $ 98 $(1,766) $(15,556) $(2,078) $(17,634)
======== ======= ====== ======= ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
P-6
<PAGE> 112
AP HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(1) The historical consolidated statement of operations data for the Other
Acquisitions for the year ended December 31, 1997 represents the results of
operations of such companies from January 1, 1997 to the earlier of their
respective dates of acquisition or December 31, 1997. The historical
consolidated statement of operations data for the Other Acquisitions for
the three months ended March 31, 1998 represents the results of operations
of such companies (to the extent the company was acquired in 1998) from
January 1, 1998 to the earlier of their respective dates of acquisitions or
March 31, 1998. The Other Acquisitions and their respective acquisition
dates include: (i) Colonial Richmond (March 1, 1997); (ii) Metropolitan
Parking (June 1, 1997); (iii) the remaining 50% interest in APCOA Parking
Management & Development, Ltd. (November 1, 1997); (iv) Dixie Parking
(January 22, 1998); and (v) the remaining 76% interest in EPI (May 1,
1998). Each of the Other Acquisitions has been or will be accounted for as
a purchase. Accordingly, the results of the operations of each such
acquired company are or will be included in APCOA's results of operations
from the date of acquisition.
(2) Represents the net reduction in costs in accordance with the Company's
business plan to integrate Standard:
<TABLE>
<CAPTION>
FISCAL THREE MONTHS
1997 1998
------ ------------
<S> <C> <C>
Payroll reductions for the elimination of duplicative
administrative and operations personnel (33
positions).......................................... $1,461 $365
Reduction in salaries of certain Standard executives
pursuant to post-acquisition employment
agreements.......................................... 1,139 113
Reductions in management information systems costs of
Standard for outsourcing of payroll and accounts
receivable processing which will be run on the APCOA
systems after the Combination....................... 387 97
------ ----
$2,987 $575
====== ====
</TABLE>
In addition, there are $3,289 of anticipated annual cost savings ($1,883
represents personnel reduction savings at APCOA due to the elimination of
18 positions and $1,406 represents purchasing efficiencies) that have not
been reflected in the pro forma statements of operations because they are
not directly attributable to the acquisition of Standard. APCOA recorded a
$14,100 charge in the first quarter of 1998 related to its planned
restructuring of existing operations. This charge is composed of $10,400
in employee severance and relocation costs, $2,400 in writedowns of
long-term assets to current fair value, and $1,300 in other restructuring
costs. See Note M to the historical financial statements of Holdings
included elsewhere herein.
(3) Represents the net reduction in costs in accordance with APCOA's business
plans to integrate the Other Acquisitions:
<TABLE>
<CAPTION>
FISCAL THREE MONTHS
1997 1998
------ ------------
<S> <C> <C>
Payroll reductions for the elimination of duplicative
administrative and operations personnel (10
positions):
EPI............................................ $ 331 $ 83
Other Acquisitions............................. 428 12
Reduction in salaries of certain EPI executives
pursuant to post-acquisition employment
agreements.......................................... 577 144
Reduction in management fees to former owners of
acquired businesses which will not be paid after
acquisition......................................... 583 21
------ ----
$1,919 $260
====== ====
</TABLE>
P-7
<PAGE> 113
AP HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(CONTINUED)
(4) Represents the incremental depreciation and amortization due to the
application of purchase accounting. Equipment and leasehold improvements
and cost of parking contracts are being amortized over 3 to 7 years. The
cost of parking contracts are being amortized over their contract term.
Depreciation and amortization has been increased to reflect each
acquisition as if it had occurred on January 1, 1997 as follows:
<TABLE>
<CAPTION>
FISCAL THREE MONTHS
1997 1998
------ ------------
<S> <C> <C>
Amortization of cost of parking contracts ($6,853)
acquired from Standard.............................. $1,014 $254
Amortization of cost of parking contracts ($2,084)
acquired from the Other Acquisitions................ 347 51
Net reduction in depreciation of property and
equipment acquired from Standard.................... (59) (15)
------ ----
$1,302 $290
====== ====
</TABLE>
(5) Represents the incremental amortization, due to the application of purchase
accounting, for amortization of the excess cost over the fair value of net
assets acquired over 40 years. Amortization has been increased to reflect
each acquisition as if it had occurred on January 1, 1997 as follows:
<TABLE>
<CAPTION>
FISCAL THREE MONTHS
1997 1998
----------- ------------
<S> <C> <C>
Amortization of excess cost over fair value of net
assets acquired ($74,162) for Standard............ $1,854 $464
Amortization of excess cost over fair value of net
assets acquired ($11,549) for the Other
Acquisitions...................................... 289 47
------ ----
$2,143 $511
====== ====
</TABLE>
(6) Represents the incremental interest expense for the additional financing
required for the acquisitions. Interest expense has been increased to
reflect each acquisition as if it had occurred on January 1, 1997. The
interest rate used for the additional financing for the Standard
acquisition and the proposed EPI acquisition was 9 1/4%, the actual rate of
the Senior Subordinated Notes, the proceeds from which will be partially
used to finance such acquisitions. The interest expense is as follows:
<TABLE>
<CAPTION>
INCREMENTAL INTEREST EXPENSE
-----------------------------
PRINCIPAL FISCAL THREE MONTHS
AMOUNT RATE 1997 1998
--------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Standard....................... $65,000 9 1/4% $6,013 $1,503
EPI............................ 7,000 9 1/4% 648 162
Seller notes for Dixie
acquisition.................. 3,250 8 1/4% 268 22
Other borrowings (pro-rated)... 3,128 8.0% - 9.0% 195 --
------ ------
$7,124 $1,687
====== ======
</TABLE>
(7) Represents the elimination of interest income from Holberg Industries, Inc.
on the outstanding amount due from Holberg Industries, Inc.
(8) Represents the elimination of historical amortization expense related to
the deferred financing costs on the existing credit facilities.
P-8
<PAGE> 114
AP HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(CONTINUED)
(9) Represents the change in interest expense related to the Offering and
Subordinated Notes Offering:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT FISCAL THREE MONTHS
OF DEBT 1997 1998
--------- ------------ ------------
<S> <C> <C> <C>
Recording of pro forma interest expense:
9 1/4% Senior Subordinated Notes due 2008...... $140,000 $12,950 $3,238
Nonrecourse third party debt at 11.0% to
15.0%....................................... 5,523 660 150
Seller notes for Dixie acquisition at 8 1/4%... 3,250 268 67
Letters of credit.............................. 4,905 123 31
Capital leases................................. 168 29
Other debt..................................... 56 6
------- ------
Cash interest expense.......................... 14,225 3,521
11 1/4% Senior Discount Notes due 2008......... 40,683 4,706 1,144
Amortization of deferred financing costs....... 759 190
------- ------
Total interest expense................. 19,690 4,855
Less: Combined pro forma interest expense........ 10,882 2,729
------- ------
Pro forma interest adjustment after the Offering
and Senior Subordinated Notes Offering......... $ 8,808 $2,126
======= ======
</TABLE>
(10) Represents elimination of preferred stock dividend on redeemable preferred
stock of subsidiary (APCOA) which was redeemed in connection with the
Combination.
P-9
<PAGE> 115
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AP HOLDINGS, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997, and as of March 31, 1998 (unaudited)................ F-3
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1997, and for the
three months ended March 31, 1997 and 1998 (unaudited).... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for each of the three years in the period ended December
31, 1997, and for the three months ended March 31, 1998
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997, and for the
three months ended March 31, 1997 and 1998 (unaudited).... F-6
Notes to Consolidated Financial Statements.................. F-7
STANDARD PARKING
Report of Altschuler, Melvoin and Glasser LLP, Independent
Auditors.................................................. F-19
Balance Sheets as of December 31, 1996 and 1997............. F-20
Statements of Income for each of the three years in the
period ended December 31, 1997............................ F-21
Statements of Changes in Equity for each of the three years
in the period ended December 31, 1997..................... F-22
Statements of Cash Flows for each of the three years in the
period ended December 31, 1997............................ F-23
Notes to Financial Statements............................... F-24
</TABLE>
F-1
<PAGE> 116
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors
AP Holdings, Inc.
Cleveland, Ohio
We have audited the accompanying consolidated balance sheets of AP
Holdings, Inc. and subsidiaries, as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AP Holdings, Inc. at December 31, 1996 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Cleveland, Ohio
February 3, 1998
F-2
<PAGE> 117
AP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------ -----------
1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,532 $ 3,322 $ 60,480
Notes and accounts receivable, less allowances of $315 in
1996 and $443 in 1997................................... 10,241 13,806 19,461
Prepaid expenses and supplies............................. 1,343 1,126 1,595
------- ------- --------
Total current assets........................................ 14,116 18,254 81,536
Leaseholds and equipment:
Equipment................................................. 9,296 10,024 10,153
Leasehold improvements.................................... 15,804 13,981 14,214
Leaseholds................................................ 31,446 31,293 38,543
Construction in progress.................................. 36 417 2,611
------- ------- --------
56,582 55,715 65,521
Less accumulated depreciation and amortization............ 44,906 43,375 43,214
------- ------- --------
11,676 12,340 22,307
Other assets:
Advances and deposits..................................... 1,011 1,509 1,966
Cost in excess of net assets acquired, less accumulated
amortization of $2,979 and $3,412 in 1996 and 1997,
respectively.......................................... 17,118 18,457 95,504
Intangible and other assets, less accumulated amortization
of $3,081 and $3,433 in 1996 and 1997, respectively..... 3,381 4,013 12,497
Due from affiliate........................................ 5,521 4,522 --
------- ------- --------
27,031 28,501 109,967
------- ------- --------
Total assets....................................... $52,823 $59,095 $213,810
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $15,742 $16,401 $ 16,578
Accrued rent.............................................. 6,023 5,649 5,578
Compensation and payroll withholdings..................... 2,057 1,924 2,275
Property, payroll and other taxes......................... 3,004 3,111 3,454
Accrued insurance and expenses............................ 6,079 4,126 8,377
Accrued restructuring costs............................... -- -- 16,100
Current portion of long-term borrowings................... 666 4,102 1,083
------- ------- --------
Total current liabilities................................... 33,571 35,313 53,445
Long-term borrowings, excluding current portion:
Obligation under credit agreements........................ 25,261 27,729 181,180
Other..................................................... 6,868 6,452 8,543
------- ------- --------
32,129 34,181 189,723
Other long-term liabilities................................. 2,513 3,132 11,359
Redeemable preferred stock of subsidiary.................... 7,841 8,728 --
Common stock of subsidiary subject to put/call rights....... -- -- 4,589
Common stock, 880 shares issued and outstanding and warrants
to purchase 200 common shares, subject to put/call rights,
at current value.......................................... 3,856 4,000 4,000
Stockholders' equity (deficit):
Preferred stock, 12% quarterly, cumulative, par value $.01
per share, 10,000 shares authorized; 2,487.94 shares in
1996 and 2,800.20 shares in 1997 issued and
outstanding............................................. 22,391 25,201 25,957
Common stock, par value $.01 per share, 20,000 shares
authorized; 7,898 shares in 1996 and 7,920 shares in
1997 issued and outstanding............................. 1 1 1
Additional paid-in capital................................ 7,871 7,871 2,088
Accumulated deficit....................................... (57,350) (59,332) (77,352)
------- ------- --------
Total stockholders' equity (deficit)........................ (27,087) (26,259) (49,306)
------- ------- --------
Total liabilities and stockholders' equity
(deficit)........................................ $52,823 $59,095 $213,810
======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 118
AP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31 ENDED MARCH 31
-------------------------------- -------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Parking services revenue:
Lease contracts.................... $128,745 $120,286 $ 99,594 $23,371 $ 24,663
Management contracts............... 12,795 15,466 16,082 3,648 4,141
-------- -------- -------- ------- --------
141,540 135,752 115,676 27,019 28,804
Costs and expenses:
Cost of parking services:
Lease contracts................. 113,337 104,718 83,327 20,158 21,315
Management contracts............ 6,878 8,783 9,491 2,389 2,261
-------- -------- -------- ------- --------
120,215 113,501 92,818 22,547 23,576
General and administrative......... 12,121 13,017 13,528 2,940 3,460
Restructuring charge............... -- -- -- -- 14,100
Depreciation and amortization...... 8,772 4,888 3,767 1,110 1,055
-------- -------- -------- ------- --------
Total costs and expenses............. 141,108 131,406 110,113 26,597 42,191
-------- -------- -------- ------- --------
Operating income (loss).............. 432 4,346 5,563 422 (13,387)
Other expenses (income):
Interest expense................... 3,101 3,409 3,713 869 1,037
Interest income.................... (396) (532) (470) (102) (149)
-------- -------- -------- ------- --------
2,705 2,877 3,243 767 888
-------- -------- -------- ------- --------
Income (loss) before minority
interest, income taxes and
extraordinary item................. (2,273) 1,469 2,320 (345) (14,275)
Minority interest.................... 604 424 321 38 143
Income tax expense................... 240 106 140 60 30
-------- -------- -------- ------- --------
Income (loss) before extraordinary
item............................... (3,117) 939 1,859 (443) (14,448)
Extraordinary loss................... -- -- -- -- 2,816
-------- -------- -------- ------- --------
Net income (loss).................... (3,117) 939 1,859 (443) (17,264)
Preferred stock dividends............ (2,933) (3,293) (3,697) (924) (756)
-------- -------- -------- ------- --------
Net loss available for common
stockholders....................... $ (6,050) $ (2,354) $ (1,838) $(1,367) $(18,020)
======== ======== ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 119
AP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ----------------- ADDITIONAL
NUMBER PAR NUMBER PAR PAID-IN ACCUMULATED
OF SHARES VALUE OF SHARES VALUE CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance (deficit) at January
1, 1995..................... 1,964.01 $17,676 7,898 $1 $7,871 $(48,405) $(22,857)
Net loss...................... (3,117) (3,117)
Preferred stock dividends..... 246.50 2,218 (2,933) (715)
Increase common stock and
warrants subject to put/call
rights to current value..... (349) (349)
-------- ------- ------ -- ------ -------- --------
Balance (deficit) at December
31, 1995.................... 2,210.51 19,894 7,898 1 7,871 (54,804) (27,038)
Net income.................... 939 939
Preferred stock dividends..... 277.43 2,497 (3,293) (796)
Increase common stock and
warrants subject to put/call
rights to current value..... (192) (192)
-------- ------- ------ -- ------ -------- --------
Balance (deficit) at December
31, 1996.................... 2,487.94 22,391 7,898 1 7,871 (57,350) (27,087)
Net income.................... 1,859 1,859
Preferred stock dividends..... 312.26 2,810 (3,697) (887)
Increase common stock and
warrants subject to put/call
rights to current value..... (144) (144)
Issuance of common stock...... 22 --
-------- ------- ------ -- ------ -------- --------
Balance (deficit) at December
31, 1997.................... 2,800.20 25,201 7,920 1 7,871 (59,332) (26,259)
Net loss (unaudited).......... (17,264) (17,264)
Preferred stock dividends
(unaudited)................. 84.01 756 (756) --
Non-cash distribution to
affiliate (unaudited)....... (6,511) (6,511)
Contribution to capital
(unaudited)................. 728 728
-------- ------- ------ -- ------ -------- --------
Balance (deficit) at March 31,
1998 (unaudited)............ 2,884.21 $25,957 7,920 $1 $2,088 $(77,352) $(49,306)
======== ======= ====== == ====== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 120
AP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
---------------------------- ------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................. $(3,117) $ 939 $ 1,859 $ (443) $(17,264)
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation and amortization................ 8,772 4,888 3,767 1,110 1,055
Restructuring charge......................... 14,100
Changes in operating assets and liabilities:
(Increase) decrease in notes and accounts
receivable.............................. (686) 1,041 (3,495) (1,120) (2,968)
(Increase) decrease in prepaid assets..... (2) 163 273 (88) (319)
(Increase) decrease in other assets....... (452) (1,071) 216 95 (1,321)
Increase (decrease) in accounts payable... 2,067 (845) 294 (3,661) 176
Increase (decrease) in accrued
liabilities............................. (1,340) (1,209) (2,982) 960 3,413
(Increase) decrease in due from
affiliate............................... (902) (1,864) 999 (1,069) (1,889)
------- -------- ------- ------- --------
Net cash provided by (used in) operating
activities................................... 4,340 2,042 931 (4,216) (5,017)
INVESTING ACTIVITIES
Purchase of leaseholds and equipment........... (2,782) (2,552) (2,357) (257) (1,600)
Purchase of leaseholds and equipment by joint
ventures..................................... (1,930) (1,181) (480) (24)
Increase in other assets....................... (100) (906) (270) (491)
Businesses acquired, net of cash, and including
direct acquisition costs..................... (227) 151 (131) (70,754)
Proceeds from disposition of leaseholds and
equipment.................................... 122 384
------- -------- ------- ------- --------
Net cash used in investing activities.......... (4,917) (3,349) (3,592) (658) (72,869)
FINANCING ACTIVITIES
Proceeds from refinancing...................... 11,217
Payments due to refinancing.................... (11,071)
Proceeds from long-term borrowings............. 1,027 4,269 6,508 189,632
Payments on long-term borrowings............... (1,183) (412) (829) (85) (40,584)
Proceeds from joint venture borrowings......... 2,430 2,665 400
Payments on joint venture borrowing............ (140) (1,414) (389) (119) (105)
Payments of debt issuance costs................ (724) (5,899)
Redemption of redeemable preferred stock of
subsidiary................................... (8,000)
------- -------- ------- ------- --------
Net cash provided by financing activities...... 1,107 1,288 3,451 6,304 135,044
------- -------- ------- ------- --------
Increase (decrease) in cash.................... 530 (19) 790 1,430 57,158
Cash at beginning of period.................... 2,021 2,551 2,532 2,532 3,322
------- -------- ------- ------- --------
CASH AT END OF PERIOD.......................... $ 2,551 $ 2,532 $ 3,322 $ 3,962 $ 60,480
======= ======== ======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 121
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
NOTE A. ORGANIZATION
AP Holdings, Inc. (the Company), is a subsidiary of Holberg Industries,
Inc. (Holberg). The Company is a holding company which owns APCOA, Inc. and its
subsidiaries (APCOA) which manages, operates and develops parking properties
throughout the United States and Canada.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The Company's consolidated financial
statements include the accounts of APCOA, its wholly owned subsidiaries, and
joint ventures in which APCOA has more than 50% ownership interest. Minority
interest recorded in the consolidated statement of operations is APCOA's
noncontrolling interest in consolidated joint ventures. Minority interest
included in the consolidated balance sheet was $49 and $276 at December 31, 1996
and 1997, respectively. Investments in joint ventures of 50% or less ownership
interest are reported on the equity method. Investments in joint ventures
accounted for using the equity method in the consolidated balance sheet was $217
and $273 at December 31, 1996 and 1997, respectively. All significant
intercompany profits, transactions and balances have been eliminated in
consolidation.
GROSS CUSTOMER COLLECTIONS--Gross customer collections represent gross
receipts collected at all leased and managed properties, including
unconsolidated affiliates. Gross customer collections were $408,952, $430,696
and $476,183 in 1995, 1996 and 1997.
PARKING REVENUE --APCOA recognizes gross receipts from leased locations and
management fees earned from management contract properties as parking revenue as
the related services are provided. Also included in parking revenue is $850 in
1995, $147 in 1996 and $1,207 in 1997 from gains on sales of parking contracts
in the ordinary course of business.
COST OF PARKING SERVICES--APCOA recognizes costs for leases and
nonreimbursed costs from managed facilities as cost of parking services. Cost of
parking services consists primarily of rent and payroll related costs.
LEASEHOLDS AND EQUIPMENT--Leaseholds, equipment and leasehold improvements
are stated at cost. Leaseholds (cost of parking contracts) are amortized on a
straight-line basis over the average contract life of 7 years. Equipment is
depreciated on the straight-line basis over the estimated useful lives of
approximately 5 years on average. Leasehold improvements are amortized on the
straight-line basis over the terms of the respective leases or the service lives
of the improvements, whichever is shorter (average of approximately 7 years).
Depreciation and amortization includes losses on abandonments of leaseholds of
$184, $481 and $478 in 1995, 1996 and 1997, respectively.
ADVERTISING COSTS--Advertising costs are expensed as incurred and are
included in general and administrative expenses. Advertising expenses were $246,
$414 and $440 for 1995, 1996 and 1997, respectively.
COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL)--Cost in excess of net
assets acquired arising from acquisitions is amortized using the straight-line
method over 40 years. The carrying value of goodwill is evaluated if
circumstances indicate a possible impairment in value. If undiscounted cash
flows over the remaining amortization period indicate that goodwill may not be
recoverable, the carrying value of goodwill will be reduced by the estimated
shortfall of cash flows on a discounted basis.
INTANGIBLE ASSETS--Legal and other organization costs incurred to acquire
certain parking businesses and establish parking joint ventures ($616 at
December 31, 1997) are being amortized on a straight-line basis over seven
years, the estimated life of the underlying parking contracts. Legal and
start-up costs incurred in connection with APCOA's planned expansion into
international markets aggregated $680 at December 31,
F-7
<PAGE> 122
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
1997. These amounts were expensed in the first quarter of 1998 due to a change
in business plans as a result of the combination with Standard. Implementation
of SOP 98-5, "Reporting on the Costs of Start-Up Activities," on January 1,
1999, will not have a material impact on the Company's financial position or
results of operations. Debt issuance costs of $900 and $775 at December 31, 1996
and 1997, respectively, are amortized over the terms of the credit agreements
using the straight-line method.
FINANCIAL INSTRUMENTS--The carrying values of cash, accounts receivable and
accounts payable are reasonable estimates of their fair value due to the
short-term nature of these financial instruments. Other long-term assets and
debt have a carrying value that approximates fair value.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENT--In June 1997, the Financial Accounting
Standards Board issued Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information. Statement No. 131, which becomes effective
in 1998, establishes standards for reporting segment information in annual and
interim financial statements including disclosures about services, geographic
areas and major customers. The Company has not yet determined the impact of
adopting Statement No. 131 on its financial statement disclosures. Effective
January 1, 1998, the Company adopted Statement No. 130, Reporting Comprehensive
Income, which establishes the standards for reporting and displaying
comprehensive earnings and its components as part of a full set of financial
statements. Since the statement applies only to the presentation of
comprehensive income, it did not have any impact on the Company's results of
operations, financial position or cash flows. In addition, the Company does not
have any elements of comprehensive income.
INTERIM FINANCIAL DATA--The unaudited consolidated balance sheet as of
March 31, 1998, and the related consolidated statements of operations and cash
flows for the three months ended March 31, 1997 and 1998 and the consolidated
statement of stockholders' equity (deficit) for the three months ended March 31,
1998, have been prepared in accordance with generally accepted accounting
principles for interim financial information and with Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, including the $14,100
restructuring charge during the three months ended March 31, 1998 (See Note M),
considered necessary for a fair presentation of the financial position and
results of operations have been included. Operating results for the three months
ended March 31, 1998 are not necessarily indicative of the results that might be
expected for the year ending December 31, 1998.
NOTE C. BORROWING ARRANGEMENTS
Long-term borrowings consist of:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
DECEMBER 31
INTEREST DUE ------------------
RATE(S) DATE 1996 1997
<S> <C> <C> <C> <C>
Prudential term note.................. 9.18% April, 2003 $18,000 $18,000
Prudential term note.................. 8.92% March, 2005 5,000 5,000
Key Bank revolver..................... 7.82--8.75% April, 2000 2,261 6,529
Joint venture debentures.............. 11.00--15.00% December, 2006 5,512 5,523
Capital leases and other.............. Various Various 2,022 3,231
------- -------
32,795 38,283
Less current portion.................. 666 4,102
------- -------
$32,129 $34,181
======= =======
</TABLE>
F-8
<PAGE> 123
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
APCOA has a term facility with the Prudential Insurance Company of America
in the amount of $23 million. The facility, with semi-annual principal payments
beginning in 1998 contains two term notes. In March 1996, APCOA refinanced its
revolving credit facility with KeyBank, as agent, which provides for borrowings
and letters of credit of up to $20 million and bears interest at LIBOR plus 2%
or prime plus .25% as selected by APCOA. These facilities are secured by
substantially all of the assets of APCOA. The terms of the credit agreements
call for, among other things, meeting defined net worth, income and debt
coverage ratios as well as restrictions on the payment of dividends on common
stock and capital expenditures.
Consolidated joint ventures have entered into four agreements for
stand-alone development projects providing nonrecourse funding. These joint
venture debentures are collateralized by the specific contracts that were funded
and approximate the net book value of the related assets.
APCOA has entered into capital leases and various financing agreements,
which were used for the purchase of equipment and on November 1, 1997, APCOA
signed interest free promissory notes in the amount of $1,123 to purchase the
remaining interest of an unconsolidated subsidiary. The notes were paid in
January, 1998.
APCOA paid interest of $3,174, $3,230 and $3,878 in 1995, 1996, and 1997,
respectively.
The aggregate maturities of borrowings outstanding at December 31, 1997 are
as follows:
<TABLE>
<S> <C>
1998............................................... $ 4,102
1999............................................... 4,849
2000............................................... 11,162
2001............................................... 4,466
2002............................................... 4,587
2003 and thereafter................................ 9,117
-------
$38,283
=======
</TABLE>
NOTE D. INCOME TAXES
The Company is included in the consolidated federal income tax return filed
with its affiliates and has a tax sharing agreement with the affiliates. The
Company's income tax provision is determined on a separate return basis. Income
tax expense consists of state and local taxes.
At December 31, 1997, APCOA has net operating loss carryforwards of $23.2
million for income tax purposes that expire in years 2004 through 2012. Net
operating loss carryforwards have been utilized to eliminate federal income tax
expense in 1996 and 1997.
A reconciliation of the Company's reported income tax expense to the amount
computed by multiplying income (loss) before minority interest and income taxes
by the effective federal income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Statutory amount (benefit)......................... $(773) $ 499 $ 789
Benefit from carryforward of net operating
losses........................................... -- (499) (789)
Reduction in benefit due to inability to carryback
operating losses................................. 773 -- --
State and local income taxes....................... 240 106 140
----- ----- -----
Income tax expense................................. $ 240 $ 106 $ 140
===== ===== =====
</TABLE>
F-9
<PAGE> 124
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
APCOA's deferred tax assets and liabilities as of December 31, 1996 and 1997 are
as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Net operating loss carryforwards......................... $ 7,736 $ 8,111
Book over tax depreciation and amortization.............. 2,042 1,234
Casualty/liability insurance............................. 674 699
Accrued compensation..................................... 433 (55)
Other, net............................................... 280 361
------- -------
11,165 10,350
Less: valuation allowance for deferred tax assets........ 11,165 10,350
------- -------
Net deferred tax assets.................................. $ 0 $ 0
======= =======
</TABLE>
For financial reporting purposes, a valuation allowance for deferred tax
assets will continue to be recorded until realization is certain.
NOTE E. BENEFIT PLANS
APCOA offers deferred compensation arrangements for certain key executives
and sponsors an employees' savings and retirement plan in which certain
employees are eligible to participate. Subject to their continued employment by
APCOA, employees offered deferred compensation arrangements will receive a
defined monthly benefit upon attaining age 65. At December 31, 1996 and 1997,
APCOA has accrued $1,668 and $1,733, respectively, representing the present
value of the future benefit payments. Participants in the savings and retirement
plan may elect to contribute a portion of their compensation to the plan. APCOA,
in turn, contributes an amount in cash or other property as required by the
plan. Expenses related to these plans amounted to $441, $473 and $461 in 1995,
1996 and 1997, respectively.
APCOA also contributes to two multi-employer defined contribution and nine
multi-employer defined benefit plans which cover certain union employees.
Expenses related to these plans were $562, $561 and $418 in 1995, 1996 and 1997,
respectively.
NOTE F. LEASES
APCOA operates parking facilities under operating leases expiring on
various dates, generally prior to the year 2012. Certain of the leases contain
options to renew at APCOA's discretion.
At December 31, 1997, APCOA was committed to install in future years, at an
estimated cost of $1,063, certain capital improvements at leased facilities.
Future annual rent expense is not determinable due to the application of
percentage factors based on revenues. At December 31, 1997, APCOA's minimum
rental commitments, under all non-cancelable leases with remaining terms of more
than one year, are as follows:
<TABLE>
<S> <C>
1998............................................... $28,036
1999............................................... 16,117
2000............................................... 12,301
2001............................................... 7,925
2002............................................... 6,443
2003 and thereafter................................ 25,216
-------
$96,038
=======
</TABLE>
F-10
<PAGE> 125
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Rent expense, including percentage rents, was $97,343, $90,419 and $69,113
in 1995, 1996 and 1997, respectively.
NOTE G. REDEEMABLE PREFERRED STOCK OF SUBSIDIARY
APCOA has 400 shares of preferred stock authorized, of which 78 and 87
shares are outstanding at December 31, 1996 and 1997, respectively. The
preferred shareholder, Holberg, was issued 60 shares of preferred stock of APCOA
in 1994 for $6,000. Holberg is entitled to 11% annual dividends payable
semiannually in cash or additional preferred shares. The preferred stock is
recorded at its $100,000 per share liquidation value plus unpaid dividends. In
March 1998, in connection with the Combination, APCOA redeemed the preferred
stock for $8,000.
NOTE H. STOCKHOLDERS' EQUITY (DEFICIT)
The Company has a put/call agreement with a 10% stockholder that permits
the Company to call its shares of common stock held by such stockholder, along
with warrants to purchase 200 shares of common stock, for $560,000 at fair
market value on the call date, as determined by an independent appraisal. The
Company called such common stock and warrants in March 1998. As of August 4,
1998, the Company repurchased such common stock and warrants for $4.0 million in
cash, which repurchase was negotiated based on the current value of APCOA as of
December 31, 1997. The consolidated financial statements reflect the common
stock and warrants held by the stockholder at current value, based upon a
multiple of EBITDA and existing debt levels.
The Company's preferred shareholder, Holberg, was issued 1,000 shares of
preferred stock in 1989 for $9,000. Holberg is entitled to 12% annual dividends
payable quarterly in cash or additional preferred shares. The preferred stock,
which includes accrued stock dividends, is recorded at its $9,000 per share
liquidation value. As of December 31, 1997, the preferred stock dividends
distributable during 1997 have not been declared or issued.
NOTE I. RELATED PARTIES TRANSACTIONS
Due from affiliate represents amounts due from Holberg as the result of
various transactions between APCOA and Holberg including net cash transferred,
investment income and insurance premiums. Interest is recorded on amounts due
based on current investment rates of return.
APCOA participates in a master insurance program with Holberg which serves
to reduce the insurance costs of the combined group. The program provides APCOA
with a stop loss for each insurance policy year. Insurance premium for the
coverage is included in the cost of parking services and reflects APCOA's
estimated cost indicative of the ongoing entity on a stand alone basis through
the purchase of insurance and related costs for self-insured retention amounts
consistent with the limits used in the 1997 policy year and expected to be
followed in the future.
NOTE J. ACQUISITIONS
During the year ended December 31, 1997, APCOA completed three
acquisitions. In January 1998, APCOA acquired Dixie Parking Services, Inc.
located in New Orleans, Louisiana. The aggregate purchase price of the four
acquisitions was $2.0 million in cash and $4.4 million in notes payable.
Additional consideration of up to $875 for one acquisition is contingent upon
the operating results of the acquired company. The excess purchase price over
the fair value of the net assets acquired, primarily cost of contracts, was
recorded as goodwill for all acquisitions.
All acquisitions have been accounted for under the purchase method of
accounting, and the consolidated results of operations include the results of
each business from the date of acquisition. Unaudited pro forma
F-11
<PAGE> 126
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
data for the year ended December 31, 1996 and 1997 as though APCOA had purchased
all of the above businesses at the beginning of 1996 and 1997 are set forth
below. The pro forma operating results are not necessarily indicative of what
would have occurred had the transactions taken place on January 1, 1996.
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Parking revenue........................................ $142,091 $116,935
Net income............................................. 1,454 2,025
</TABLE>
NOTE K. COMMITMENTS AND CONTINGENCIES
As a result of its day-to-day operations, APCOA is involved in several
disputes, generally regarding the terms of lease agreements. In the opinion of
management, the outcome of these disputes and litigation will not have a
material adverse effect on the consolidated financial position or operating
results of APCOA.
NOTE L. SUBSEQUENT ACQUISITIONS AND FINANCINGS (UNAUDITED)
In January 1998, APCOA entered into a definitive Combination Agreement to
acquire all of the outstanding capital stock, partnership and other equity
interests of Standard Parking Corporation and certain affiliates (Standard). On
March 30, 1998, APCOA acquired Standard for consideration consisting of $65
million in cash, 16% of the common stock of APCOA outstanding as of January 15,
1998 and the assumption of certain liabilities, including a $5.0 million
retirement obligation for one of the former owners of Standard which represents
the current value of the retirement payments as determined by consulting
actuaries. In addition, on March 30, 1998, APCOA paid to the Standard owners
$2.8 million, generally representing Standard's earnings through the date of
acquisition and Standard's cash on hand at such time.
The acquisition has been accounted for under the purchase method;
accordingly, its results are included in the consolidated financial statements
of APCOA from the date of acquisition. Following is the preliminary purchase
price allocation (the final purchase price allocation will be based on a final
determination of the fair value of assets acquired and liabilities assumed).
Management believes that the final allocation of the purchase price will not
materially differ from the preliminary estimated amounts.
<TABLE>
<S> <C>
Cash consideration.......................................... $65,000
5.0095230 shares of common stock of subsidiary issued, at
calculated put/call value................................. 4,589
Closing distribution to the Standard owners................. 2,822
Retirement agreement with former owner...................... 5,000
Direct acquisition costs.................................... 5,219
-------
Total purchase price........................................ $82,630
=======
Cash........................................................ $ 1,711
Notes and accounts receivable............................... 2,687
Prepaid expenses............................................ 150
Property and equipment...................................... 1,118
Cost of parking contracts................................... 6,853
Cost in excess of net assets acquired....................... 74,162
Other assets................................................ 991
Accounts payable and accrued expenses....................... (1,872)
Restructuring reserves ($1.6 million cash, $0.4 million
non-cash)................................................. (2,000)
Other liabilities........................................... (1,170)
-------
$82,630
=======
</TABLE>
F-12
<PAGE> 127
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The put/call value is based primarily upon a multiple of EBITDA of APCOA.
For financial reporting purposes, APCOA believes that the put/call value is the
best measure of fair value of the common stock issued in connection with the
acquisition because such value was negotiated at arm's length and there is no
active market for APCOA's common stock. Direct acquisition costs incurred in
connection with the acquisition include investment banking fees of $3,289 and
legal and other professional fees of $1,930.
The restructuring reserves represent the estimated costs to integrate
existing information and operating systems of Standard in connection with
APCOA's business plan. These costs include software modifications of $868,
re-branding costs of $510 and estimated severance costs for 33 positions of
$622.
In connection with the Standard acquisition, on March 30, 1998, APCOA
issued $140 million principal amount of 9 1/4% Senior Subordinated Notes due
2008 in a Rule 144A private placement and entered into a $40 million senior
credit facility. In addition, the Company received proceeds of approximately
$40.7 million from issuance of $70 million principal amount of 11 1/4% Senior
Discount Notes due 2008 in a Rule 144A private placement. The Company
contributed the proceeds from the offering of the Senior Discount Notes to APCOA
in exchange for redeemable preferred stock of APCOA. The net proceeds from the
offerings were used by APCOA to fund the cash portion of the consideration for
the acquisition of Standard, to repay certain existing debt of APCOA and
Standard, for general corporate purposes and to redeem preferred stock held by
an affiliate.
In connection with the early extinguishment of debt in March 1998, APCOA
recorded an extraordinary loss of $2,816. The extraordinary loss represents the
unamortized balance of debt issuance costs related to the Company's previous
credit agreement of $727 and a prepayment penalty of $2,089 related to APCOA's
previous credit agreement.
The following unaudited pro forma results of operations for the year ended
December 31, 1997 and the three months ended March 31, 1998 assume the
acquisition of Standard and related transactions occurred at the beginning of
each period presented:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, 1997 ENDED MARCH 31, 1998
----------------- --------------------
<S> <C> <C>
Net sales................................. $186,078 $ 44,769
Loss before extraordinary item............ (7,530) (16,878)
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a projection of
future results.
On May 1, 1998, APCOA acquired the remaining 76% interest in Executive
Parking Industries LLC (EPI), through the acquisition of all of the outstanding
capital stock of S&S Parking, Inc., the sole asset of which was such 76%
interest in EPI, for $7 million in cash. In addition, on June 1, 1998, APCOA
acquired all of the outstanding capital stock of Century Parking, Inc., and
Sentry Parking Corporation, for $5.2 million in cash at closing and $1.0 million
payable on the third anniversary of the closing date. These acquisitions will be
accounted for under the purchase method. The operating results of the businesses
are not material to the consolidated results of the Company.
F-13
<PAGE> 128
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE M. RESTRUCTURING CHARGE
Included in the "restructuring charge" in the accompanying consolidated
statements of operations for the three months ended March 31, 1998 are the
following (expenses are cash unless otherwise stated):
<TABLE>
<S> <C>
Employee severance costs.................................... $ 5,400
Employee relocation costs................................... 5,000
Impairment of assets that will no longer be used (non-cash
expense).................................................. 2,400
Other restructuring costs................................... 1,300
-------
$14,100
=======
</TABLE>
The $5.4 million of employee severance costs consists of cash compensation
to 54 people whose employment was terminated. The $5.0 million of employee
relocation costs are in connection with the relocation and consolidation of the
headquarters of APCOA, the relocation of two other offices, moving the families
of 20 Cleveland headquarters staff members to Chicago and the relocation of one
individual from Columbus to Houston. The impairment of assets that will no
longer be used refers to the write-off of $2.4 million of capitalized
organization and software development costs. The $1.3 million of other
restructuring costs consists largely of a $1.0 million increase in insurance
reserves resulting from a planned buyout of the insurance program of APCOA in
connection with the combination of the APCOA and Standard insurance programs.
The $11.7 million cash component of this restructuring charge is expected to be
disbursed by the third quarter of 1998. In addition, APCOA entered into a
transition employment agreement with a former executive on April 1, 1998 which
provides for $300,000 in noncompete payments and $137,000 in compensation
payments to be paid over eighteen months.
During the first quarter of 1998, management performed a thorough analysis
of the costs associated with implementing the business plan of consolidating
APCOA's headquarters in Chicago and costs related to APCOA staff reductions.
During the first quarter of 1998, all affected employees were notified of
APCOA's plans. It is expected that substantially all actions related to the
restructuring will be completed during 1998.
NOTE N. SUBSIDIARY GUARANTORS
All of APCOA'S direct or indirect wholly-owned domestic subsidiaries,
including Standard, other than inactive subsidiaries, fully, unconditionally,
jointly and severally guarantee the Senior Subordinated Notes discussed in Note
L. Separate financial statements of the guarantor subsidiaries are not
separately presented because, in the opinion of management, such financial
statements are not material to investors. The non-guarantor subsidiaries include
joint ventures, wholly owned subsidiaries of APCOA organized under the laws of
foreign jurisdictions and inactive subsidiaries, all of which are included in
the consolidated financial statements. The following is summarized combining
financial information for APCOA, Inc., the guarantor subsidiaries of APCOA and
the non-guarantor subsidiaries of APCOA:
<TABLE>
<CAPTION>
APCOA, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
1995
Income Statement Data:
Parking revenue............................. $73,720 $ 1,901 $65,919 $ -- $141,540
Gross profit................................ 17,588 360 3,377 -- 21,325
Depreciation and amortization............... 7,996 51 725 -- 8,772
Operating income (loss)..................... (1,828) 182 2,078 -- 432
Interest expense (income), net.............. 2,289 (34) 450 -- 2,705
Equity in earnings of subsidiaries.......... 1,240 -- -- (1,240) --
Net income (loss)........................... (3,117) 216 1,024 (1,240) (3,117)
Statement of Cash Flows Data:
Net cash provided by (used in) operating
activities................................ 4,515 10 (185) -- 4,340
Investing activities:
Purchase of leaseholds and equipment...... (2,769) (13) (1,930) -- (4,712)
Other..................................... (205) -- -- -- (205)
-------- -------- ------- -------- --------
Net cash used in investing activities....... (2,974) (13) (1,930) -- (4,917)
</TABLE>
F-14
<PAGE> 129
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
APCOA, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Financing activities:
Proceeds from long-term borrowings........ -- -- 2,430 -- 2,430
Payments on long-term borrowings.......... (1,183) -- (140) -- (1,323)
-------- -------- ------- -------- --------
Net cash provided by (used in) financing
activities................................ (1,183) -- 2,290 -- 1,107
1996
Balance Sheet Data:
Notes and accounts receivable............... 7,489 (146) 2,898 -- 10,241
Current assets.............................. 10,327 93 3,696 -- 14,116
Leaseholds and equipment, net............... 5,925 146 5,605 -- 11,676
Cost in excess of net assets acquired,
net....................................... 16,479 639 -- -- 17,118
Investment in subsidiaries.................. 3,357 -- -- (3,357) --
Total assets................................ 44,186 977 11,017 (3,357) 52,823
Accounts payable............................ 13,603 241 1,898 -- 15,742
Current liabilities......................... 26,303 377 6,891 -- 33,571
Long-term borrowings, excluding current
portion................................... 27,006 -- 5,123 -- 32,129
Redeemable preferred stock.................. 7,841 -- -- -- 7,841
Total stockholders' equity (deficit)........ (19,053) 600 (1,421) (3,357) (23,231)
Total liabilities and stockholders'
equity.................................... 44,186 977 11,017 (3,357) 52,823
Income Statement Data:
Parking revenue............................. 73,140 2,914 59,698 -- 135,752
Gross profit................................ 18,412 669 3,170 -- 22,251
Depreciation and amortization............... 3,745 166 977 -- 4,888
Operating income............................ 2,722 198 1,426 -- 4,346
Interest expense (income), net.............. 2,340 (18) 555 -- 2,877
Equity in earnings of subsidiaries.......... 663 -- -- (663) --
Net income (loss)........................... 939 216 447 (663) 939
Statement of Cash Flows Data:
Net cash provided by (used in) operating
activities................................ $ 2,012 $ 286 $ (256) $ -- $ 2,042
Investing activities:
Purchase of leaseholds and equipment...... (2,481) (71) (1,181) -- (3,733)
Other..................................... 384 -- -- -- 384
-------- -------- ------- -------- --------
Net cash used in investing activities....... (2,097) (71) (1,181) -- (3,349)
Financing activities:
Proceeds from refinancing................. 11,217 -- -- -- 11,217
Payments due to refinancing............... (11,071) -- -- -- (11,071)
Proceeds from long-term borrowings........ 1,027 -- 2,665 -- 3,692
Payments on long-term borrowings.......... (412) -- (1,414) -- (1,826)
Payments of debt issuance costs........... (724) -- -- -- (724)
-------- -------- ------- -------- --------
Net cash provided by financing activities... 37 -- 1,251 -- 1,288
1997
Balance Sheet Data:
Notes and accounts receivable............... 10,587 326 2,893 -- 13,806
Current assets.............................. 12,801 1,292 4,161 -- 18,254
Leaseholds and equipment, net............... 6,246 227 5,867 -- 12,340
Cost in excess of net assets acquired,
net....................................... 16,190 1,432 835 -- 18,457
Investment in subsidiaries.................. 3,652 -- -- (3,652) --
Total assets................................ 46,000 3,477 13,270 (3,652) 59,095
Accounts payable............................ 13,574 1,756 1,071 -- 16,401
Current liabilities......................... 26,593 2,178 6,542 -- 35,313
Long-term borrowings, excluding current
portion................................... 28,747 -- 5,434 -- 34,181
Redeemable preferred stock.................. 8,728 -- -- -- 8,728
Total stockholders' equity (deficit)........ (20,229) 1,219 403 (3,652) (22,259)
Total liabilities and stockholders'
equity.................................... 46,000 3,477 13,270 (3,652) 59,095
Income Statement Data:
Parking revenue............................. 78,051 3,439 34,186 -- 115,676
Gross profit................................ 18,400 940 3,518 -- 22,858
</TABLE>
F-15
<PAGE> 130
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
APCOA, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Depreciation and amortization............... 2,836 65 866 -- 3,767
Operating income............................ 4,451 419 693 -- 5,563
Interest expense (income), net.............. 2,654 -- 589 -- 3,243
Equity in earnings of subsidiaries.......... 202 -- -- (202) --
Net income (loss)........................... 1,859 419 (217) (202) 1,859
Statement of Cash Flows Data:
Net cash provided by (used in) operating
activities................................ (173) 704 400 -- 931
Investing activities:
Purchase of leaseholds and equipment...... (2,357) -- (480) -- (2,837)
Other..................................... (1,467) 81 631 -- (755)
-------- -------- ------- -------- --------
Net cash provided by (used in) investing
activities................................ (3,824) 81 151 -- (3,592)
Financing activities:
Proceeds from long-term borrowings........ 4,269 -- 400 -- 4,669
Payments on long-term borrowings.......... (685) -- (533) -- (1,218)
-------- -------- ------- -------- --------
Net cash provided by (used in) financing
activities................................ 3,584 -- (133) -- 3,451
THREE MONTHS ENDED MARCH 31, 1997
Income Statement Data:
Parking revenue............................. 17,437 524 9,058 -- 27,019
Gross profit................................ 3,600 27 845 -- 4,472
Depreciation and amortization............... 928 12 170 -- 1,110
Operating income (loss)..................... 260 (85) 247 -- 422
Interest expense (income), net.............. 612 -- 155 -- 767
Equity in earnings of subsidiaries.......... (31) -- -- 31 --
Net income (loss)........................... (443) (85) 54 31 (443)
Statement of Cash Flows Data:
Net cash provided by (used in) operating
activities................................ $ (4,686) $ 125 $ 345 $ -- $ (4,216)
Investing activities:
Purchase of leaseholds and equipment...... (213) (44) -- -- (257)
Other..................................... (243) (158) -- -- (401)
-------- -------- ------- -------- --------
Net cash provided by (used in) investing
activities................................ (456) (202) -- -- (658)
Financing activities:
Proceeds from long-term borrowings........ 6,508 -- -- -- 6,508
Payments on long-term borrowings.......... (85) -- (119) -- (204)
-------- -------- ------- -------- --------
Net cash provided by (used in) financing
activities................................ 6,423 -- (119) -- 6,304
THREE MONTHS ENDED MARCH 31, 1998
Balance Sheet Data:
Cash and cash equivalents................... 56,537 2,961 982 -- 60,480
Notes and accounts receivable............... 10,929 4,458 4,074 -- 19,461
Current assets.............................. 68,698 7,535 5,303 -- 81,536
Leaseholds and equipment, net............... 8,551 8,203 5,553 -- 22,307
Cost in excess of net assets acquired,
net....................................... 19,470 75,204 830 -- 95,504
Investment in subsidiaries.................. 90,472 -- -- (90,472) --
Total assets................................ 197,281 92,925 14,076 (90,472) 213,810
Accounts payable............................ 13,955 1,483 1,140 -- 16,578
Current liabilities......................... 43,386 3,957 6,102 -- 53,445
Long-term borrowings, excluding current
portion................................... 142,615 321 6,104 -- 149,040
Redeemable preferred stock.................. 40,683 -- -- -- 40,683
Common stock subject to put/call rights..... 4,589 -- -- -- 4,589
Total stockholders' equity (deficit)........ (43,539) 87,727 978 (90,472) (45,306)
Total liabilities and stockholders'
equity.................................... 197,281 92,925 14,076 (90,472) 213,810
Income Statement Data:
Parking revenue............................. 17,847 1,054 9,903 -- 28,804
Gross profit................................ 3,673 331 1,224 -- 5,228
Restructuring charge........................ 14,100 -- -- -- 14,100
</TABLE>
F-16
<PAGE> 131
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
APCOA, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Depreciation and amortization............... 766 28 261 -- 1,055
Operating income (loss)..................... (14,066) 194 485 -- (13,387)
Interest expense (income), net.............. 732 -- 156 -- 888
Equity in earnings of subsidiaries.......... 383 -- -- (383) --
Net income (loss)........................... (17,264) 194 189 (383) (17,264)
Statement of Cash Flows Data:
Net cash provided by (used in) operating
activities................................ (5,311) 231 63 -- (5,017)
Investing activities:
Purchase of leaseholds and equipment...... (1,600) -- (24) -- (1,624)
Businesses acquired....................... (72,465) 1,711 -- -- (70,754)
Other..................................... (491) -- -- -- (491)
-------- -------- ------- -------- --------
Net cash provided by (used in) investing
activities................................ (74,556) 1,711 (24) -- (72,869)
Financing activities:
Proceeds from long-term borrowings........ 148,949 -- -- -- 148,949
Payments on long-term borrowings.......... (40,584) -- (105) -- (40,689)
Payments of debt issuance costs........... (5,899) -- -- -- (5,899)
Proceeds from issuance of preferred
stock................................... 40,683 -- -- -- 40,683
Redemption of redeemable preferred
stock................................... (8,000) -- -- -- (8,000)
-------- -------- ------- -------- --------
Net cash provided by (used in) financing
activities................................ 135,149 -- (105) -- 135,044
</TABLE>
The following pro forma income statement reflects the Combination with
Standard and the Other Acquisitions as if they had occurred as of the beginning
of the periods presented. The pro forma balance sheet data as of March 31, 1998
reflects the acquisition of EPI as if it had occurred on that date.
<TABLE>
<CAPTION>
APCOA, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
1997 (PRO FORMA)
Income Statement Data:
Parking revenue............................. 78,051 73,841 34,186 -- 186,078
Gross profit................................ 18,400 17,995 3,518 -- 39,913
Depreciation and amortization............... 2,656 3,974 866 -- 7,496
Operating income............................ $ 4,631 $ 7,048 $ 693 $ -- $ 12,372
Interest expense (income), net.............. 14,245 (130) 620 -- 14,735
Equity in earnings of subsidiaries.......... 6,930 -- -- (6,930) --
Net income (loss)........................... (2,824) 7,178 (248) (6,930) (2,824)
THREE MONTHS ENDED MARCH 31, 1998 (PRO FORMA)
Balance Sheet Data:
Cash and cash equivalents................... 49,537 3,559 982 -- 54,078
Notes and accounts receivable............... 10,929 4,892 4,074 -- 19,895
Current assets.............................. 61,698 8,802 5,303 -- 75,803
Leaseholds and equipment, net............... 8,551 9,546 5,553 -- 23,650
Cost in excess of net assets acquired,
net....................................... 19,470 81,628 830 -- 101,928
Investment in subsidiaries.................. 97,886 -- -- (97,886) --
Total assets................................ 197,281 101,965 14,076 (97,886) 215,436
Accounts payable............................ 13,955 2,435 1,140 -- 17,530
Current liabilities......................... 43,386 5,583 6,102 -- 55,071
Long-term borrowings, excluding current
portion................................... 142,615 321 6,104 -- 149,040
Redeemable preferred stock.................. 40,683 -- -- -- 40,683
Common stock subject to put/call rights..... 4,589 -- -- -- 4,589
Total stockholders' equity (deficit)........ (43,539) 95,141 978 (97,886) (45,306)
Total liabilities and stockholders'
equity.................................... 197,281 101,965 14,076 (97,886) 215,436
Income Statement Data:
Parking revenue............................. 17,847 17,019 9,903 -- 44,769
Gross profit................................ 3,673 4,301 1,224 -- 9,198
Restructuring charge........................ 14,100 -- -- -- 14,100
Depreciation and amortization............... 737 862 261 -- 1,860
</TABLE>
F-17
<PAGE> 132
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
APCOA, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Operating income (loss)..................... (14,004) 1,626 485 -- (11,893)
Interest expense (income), net.............. 3,519 (7) 156 -- 3,668
Equity in earnings of subsidiaries.......... 1,822 -- -- (1,822) --
Income (loss) before extraordinary item..... (15,734) 1,633 189 (1,822) (15,734)
</TABLE>
The consolidated financial statements of the Company differ from the
consolidated financial statements of APCOA due to the proceeds of approximately
$40.7 million that the Company received on March 30, 1998 from the issuance of
the Senior Discount Notes being recorded as long-term debt on the Company's
consolidated balance sheet and recorded as redeemable preferred stock on APCOA's
consolidated balance sheet. In addition, the Company will record interest
expense on the Senior Discount Notes, whereas APCOA will increase the amount of
the redeemable preferred stock for the preferred stock dividend.
F-18
<PAGE> 133
REPORT OF ALTSCHULER, MELVOIN AND GLASSER LLP,
INDEPENDENT AUDITORS
To the Owners of Standard Parking
We have audited the accompanying balance sheets of STANDARD PARKING as of
December 31, 1996 and 1997 and the related statements of income, changes in
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the management of
Standard Parking. 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 audits 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 Standard Parking as of
December 31, 1996 and 1997, and the combined results of its operations, changes
in equity and cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
February 3, 1998
F-19
<PAGE> 134
STANDARD PARKING
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $2,968 $ 2,478
Management fees receivable and due from managed
facilities............................................. 1,357 1,843
Accounts receivable--other................................ 1,143 2,041
Current maturities of notes receivable.................... 60 116
Due from related parties.................................. 879 919
Prepaid expenses.......................................... 168 150
------ -------
Total current assets.............................. 6,575 7,547
------ -------
Property and Equipment (at cost, net of accumulated
depreciation)............................................. 1,014 1,170
------ -------
Other Assets:
Management contracts (net of accumulated amortization of
$58 and $85)........................................... 456 328
Due from related parties.................................. 168 218
Notes receivable--long term............................... 296 184
Cash value of life insurance.............................. 621 729
------ -------
Total other assets................................ 1,541 1,459
------ -------
Total Assets................................. $9,130 $10,176
====== =======
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $1,608 $ 2,413
Due to related parties.................................... 70 75
Key card security and lease deposits...................... 167 198
Accrued basic and percentage rents........................ 755 792
Deferred rent............................................. 136 28
Line of credit borrowings................................. 0 330
Current maturities of long-term debt...................... 185 133
Funds held on behalf of managed facilities................ 201 129
------ -------
Total current liabilities......................... 3,122 4,098
------ -------
Long-term Liabilities:
Deferred rent............................................. 265 395
Deferred compensation..................................... 423 417
Long-term debt............................................ 203 70
Long-term related party debt.............................. 82 57
Other..................................................... 123 123
------ -------
Total long-term liabilities....................... 1,096 1,062
------ -------
Total Liabilities........................................... 4,218 5,160
------ -------
Equity...................................................... 4,912 5,016
------ -------
Total Liabilities and Equity................. $9,130 $10,176
====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-20
<PAGE> 135
STANDARD PARKING
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Revenue:
Leased facilities......................................... $38,418 $41,770 $54,801
Management and consulting fees and other parking services
revenue................................................ 6,783 8,505 8,851
------- ------- -------
Total revenue............................................... 45,201 50,275 63,652
Cost and expenses:
Cost of parking services -- leased facilities............. 35,168 37,838 50,142
General and administrative expenses....................... 6,390 7,547 7,857
Depreciation and amortization............................. 316 376 464
Loss on office relocation................................. 408
------- ------- -------
Total costs and expenses.................................... 42,282 45,761 58,463
------- ------- -------
Operating income............................................ 2,919 4,514 5,189
Other expense (income):
Interest income........................................... (96) (110) (130)
Interest expense.......................................... 37 54 45
------- ------- -------
(59) (56) (85)
------- ------- -------
Net income.................................................. $ 2,978 $ 4,570 $ 5,274
======= ======= =======
Pro Forma Data (unaudited):
Income before provision for income taxes (from above)..... $ 2,978 $ 4,570 $ 5,274
Income tax provision...................................... 1,191 1,828 2,110
------- ------- -------
Net income................................................ $ 1,787 $ 2,742 $ 3,164
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE> 136
STANDARD PARKING
STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Equity, January 1, 1995..................................... $ 3,894
Capital Contribution........................................ 10
Net Income for Year......................................... 2,978
Distributions............................................... (3,482)
-------
Equity, December 31, 1995................................... 3,400
Net Income for Year......................................... 4,570
Distributions............................................... (3,058)
-------
Equity, December 31, 1996................................... 4,912
Net Income for Year......................................... 5,274
Distributions............................................... (5,170)
-------
Equity, December 31, 1997................................... $ 5,016
=======
</TABLE>
The accompanying notes are an integral part of this statement.
F-22
<PAGE> 137
STANDARD PARKING
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 2,978 $ 4,570 $ 5,274
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 316 376 464
Increase (decrease) in cash arising from changes in:
Management fees receivable and amounts due from
managed facilities................................ 275 (166) (486)
Accounts receivable and prepaid expenses............. 292 (407) (881)
Related party receivables/payables................... (1,375) 287 (103)
Accrued basic and percentage rents................... (441) 236 37
Deferred compensation................................ 141 149 (6)
Deferred rent........................................ 377 24 22
Other current liabilities............................ 280 262 765
------- ------- -------
Net cash provided by operating activities................... 2,843 5,331 5,086
------- ------- -------
INVESTING ACTIVITIES
Increase in cash value of life insurance.................. (120) (31) (108)
Management contracts acquired............................. (561) 0 0
Capital expenditures...................................... (547) (336) (492)
Proceeds from sale of fixed assets........................ 0 100 0
Increase in notes receivable.............................. (50) (305) 0
Other, net................................................ (25) 76 71
------- ------- -------
Net cash used in investing activities....................... (1,303) (496) (529)
------- ------- -------
FINANCING ACTIVITIES
Principal payments on debt................................ (70) (187) (207)
Proceeds from bank loans.................................. 476 130 330
Distributions............................................. (3,472) (3,058) (5,170)
------- ------- -------
Net cash used in financing activities....................... (3,066) (3,115) (5,047)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (1,526) 1,720 (490)
Cash at beginning of year................................... 2,774 1,248 2,968
------- ------- -------
Cash at end of year......................................... $ 1,248 $ 2,968 $ 2,478
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-23
<PAGE> 138
STANDARD PARKING
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
NOTE 1--NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation--The financial statements of Standard Parking have
been prepared in connection with the Combination Agreement dated January 15,
1998 between the owners of Standard Parking and APCOA, Inc. The financial
statements include the accounts and activities of the following entities,
exclusive of certain assets not included in the acquisition, as specified and
defined in the Combination Agreement:
Standard Parking, L.P. and consolidated entities:
Central Parking Entities:
Standard Parking I, L.L.C.
Standard Parking II, L.L.C.
Standard Parking/Marina, L.L.C. (ceased operations during 1997)
Standard Parking of Canada, L.P.
Standard Parking Corporation
Standard Auto Park, Inc.
Standard Parking Corporation, MW
Standard Parking Corporation, IL
Standard/Wabash Parking Corporation
Certain business interests, defined as excluded assets in the Combination
Agreement, have not been included in these financial statements as follows:
Standard Parking, L.P.:
Interests in Buckingham Investors Partnership (a partnership) and
Standard Parking/Courthouse, L.L.C. (a limited liability company),
including associated debt of $142.
Standard Parking Corporation:
All assets and liabilities, except for investments in Standard Parking
L.P., Standard Parking I, L.L.C., Standard Parking II, L.L.C., Standard
Parking/Marina L.L.C. and Standard Parking of Canada, L.P.
Because all of the above entities are under the common control and
management of Standard Parking, the financial statements have been combined
based on the historical costs of the underlying entities. All significant
intercompany balances and transactions have been eliminated in the combined
presentation.
In addition, certain other entities under common control are not subject to
the Combination Agreement and have not been included in these financial
statements.
The Combination Agreement states that APCOA, Inc. will acquire the defined
business for $65 million plus 16% of APCOA, Inc.'s common stock.
Standard Parking leases and manages parking facilities located throughout
North America from regional offices in Chicago, Houston, Boston, Los Angeles and
Canada. Standard Parking, L.P. (the "Partnership") was formed pursuant to an
Agreement of Limited Partnership dated January 1, 1994 between Standard Parking
Corporation, as general (and a limited) partner, and SP Associates, as a limited
partner. On formation, the partners contributed to the Partnership cash and
certain assets, net of assumed liabilities, including the rights to management
contracts and parking facility leases previously owned by the general partner.
At December 31, 1997, Standard Parking leased and managed 379 parking
facilities.
Revenue consists primarily of gross receipts from facilities leased by
Standard Parking with terms varying from one to several years and basic and
incentive management fees received from managing parking facilities owned by
related and third parties.
F-24
<PAGE> 139
STANDARD PARKING
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
A summary of other significant accounting policies is as follows:
Depreciation--For both financial and tax reporting purposes,
depreciation is computed using both the straight-line and accelerated
methods over the estimated useful lives of the assets.
Amortization of Management Contracts--Management contracts acquired
valued at acquisition cost of $561 in accordance with the purchase
agreement are being amortized on the straight-line basis over the average
15 years of expected economic lives of the contracts. The management
contracts are reviewed for impairment based on an assessment of future
operations.
Statement of Cash Flows--For purposes of the statement of cash flows,
all highly liquid debt instruments purchased with a maturity of three
months or less are reflected as cash equivalents.
Deferred Compensation--Standard Parking is contractually committed to
pay additional compensation to certain key employees for a defined period
of time after retirement. The liability for deferred compensation
represents the present value of the payments required to meet the
contractual requirements earned by the employees.
Funds Held on Behalf of Managed Facilities--Standard Parking holds
funds as a deposit for certain managed facilities which usually represents
one month's payroll to be incurred by Standard Parking on behalf of the
facility.
Financial Instruments--Standard Parking believes the book value of its
cash equivalents, current receivables, accounts payable and accrued
expenses and other current liabilities approximates fair value due to their
short-term nature. The book value of its long-term receivables and
obligations approximates their fair value as the current interest rates
approximate rates at which similar types of borrowing arrangements could be
currently obtained.
NOTE 2--PROPERTY AND EQUIPMENT:
Office and parking facility equipment and leasehold improvements consisted
of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1996 1997
<S> <C> <C> <C>
Furniture, fixtures and vehicles.................... 1 to 7 years $ 570 $ 577
Machinery and equipment............................. 1 to 5 years 359 395
Computer equipment and software..................... 1 to 5 years 500 878
Improvements........................................ 1 to 13 years 281 268
------ ------
1,710 2,118
Accumulated depreciation............................ 696 948
------ ------
$1,014 $1,170
====== ======
</TABLE>
Depreciation expense was $273 in 1995, $314 in 1996 and $336 in 1997.
Depreciation expense includes loss on sale/abandonment of fixed assets of $40 in
1995, $15 in 1996 and $53 in 1997.
F-25
<PAGE> 140
STANDARD PARKING
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--NOTES RECEIVABLE:
Notes receivable at December 31, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
(a) Relating to the financing of parking facility
maintenance equipment utilized at facilities managed by
Standard Parking. The notes, secured by the equipment,
call for monthly payments of principal and interest (at
rates ranging from 7.5% to 10.5%) with final payments
being due in 2001....................................... $306 $250
(b) Unsecured note from a third party calling for monthly
payments of interest (at 7%) with entire balance being
due in 1998............................................. 50 50
---- ----
356 300
Less current portion........................................ 60 116
---- ----
$296 $184
==== ====
</TABLE>
Future scheduled receipts are $76 in 1999, $78 in 2000 and $30 in 2001.
NOTE 4--ACCOUNTS RECEIVABLE--OTHER:
Accounts receivable--other at December 31, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Customer receivables........................................ $ 165 $ 588
Insurance receivables....................................... 715 885
Other accounts receivable................................... 263 568
------ ------
$1,143 $2,041
====== ======
</TABLE>
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses at December 31, 1996 and 1997 were as
follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Accrued payroll............................................. $ 412 $ 673
Accrued payroll--managed facilities......................... 0 633
Parking tax withheld........................................ 288 387
Accrued real estate tax..................................... 277 199
Other accounts payable and accrued expenses................. 631 521
------ ------
$1,608 $2,413
====== ======
</TABLE>
Accrued payroll for managed facilities represents funds held by Standard
Parking as of December 31, 1997 which were expended in January 1998 on behalf of
its managed facilities.
NOTE 6--DEBT ARRANGEMENTS:
During 1995, Standard Parking borrowed $476 from LaSalle National Bank to
finance the acquisition of management contracts. The note is payable in monthly
installments of $13, plus interest at the prime rate over three years, with the
final payment being due in 1998.
Additionally, Standard Parking borrowed $130 from Amalgamated Bank of
Chicago during 1996. The proceeds were loaned to one of Standard Parking's
managed facilities to finance the purchase of equipment (see Note 3). The
unsecured note is payable in monthly installments of $2 plus interest at the
prime rate over five years, with the final payment being due in 2001.
F-26
<PAGE> 141
STANDARD PARKING
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1997, Standard Parking borrowed $330 from LaSalle National Bank
under a $500 line of credit. The line is due on July 8, 1998 with payments of
interest at the prime rate, which was 8.5% during 1997, being due monthly.
The prime rates of interest in effect pertaining to the above bank debt at
December 31, 1996 and 1997 were 8.25% and 8.5%, respectively.
Future payments on the installment loans are $26 in 1999 and 2000 and $18
in 2001.
NOTE 7--RELATED-PARTY TRANSACTIONS:
Amounts due from related parties were as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Relating to the financing of parking facility maintenance
equipment utilized at a facility managed by Standard
Parking and owned by a related party. The note, secured by
the equipment, calls for monthly payments of principal and
interest at 9.25%, with a final payment being due in
1999...................................................... $ 30 $ 15
Advances to affiliates and employees, no stated repayment
terms..................................................... 153 211
Management fees and other amounts due from related party
managed and leased facilities, due currently.............. 864 911
------ ------
1,047 1,137
Less current maturities..................................... 879 919
------ ------
$ 168 $ 218
====== ======
</TABLE>
Amounts due to related parties were as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Short-term operating advances payable....................... $ 48 $ 50
Unsecured loan payable. The loan terms call for monthly
repayment of principal and interest at 12% per year with
final payment being due in 2000........................... 104 82
---- ----
152 132
Less current maturities..................................... 70 75
---- ----
$ 82 $ 57
==== ====
</TABLE>
Future payments pertaining to the unsecured loan payable are $27 in 1999
and $30 in 2000.
Management and consulting fee income relating to management of facilities
controlled by related parties amounted to $1,801, $1,332 and $1,329 during 1995,
1996 and 1997, respectively. These amounts are included with "management and
consulting fees and other parking services revenue" on the statement of income.
Excluded from the above amounts are annual management fees of approximately $41
which have not been recognized in income during the past four years (aggregating
approximately $140 at December 31, 1997) due to certain subordination provisions
in the loan agreement between the facility owner (a related party) and its
lender which have resulted in the non-payment of these fees. These amounts are
not material to net income or equity of Standard Parking.
Rent expense incurred relating to parking facilities leased from related
parties under short term leases renewable annually amounted to $5,464, $7,628
and $13,403 during 1995, 1996 and 1997, respectively. These expenses are
included with cost of parking services on the statement of income. Minimum lease
payments relating to these leases will approximate $15,808 during 1998.
F-27
<PAGE> 142
STANDARD PARKING
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LEASE COMMITMENTS:
Standard Parking leases several parking and office facilities throughout
North America from both related and third parties under leases expiring over
various dates through 2010. Future minimum lease payments are approximately as
follows:
<TABLE>
<S> <C>
1998............................................... $23,326
1999............................................... 5,555
2000............................................... 997
2001............................................... 413
2002............................................... 333
Thereafter......................................... 1,887
-------
$32,511
=======
</TABLE>
In addition to the minimum rental payments, Standard Parking, as designated
in certain of the leases, is responsible for the payment of percentage rent,
real estate taxes, maintenance and operating costs. Total rent expense for 1995,
1996 and 1997 was $20,969, $24,428, and $34,589, respectively, of which $5,173,
$6,753 and $7,634, respectively, related to percentage rent.
Standard Parking relocated its Chicago administrative headquarters to new
leased offices in November 1995. The loss on vacating the old leased space of
approximately $408, which includes rent due until the scheduled lease expiration
date, net of sublease income, was charged to operations during 1995. The new
headquarters office lease requires minimum annual rentals (exclusive of
escalation charges) on an increasing scale. Such total minimum rentals payable
for the lease period from October 1, 1995 through September 30, 2010 are being
amortized to expense in approximately equal installments each month.
A summary of deferred rent as of December 31, 1996 and 1997 relating to the
old and new facilities is as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Rent accrued on the vacated leased space net of sublease
income.................................................... $205 $ 69
Deferred rent on new leased space........................... 196 354
---- ----
401 423
Less amount due currently................................. 136 28
---- ----
Deferred rent--long-term portion............................ $265 $395
==== ====
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLAN:
Standard Parking maintains a qualified Section 401(k) Plan which benefits
all eligible employees. Under the plan, Standard Parking partially matches
employee contributions. For 1995, 1996 and 1997, management authorized an
employer match of employee contributions at the rate of 50% of the first 4% of
eligible wages. Standard Parking contributions to the plan were $41, $42 and $53
for 1995, 1996 and 1997, respectively.
NOTE 10--INCOME TAXES:
Under the provisions of the Internal Revenue Code, the affiliated companies
combined herein, which are all partnerships or Subchapter S corporations, pay no
federal income taxes and their net income and losses (including the distributive
shares resulting from its ownership as a member in the subsidiary limited
liability companies, which file partnership income tax returns) are reportable
in the tax returns of the respective partners and shareholders. However, the
partnerships and the affiliated companies are subject to state income taxes.
Unaudited Pro Forma Net Income. The unaudited pro forma net income
represents the results of operations adjusted to reflect a provision for income
tax on historical income as if Standard Parking were a C corporation. The
difference between the pro forma income tax rates utilized and federal statutory
rate of 34% relates primarily to state income taxes (approximately 6%, net of
federal tax benefit).
F-28
<PAGE> 143
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY HOLDINGS OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HOLDINGS SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. 4
Prospectus Summary.................... 5
Risk Factors.......................... 16
The Exchange Offer.................... 22
Certain Federal Income Tax
Consequences of the Exchange
Offer............................... 29
The Transactions...................... 30
Use of Proceeds....................... 31
Capitalization........................ 32
Selected Historical Financial Data of
Holdings............................ 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Holdings........... 34
Selected Historical Financial Data of
Standard............................ 42
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Standard........... 43
Business.............................. 46
Management............................ 54
Security Ownership of Certain
Beneficial Holders and Management... 63
Certain Relationships and Related
Party Transactions.................. 65
Description of Indebtedness........... 69
Description of New Notes.............. 70
Description of Certain Federal Income
Tax Consequences.................... 97
Plan of Distribution.................. 101
Legal Matters......................... 102
Experts............................... 102
Index of Certain Defined Terms........ 103
Index to Unaudited Pro Forma
Consolidated Financial Statements... P-1
Index to Historical Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$70,000,000
AP HOLDINGS, INC.
---------------------------------------------
OFFER TO EXCHANGE
---------------------------------------------
11 1/4% NEW SENIOR DISCOUNT NOTES DUE 2008
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 144
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL"), provides that a corporation (in its original certificate of
incorporation or an amendment thereto) may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise or perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provisions shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockbrokers,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. Article SEVENTH, paragraph
(a) of Holdings' Restated Certificate of Incorporation limits the liability of
directors thereof to the extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents and shall so indemnify such
persons if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interest of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. Article SEVENTH, paragraph (b) of the Restated Certificate
of Incorporation of Holdings provides that Holdings shall indemnify its
officers, directors, employees and agents to the full extent permitted by
Delaware law.
Article SEVENTH, paragraph (b) of Holdings' Restated Certificate of
Incorporation also provides that Holdings shall indemnify any such person
seeking indemnification in connection with a proceeding initiated by such person
only if such proceeding was authorized by the Board. Any rights to
indemnification conferred in paragraph (b) are contract rights, and include the
right to be paid by Holdings the expenses incurred in defending any such
proceeding in advance of its final disposition, except that, if the DGCL
requires, the payment of such expenses incurred by a director or officer in such
capacity in advance of final disposition shall be made only upon delivery to
Holdings of an undertaking by or on behalf of such director or officer, to repay
all amounts so advanced if it is ultimately determined that such director or
officer is not entitled to be indemnified under paragraph (b) or otherwise. By
action of the board of directors, Holdings may extend such indemnification to
employees and agents of Holdings.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
1.1 Purchase Agreement, by and among Holdings and Donaldson,
Lufkin & Jenrette Securities Corporation, dated as of March
25, 1998.*
2.1 Combination Agreement, dated as of January 15, 1998, by and
between APCOA, Inc. and the Standard Owners.**
3.1 Restated Certificate of Incorporation of Holdings.*
3.2 By-Laws of Holdings.*
4.1 Indenture, dated as of March 30, 1998, by and among Holdings
and State Street Bank and Trust Company, with respect to the
New Notes.*
4.2 Form of New Note (included as Exhibit A to Exhibit 4.1).*
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.*
</TABLE>
II-1
<PAGE> 145
<TABLE>
<C> <S>
10.1 Registration Rights Agreement, dated as of March 30, 1998, by and between Holdings and Donaldson, Lufkin
& Jenrette Securities Corporation.*
10.2 Credit Agreement, dated as of March 30, 1998, by and among the Company, The First National Bank of
Chicago, as Agent and Lender, and the Other Financial Institutions party thereto.**
10.3 Stockholders Agreement, dated as of March 30, 1998, by and among Dosher Partners, L.P. and SP Associates
and Holberg, Holdings and the Company.**
10.4 Stockholders Agreement, dated as of April 14, 1989, by and among Holdings, Holberg, Delaware North and
each member of the management of the Company who is a stockholder of Holdings.**
10.5 Tax Sharing Agreement, dated as of April 28, 1989, as amended as of March 30, 1998, by and among Holberg,
Holdings and the Company.**
10.6 Employment Agreement between the Company and Myron C. Warshauer.**
10.7 Employment Agreement between the Company and G. Walter Stuelpe, Jr.**
10.8 Executive Transition Agreement between the Company and James V. LaRocco, Jr.**
10.9 Severance Agreement between the Company and Trevor R. Van Horn.**
10.10 Employment Agreement between the Company and Herbert W. Anderson, Jr.**
10.11 Employment Agreement between the Company and Michael J. Celebrezze.**
10.12 Employment Agreement between the Company and Michael K. Wolf.**
10.13 Deferred Compensation Agreement between the Company and Michael K. Wolf.**
10.14 Company Retirement Plan For Key Executive Officers.**
10.15 Consulting Agreement between the Company and Sidney Warshauer.**
10.16 Put/Call Option Agreement, dated as of April 14, 1989, between Holdings and Delaware North.*
12.1 Statements re computation of ratios.***
21.1 Subsidiaries of Holdings.*
23.1 Consent of Ernst & Young LLP.***
23.2 Consent of Altschuler, Melvoin and Glasser LLP.***
23.3 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).*
24.1 Power of Attorney (see signature page).*
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of State Street Bank and Trust Company
under the Trust Indenture Act of 1939.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal for the 11 1/4% New Senior Discount Notes due 2008.*
99.2 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.*
99.3 Form of Notice of Guaranteed Delivery.*
</TABLE>
- ---------------
* Previously filed.
** Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-50437) of APCOA, Inc. filed with the SEC on April 17, 1998, as
amended on June 9, 1998, July 15, 1998 and August 11, 1998.
*** Filed herewith.
(b) Financial Statement Schedule.
II-2
<PAGE> 146
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on August 11, 1998.
AP HOLDINGS, INC.
By *
------------------------------------
G. Walter Stuelpe, Jr.
Chief Executive Officer, President
and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert N. Sacks and Michael K. Wolf his
attorney-in-fact with power of substitution for him in any and all capacities,
to sign any amendments, supplements, subsequent registration statements relating
to the offering to which this Registration Statement relates, or other
instruments he deems necessary or appropriate, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on August 11, 1998.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
* Chief Executive Officer, President and
- ----------------------------------------------------- Director (Principal Executive Officer)
G. Walter Stuelpe, Jr.
* Treasurer (Principal Financial and Accounting
- ----------------------------------------------------- Officer)
Michael J. Celebrezze
* Chairman and Director
- -----------------------------------------------------
John V. Holten
* Assistant Secretary and Director
- -----------------------------------------------------
Gunnar E. Klintberg
*By: /s/ ROBERT N. SACKS
------------------------------------------------
Robert N. Sacks
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 148
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of AP Holdings, Inc.
(the Company) as of December 31, 1996 and 1997, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
February 3, 1998 (included elsewhere in this Registration Statement). Our audit
also included the financial statement schedule for each of the three years in
the period ended December 31, 1997, listed in Item 21(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Cleveland, Ohio
February 3, 1998
II-5
<PAGE> 149
SCHEDULE II
AP HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS(1) OF YEAR
----------- ------------ ------------ -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts
Allowance for doubtful
accounts................... $ 369 $ 101 $ -- $ (68) $ 402
====== ====== ====== ====== ======
Year ended December 31, 1996:
Deducted from asset accounts
Allowance for doubtful
accounts................... $ 402 $ 7 $ -- $ (94) $ 315
====== ====== ====== ====== ======
Year ended December 31, 1997:
Deducted from asset accounts
Allowance for doubtful
accounts................... $ 315 $ 139 $ -- $ (11) $ 443
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Represents uncollectible accounts written off, net of recoveries.
II-6
<PAGE> 150
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1 Purchase Agreement, by and among Holdings and Donaldson,
Lufkin & Jenrette Securities Corporation, dated as of March
25, 1998.*
2.1 Combination Agreement, dated as of January 15, 1998, by and
between APCOA, Inc. and the Standard Owners.**
3.1 Restated Certificate of Incorporation of Holdings.*
3.2 By-Laws of Holdings.*
4.1 Indenture, dated as of March 30, 1998, by and among Holdings
and State Street Bank and Trust Company, with respect to the
New Notes.*
4.2 Form of New Note (included as Exhibit A to Exhibit 4.1).*
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.*
10.1 Registration Rights Agreement, dated as of March 30, 1998,
by and between Holdings and Donaldson, Lufkin & Jenrette
Securities Corporation.*
10.2 Credit Agreement, dated as of March 30, 1998, by and among
the Company, The First National Bank of Chicago, as Agent
and Lender, and the Other Financial Institutions party
thereto.**
10.3 Stockholders Agreement, dated as of March 30, 1998, by and
among Dosher Partners, L.P. and SP Associates and Holberg,
Holdings and the Company.**
10.4 Stockholders Agreement, dated as of April 14, 1989, by and
among Holdings, Holberg, Delaware North and each member of
the management of the Company who is a stockholder of
Holdings.**
10.5 Tax Sharing Agreement, dated as of April 28, 1989, as
amended as of March 30, 1998, by and among Holberg, Holdings
and the Company.**
10.6 Employment Agreement between the Company and Myron C.
Warshauer.**
10.7 Employment Agreement between the Company and G. Walter
Stuelpe, Jr.**
10.8 Executive Transition Agreement between the Company and James
V. LaRocco, Jr.**
10.9 Severance Agreement between the Company and Trevor R. Van
Horn.**
10.10 Employment Agreement between the Company and Herbert W.
Anderson, Jr.**
10.11 Employment Agreement between the Company and Michael J.
Celebrezze.**
10.12 Employment Agreement between the Company and Michael K.
Wolf.**
10.13 Deferred Compensation Agreement between the Company and
Michael K. Wolf.**
10.14 Company Retirement Plan For Key Executive Officers.**
10.15 Consulting Agreement between the Company and Sidney
Warshauer.**
10.16 Put/Call Option Agreement, dated as of April 14, 1989,
between Holdings and Delaware North.*
12.1 Statements re computation of ratios.***
21.1 Subsidiaries of Holdings.*
23.1 Consent of Ernst & Young LLP.***
23.2 Consent of Altschuler, Melvoin and Glasser LLP.***
23.3 Consent of Wachtell, Lipton, Rosen & Katz (contained in
Exhibit 5.1).*
24.1 Power of Attorney (see signature page).*
25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1 of State Street Bank and Trust Company under the
Trust Indenture Act of 1939.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal for the 11 1/4% New Senior
Discount Notes due 2008.*
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
99.2 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.*
99.3 Form of Notice of Guaranteed Delivery.*
</TABLE>
- ---------------
* Previously filed.
** Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-50437) of APCOA, Inc. filed with the SEC on April 17, 1998, as
amended on June 9, 1998, July 15, 1998 and August 11, 1998.
*** Filed herewith.
(b) Financial Statement Schedule.
<PAGE> 1
EXHIBIT 12.1
AP HOLDINGS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT RATIO DATA)
<TABLE>
<CAPTION>
THREE MONTHS PRO FORMA
YEAR ENDED DECEMBER 31, ENDED MARCH 31, ----------------------
--------------------------------------------- ------------------ THREE MONTHS
1993 1994 1995 1996 1997 1997 1998 1997 1998
------- ------- ------- ------ ------ ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes, minority
interest and
extraordinary item...... $(4,037) $(2,880) $(2,273) $1,469 $2,320 $ (345) $(14,275) $(7,069) $(16,705)
Fixed charges............. 2,966 3,129 4,216 4,261 4,611 1,074 1,277 29,393 7,281
------- ------- ------- ------ ------ ------- -------- ------- --------
Earnings.................. $(1,071) $ 249 $ 1,943 $5,730 $6,931 $ 729 $(12,998) $22,324 $ (9,424)
======= ======= ======= ====== ====== ======= ======== ======= ========
Interest expense.......... $ 2,084 $ 2,437 $ 3,101 $3,409 $3,713 $ 869 $ 1,037 $18,931 $ 4,665
Amortization of deferred
financing costs......... 361 198 574 228 180 42 48 759 190
Interest portion of rent
expense................. 521 494 541 624 718 163 192 9,703 2,426
------- ------- ------- ------ ------ ------- -------- ------- --------
Fixed charges............. $ 2,966 $ 3,129 $ 4,216 $4,261 $4,611 $ 1,074 $ 1,277 $29,393 $ 7,281
======= ======= ======= ====== ====== ======= ======== ======= ========
Ratio of earnings to fixed
charges................. Note 1 Note 1 Note 1 1.3x 1.5x Note 1 Note 1 Note 1 Note 1
======= ======= ======= ====== ====== ======= ======== ======= ========
</TABLE>
- ---------------
Note 1: Earnings were inadequate to cover fixed charges by $4,037, $2,880,
$2,273, $345, $14,275, $7,069 and $16,705 for the years ended December 31, 1993,
1994 and 1995, the three months ended March 31, 1997 and 1998, the pro forma
year ended December 31, 1997 and the pro forma three months ended March 31,
1998, respectively.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Historical Financial Data of Holdings" and to the use of our reports
dated February 3, 1998, in Amendment No. 3 to the Registration Statement (Form
S-4 No. 333-50433) and related Prospectus of AP Holdings, Inc. for the
registration of $70,000,000 of 11 1/4% Senior Discount Notes.
ERNST & YOUNG LLP
Cleveland, Ohio
August 10, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ALTSCHULER, MELVOIN AND GLASSER LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Historical Financial Data of Standard" and to the use of our reports
dated February 3, 1998, in Amendment No. 3 to the Registration Statement (Form
S-4 No. 333-50433) and related Prospectus of AP Holdings, Inc. for the
registration of $70,000,000 of 11 1/4% Senior Discount Notes.
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
August 10, 1998
