AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996
REGISTRATION STATEMENT NO. 333-08843
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM F-1/S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONSORCIO G GRUPO DINA, S.A. DE C.V.
(Exact name of co-registrant as specified in its Charter)
CONSORTIUM G DINA GROUP, INC.
(Translation of co-registrant name into English)
UNITED MEXICAN STATES 3711 NOT APPLICABLE
(State or other juris- (Primary standard (I.R.S. Employer
diction of incorporation industrial classi- Identification No.)
or organization) fication code number)
Tlacoquemecatl 41
Colonia Del Valle
03100, Mexico, D.F.
Mexico
(525) 420-3900
(Address and telephone number of co-registrant's principal executive offices)
MCII HOLDINGS (USA), INC.
(Exact name of co-registrant as specified in its Charter)
DELAWARE 3711 86-0830781
(State or other juris- (Primary standard (I.R.S. Employer
diction of incorporation industrial classification Identification No.)
or organization) code number)
Dial Tower
1850 North Central Avenue
Phoenix, Arizona 85004
(602) 207-5000
(Address and telephone number of co-registrant's principal executive offices)
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RANDALL H. DOUD, ESQ.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
(212) 735-3000
(Name, address, including zip code, and telephone
number, including area code, of agent for service of co-registrants)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, check the following box: |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please 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(c) 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 delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. |_|
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THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE CO-REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 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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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 secur-
ties in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws
of any such jurisdiction.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 8, 1996
OFFER FOR ALL OUTSTANDING SENIOR SECURED DISCOUNT NOTES DUE 2002
IN EXCHANGE FOR SENIOR SECURED DISCOUNT EXCHANGE NOTES DUE 2002
OF
CONSORCIO G GRUPO DINA, S.A. DE C.V.
AND
MCII HOLDINGS (USA), INC.
THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON
NOVEMBER __, 1996, UNLESS EXTENDED
Consorcio G Grupo Dina, S.A. de C.V., a Mexican corporation
("Grupo Dina"), and MCII Holdings (USA), Inc., a Delaware corporation and a
wholly-owned subsidiary of Grupo Dina ("MCII Holdings" and, together with
Grupo Dina, the "Issuers"), hereby offer, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange
an aggregate principal amount of up to US$206,499,680 of Senior Secured
Discount Exchange Notes due 2002 (the "New Notes") of the Issuers, which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of the issued and
outstanding Senior Secured Discount Notes due 2002 (the "Old Notes" and,
with the New Notes, the "Notes"), of the Issuers from the holders thereof.
The terms of the New Notes are identical in all material respects to the
Old Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by December 30, 1996, the Old Notes will bear additional
interest as described herein. See "Description of the Notes." The Old Notes
were issued on June 3, 1996 pursuant to an offering exempt from
registration under the Securities Act in which Old Notes were exchanged for
10 1/2% Guaranteed Notes due 1997 (the "Eurobonds") of Grupo Dina.
The Issuers are fully and unconditionally liable with respect to
payments of principal and interest on the Notes. It is intended that all
payments in respect of the Notes will be paid by Grupo Dina, and that
payments will be made by MCII Holdings only in the event of a failure to
pay by Grupo Dina. MCII Holdings will have subrogation rights against Grupo
Dina if MCII Holdings is required to make any payments under the Notes.
Such subrogation rights will be subordinated to the prior payment in full
of the Notes. Holders of the New Notes, by their acceptance of the New
Notes, will agree to report the New Notes as indebtedness of Grupo Dina
which is guaranteed by MCII Holdings for all tax purposes. In addition,
Grupo Dina and MCII Holdings have treated the Old Notes, and intend to
treat the New Notes, as debt of Grupo Dina guaranteed by MCII Holdings for
all tax purposes. The Notes will be redeemable at the option of Grupo Dina,
in whole or in part, at any time on or after November 15, 1998, at a
redemption price of 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date. The Old Notes are, and the
New Notes will be, dated as of, and accrue interest from, November 18, 1995
and will bear interest at the rate of 12% per annum through maturity;
provided, that, if the Notes are not rated either BB-or better by Standard
& Poor's Corporation ("S&P") or Ba3 or better by Moody's Investors Service,
Inc. ("Moody's") at November 15, 1999, the per annum interest rate shall be
increased on such date to 15% until maturity. Prior to and including the
interest payment due on November 15, 1998, the Notes will accrue interest
on a zero coupon basis and, accordingly, the principal value of the Notes
will accrete from US$705.65 as of November 18, 1995 for each US$1,000 in
principal amount to US$1,000 at November 15, 1998. Thereafter, all interest
will be payable in cash semiannually on May 15 and November 15 of each
year, commencing May 15, 1999. See "Description of the Notes."
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SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR
OLD NOTES IN THE EXCHANGE OFFER.
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 REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS __________, 1996.
The Old Notes are, and the New Notes will be, general senior
obligations of the Issuers. MCII Holdings' obligation under the Old Notes is,
and under the New Notes will be, secured by (i) a pledge of the common stock
(the "MCII Shares") of Motor Coach Industries International, Inc. ("MCII"), a
Delaware corporation which is a direct subsidiary of MCII Holdings, (ii) a
pledge of all certificates representing any of the pledged MCII Shares, and
(iii) a perfected first priority security interest in any cash or Cash
Equivalents (as defined herein) deposited with the Trustee (as defined
herein). Under certain circumstances, collateral in the form of MCII Shares
may be released by the Trustee and sold by MCII Holdings. The obligation of
Grupo Dina in respect of the New Notes will rank pari passu with the Old Notes
and with all other outstanding unsecured and unsubordinated obligations of
Grupo Dina, present or future, other than obligations which are mandatorily
preferred by statute or operation of law. The obligation of MCII Holdings in
respect of the New Notes will rank pari passu with the Old Notes and, by
reason of its being secured by collateral, will effectively rank senior to any
outstanding unsecured obligations of MCII Holdings. See "Description of the
Notes."
At June 30, 1996, Grupo Dina had outstanding Ps 2,442.2 million in
aggregate principal amount of indebtedness that, by reason of its being
secured by collateral, ranks effectively senior to the Old Notes and the
New Notes. At such date, MCII Holdings had no outstanding indebtedness
ranking senior to the Old Notes or the New Notes. At such date, MCII and
its subsidiaries had outstanding indebtedness in an aggregate principal
amount of US$195.6 million that is structurally senior to the Old Notes and
the New Notes.
For each Old Note accepted for exchange, the holder of such Old
Note will receive a New Note having a principal amount equal to that of the
surrendered Old Note. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
The New Notes are being offered hereunder in order to satisfy
certain obligations of the Issuers contained in the Registration Agreement
dated June 3, 1996 among the Issuers and the other signatories thereto (the
"Registration Agreement"). See "The Exchange Offer--Consequences of
Exchanging Old Notes" for a discussion of the Issuers' belief, based on
interpretations by the staff of the Securities and Exchange Commission (the
"SEC") as set forth in no-action letters issued to third parties, as to the
transferability of the New Notes upon satisfaction of certain conditions.
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 any resale of such New Notes. The Letter of Transmittal
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 Old Notes
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Issuers have
agreed that starting on the Expiration Date (as defined herein) and ending
on the close of business on the first anniversary of the Expiration Date,
they will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Issuers will not receive any proceeds from the Exchange Offer.
The Issuers will pay expenses in connection with the Exchange Offer
estimated to be approximately US$_________. Tenders of Old Notes pursuant
to the Exchange Offer may be withdrawn at any time prior to the Expiration
Date. In the event the Issuers terminate the Exchange Offer and do not
accept for exchange any Old Notes, the Issuers will promptly return the Old
Notes to the holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there
can be no assurance regarding the future development of a market for the
New Notes, or the ability of holders of the New Notes to sell their New
Notes or the price at which such holders may be able to sell their New
Notes. The Issuers do not intend to apply for listing or quotation of the
New Notes on any securities exchange or stock market.
AVAILABLE INFORMATION
The Issuers have filed with the SEC a Registration Statement (the
"Registration Statement") under the Securities Act with respect to the New
Notes being offered by this Prospectus. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits
thereto, to which reference is hereby made. Any statements made in this
Prospectus concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such
documents filed as an exhibit to the Registration Statement.
Grupo Dina is subject to the information and reporting requirements
of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"),
applicable to foreign private issuers. In accordance therewith, Grupo Dina
files reports and other information with the SEC. MCII Holdings is not
currently subject to the information and reporting requirements of the
Exchange Act. As a result of the Exchange Offer, MCII Holdings will become
subject to the informational requirements of the Exchange Act applicable to
domestic issuers and as such will be required to file with the SEC periodic
reports, but would not be required to file proxy or information statements.
Reports and other information filed by Grupo Dina or MCII Holdings
with the SEC can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the SEC's Regional Offices at 7 World Trade Center, 13th
Floor, New York, New York 10048, and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can
also be obtained by mail from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC (such as MCII Holdings). In addition, reports and
other information filed by Grupo Dina may be inspected at the offices of the
New York Stock Exchange (the "NYSE"), 11 Wall Street, New York, New York
10005, on which American Depositary Shares ("ADSs") representing shares of
Grupo Dina stock are listed. Reports and information of a public nature filed
by Grupo Dina are available for review at the offices of the Bolsa Mexicana de
Valores (the "Mexican Stock Exchange").
Each of the Issuers is required under the Indenture among the
Issuers and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"),
pursuant to which the Old Notes have been, and the New Notes will be, issued
(the "Indenture"), to furnish the Trustee with copies of all reports required
to be filed by it with the SEC under the Exchange Act, including annual
reports in English, which will include a review of operations and annual
audited financial statements prepared, with respect to Grupo Dina, in
conformity with generally accepted accounting principles in Mexico ("Mexican
GAAP") together with a reconciliation of net income and total stockholders'
equity to generally accepted accounting principles in the United States ("U.S.
GAAP") and, with respect to MCII Holdings, in conformity with U.S. GAAP. Upon
receipt thereof, the Trustee will promptly mail such reports to all holders of
the New Notes.
ENFORCEABILITY OF CIVIL LIABILITIES
AGAINST FOREIGN PERSONS
Most of the directors and officers of Grupo Dina and MCII Holdings,
as well as certain of the experts named herein, reside in Mexico and all or a
substantial portion of the assets of these persons and of Grupo Dina are
located in Mexico. As a result, it may not be possible for investors to effect
service of process in the United States upon such persons or to enforce
against them or Grupo Dina in U.S. courts judgments predicated upon the civil
liability provisions of the U.S. federal securities laws. Grupo Dina has been
advised by its Mexican counsel, Ritch, Heather y Mueller, S.C., that there is
doubt as to the enforceability, in original actions in Mexican courts, of
liabilities predicated solely on the U.S. federal securities laws and as to
the enforceability in Mexican courts of judgments of U.S. courts obtained in
actions predicated upon the civil liability provisions of the U.S. federal
securities laws.
Under Mexican law, in the event that proceedings are brought in
Mexico seeking to enforce obligations under the New Notes, such obligations
may be paid in Pesos at the rate of exchange in effect on the date and in the
place payment occurs. Such rate is currently determined by Banco de Mexico
(the "Bank of Mexico") and published in the Diario Oficial de la Federacion
every business day in Mexico.
The names of certain of Grupo Dina's coaches -- DINA(R), DIMEX(R),
Avante(R), Avante Plus(R) and Dorado(R) -- are registered trademarks of Grupo
Dina. The names of Grupo Dina's other coaches -- Paradiso(R) and Viaggio(R) --
are registered trademarks of Marcopolo S.A. ("Marcopolo"). MCI(R) is a
registered trademark of MCII. MCII has applied for but not yet received trade
name protection for the name "MCII" and trademark protection for "COACHGUARD"
and "DIESEL GUARD."
PRESENTATION OF CERTAIN INFORMATION
On January 1, 1993, the Mexican Congress approved the establishment
of a new currency unit, the New Peso, which replaced the previous currency
unit (the "Old Peso") at the rate of one New Peso per one thousand Old Pesos.
Effective January 1, 1996, the New Peso was replaced by the Peso, at the rate
of one Peso per one New Peso, as Mexico's currency unit. In this Prospectus,
references to "$", "US$" and "Dollars" are to United States Dollars,
references to "C$" are to Canadian dollars and references to "Ps" or "Pesos"
are to Pesos. All New Peso amounts for periods prior to January 1, 1996 and
all Old Peso amounts for periods prior to January 1, 1993, have been expressed
in Pesos. Certain amounts (including percentage amounts) which appear in this
Prospectus have been rounded.
Grupo Dina maintains its financial books and records in Pesos and
prepares its consolidated financial statements in conformity with Mexican
GAAP, which differs in certain respects from U.S. GAAP. Notes 1, 23 and 24 to
the audited consolidated financial statements of Grupo Dina contained
elsewhere in this Prospectus provide a description of the principal
differences between Mexican GAAP and U.S. GAAP, as they relate to Grupo Dina,
and a reconciliation to U.S. GAAP of net income and total stockholders'
equity.
The Mexican Institute of Public Accountants has issued Bulletin
B-10, "Recognition of the Effects of Inflation on Financial Information," and
Bulletin B-12, "Statement of Changes in Financial Position." Bulletin B-10
outlines the inflation accounting methodology employed by companies reporting
under Mexican GAAP. Inflation adjusted accounting is mandatory for Mexican
companies. The third amendment to Bulletin B-10, which has been effective
since January 1, 1990, calls for all financial information (including
historical statements) to be presented in constant Pesos as of the date of the
most recent balance sheet. The intended effect of such restatements is to
present all information for comparable periods in comparable monetary units
and thereby eliminate the distorting effect of inflation in the financial
statements. Unless otherwise stated herein, all of the financial information
included in this Prospectus is presented in constant Pesos as of June 30,
1996.
EXCHANGE RATES
For the convenience of the reader, this Prospectus contains
translations of certain Peso amounts into Dollars at specified exchange rates
published by the Bank of Mexico. Unless otherwise indicated, Dollar equivalent
information is based on the exchange rate reported by the Bank of Mexico on
June 30, 1996, which was Ps 7.5814 = US$1.00. The exchange rate reported as of
December 31, 1995, was Ps 7.7396 = US$1.00. The noon buying rates (the "Fed
Noon Rate") in New York City for cable transfers payable in Pesos, as
certified by the Federal Reserve Bank of New York for customs purposes on
December 31, 1995 and June 30, 1996 were Ps 7.7396 = US$1.00 and Ps 7.5814 =
US$1.00, respectively. The Fed Noon Rate on October__, 1996 was Ps 7.5550 =
US$1.00. No representation is made that the Peso or Dollar amounts set forth
in this Prospectus could be converted into Dollars or Pesos, as the case may
be, at any particular exchange rate or at all.
TABLE OF CONTENTS
Page
Available Information.............................................iii
Enforceability of Civil Liabilities against Foreign Persons.......iii
Presentation of Certain Information............................... iv
Summary........................................................... 1
Risk Factors...................................................... 9
Exchange Rates.....................................................18
Ratio of Earnings to Fixed Charges.................................20
Selected Financial Date of Grupo Dina..............................21
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Grupo Dina..........................23
Selected Financial Data of MCII Holdings...........................36
Management's Discussion and Analysis of Financial Condition
and Results of Operations of MCII Holdings.......................38
The Exchange Offer.................................................46
Business of Grupo Dina.............................................53
Business of MCII Holdings..........................................69
Management.........................................................79
Ownership of Common Stock..........................................85
Certain Transactions...............................................87
Description of the Notes...........................................88
Tax Considerations................................................107
Plan of Distribution..............................................111
Legal Matters.....................................................111
Experts...........................................................111
Index to Financial Statements.....................................F-1
SUMMARY
The following summary is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and financial
statements and the notes thereto appearing elsewhere in this Prospectus. As
used herein, unless the context otherwise requires, "Grupo Dina" means
Consorcio G Grupo Dina, S.A. de C.V. and its consolidated subsidiaries, "MCII
Holdings" means MCII Holdings (USA), Inc., a wholly-owned subsidiary of Grupo
Dina, and "MCII" means Motor Coach Industries International, Inc. and its
consolidated subsidiaries. Unless otherwise defined herein, capitalized terms
used in this summary have the respective meanings ascribed to them elsewhere
in this Prospectus. See "Risk Factors" for a discussion of certain factors
that should be considered in connection with the Exchange Offer.
CONSORCIO G GRUPO DINA, S.A. DE C.V.
Grupo Dina is one of the leading suppliers of medium-duty and
heavy-duty trucks in Mexico in the combined Class 5, 6, 7 and 8 truck market.
Classifications in the truck market are made on the basis of gross vehicle
weight ("GVW"). Class 5, 6 and 7 trucks are considered to be medium-duty
trucks while Class 8 trucks, which are characterized primarily by "cabs"
consisting of a separate engine and drive compartment section to which
trailers are attached, are considered heavy-duty trucks. Grupo Dina is a
domestic manufacturer of European-style intercity coaches in Mexico and a
major supplier of intercity coaches used primarily in the executive and
first-class service segments of the Mexican intercity transportation market.
Grupo Dina also manufactures and distributes replacement parts for trucks and
coaches and plastic components for truck, coach, bus and other industries. See
"Business of Grupo Dina." The principal executive offices of Grupo Dina are
located at Tlacoquemecatl 41 Colonia Del Valle, 03100, Mexico D.F., Mexico,
(525) 420-3900.
MCII HOLDINGS (USA), INC.
MCII Holdings is a Delaware corporation and a wholly-owned
subsidiary of Grupo Dina. MCII Holdings is a limited purpose corporation and
will conduct virtually no operations for so long as the Notes are outstanding.
Until such time as the MCII Shares are sold in accordance with the terms set
forth herein, MCII Holdings' wholly owned subsidiary will be MCII. MCII
Holdings, through its wholly owned subsidiary, MCII, designs, manufactures,
assembles and markets intercity coaches and replacement parts for coaches and
transit buses, principally in the United States and Canada. See "Business of
MCII Holdings." The principal executive offices of MCII Holdings are located
at Dial Tower, 1850 North Central Avenue, Phoenix, Arizona 85004, (602)
207-5000.
THE EXCHANGE OFFER
Securities Offered...... Up to US$206,499,680 aggregate principal
amount of Senior Secured Discount Exchange
Notes due 2002, which have been registered
under the Securities Act. The terms of the New
Notes and the Old Notes are identical in all
material respects, except for certain transfer
restrictions and registration rights relating
to the Old Notes and except that, if the
Exchange Offer is not consummated by December
30, 1996, the Old Notes will bear additional
interest as described herein. See "Description
of the Notes -- Registration Rights."
The Exchange Offer...... The New Notes are being offered in exchange
for a like principal amount of Old Notes. The
issuance of the New Notes is intended to
satisfy obligations of the Issuers contained
in the Registration Agreement. For procedures
for tendering, see "The Exchange Offer."
Tenders, Expiration
Date; Withdrawal...... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on November __, 1996, or
such later date and time to which it is
extended. The tender of Old Notes pursuant to
the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. Any Old
Note not accepted for exchange for any reason
will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Certain Tax
Consequences.......... The exchange of Old Notes for New Notes
pursuant to the Exchange Offer will not be
subject to Mexican or U.S. income tax. See
"Tax Considerations."
Use of Proceeds......... There will be no proceeds to the Issuers from
the exchange pursuant to the Exchange Offer.
Exchange Agent.......... IBJ Schroder Bank & Trust Company is serving
as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Old
Notes and the restrictions on transfer of such Old Notes as set forth in
the legend thereon as a consequence of the issuance of the Old Notes
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Issuers do not currently anticipate that they
will register Old Notes under the Securities Act. See "Description of the
Notes--Registration Rights." Based on interpretations by the staff of the
SEC as set forth in no-action letters issued to third parties, the Issuers
believe that New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any holder which is an "affiliate" of the
Issuers 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 holders' business and such holders have no arrangement with
any person to participate in the distribution of such New Notes. However,
the Issuers do not intend to request the SEC to consider, and the SEC has
not considered, the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution
of New Notes and has no arrangement or understanding to participate in a
distribution of New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes must acknowledge that such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." In addition, to comply with the state securities laws, the
New Notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with. The offer
and sale of the New Notes to "qualified institutional buyers" (as such term
is defined under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under the state securities laws. The Issuers
currently do not intend to register or qualify the sale of the New Notes in
any state where an exemption from registration or qualification is required
and not available. See "The Exchange Offer--Consequences of Exchanging Old
Notes" and "Description of the Notes--Registration Rights."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in
all material respects, except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if the
Exchange Offer is not consummated by December 30, 1996, the Old Notes will
bear additional interest as described under "Description of the Notes --
Registration Rights." Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
Securities Offered........ Up to US$206,499,680 aggregate principal
amount of Senior Secured Discount Exchange
Notes due 2002, which have been registered
under the Securities Act, each with an
initial accreted value as of November 18,
1995 of US$705.65 for each US$1,000 in
principal amount.
Payment of Interest....... The Old Notes are, and the New Notes will
be, dated as of, and accrue interest from,
November 18, 1995 and will bear interest
at the rate of 12% per annum through
maturity; provided, that, if the Notes are
not rated either BB-or better by S&P or
Ba3 or better by Moody's at November 15,
1999 the per annum interest rate shall be
increased on such date to 15% until
maturity. Prior to and including the
interest payment due on November 15, 1998,
the Notes will accrue interest on a zero
coupon basis and, accordingly, the
accreted value of the Notes will accrete
from US$705.65 as of November 18 1995 for
each US$1,000 in principal amount to
US$1,000 at November 15, 1998. Thereafter,
all interest will be payable in cash
semiannually on May 15 and November 15 of
each year, commencing May 15, 1999.
Original Issue Discount... The New Notes, like the Old Notes, will be
issued with original issue discount
("OID"). Each U.S. holder of the New Notes
will be required to include OID in income
as it accrues under a constant yield
method in advance of cash payments
attributable to such income. See "Tax
Considerations."
Repayment of Principal.... Principal of the Notes will be payable in
full on November 15, 2002.
Optional Redemption....... The Notes will be redeemable at the option
of Grupo Dina, in whole or in part, at any
time on or after November 15, 1998 at 100%
of the principal amount thereof plus
accrued and unpaid interest.
Security.................. MCII Holdings' obligation under the Old
Notes is, and under the New Notes will be,
secured by (i) a pledge of MCII Shares
held by MCII Holdings and (ii) a perfected
first priority security interest in any
cash or Cash Equivalents deposited with
the Trustee under the Indenture governing
the New Notes. Under certain
circumstances, collateral in the form of
MCII Shares may be released by the Trustee
and sold by MCII Holdings. See
"Description of the Notes."
Change of Control......... Upon a Change of Control, each holder of
New Notes shall have the right to require
Grupo Dina and MCII Holdings to repurchase
all or any part of the outstanding New
Notes at a purchase price equal to the
Accreted Value thereof, if on or prior to
November 15, 1998, and equal to the
aggregate principal amount thereof, plus
accrued and unpaid interest, if any,
thereafter. See "Description of the
Notes--Change of Control."
Ranking................... The obligation of Grupo Dina in respect of
the New Notes will rank pari passu with
the Old Notes and with all other
outstanding unsecured and unsubordinated
obligations of Grupo Dina, present or
future, other than obligations which are
mandatorily preferred by statute or by
operation of law. The obligation of MCII
Holdings in respect of the New Notes will
rank pari passu with the Old Notes and, by
reason of its being secured by collateral,
effectively senior to any outstanding
unsecured obligations of MCII Holdings.
At June 30, 1996, Grupo Dina had
outstanding Ps 2,442.2 million in
aggregate principal amount of indebtedness
that, by reason of its being secured by
collateral, ranks effectively senior to
the Old Notes and the New Notes. At such
date, MCII Holdings had no outstanding
indebtedness ranking senior to the Old
Notes or the New Notes. At such date, MCII
and its subsidiaries had outstanding
indebtedness in an aggregate principal
amount of US$195.6 million that is
structurally senior to the Old Notes and
the New Notes.
Form and Denominations.... New Notes will generally be issued in
denominations of US$1,000 and integral
multiples of US$1,000.
Covenants................. The indenture governing the Notes provides
for certain affirmative and negative
covenants by MCII Holdings and to a lesser
extent by Grupo Dina for the benefit of
the holders of Notes.
Use of Proceeds........... The Issuers will not receive any proceeds
from the Exchange Offer.
Exchange Offer; Registra-
tion Rights............. Holders of New Notes are not entitled to
any registration rights with respect to
the New Notes. Pursuant to the
Registration Agreement, the Issuers agreed
to file, at their cost, a registration
statement with respect to the Exchange
Offer. The Registration Statement of which
this Prospectus is a part constitutes the
registration statement for the Exchange
Offer. See "Description of the
Notes--Registration Rights."
Governing Law............. The Notes and any controversy arising
thereunder will be governed by the laws of
the State of New York.
RISK FACTORS
Prospective purchasers of the New Notes should consider
carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the specific factors set forth under "Risk
Factors" before making a decision to tender their Old Notes in the Exchange
Offer.
GRUPO DINA
SUMMARY FINANCIAL DATA
The following summary consolidated financial data as of and for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995 were derived
from the audited consolidated financial statements of Grupo Dina. The
summary consolidated financial data as of and for the six months ended June
30, 1995 and 1996 were derived from the unaudited consolidated financial
statements of Grupo Dina. The unaudited financial statements for the six
months ended June 30, 1995 and 1996 include all adjustments, consisting of
only normal recurring adjustments, that management considers necessary for
fair presentation of the financial position and results of operations for
the periods then ended. Results of operations for the six months ended June
30, 1996 are not necessarily indicative of results which may be expected
for the entire year. The following summary consolidated financial data
should be read in conjunction with "Selected Financial Data of Grupo Dina",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Grupo Dina" and the consolidated financial statements of
Grupo Dina and notes thereto included elsewhere in this Prospectus. The
consolidated financial statements of Grupo Dina are prepared in accordance
with Mexican GAAP, which differs in certain respects from U.S. GAAP.
<TABLE>
<CAPTION>
GRUPO DINA
CONSOLIDATED FINANCIAL INFORMATION
----------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------- --------------------------------------
1991 1992(2) 1993 1994 1995 1995 1996 1996(1)
---- ------- ---- ---- ---- ---- ---- -------
(IN MILLIONS, EXCEPT SHARE, PER SHARE AND PER ADS
INFORMATION)(2)
INCOME STATEMENT INFORMATION:
MEXICAN GAAP:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES PS 4,221.2 PS 4,833.7 PS 5,236.5 PS 4,327.5 PS 4,742.9 PS 2,695.8 PS 2,796.7 US$ 368.9
OPERATING INCOME 632.2 505.2 547.3 (292.2) (69.1) 11.7 85.1 11.2
NET INCOME (LOSS),
MAJORITY INTEREST(4) 607.7 518.4 465.7 (1,015.2) (529.9) 113.7 89.7 11.8
NET INCOME (LOSS) PER
SHARE, MAJORITY 6.90 3.06 2.39 (4.50) (2.05) 0.44 0.35 0.05
INTEREST
NET INCOME (LOSS) PER
ADS, MAJORITY INTEREST 27.59 12.21 9.56 (18.01) (8.21) 1.76 1.39 0.18
CASH DIVIDENDS PER
SHARE(5) 0 1.12 0.42 0.15 0 0 0 0
CASH DIVIDENDS PER
ADS(5) 0 4.49 1.67 0.60 0 0 0 0
WEIGHTED AVERAGE
SHARES OUTSTANDING 88,082,620 169,833,640 194,866,714 225,490,658 258,026,136 258,026,136 258,026,136 258,026,136
U.S. GAAP:
NET SALES PS 4,221.2 PS 4,833.7 PS 5,236.5 PS 4,327.5 PS 4,742.9 -- -- --
NET INCOME (LOSS)(4) 558.1 461.9 401.3 (535.3) (284.4) -- -- --
NET INCOME (LOSS)
PER ADS 25.34 10.86 8.24 (9.50) (4.41) -- -- --
WEIGHTED AVERAGE
ADSS OUTSTANDING 22,020,655 42,458,410 48,716,679 56,372,665 64,506,534 64,506,534 64,506,534 64,506,534
NUMBER OF NEW UNITS SOLD:
COACHES 984 1,165 1,818 804 1,176 655 800 800
TRUCKS 11,233 12,631 11,365 10,463 2,520 931 836 836
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------------- --------------------------------------
1991 1992 1993 1994 1995 1995 1996 1996(1)
---- ---- ---- ---- ---- ---- ---- -------
BALANCE SHEET INFORMATION:
MEXICAN GAAP:
PROPERTY, PLANT AND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUIPMENT, NET PS 567.0 PS 744.1 PS 962.5 PS 1,455.6 PS 1,641.2 PS 1,539.4 PS 1,768.7 US$ 233.3
TOTAL ASSETS 2,610.4 3,032.3 4,039.6 8,231.4 7,836.2 6,984.1 7,138.9 941.6
TOTAL LONG-TERM DEBT 557.2 949.4 874.9 4,371.0 4,621.4 4,060.6 3,920.6 517.1
TOTAL STOCKHOLDERS'
EQUITY, MAJORITY 826.2 1,038.0 2,107.1 1,962.6 1,853.3 1,664.6 1,732.6 228.5
INTEREST(6)
U.S. GAAP:
TOTAL ASSETS (7) 2,610.4 3,032.3 4,039.6 9,198.2 7,836.2 -- -- --
TOTAL STOCKHOLDERS'
EQUITY, MAJORITY
INTEREST(6) 593.2 756.4 1,761.1 2,250.1 1,979.8 -- -- --
</TABLE>
- ------------------------
(1) Translations of Pesos into U.S. dollars have been made at the rate
of Ps 7.5814 to US$1.00. Such translations are provided solely for
the convenience of the reader and do not reflect the financial
information in accordance with generally accepted accounting
principles for foreign currency translation.
(2) In February 1992, Grupo Dina's coach assembly lines were shut down
for a three-month period for planned modernization and expansion.
Production resumed in April 1992 on a limited basis for a
three-month period, with full production commencing in August 1992.
(3) Each Common and Series L ADS represents four shares of Common and
Series L Stock, respectively.
(4) Net income for the years ended December 31, 1991, 1992, 1993, 1994
and 1995 is shown after elimination of the income attributable to
the minority interest in Camiones. Under U.S. GAAP, income before
extraordinary credits for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 and net income for the corresponding periods are
identical.
(5) Dividends are calculated on the basis of the Pesos amount and the
number of outstanding shares of Common and Series L Stock or Common
and Series L ADSs, as the case may be, on the date the dividends
were declared.
(6) Stockholders' equity for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 is shown after elimination of the income
attributable to the minority interests in Camiones.
(7) Total assets under U.S. GAAP as of December 31, 1994 differ from
Mexican GAAP because of "pushdown" accounting for goodwill.
MCII HOLDINGS
SUMMARY FINANCIAL DATA
MCII Holdings was incorporated in connection with the issuance
of the Old Notes and carries out its operations through MCII and MCII's
subsidiaries. MCII Holdings was formed for the purpose of holding MCII as
its wholly owned subsidiary. On May 28, 1996, Grupo Dina transferred to
MCII Holdings all 100 shares of MCII, US$.01 par value common stock, in
exchange for which MCII Holdings issued to Grupo Dina all 1,000 shares of
its US$.01 par value common stock. As a result of this exchange between
entities under common control, the transaction was accounted for at
historical cost in a manner similar to that in a pooling of interests and,
therefore, all prior financial statements presented have been restated as
if the exchange took place at the beginning of such periods. The following
summary consolidated financial data as of and for the twelve months ended
December 31, 1991, 1992, 1993, the seven months ended July 31, 1994, the
five months ended December 31, 1994 and the twelve months ended December
31, 1995 were derived from the audited financial statements of MCII
Holdings. The summary consolidated financial data as of and for the six
months ended June 30, 1995 and 1996 has been derived from the unaudited
consolidated financial statements of MCII Holdings. The unaudited financial
statements for the six months ended June 30, 1995 and 1996 include all
adjustments, consisting of only normal recurring adjustments, that
management considers necessary for fair presentation of the financial
position and results of operations for the periods then ended. Results of
operations for the six months ended June 30, 1996 are not necessarily
indicative of results which may be expected for the entire year.
The Dial Corp. ("Dial") sold MCII pursuant to an initial public
offering on August 12, 1993. As a result, for periods prior to August 12,
1993, the summary consolidated financial data of MCII Holdings set forth
below represent the combined operating results and activities of Dial's
transportation manufacturing and replacement parts segment now conducted by
MCII Holdings, excluding the Canadian transit bus manufacturing business
formerly conducted by Dial that is not owned by MCII Holdings. In
accordance with U.S. GAAP, the assets and liabilities of the transportation
manufacturing and replacement parts business have been reflected in the
consolidated financial statements of MCII Holdings on the basis of Dial's
historical costs. Operating results and activities subsequent to August 12,
1993 mean the consolidated results and activities of MCII Holdings and its
subsidiaries. On August 8, 1994, Grupo Dina acquired all of the issued and
outstanding common stock of MCII (the "Merger"). The Merger was accounted
for as a purchase in accordance with Accounting Principles Board Opinion
No. 16 and therefore, the assets and liabilities of MCII were stated at
their estimated fair values as of the acquisition date ("purchase
accounting"). The excess of the consideration paid by Grupo Dina over the
estimated fair value of the net assets acquired was recorded as goodwill in
MCII's financial statements. As a result of the application of purchase
accounting, the financial statements before and after the Merger may not be
comparable in all material respects. For financial reporting purposes, the
Merger was accounted for effective August 1, 1994. Therefore, all financial
information for periods prior to August 1, 1994, is labeled as
"Predecessor." The following summary financial data should be read in
conjunction with "Selected Financial Data of MCII Holdings", "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
MCII Holdings" and the consolidated financial statements of MCII Holdings
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------- ------------------
SEVEN FIVE YEAR
MONTHS MONTHS ENDED
ENDED ENDED DECEMBER JUNE JUNE
JULY 31, DECEMBER 31, 30, 30,
1991 1992 1993 1994 31, 1994 1995 1995 1996
---- ---- ---- ---- -------- ---- ---- ----
(IN MILLIONS, EXCEPT NUMBER OF NEW COACHES DELIVERED)
INCOME STATEMENT INFORMATION:
REVENUES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES........................... US$311.4 US$337.0 US$394.1 US$271.8 US$191.8 US$509.9 US$267.3 US$316.1
FINANCE INCOME.................. 8.0 7.0 4.9 1.3 2.6 6.4 2.7 3.7
319.4 344.0 399.0 273.1 194.4 516.3 270.0 319.8
OPERATING COSTS AND EXPENSES:
COST OF SALES
(EXCLUSIVE OF ITEMS SHOWN
SEPARATELY BELOW)............... 237.5 253.6 303.1 203.5 151.6 397.4 203.8 249.1
PROVISION FOR RELOCATION
OF MANUFACTURING
FACILITIES...................... 9.6
DEPRECIATION AND
AMORTIZATION.................... 4.6 5.0 4.5 3.3 5.8 14.6 7.0 8.6
INTEREST EXPENSE,
FINANCE operations.............. 3.4 2.5 .8 0.3 0.7 2.7 1.1 1.6
RESEARCH AND development
EXPENSES........................ 2.5 2.3 1.4 1.3 0.5 2.9 1.4 3.4
SELLING, GENERAL AND ad-
MINISTRATIVE EXPENSES........... 34.9 38.0 43.9 27.8 26.6 60.4 28.3 28.4
MERGER RELATED EXPENSES......... 11.3
292.5 301.4 353.7 247.5 185.2 478.0 241.6 291.1
OPERATING INCOME................. 26.9 42.6 45.3 25.6 9.2 38.3 28.4 28.7
OTHER COSTS AND EXPENSES:
INTEREST EXPENSE................ .8 .7 1.5 1.8 2.5 13.4 6.4 6.7
OTHER (INCOME).................. (1.7) (1.4) (0.2) (0.2) (0.5) (0.3) (0.5)
GAIN FROM SALE OF
MARKETABLE SECURITIES........... (10.5)
MINORITY INTERESTS.............. 1.8 2.4 2.0 0.4
2.6 1.4 2.1 2.0 2.3 2.4 6.1 6.2
INCOME BEFORE INCOME TAXES....... 24.3 41.2 43.2 23.6 6.9 35.9 22.3 22.5
INCOME TAXES..................... 10.0 15.7 16.6 11.5 4.0 17.6 9.9 10.0
INCOME FROM CONTINUING
OPERATIONS...................... 14.3 25.5 26.6 12.1 2.9 18.3 12.4 12.5
DISCONTINUED OPERATIONS.......... (30.2) (46.6) (60.4) (3.5) (5.0)
INCOME (LOSS) BEFORE
CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
PRINCIPLE....................... (15.9) (21.1) (33.8) 8.6 2.9 18.3 12.4 7.5
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE(1).................... (2.9)
NET INCOME (LOSS) US$(15.9) US$(24.0) US$(33.8) US$8.6 US$2.9 US$18.3 US$12.4 US$7.5
NUMBER OF NEW COACHES
DELIVERED....................... 602 776 897 628 431 1,169 641 784
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
-------------------------------- --------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET INFORMATION:
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS................................... US$279.3 US$322.7 US$286.0 US$558.9 US$614.0 US$581.1 US$614.0
WORKING CAPITAL................................ 28.0 84.7 70.3 103.3 156.7 116.0 128.3
LONG-TERM DEBT, INCLUDING CURRENT PORTION...... 2.6 .8 90.5 195.0 217.8 178.9 195.7
STOCKHOLDERS' EQUITY(2)........................ 158.3 235.9 98.4 272.8 294.8 298.5 302.4
</TABLE>
- ---------------------
(1) Initial application of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
(2) Stockholders' equity for periods prior to August 1993 represent Dial's
investment and advances in the transportation, manufacturing and
replacement parts segment now conducted by MCII Holdings.
RISK FACTORS
The following factors should be considered carefully by holders
tendering Old Notes pursuant to the Exchange Offer, although the Risk
Factors set forth below (other than "--Consequences of Failure to Exchange
and Requirements for Transfer of New Notes") are generally applicable to
the Old Notes as well as the New Notes. In addition, tendering holders
should consider, among other things, certain considerations with respect to
investments in securities which are obligations of a United States company
and a Mexican company, not normally associated with investments in
securities of United States companies, including those set forth below.
MEXICAN GOVERNMENTAL, ECONOMIC AND POLITICAL FACTORS
Grupo Dina is a Mexican corporation and a significant portion of
its manufacturing facilities and assets are situated in Mexico. Beginning
in 1987, Mexico embarked on a series of economic reforms, including the
privatization of numerous state-owned commercial ventures, tax reform,
reduction of trade barriers, deregulation of commercial activity,
renegotiation of external debt and substantial reduction of the public
sector deficit. However, while the stated policy of the Mexican government
since 1983 has been to sell non-strategic, state-owned enterprises, the
Mexican government has exercised and continues to exercise a significant
influence over many aspects of the Mexican economy. Although the Mexican
economy experienced gradual improvement in a number of areas from 1988
until the end of 1994, in 1995 the Mexican economy experienced negative
rates of growth, high rates of interest, inflation, unemployment and large
devaulations of its currency.
Mexican governmental actions concerning the economy or
regulating certain industries could have a significant effect on private
sector entities including Grupo Dina, and on market conditions, prices, and
the performance of Mexican securities, including the New Notes. As a result
of the current Mexican recession, the demand in the domestic market for
products has decreased substantially. The value of Grupo Dina's assets and
its levels of earnings are expected to continue to be affected by such
events, inflation, interest rates, future currency fluctuations, taxation,
new regulatory environments, and other political, economic or diplomatic
developments affecting Mexico.
On December 1, 1994, Ernesto Zedillo Ponce de Leon was elected
as President of Mexico. President Zedillo's administration has indicated
that the Mexican government will continue to pursue the market-oriented
economic policies followed by the previous administration. Nevertheless,
there can be no assurance that the Zedillo administration, or any future
administrations, will continue to pursue market-oriented economic policies.
Certain political and economic events in Mexico during 1994
created economic uncertainty which continued in 1995. These events included
an armed uprising in Chiapas and assassinations of prominent Mexican public
figures, including the initial presidential candidate of the Partido
Revolucionario Institucional (the "PRI"), the political party that has
dominated the Mexican Government for over 65 years. Additionally, the
exchange rate policy followed by the Mexican Government in recent years was
abandoned in December 1994. Previously, the Bank of Mexico, the Mexican
central bank, permitted the exchange rate between the Peso and the Dollar
to fluctuate within a specified band, with only a minor daily adjustment to
the upper limit of the band. However, the above-referenced political
events, combined with reduced access to international financial markets and
increasing interest rates in the United States, put strong pressures on the
Bank of Mexico's ability to adhere to this exchange rate policy. A decrease
in capital inflows to Mexico, coupled with a large current account deficit,
led to diminishing foreign exchange reserves, ultimately resulting in the
Bank of Mexico, in December 1994, allowing the Peso to float freely.
Between December 19, 1994 and December 31, 1994, the New Peso depreciated
from Ps 3.46 per US$1.00 to Ps 5.00 per US$1.00, a 44% decline, and in
1995, the New Peso devalued approximately 55% against the Dollar,
decreasing from approximately Ps 5.00 per US$1.00 to approximately Ps 7.740
per US$1.00, in each case based on the Fed Noon Rate. From January 2, 1996
through September 30, 1996, the Peso has increased in value 0.98% against
the Dollar, based on the Fed Noon Rate. However, throughout this period the
value of the Peso against the Dollar has been and continues to be subject
to significant volatility. The exchange rate reported by the Bank of Mexico
was 7.7396 Pesos per US$1.00 at December 31, 1995 and 7.5519 Pesos per
US$1.00 at October __, 1996.
The Mexican Stock Exchange experienced increased volatility,
including a 25% decline in the Mexican Stock Exchange Index (the leading
market index, based upon the share prices of 30 major Mexican issuers) in
1995. From January 1, 1996 to October __, 1996, the Mexican Stock Exchange
Index increased __%.
In an effort to ease the financial crisis in Mexico, the
international community (including the International Monetary Fund, the
World Bank, the Bank for International Settlements, the Inter-American
Development Bank, a syndicate of commercial banks and certain Latin
American governments), led by the United States, agreed to provide to the
Government of Mexico a financial aid package (the "Aid Package") of
approximately US$51 billion, which was subsequently reduced to US$26.6
billion. The Aid Package imposed stringent financial conditions on the
Government. Under the terms of the Aid Package, Mexico committed to cut
Government spending, generate a surplus in 1995, pursue a tight monetary
policy and allow the real supply of domestic credit to contract, make
publicly available on a timely basis key fiscal and financial data on money
and credit aggregates, international reserves, the evolution of public
sector debt, and other measures of economic performance and continue
privatizations and other structural reforms. Although the Mexican
Government has drawn on the Aid Package, the financial crisis has
continued. No assurance can be given that the Aid Package will fully
achieve its purpose and restore investors' confidence in the economy.
The events occurring during 1994 and 1995 resulted in an
economic recession in Mexico characterized by a strong contraction in
demand for many products and services, including those of Grupo Dina,
reduced availability of credit, a severe liquidity and non-performing loan
crisis in the Mexican banking sector, high domestic interest rates, high
inflation, instability of foreign exchange policies, high unemployment and
the loss of international investor confidence in Mexico. The annual rate of
inflation as measured by changes in the Mexican National Consumer Price
Index ("NCPI") was 52.0% in 1995. Although Mexico's gross domestic product
"(GDP") grew at an annual rate of 2.8%, 0.7% and 3.5% during 1992, 1993 and
1994, respectively, Mexico's GDP declined by 6.6% during 1995. Although
Grupo Dina has no Dollar-denominated debt with Mexican banks, Grupo Dina
cannot provide any assurance that actions by the Mexican Government or
future developments in the Mexican economy, over which it has no control,
will not continue to adversely affect operations, financial conditions or
results.
In response to the adverse economic situation that developed at
the end of 1994, the administration of President Zedillo announced a series
of initiatives. In January 1995, President Zedillo announced an emergency
economic plan and a new accord among the Mexican Government and business
and labor leaders called, the Acuerdo de Unidad Para Superar la Emergencia
Economica (the "AUSEE").
On March 9, 1995, the Mexican Government announced an economic
plan called the Programa de Accion para Reforzar el AUSEE (the "PARAUSEE"),
which strengthened key aspects of the AUSEE. It consisted of the following
principal elements:
o The Mexican Government would seek to increase public sector
revenues. This was to be accomplished by increasing the
value added tax rate, effective April 1, 1995, from 10% to
15%, and increasing the prices for gasoline, fuel oil,
natural gas and electricity.
o The adoption of fiscal measures to increase the Mexican
Government's primary surplus and promote private sector
savings. These measures included reductions in the number
of public sector employees and postponement and
cancellation of new infrastructure projects, as well as
investment incentives for the private sector.
o A 10% raise in the minimum wage, effective as of the
beginning of 1995. A further 12% increase was implemented
as of April 1, 1995.
o The adoption of a monetary policy the goal of which was to
stabilize the New Peso and thereby induce capital inflows.
This policy was implemented by means of strict controls on
domestic credit with the intention of creating a
significant decrease in the monetary base in real terms.
o The continuation of a floating exchange rate policy.
Although the Bank of Mexico remains authorized to intervene
in the foreign exchange market, in order to minimize
volatility and promote an orderly foreign exchange market,
the Mexican Government announced it would promote
market-based mechanisms for stabilizing the exchange rate.
On March 19, 1995, the Bank of Mexico approved the
establishment of forward and option contracts for
over-the-counter transactions in the New Peso, and trading
of New Peso futures contracts on the Chicago Mercantile
Exchange began on April 25, 1995. Pursuant to its
authorization, the Bank of Mexico intervened in the foreign
exchange markets when the New Peso suffered further
devaluations on November 9 and 10, 1995.
o The adoption of measures to stabilize the Mexican banking
sector. These measures included increasing the funds
available for capitalization of insolvent banks and for
providing temporary capital to banks with short term needs,
increasing the level of loan loss provisions and adopting
various reforms to the legal ownership structure which are
intended to encourage increased foreign investment.
o A policy of sharing the burden of the economic adjustment
among all sectors of society, but protecting the poorest
segments of the population.
On May 31, 1995, President Zedillo announced the development
plan for his administration called the Plan Nacional de Desarrollo (the
"PND"), which established economic, political and social goals for the
period from 1995 to 2000.
On October 29, 1995, the Mexican Government signed a new pact
with labor and business leaders aimed at reviving the country's shrinking
economy while controlling prices. Under the new pact, known as the Alianza
para la Recuperacion Economica ("ARE"), the Government increased gasoline,
diesel and electricity prices 7% in December 1995 and has increased such
prices 1.2% per month during 1996 (except during April of 1996, during
which such prices increased by 6%). The ARE also included wage hike targets
of 10% for Mexico's minimum wage on December 4, 1995, plus an additional
10% in April 1996. Other wage increases are to be negotiated on a
case-by-case basis. The ARE, which is scheduled to terminate on December
31, 1996, also includes a series of tax incentives aimed at boosting
private investment throughout 1996. For example, companies will be able to
deduct any increases in investments made in 1996 above the amounts invested
in 1995.
Economic plans of the Mexican Government in the past have not,
in certain respects, fully achieved their objectives, and there can be no
assurance that the PARAUSEE, the PND, the ARE and the other economic plans
of the Mexican Government will achieve their stated goals or as to their
effect on the Mexican economy or what effect these plans or the
implementation thereof will have on Grupo Dina's businesses, financial
condition or results of operations. The Mexican Government's economic
policies and any significant future devaluation of the Peso against the
Dollar could adversely affect the Dollar value of an investment in
securities the primary obligor of which is a Mexican company.
In recent months, the press in Mexico and internationally has
reported on various allegations that some prominent Mexican business
persons received improper preferential treatment under the Salinas
administration. Grupo Dina cannot assess the accuracy of these reports as
they may relate to other Mexican businesses or predict the action that the
current administration may take, if any, in a particular case, but Grupo
Dina and its controlling shareholders, one of whom has been mentioned in
some of the reports, deny that they have received any improper benefits and
believe that such reports will not adversely affect Grupo Dina.
INDUSTRY CYCLICALITY
As in other countries, unit sales of new trucks in Mexico have
historically been subject to substantial cyclical variation based on
general economic conditions. Over the past two decades the Mexican truck
industry has been subject to several cycles, influenced by overall levels
of economic activity, changes in the availability of credit, fluctuations
in interest rates and governmental actions. During the mid-1970's
(1973-1976), sales of Class 6, 7 and 8 trucks averaged 25,000 units per
year. Sales declined to 17,867 units in 1977, then progressively increased
to 54,463 units in 1981. With the balance of payments crisis in 1982 and
subsequent economic contraction, sales declined from 27,957 units in 1982
to 10,305 units in 1983 before recovering to an average of 18,323 units per
year during 1984 and 1985. As a result of economic volatility and
adjustments in Mexico between 1986 and 1988, sales declined to an average
of 6,925 units per year during the 1986 to 1989 period. After experiencing
approximately 60% annual sales growth rates in 1990 (15,382 units) and 1991
(25,199 units), the Mexican truck industry leveled, to an average of 30,000
units per year for the 1992 to 1994 period. In 1995, unit sales declined to
5,219 as a result of the economic crisis in Mexico.
The Mexican coach industry also has historically been subject to
substantial cyclical variation based on general economic conditions. The
Mexican coach industry experienced annual increases in unit sales from 1987
(217 units) to 1993 (4,318 units). In 1994, there were 2,297 unit sales but
due to the Mexican economic crisis, unit sales in 1995 declined to 174,
excluding exports. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Grupo Dina."
The United States and Canadian intercity coach industries also
have historically been subject to substantial cyclical variation based on
general economic conditions. During the period from 1984 to 1990, MCII
delivered an average of 1,152 units per year, with the high and low
delivery years being 1989 (1,367 units) and 1986 (870 units), respectively.
In 1991, however, MCII's deliveries declined to 602 units as a weak
economic environment and reduced travel by foreigners in the United States
resulted in lower bookings for tour and charter operations as well as a
decline in ridership on regularly scheduled intercity passenger services.
This downturn was exacerbated by the 1990 strike and bankruptcy proceeding
involving Greyhound Lines, Inc. ("GLI") which caused significant disruption
in the United States coach industry. After emerging from bankruptcy in
1991, GLI began ordering coaches from MCII and took delivery of nearly
1,000 units during 1992 to 1995. The GLI deliveries, along with a general
economic improvement in the U.S. and Canada, resulted in annual
improvements in MCII's total deliveries during the period from 1992 to
1995, with 1995 unit deliveries totalling 1,169. There can be no assurance
that such upturn will continue or that it will have a material positive
effect on MCII's business, financial condition and results of operations.
MCII's coach deliveries totaled 784 units during the first six months of
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of MCII Holdings."
NORTH AMERICAN FREE TRADE AGREEMENT
The North American Free Trade Agreement ("NAFTA"), which is
designed to reduce trade barriers among the United States, Canada and
Mexico and thereby integrate the North American economy, became effective
on January 1, 1994. NAFTA is expected to remove, over a transition period
which commenced in January 1994, most customs duties imposed on goods
traded among the three countries, remove or limit many investment
restrictions, liberalize trade in services, provide a specialized means for
settlement of, and remedies for, trade disputes arising under NAFTA, and
result in new laws and regulations to further these goals. The Mexican
government's objectives in seeking a free trade agreement included
improving access to the United States and Canadian markets for Mexican
exporters and promoting increased foreign investment in Mexico. As a result
of the ratification of NAFTA, Grupo Dina anticipates that it will, over a
period of time, face the potential for increased competition from U.S. and
Canadian truck suppliers as tariff restrictions on new truck imports are
eliminated over a ten-year period and non-tariff restrictions are
eliminated over a five-year period. See "Business Strategy of Grupo Dina"
and "Business of Grupo Dina--Regulation." In addition, Grupo Dina expects
that its combined Grupo Dina and MCII coach operations will face
substantial competition in the U.S., Canadian and other markets in which it
will compete. See "Business of Grupo Dina--Strategy" and "Business of Grupo
Dina--Regulation."
CURRENCY FLUCTUATIONS AND EXCHANGE CONTROLS
The depletion of international reserves, coupled with other
adverse political and economic events described above, and the Bank of
Mexico's decision in December 1994 to abandon a controlled exchange rate
policy in favor of the present floating exchange rate policy had an adverse
effect on the results of operations of Grupo Dina. The value of the Peso,
as indicated by its volatility in late 1994 and 1995 may be subject to
significant future devaluation. Significant future devaluations of the Peso
or the imposition of restrictive exchange control policies by the Mexican
Government can result in substantial fluctuation in Grupo Dina's foreign
exchange positions and, therefore, its results of operations as reported
under Mexican GAAP. Furthermore, significant future devaluation of the
Peso, or the imposition of restrictive exchange control policies by the
Mexican government, could adversely affect the value of the New Notes
and/or the ability of Grupo Dina to obtain or transfer Dollars in order to
satisfy its dollar-denominated obligations.
While the Mexican government does not currently restrict, on the
date of this Prospectus, and has not recently restricted, the right or
ability of Mexican or foreign persons or entities to convert Pesos to
Dollars, no assurance can be given that the Mexican government will not
institute restrictive exchange rate policies in the future.
INFLATION
During most of the 1980s, Mexico experienced high levels of
inflation. This led to high interest rates, devaluations of the Peso and
substantial government controls over exchange rates and prices, which
adversely affected operating revenues and margins. As a result of the
devaluation of the Peso, inflation increased substantially in Mexico during
1995. The annual rates of inflation, as measured by changes in the NCPI
were 11.9%, 8.0%, 7.1% and 52.0% for the years 1992, 1993, 1994 and 1995,
respectively. Annual inflation is expected to decline to approximately
30.6% by the end of 1996, according to the Bank of Mexico. If inflation in
Mexico does not decline, the Mexican economy and, consequently, the
performance of Grupo Dina may continue to be adversely affected.
The economic instability that began at the end of 1994 led to
sharply higher interest rates in 1995, both domestically and externally, on
Mexican public and private sector debt and reduced opportunities for
refinancing or refunding maturing debt issues. High interest rates in
Mexico have an effect on financing costs and thus on Grupo Dina's results
of operations.
LOSSES IN 1994 AND 1995; INABILITY OF EARNINGS TO COVER FIXED CHARGES
Grupo Dina's earnings were not sufficient to cover fixed charges
by Ps (2.76) under Mexican GAAP and by Ps (2.82) under U.S. GAAP for the
year ended 1994 and by 0.35 for the year ended 1995. Such inability of
earnings to cover fixed charges is attributable to the significant downturn
in the Mexican economy at the end of 1994 which continued through 1995 and
resulted in net losses of Ps 1,015.2 million or Ps 4.50 per share and Ps
529.9 million or Ps 2.05 per share, for 1994 and 1995, respectively. At
June 30, 1996, Grupo Dina's ratio of earnings to fixed charges was 1.88.
There can be no assurance that Grupo Dina's earnings in 1996 will be
sufficient to cover fixed charges.
PRODUCT LIABILITY; LACK OF INSURANCE
Manufacturers and sellers of defective products in Mexico may be
subject to liability for loss and injury caused by such products under
Mexican law. Grupo Dina does not carry product liability insurance.
Although Grupo Dina has never had a product liability claim brought against
it and Mexican laws providing for such liability appear to have been seldom
utilized, no assurance can be given that Grupo Dina may not be exposed to
future product liability claims. However, if any such claims are
successful, Grupo Dina considers that it will have sufficient resources to
pay such claims. Grupo Dina through MCII Holdings has purchased insurance
covering its exposure to product liability claims relating to all coaches
sold by Grupo Dina through MCII Holdings in the United States and Canada.
MCII Holdings is subject to various product liability claims for
personal injuries and property damage allegedly relating to the use of
products manufactured or sold by it. MCII Holding's management considers
litigation of this nature to be in the ordinary course of its business. The
ultimate outcome of these claims, or potential future claims, cannot
presently be determined. MCII maintains product liability insurance in
customary amounts; however, there can be no assurance that such insurance
will be available in the future or on terms acceptable to MCII.
HOLDING COMPANY STRUCTURE
MCII Holdings conducts virtually no operations. MCII Holdings'
operations are conducted through MCII. MCII Holdings' ability to pay
interest on the Notes when interest thereon becomes due, and to pay the
principal of the Notes at maturity, will be dependent on MCII's ability to
pay dividends, or to otherwise loan, advance or transfer funds, to MCII
Holdings in amounts sufficient to service MCII Holdings' debt obligations.
MCII is currently a party to various debt agreements which, among other
things, restrict MCII's ability to pay dividends, or otherwise loan,
advance or transfer funds, to MCII Holdings and the amount of borrowings
that MCII may incur. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of MCII Holdings -- Liquidity and
Capital Resources."
In addition, MCII Holdings' rights, and the rights of MCII
Holdings' creditors, including the holders of the New Notes, to participate
in the assets of MCII upon any liquidation or reorganization of MCII or
otherwise will be subordinated to the prior claims of the creditors,
including trade creditors, of MCII, except to the extent that MCII Holdings
may itself be a creditor with recognized claims against MCII. As a result,
holders of the Notes may recover less ratably than creditors of MCII or its
subsidiaries in the event of the liquidation or reorganization of MCII.
RELEASE OF COLLATERAL
MCII Holdings' obligation under the Old Notes is, and under the
New Notes will be, secured by (i) a pledge of MCII Shares and (ii) a
perfected first priority security interest in any cash or Cash Equivalents
deposited with the Trustee under the Indenture governing the New Notes.
Under certain circumstances, collateral in the form of MCII Shares may be
released by the Trustee and sold by MCII Holdings. See "Description of the
Notes -- Security for the Notes."
MCII CANADIAN TAX LIABILITY
The Canadian income tax returns of MCII's subsidiary, Motor
Coach Industries Limited, a Canadian corporation ("MCIL"), for the years
1982 through 1992 are currently under review by Revenue Canada, the
Canadian tax authority, which is reviewing the profit allocation procedures
between MCIL and Motor Coach Industries, Inc. ("MCI"), a wholly owned
subsidiary of MCII. Revenue Canada's position is that, under such
procedures, insufficient income was allocated to MCIL, the Canadian
tax-paying entity, and that, as a result, Canadian income taxes were
underpaid. A formal reassessment has been issued by Revenue Canada with
respect to the 1985 return. A notice of objection has been filed by MCII
for 1985. In the event of an adverse judgment, the additional income taxes
for 1982 through 1992 could amount to up to US$25,000,000 plus interest of
approximately US$25,000,000 and, in addition, MCII may be subject to
potential reassessments for years subsequent to 1992 on the same basis
which could result in additional income taxes and interest, all before
recoveries of U.S. Federal income taxes which may be available to offset a
portion of any additional taxes paid to Canada. Although MCII is still in
the process of obtaining additional information, based upon its review of
current relevant information, including the advice of outside counsel, MCII
is of the opinion that Revenue Canada's arguments are without merit and
that any liability from this matter will not be material to its financial
condition or results of operations.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
The number and types of trucks and coaches which can be imported
into Mexico and thus compete with Grupo Dina's products are regulated
through a system of compensatory quotas, which under the provisions of
NAFTA will be phased out over a five-year period, and tariffs, which under
provisions of NAFTA will be phased out over a ten-year period. See "--North
American Free Trade Agreement."
Grupo Dina's operations and products are subject to Mexican
federal and state laws and regulations relating to protection of the
environment. Grupo Dina has voluntarily undertaken a program designed to
cause its operations and products to exceed standards required by current
Mexican federal and state environmental laws. However, it is possible that
changes in Mexican federal or state environmental laws, or their
interpretation or enforcement, could result in material costs to Grupo
Dina. See "Business of Grupo Dina--Environmental Matters."
MCII Holdings' operations and products are subject to various
laws and regulations applicable in the United States, Canada and other
countries, including, in the United States, the Clean Air Act and other
environmental regulations, United States federal motor vehicle safety
standards, and the Americans with Disabilities Act, and in Canada, various
environmental acts and Canadian motor vehicle safety regulations. The cost
of compliance with future regulations cannot be predicted with any degree
of certainty and may significantly affect MCII's operations and financial
results. See "Business of MCII Holdings--Government Regulation."
PENDING REVISIONS TO HANDICAPPED ACCESSIBILITY STANDARDS FOR COACHES
The Americans with Disabilities Act required, among other
things, that the U.S. Department of Transportation (the "DOT") promulgate
handicapped accessibility standards for coaches. Although the DOT has not
issued proposed regulations for public comment, there are indications that
the regulations (which are expected to be issued for comment in December
1996 and finalized in 1997) might require each coach in an operator's fleet
to be handicapped accessible, rather than permitting the operation of a
limited number of accessible coaches. Requiring complete fleet
accessibility could have a material adverse effect on an operator's
business and possibly on MCII's coach business and U.S. coach sales by
Grupo Dina. The final regulations will be applicable to operators with
larger fleets two years after issuance of the final regulations and
applicable to operators with smaller fleets three years after issuance of
the final regulations. No prediction can be made concerning the final
content of the regulations promulgated by the DOT, nor the effect these
regulations may have on Grupo Dina or MCII Holdings' business, financial
condition and operating results.
DIFFERENCES IN CORPORATE DISCLOSURE AND ACCOUNTING STANDARDS
A principal objective of the securities laws of the United
States, Mexico and other countries is to promote full and fair disclosure
of all material corporate information. It should be realized, however, that
there may be less publicly available information about foreign issuers of
securities listed in the United States than is regularly published by or
about domestic issuers of listed securities.
In addition, Grupo Dina prepares its financial statements in
accordance with Mexican GAAP, which differs from U.S. GAAP in a number of
respects. For example, most Mexican companies must incorporate the effects
of inflation directly in accounting records and in their published
financial statements. Thus, Mexican financial statements and reported
earnings may differ from those of companies in other countries in this and
other respects. For a discussion of the principal differences between
Mexican GAAP and U.S. GAAP and for a reconciliation to U.S. GAAP of net
income and total stockholders' equity, see notes 1, 23 and 24 to the
audited consolidated financial statements of Grupo Dina contained elsewhere
in this Prospectus.
LACK OF A PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes.
The Old Notes were issued on June 3, 1996 to a small number of
institutional investors and are eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages (PORTAL) Market,
the National Association of Securities Dealers' screenbased, automated
market for trading of securities eligible for resale under Rule 144A. To
the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for the remaining untendered Old Notes could be
adversely affected. There is no existing trading market for the New Notes,
and there can be no assurance regarding the future development of a market
for the New Notes, or the ability of holders of the New Notes to sell their
New Notes or the price at which such holders may be able to sell their New
Notes. The Issuers do not intend to apply for listing or quotation of the
New Notes on any securities exchange or stock market.
CUSTOMER CONCENTRATION IN THE COACH BUSINESS
Grupo Dina and MCII Holdings have historically sold a
significant percentage of new coaches each year to a limited number of
large coach operators. In 1994, Grupo Estrella Blanca, Grupo Tres Estrellas
de Oro and Grupo Mexico Pachuca together accounted for over 10% of Grupo
Dina's unit sales of coaches. However, because of the economic crisis in
Mexico, these Mexican large coach operators were not significant customers
during 1995 and are not expected to be such in 1996. The lack of orders
from these customers resulted in lower unit sales during 1995. In 1994 and
1995, GLI purchased 282 and 111 new coaches from MCII Holdings, accounting
for 27% and 10% of MCII Holdings' unit sales of coaches, respectively. See
"Business of Grupo Dina--Coach Segment--Customers" and "Business of MCII
Holdings--Coach--Customers."
EXPIRATION OF NAVISTAR CONTRACT
Since 1987, Navistar International Transportation Corp.
("Navistar") has supplied Grupo Dina with technology for cabin assembly,
engines and other components for medium and heavy-duty trucks. The
components and technology supply contracts with Navistar will expire as of
March 1998. Grupo Dina is in the process of negotiating an agreement with a
manufacturer of standard engines to replace its current product offerings.
In addition, Grupo Dina is in the process of exploring the development of
its own technology in the area of cabin assembly or, alternatively, of
establishing a relationship with a cabin manufacturer. Management estimates
that development of its own cabin assembly technology will cost
approximately US$30 million and that the establishment of new relationships
with engine and cabin manufacturers will cost approximately US$15 million.
The transition to alternate technology, whether obtained from a new
supplier or developed internally, will entail additional capital
expenditures and may result in possible delays in production. There can be
no assurance that satisfactory arrangements can be concluded with such
manufacturers or that Grupo Dina will have available the necessary funds to
pursue its own development efforts. See "Business of Grupo Dina--Truck
Segment--Production."
RISK OF FRAUDULENT CONVEYANCE LIABILITY
In addition to constraints imposed by loan covenants of MCII,
MCII's ability to make distributions to MCII Holdings (which would be
necessary to pay cash interest on, or to repay, the New Notes) may be
limited by state law restrictions on the declaration of dividends, and by
state and federal fraudulent transfer laws. If a court were to find that,
at the time that MCII made a distribution to MCII Holdings, MCII (i) was
insolvent, (ii) was rendered insolvent by reason of such payment, (iii) was
engaged in a business or transaction for which the assets remaining with
MCII constituted unreasonably small capital, or (iv) intended to incur, or
believed that it would incur, debts beyond its ability to pay as such debts
matured, such court could avoid the distribution and order that it be
returned to MCII or to a fund for the benefit of MCII's creditors.
The measure of insolvency for purposes of the foregoing will
vary depending upon the law of the jurisdiction which is being applied.
Generally, however, MCII would be considered insolvent if the sum of MCII's
debts is greater than all of MCII's property at a fair valuation or if the
present fair salable value of MCII's assets is less than the amount that
will be required to pay its probable liability on its existing debts
(including contingent liabilities) as they become absolute and matured.
Under Mexican bankruptcy law, the granting of a security
interest in assets of a debtor to secure previously unsecured obligations
of such debtor may be voided to the extent such security interest is
granted during a period in which the debtor could be considered insolvent
and the beneficiary of such security interest knew or should have known the
debtor's condition. Such legal provision could be invoked by a Mexican
trustee in respect of the security interest created by MCII Holdings in the
MCII Shares, which were previously directly owned by Grupo Dina.
PAYMENT OF JUDGMENTS IN PESOS
Under Mexican monetary law, in the event that proceedings were
brought in Mexico seeking to enforce in Mexico Grupo Dina's obligations
under the Notes, Grupo Dina would not be required to discharge such
obligations in Mexico in a currency other than Mexican currency. Under such
law, an obligation in a currency other than Mexican currency, which is
payable in Mexico, may be satisfied in Mexican currency at a rate of
exchange in effect on the date and in the place payment occurs. Such rate
is currently determined by the Bank of Mexico every business day in Mexico
and published the following business day in the Diario Oficial de la
Federacion.
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Old
Notes and the restrictions on transfer of such Old Notes as set forth in
the legend thereon as a consequence of the issuance of the Old Notes
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Issuers do not currently anticipate that they
will register Old Notes under the Securities Act. Based on interpretations
by the staff of the SEC, as set forth in no-action letters issued to third
parties, the Issuers believe that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such holder which
is an "affiliate" of the Issuers 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 holders' business and such holders
have no arrangement with any person to participate in the distribution of
such New Notes. However, the Issuers do not intend to request the SEC to
consider, and the SEC has not considered, the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
SEC would make a similar determination with respect to the Exchange Offer
as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage
in, a distribution of New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If any holder is an affiliate
of any of the Issuers, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could
not rely on the applicable interpretations of the staff of the SEC and (ii)
must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. 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 any resale of such New Notes. The Letter of Transmittal
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 Old Notes
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Issuers have
agreed that, starting on the Expiration Date and ending on the close of
business on the first anniversary of the Expiration Date, they will make
this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
state securities laws, the New Notes may not be offered or sold in any
state unless they have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is
complied with. The offer and sale of the New Notes to "qualified
institutional buyers" (as such term is defined under Rule 144A of the
Securities Act) is generally exempt from registration or qualification
under the state securities laws. The Issuers currently do not intend to
register or qualify the sale of the New Notes in any state where an
exemption from registration or qualification is required and not available.
See "The Exchange Offer--Consequences of Exchanging Old Notes."
USE OF PROCEEDS
The Issuers will not receive any proceeds from the Exchange
Offer.
EXCHANGE RATES
From 1982 through November 10, 1991, Mexican residents and
companies were entitled to purchase and obligated to sell foreign
currencies for certain purposes at a controlled rate of exchange (the
"Controlled Rate") that was set daily by the Bank of Mexico. For all
transactions to which the Controlled Rate did not apply, foreign currencies
could also be purchased, if they were available, or sold at the free-market
exchange rate (the "Free Market Rate"), which was generally higher than the
Controlled Rate.
The Controlled Rate and the Free Market Rate were held nearly
constant against the Dollar from December 1987 through December 1988. From
January 1, 1989 to May 28, 1990, the price of one Dollar at the Controlled
Rate increased at a regular rate of 0.001 New Pesos per day, 0.0008 New
Pesos per day from May 29 to November 12, 1990 and 0.0004 New Pesos per day
from November 13, 1990 to November 11, 1991. The Bank of Mexico intervened
from time to time in the foreign exchange market to minimize temporary
disparities between the free-market rate and the Controlled Rate.
Effective November 11, 1991, the Mexican government ended
exchange controls. As a result, all conversions between New Pesos and
Dollars now occur at market rates. At the same time, the Mexican government
announced that it expected the exchange rate to be depreciated within a
prescribed range of 0.0002 New Pesos per dollar per day, equivalent to a
maximum devaluation of the New Peso against the Dollar of approximately
2.4% per year. On October 21, 1992, the Mexican government announced the
prescribed range to be 0.0004 New Pesos per Dollar per day, equivalent to a
devaluation of approximately 4.8% per year.
In December 1994, the Bank of Mexico allowed the New Peso to
float freely. Between December 19, 1994 and December 31, 1994, the New Peso
depreciated from Ps 3.46 per Dollar to Ps 5.00 per Dollar, a 44% decline.
Since this period the value of the New Peso against the Dollar has been
subject to significant volatility. Pursuant to the PARAUSEE, the Mexican
government announced the continuation of its floating exchange rate policy,
with the Bank of Mexico still authorized to intervene in the foreign
exchange market, in order to minimize volatility. Pursuant to this
authorization, the Bank of Mexico intervened when the New Peso suffered
further devaluations on November 9 and 10, 1995. In 1995, the New Peso
devalued approximately 55% against the Dollar from approximately Ps 5.00
per US$1.00 to approximately Ps 7.740 per US$1.00, in each case based on
the Fed Noon Rate. The exchange rate reported by the Bank of Mexico was
7.7396 New Pesos per US$1.00 at December 31, 1995, and was 7.5519 Pesos per
US$1.00 at October __, 1996.
The Mexican government does not currently restrict the ability
of Mexican or foreign persons or entities to convert Pesos to Dollars, or
vice versa. Except for the period from September through December 1982
during the Mexican financial crisis, the Bank of Mexico consistently has
made foreign currency available to Mexican private sector entities such as
Grupo Dina to meet their foreign currency obligations. Nevertheless, in the
event of renewed shortages of foreign currency, there can be no assurance
that the Bank of Mexico would continue to make foreign currency available
to private sector companies.
Effective January 1, 1996, the New Peso was replaced by the
Peso, at a rate of one Peso per one New Peso, as Mexico's currency unit.
MEXICAN PESO EXCHANGE RATES
The following table sets forth the average, the end-of-period
and high and low points of the Controlled Rate of exchange as established
by Banco de Mexico until November 1991 and the Fed Noon Rate which the
Federal Reserve Bank of New York began quoting for the Peso on November 8,
1993 for the Peso against the U.S. Dollar for the periods indicated.
Peso Exchange Rates
Controlled Rate and
Fed Noon Rate
Year End of Period Average High Low
1991 Ps3.017 Ps3.072 Ps3.075 Ps2.951
1992 -- -- -- --
1993 3.102 3.120 3.240 3.102
1994 5.000 3.393 5.750 3.105
1995 7.740 6.442 8.050 5.270
1996 (through
October __, 1996)
RATIO OF EARNINGS TO FIXED CHARGES
GRUPO DINA
The following table sets forth Grupo Dina's consolidated ratio
of earnings to fixed charges for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 and for the six-month period ended June 30, 1996, in
accordance with Mexican GAAP and U.S. GAAP. Earnings for this purpose
consist of earnings before provision for income tax and asset tax but after
provision for employee statutory profit sharing (for U.S. GAAP purposes
only) plus fixed charges. Grupo Dina has no equity in losses of less than
50%-owned persons accounted for on the equity method, interest capitalized
during the periods, equity in earnings of less than 50%-owned persons
accounted for on the equity method or minority interest in losses of
majority-owned subsidiaries. Fixed charges for this purpose consist of
interest expense plus amortization of deferred charges for debt issuance
costs. Fixed charges do not take into account the gain on monetary position
associated with Grupo Dina's indebtedness or the exchange gains or losses
attributable to Grupo Dina's indebtedness.
Year Ended
December 31
Six Months Ended
1991 1992 1993 1994 1995 June 30, 1996
---- ---- ---- ---- ---- ----------------
Mexican GAAP....... 4.91 6.90 5.41 (2.76) 0.35 1.88
U.S. GAAP.......... 4.39 6.27 5.45 (2.82) 0.35 --
(A) Grupo Dina's earnings were not sufficient to cover fixed charges
for the year ended December 31, 1994 by Ps (2.76), under Mexican
GAAP and by Ps (2.82) under U.S. GAAP.
MCII HOLDINGS
The following table sets forth MCII Holdings' consolidated ratio
of earnings to fixed charges for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 and for the six months ended June 30, 1996. In
computing the ratio of earnings to fixed charges: (i) earnings have been
based on income from continuing operations before income taxes and fixed
charges and (ii) fixed charges consist of interest and the amortization of
debt issuance costs. For the period prior to its initial public offering on
August 12, 1993, MCII and its subsidiaries were owned by Dial and relied on
funds provided by Dial to fund its operations and capital expenditures. The
intercompany advances provided by Dial are reflected in the financial
statements as non-interest bearing. Therefore, for the years ended December
31, 1991 and 1992 and for the period from January 1, 1993 through August
12, 1993, MCII and its subsidiaries had minimal amounts of outside
financing and therefore, a minimum of interest expense. Subsequent to
MCII's initial public offering, MCII incurred significant indebtedness to
fund its working capital needs as well as to finance capital expenditures,
to purchase the MCIL minority interest in February 1994 and to pay a US$34
million cash dividend to Grupo Dina in December 1994. As a result, a
comparison of the ratio of earnings to fixed charges for the periods prior
to and subsequent to the initial public offering may not be meaningful.
Year Ended
December 31
Six Months Ended
1991 1992 1993 1994 1995 June 30, 1996
---- ---- ---- ---- ---- -----------------
U.S. GAAP...... 6.8 13.7 19.9 6.8 3.2 3.8
SELECTED FINANCIAL DATA OF GRUPO DINA
The following selected consolidated financial data as of and for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995 were derived
from the audited consolidated financial statements of Grupo Dina. The
selected consolidated financial data as of and for the six months ended
June 30, 1995 and 1996 were derived from the unaudited consolidated
financial statements of Grupo Dina. The unaudited financial statements for
the six months ended June 30, 1995 and 1996 include all adjustments,
consisting of only normal recurring adjustments, that management considers
necessary for fair presentation of the financial position and results of
operations for the periods then ended. Results of operations for the six
months ended June 30, 1996 are not necessarily indicative of results which
may be expected for the entire year. The following selected consolidated
financial data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Grupo
Dina" and the consolidated financial statements of Grupo Dina and notes
thereto included elsewhere in this Prospectus. The consolidated financial
statements of Grupo Dina are prepared in accordance with Mexican GAAP,
which differs in certain respects from U.S. GAAP.
<TABLE>
<CAPTION>
GRUPO DINA
CONSOLIDATED FINANCIAL INFORMATION
---------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- --------------------------------------
1991 1992(2) 1993 1994 1995 1995 1996 1996(1)
---- ------- ---- ---- ---- ---- ---- -------
(IN MILLIONS, EXCEPT SHARE, PER SHARE AND PER ADS
INFORMATION)(2)
INCOME STATEMENT INFORMATION:
MEXICAN GAAP:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES PS 4,221.2 PS 4,221.2 PS 5,236.5 PS 4,327.5 PS 4,742.9 PS 2,695.8 PS 2,796.7 US$ 368.9
OPERATING INCOME 632.2 505.2 547.3 (292.2) (69.1) 11.7 85.1 11.2
NET INCOME (LOSS), 607.7 518.4 465.7 (1,015.2) (529.9) 113.7 89.7 11.8
MAJORITY INTEREST(4)
NET INCOME (LOSS) PER 6.90 3.06 2.39 (4.50) (2.05) 0.44 0.35 0.05
SHARE, MAJORITY INTEREST
NET INCOME (LOSS) PER ADS, 27.59 12.21 9.56 (18.01) (8.21) 1.76 1.39 0.18
MAJORITY INTEREST
CASH DIVIDENDS PER SHARE(5) 0 1.12 0.42 0.15 0 0 0 0
CASH DIVIDENDS PER ADS(5) 0 4.49 1.67 0.60 0 0 0 0
WEIGHTED AVERAGE SHARES 88,082,620 169,833,640 194,866,714 225,490,658 258,026,136 258,026,136 258,026,136 258,026,136
OUTSTANDING
U.S. GAAP:
NET SALES PS 4,221.2 PS 4,833.7 PS 5,236.5 PS 4,327.5 PS 4,742.9 -- -- --
NET INCOME (LOSS)(4) 558.1 461.9 401.3 (535.3) (284.4) -- -- --
NET INCOME (LOSS) PER ADS 25.34 10.86 8.24 (9.50) (4.41) -- -- --
WEIGHTED AVERAGE ADSS 22,020,655 42,458,410 48,716,679 56,372,665 64,506,534 64,506,534 64,506,534 64,506,534
OUTSTANDING
NUMBER OF NEW UNITS SOLD:
COACHES 984 1,165 1,818 804 1,176 655 800 800
TRUCKS 11,233 12,631 11,365 10,463 2,520 931 836 836
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------------------- ------------------------------
1991 1992 1993 1994 1995 1995 1996 1996(1)
---- ---- ---- ---- ---- ---- ---- -------
BALANCE SHEET INFORMATION:
MEXICAN GAAP:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND PS 567.0 PS 744.1 PS 962.5 PS 1,455.6 PS 1,641.2 PS 1,539.4 PS 1,768.7 US$ 233.3
EQUIPMENT, NET
TOTAL ASSETS 2,610.4 3,032.3 4,039.6 8,231.4 7,836.2 6,984.1 7,138.9 941.6
TOTAL LONG-TERM DEBT 557.2 949.4 874.9 4,371.0 4,621.4 4,060.6 3,920.6 517.1
TOTAL STOCKHOLDERS' EQUITY, 826.2 1,038.0 2,107.1 1,962.6 1,853.3 1,664.6 1,732.6 228.5
MAJORITY INTEREST(6)
U.S. GAAP:
TOTAL ASSETS (7) 2,610.4 3,032.3 4,039.6 9,198.2 7,836.2 -- -- --
TOTAL STOCKHOLDERS' EQUITY, 593.2 756.4 1,761.1 2,250.1 1,979.8 -- -- --
MAJORITY INTEREST(6)
</TABLE>
- -----------------------
(1) Translations of Pesos into U.S. dollars have been made at the rate
of Ps 7.5814 to US$1.00. Such translations are provided solely for
the convenience of the reader and do not reflect the financial
information in accordance with generally accepted accounting
principles for foreign currency translation.
(2) In February 1992, Grupo Dina's coach assembly lines were shut down
for a three-month period for planned modernization and expansion.
Production resumed in April 1992 on a limited basis for a
three-month period, with full production commencing in August 1992.
(3) Each Common and Series L ADS represents four shares of Common and
Series L Stock, respectively.
(4) Net income for the years ended December 31, 1991, 1992, 1993, 1994
and 1995 is shown after elimination of the income attributable to
the minority interest in Camiones. Under U.S. GAAP, income before
extraordinary credits for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 and net income for the corresponding periods are
identical.
(5) Dividends are calculated on the basis of the Pesos amount and the
number of outstanding shares of Common and Series L Stock or Common
and Series L ADSs, as the case may be, on the date the dividends
were declared.
(6) Stockholders' equity for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 is shown after elimination of the income
attributable to the minority interests in Camiones.
(7) Total assets under U.S. GAAP as of December 31, 1994 differ from
Mexican GAAP because of "pushdown" accounting for goodwill.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF GRUPO DINA
The following discussion encompasses the consolidated financial
results of Grupo Dina and its subsidiaries (collectively, the "Company").
The major subsidiaries include Dina Camiones, S.A. de C.V. ("Camiones"),
Dina Autobuses, S.A. de C.V. ("Autobuses"), Dina Comercializadora, S.A. de
C.V. ("Comercializadora"), Plasticos Automotrices Dina, S.A. de C.V.
("Plasticos") (hereinafter eferred to collectively as the "Mexican
subsidiaries") and MCII Holdings.
This discussion should be read in conjunction with the audited
consolidated financial statements of Grupo Dina and the notes thereto
included elsewhere in this Prospectus. Grupo Dina prepares its financial
statements in accordance with Mexican GAAP, which differs in certain
respects from U.S. GAAP. To better comprehend Management's Discussion and
Analysis, see Notes 23 and 24 to the consolidated financial statements for
a discussion of the principal differences between Mexican GAAP and U.S.
GAAP and a reconciliation of net income and stockholders' equity to U.S.
GAAP.
Under Mexican accounting principles, Bulletin B-10 of the
Mexican Institute of Certified Public Accountants, as amended, requires
that all prior years financial statements presented be restated to constant
currency. Bulletin B-10 does not address the restatement of financial
statements of foreign subsidiaries included in the consolidated totals.
The Company's management has presented the consolidated
financial statements restated by the inflation rate for 1995 of 52%.
Because MCII Holdings' financial statements are originally prepared in
dollars, and inflation and devaluation of the Peso against the dollar have
been disparate in recent years, the comparison between years of constant
Peso amounts, as presented herein, may be different from a comparison of
dollar amounts.
OVERVIEW
The Company's performance in 1995 was significantly impacted by
the downturn in the Mexican economy during the year and a substantial
devaluation of the Peso against the U.S. dollar in December 1994 and a more
gradual, yet substantial, devaluation during 1995. The Company reported a
net loss for the year ended 1995 of Ps 529.9 million, or Ps 2.05 per share,
compared with a net loss of Ps 1,015.2 million or Ps 4.50 per share, for
1994. The Company reported net income of Ps 465.7 million, or Ps 2.39 per
share, for 1993.
Net loss before taxes and employee profit sharing in 1995 was Ps
357.8 million which compares with net loss before taxes and employee profit
sharing of Ps 935.3 million for 1994, compared to net income before taxes
and profit sharing in 1993 of Ps 614.9 million. Accounting for the majority
of the 1994 loss was the devaluation of the Peso which resulted in a net
foreign exchange loss of Ps 630.2 million. In addition, in response to the
downturn in the Mexican economy and the Peso devaluation, the 1994 loss
included Ps 323.3 million in other charges relating to the restructuring of
the Mexican subsidiaries and special provisions for certain losses on
inventories and receivables. Excluding the foreign exchange loss and the
other charges, 1994 resulted in income before taxes and profit sharing of
Ps 18.2 million compared to Ps 610.2 million for 1993.
Net sales in 1995 were Ps 4,742.9 million compared to Ps 4,327.5
million for 1994, an increase of Ps 415.4 million. Net sales during 1994
decreased Ps 909.0 million (or 17.4%), compared to 1993 net sales of Ps
5,236.5 million. Gross profit margin for 1995 was 21.5%, compared to 18.4%
and 21.1% for the same periods in 1994 and 1993, respectively.
The current condition of the Mexican economy is a major concern
for the Company. The timing for recovery of the economy and the
stabilization of the Peso remain uncertain. Factors which could impact the
timing include the government's success in managing the crisis, and
reinstilling confidence in the long-term growth of the Mexican economy.
The economic recession adversely impacted sales of the Company
in 1995. In 1994, 1995 and the first half of 1996, unit sales of trucks,
coaches and transit buses in Mexico, including exports, were as follows:
Unit Sales for Six Months Ended
Year Ended June 30,
----------------------- --------------------
1994 1995 1995 1996
---- ---- ---- ----
Trucks 10,463 2,520 1,211 951
Intercity Coaches 297 21 14 16
Transit Buses 77 34 26 1
Such annual unit sales reflect declines of 75.9% for trucks and
92.9% for intercity coaches from 1994 to 1995. Unit sales of trucks
declined 21.5% during the six months ended June 30, 1996 compared to the
same prior year period. Until such time as the economy recovers and
stabilizes, adverse impacts on the Company's sales may continue.
As the timing remains uncertain for the recovery, management is
continually reviewing the strategic alternatives available to respond to
the economic environment. Management has already responded in part by
taking actions to restructure the work force, revise union agreements and
temporarily reduce, and from time to time suspend, production at Camiones,
Autobuses and Plasticos subsidiaries. Other strategic alternatives include:
a) continuing cost reduction measures;
b) reviews of the wage component of union contracts;
c) intense marketing to other Latin American countries,
including specifically Chile, Colombia and Ecuador, as well
as the United States; and
d) more favorable payment terms being extended to the
Company's distributors.
RESULTS OF OPERATIONS
FIRST HALF 1996 COMPARED TO FIRST HALF 1995
Net sales. During the first half of 1996, consolidated net sales
were Ps 2,796.7 million compared to Ps 2,695.8 million reported during the
first half of 1995. MCII Holdings' Dollar-denominated sales represented
approximately 85% and 80% of Grupo Dina's consolidated sales during the
first half of 1996 and 1995, respectively.
Gross profit. Gross profit during the first half of 1996 totaled
Ps 490.3 million, compared to Ps 488.1 million during the prior year
period. This increase in gross profit was mainly attributable to a 14%
increase in unit intercity coaches sales as explained below.
Consolidated operating income. Consolidated operating income was
Ps 85.1 million, compared to an operating income of Ps 11.7 million
reported during the first half of 1995. Grupo Dina's Mexican operations
reported an operating loss of Ps 120.4 million during the first half of
1996, compared to an operating loss of Ps 217.4 million during the same
prior year period.
Selling, general and administrative expenses. Although the
decrease in sales from Grupo Dina's Mexican operations impacted the
Company's operating income, the loss in gross profit was more than offset
by stringent cost reduction programs which have substantially reduced
selling, general and administrative expenses. Grupo Dina's selling, general
and administrative expenses were Ps 405.2 million during the first half of
1996 compared to Ps 476.4 million during the same prior year period, a
decrease of 15% attributable to Grupo Dina's cost reduction programs.
Operating income. Operating income from MCII Holdings during the
first half of 1996 was Ps 205.5 million, compared to Ps 229.1 million
during the prior year period. This decrease is primarily attributable to
increased research and development expenses.
Pretax income. Pretax income during the first half of 1996 was
Ps 178.8 million, compared to a pretax income of 235.0 million during the
same prior year period. This Ps 56.2 million decrease in income before
taxes for the six months ended June 30, 1996 compared to the same prior
year period is principally due to the gain on shares of Greyhound Lines,
Inc. in the amount of Ps 77,709 million in 1995. There were no similar
gains or "other income" of this magnitude in the six months ended June 30,
1996.
Net income. During the first half of 1996, Grupo Dina recorded a
net income of Ps 89.7 million, or Ps 0.35 per share, compared to a net
income of Ps 113.7 million or Ps 0.44 per share during the first half of
1995, both based on 258 million weighted average shares outstanding.
TRUCK SEGMENT
The truck segment sold 951 trucks during the first half of 1996,
compared to 1,211 trucks sold during the first half of 1995, resulting in a
market share of 20% and 28% for the first half of 1996 and 1995,
respectively.
During the first half of 1996, truck inventories decreased by
43% from the levels recorded at June 30, 1995. At June 30, 1996 Grupo Dina
had approximately 721 trucks in inventory which it believes represents the
minimum inventory level required to adequately service expected future
sales.
COACH SEGMENT
Grupo Dina's Mexican coach division sold 144 intercity coaches
during the first half of 1996 versus 57 intercity coaches during the first
half of 1995. Mexican industry sales of intercity coaches have increased
53% from 112 units sold during the first half of 1995 to 171 units sold
during the first half of 1996. Group Dina's share of the Mexican intercity
coach market decreased from 13% at June 30, 1995 to 9% at June 30, 1996.
Grupo Dina's coach segment exports to MCII Holdings for the U.S. market
totaled 41 intercity coaches in the first half of 1995 and 128 during the
first half of 1996.
1995 COMPARED TO 1994
General. The Company reported a net loss of Ps 529.9 million in
1995, compared with a net loss of Ps 1.015.2 million for 1994. The 1995
results included Ps 363.1 million of exchange loss and Ps 548.1 million of
interest expenses, and a gain in net monetary position of Ps 399.4 million.
In addition, due to the low level of sales in Mexico, the Company had an
operating loss of Ps 69.1 million during 1995, which compares with an
operating loss of Ps 292.2 million in 1994. Additionally, the Company
reported an increase in "Other Income" of Ps 45.6 million when compared
with 1994 figures, due mainly to a gain on sale of marketable securities
held by MCII Holdings, which were sold in October. Given the low level of
economic activity and despite actions taken to reduce costs and expenses,
the Company does not anticipate an improvement in its operating results.
However, because of the high inflation experienced throughout 1995 and
anticipated for 1996, the Company expects to continue registering monetary
gains.
On December 20, 1994, the Bank of Mexico allowed the Peso to
undergo a significant devaluation against the dollar. The Peso to dollar
exchange rate at 1994 year-end was Ps 4.995 compared to Ps 3.107 at
December 31, 1993, a 62.2% decline. At December 31, 1995, the Peso/dollar
exchange rate was Ps 7.7396 per dollar.
The devaluation's impact on the Company has been, and will
continue to be, significant. Due to the decline in the buying power of the
Peso, the effective cost to the Company of importing raw materials and the
cost of servicing the Company's dollar-denominated debt have increased. The
Peso devaluation has also resulted in an increase in interest and inflation
rates in Mexico. With interest rates in 1995 exceeding 55% and inflation of
52%, credit availability in Mexico has tightened and loan defaults have
increased dramatically. As a result of the unfavorable exchange, interest
and inflation rates, and with high unemployment and related social unrest,
the constraints on the Mexican economy and, therefore, on the Company's
Mexican operations are, and will continue for some time to be, substantial.
The following discussion of the Company's principal segments is
based, in part, on Note 25 to the Consolidated Financial Statements of the
Company and excludes the effects of the nonrecurring charges as discussed
above.
TRUCK SEGMENT
Net sales. Net sales for the truck segment during 1995 were Ps
809.2 million compared to sales of Ps 2,625.2 million for 1994. The decline
in truck sales reflects a 75.9% reduction in units sold, from 10,463 in
1994 to 2,520 units sold in 1995. This decline is attributable to a sharp
decline in demand because of the contraction of the Mexican economy, which
caused an overall market decline of 76.7%. The Company's market share in
the truck segment in 1995 is 34% compared with 35% in 1994. Given the low
level of sales for this market, market shares swing significantly from
month to month whenever a medium size order is completed by any of the
market participants. Therefore, the Company believes market share figures
are less relevant in this environment.
Gross profit margins. Gross profit margins on trucks decreased
from 17.6% for 1994 to 13.2% for 1995. The decrease was mainly attributable
to a lower production level during 1995, which resulted in unabsorbed fixed
plant costs of Ps 99.5 million, or 12.3% of sales.
Operating income (loss). Operating loss for this segment was Ps
209.2 million in 1995 compared with Ps 1.5 million of operating profit in
1994. This decline resulted from the reduction in margins partially offset
by a 45% reduction in selling, general and administrative expenses.
COACH SEGMENT
The coach segment has operations in Mexico and, beginning in
August 1994 upon the acquisition of MCII, in the United States and Canada.
Due to the impact of the operations of MCII Holdings on the Company as a
whole and on the coach segment in particular, the following discussion of
the coach segment is presented in two parts: 1) an overview of the
operating results as presented in the segment information contained in Note
25 to the consolidated financial statements of the Company contained
herein, followed by 2) a detailed discussion of Mexican and U.S./Canada
coach operations on a pro forma basis reflecting full-year presentations of
MCII Holdings operations.
OVERVIEW. Net sales for the coach segment during 1995 were Ps
3,898.7 million, an increase of Ps 2,228.0 million from the prior year. The
increase in coach sales reflects a 35.9% decrease in sales in Mexico, more
than offset by MCII Holdings sales of Ps 3,880.0 million. Gross profit
margins on coaches increased from 18.6% in 1994 to 20.0% in 1995. In
addition, the Mexican gross margin reflects an increase due to export sales
in 1995. The coach segment generated an operating profit of Ps 322.4
million in 1995, which compares with an operating loss of Ps 234.8 million
in 1994. The 1995 results are comprised of net operating income on the
Mexican operation of Ps 18.3 million and Ps 304.0 million at MCII Holdings.
EXPANDED DISCUSSION OF COACH SEGMENT USING PRO FORMA DATA. Due
to the impact of the operations of MCII Holdings, through its wholly owned
subsidiary, MCII, selected operating results for the Company's coach
segment are presented on a pro forma basis giving effect to MCII
Acquisition (as herein defined) as if it occurred January 1, 1994. This
presentation allows a more meaningful comparison of the ongoing operations
of the coach segment in both Mexico and the U.S./Canada. Moreover, since
the structure of the operations of MCII continue as they were before the
acquisition, management believes that the pro forma data is meaningful in
understanding future operations.
PRO FORMA TABLE FOR COACH SEGMENT FOR 1995 AND 1994 AS IF MCII
ACQUISITION OCCURRED JANUARY 1, 1994:
1995 1994
-------- --------
(In millions of Ps)
Net sales Ps 3,898.7 Ps 3,311.4
Gross profit 843.4 623.4
Operating expense 545.4 476.4
Operating Income,
excluding
Other Charges 297.9 147.0
Net sales. As depicted in the above table, net sales for the
coach segment in 1995 were Ps 3,898.7 million, an increase of Ps 587.3
million, or 17.7%, from 1994. Net sales of the Mexican operation declined
35.9%, to Ps 18.8 million, as intercity coaches and transit buses sold
decreased from 374 units in 1994 to 57 in 1995. This decline was a result
of the collapse in the Mexican economy and a consolidation of coach
operators beginning in late 1993 and the shifting of some sales of the
Viaggio model in the United States through MCII. Sales by the entire
Mexican coach industry in 1995 declined 93% from 1994. During 1995, the
Company's positioning within the Mexican market declined to a market share
of 12% from 16% in 1994. The Mexican economic crisis and the consolidation
of operators had a significant impact on this market-share decline. The
Company's principal customer group, Estrella Blanca and its affiliates who
represented approximately 69% of the Company's coach sales in Mexico in
1993, and 38% in 1994, generated no sales in 1995.
MCII sales in 1995 totaled Ps 3,880.0 million reflecting an
increase of 36.8%, compared to Ps 2,835.8 million for 1994. This increase
was driven by increases in volume and average sales price and by an
increase in the exchange rate used to translate dollar figures to Pesos.
New unit sales were 1,119 (1,007 MCII models and 112 Dina Viaggio models)
in 1995 compared to 1,059 (all MCII models) in 1994.
Gross profit margins. The coach gross profit margins presented
in the table above increased from 18.8% to 21.6%. The Mexican operation's
gross margin was 24.9%, compared to 3.7% for the prior year. The margins
reflect a low level of production in Mexico, with the ensuing lack of
absorption of fixed costs. MCII margins slightly diminished from 21.4% in
1994 to 19.6% in 1995. The decline in the MCII margin percentage was
primarily due to a larger percentage of sales of the Viaggio model, which
generates a lower margin in the United States as the manufacturing profit
is recognized in the Mexican coach segment and higher distribution costs in
the replacement parts division. In addition, the 1995 margin was impacted
by increased research and development expense incurred for the development
of a new tour and charter model.
Operating income. In 1995, the coach segment operating income of
Ps 322.4 million is comprised of net operating income of Ps 18.5 million
and nonrecurring credits of Ps 24.5 million of the Mexican operation and
operating income of the MCII operation of Ps 303.9 million. The Mexican
coach operation reported operating income of Ps 18.5 million for 1995,
compared to operating loss of Ps 122.6 million for 1994. The constrained
operating results in Mexico resulted from the contracted market for
coaches.
Operating income attributable to MCII operations increased from
Ps 269.6 million in 1994 to Ps 303.9 million in 1995, reflecting the
increase in the exchange rate as reported above. In dollar terms operating
income declined primarily due to reductions in margins.
Comprehensive financing results. Net loss includes the effects
of Comprehensive Result of Financing, of provisions for certain taxes and
employee profit sharing, and of the equity in earnings of associated
companies. During 1995, the net loss of Ps 529.9 million included net
financing expense of Ps 292.2 million and net expense from taxes and profit
sharing of Ps 185.5 million. As is customary under Mexican GAAP, four items
are presented within Comprehensive Result of Financing: interest income,
interest expense, foreign exchange gain or loss and monetary position gain
or loss.
For 1995, interest expense of Ps 548.1 million represented an
increase of 122% over 1994. This increase reflects the MCII acquisition
(the "MCII Acquisition") in which the debt of MCII was assumed and the
issuance by Grupo Dina of 8% Convertible Subordinated Debentures due 2004
(the "Debentures") to finance a portion of the purchase of the MCII common
stock (the "MCII Common Stock").
The 1995 loss on foreign exchange of Ps 363.1 million resulted
from the continued devaluation of the Peso throughout 1995, compared to the
exchange loss for 1994 of Ps 630.2 million.
Net monetary position reflects the difference between monetary
assets and liabilities at a point in time. Monetary assets and liabilities
are those whose real purchasing power fluctuates with the general
price-level index because they are fixed in terms of the monetary unit to
be received or paid. Inflation diminishes the purchasing power of monetary
assets, such as accounts receivable, and reduces the real value of monetary
liabilities, such as accounts payable. A net monetary asset position
results in losses in times of inflation and in gains in times of deflation.
A net monetary liability position results in gains in times of inflation
and in losses in times of deflation. During 1995, the Company had a gain of
Ps 399.4 million from its monetary position, an increase over the Ps 53.9
million gain in 1994 as inflation was 52% in 1995 compared to 7.1% in 1994.
The following table sets forth the change in the percentage of
the NCPI for each of the years ended for which financial information is
presented:
Period Ended Inflation
December 31, 1992................... 11.9%
December 31, 1993................... 8.0%
December 31, 1994................... 7.1%
December 31, 1995................... 52.0%
Tax and profit sharing provisions. Income and asset taxes and
employee profit sharing expenses totaled Ps 185.5 million for 1995 compared
to Ps 93.5 million in 1994. Income tax expense, net of tax benefits
utilized, was Ps 146.2 million for 1995, an increase from Ps 32.8 million
for 1994. The income tax provision is determined on the basis of separate
taxable income of each company and, for 1995, primarily reflects MCII
income tax expense of Ps 132.0 million.
The provision for asset tax in Mexico is a type of minimum tax
based on the average of the majority of restated assets less certain
liabilities, as defined by law, and is paid only to the extent it exceeds
net income tax expense. The 1995 asset tax, net of refundable taxes,
decreased to a Ps 20.3 million expense from a Ps 40.2 million expense in
1994.
Equity of affiliated companies. The equity in results of
affiliated companies represents the Company's share of 1995 and 1994
earnings in its finance affiliate and in Grupo Dina distributors.
Other charges. In 1995, Grupo Dina charged to expense certain
provisions for uncollectible accounts, obsolete inventories and severance
costs in the amount of Ps 86,746 million, Ps 11,485 million and Ps 3,072
million, respectively, compared to Ps 117,223 million, Ps 122,112 million
and Ps 84,000 million for such charges in 1994. The Ps 117,223 million
charge for obsolete inventories in 1994 is attributable to management's
decision to discontinue certain models that year. The provisions for
uncollectible accounts in 1994 and 1995 reflect the fact that some of Grupo
Dina's major customers were experiencing financial difficulties because of
the economic crisis in Mexico. As a result of such economic crisis and the
ensuing reduction in demand for Grupo Dina products, approximately 900
employees were laid off and corresponding severance payments charged to
expense. Management of the company does not believe these charges are
indicative of future anticipated trends in the collectibility of accounts
receivable, obsolescence of inventories and severance costs, however, no
assurance can be made that similar charges will not be incurred in the
future.
1994 COMPARED TO 1993
General. The Company reported a net loss for 1994 of Ps 1,015.2
million compared to net income of Ps 465.7 million for 1993. The 1994 net
loss included a total of Ps 630.2 million net foreign exchange loss
resulting from the devaluation of the Peso during 1994. The net loss also
included Ps 323.3 million in other charges resulting from corporate
downsizing and from special provisions for certain losses on inventories
and receivables. Net sales during 1994 were Ps 4,327.5 million, a decrease
of approximately 17.4% compared to 1993, and the gross profit margin
dropped to 18.4% in 1994 compared to 21.1% in 1993. Operating expenses as a
percentage of net sales increased from 10.7% in 1993 to 17.7% in 1994.
The following discussion of the Company's principal segments are
based in part on Note 25 to the Consolidated Financial Statements and
excludes the effects of the nonrecurring charges as discussed above.
TRUCK SEGMENT
Net sales. Net sales for the truck segment in 1994 totaled Ps
2,625.2 million, a decrease of Ps 342.5 million or 11.5% from 1993 levels.
The decline in truck sales reflects a 7.9% decrease in units sold from
11,365 units in 1993 to 10,463 units in 1994. This decline is attributable
to the troubled economic environment in Mexico which precluded any growth
in the industry during 1994, as well as increased competition from Ford
Motor Company's entrance into the market. Nevertheless, the Company's truck
segment continued to lead the market with a 35% market share in 1994.
Gross profit margins. Gross profit margins on trucks decreased
from 20.4% in 1993 to 17.6% in 1994 reflecting higher fixed costs per unit
as a result of lower volumes.
Operating income. Operating income for the truck segment totaled
Ps 50.2 million, excluding the segment's portion of nonrecurring charges,
or 1.9% of net sales for the segment in 1994, compared to the prior year's
Ps 274.5 million, or 9.2% of net sales. This decline resulted from the
decrease in truck margins and sales, partially offset by lower selling and
administrative expenses.
COACH SEGMENT
The coach segment has operations in Mexico and, beginning in
August 1994 upon the acquisition of MCII, in the U.S. and Canada. Due to
the impact of the operations of MCII Holdings on the Company as a whole and
on the coach segment in particular, the following discussion of the coach
segment is presented in two parts as follows: 1) an overview of the
operating results as presented in the segment information contained in Note
25 to the financial statements, and 2) a detailed discussion of Mexican and
U.S./Canada coach operations on a pro forma basis reflecting full-year
presentations of MCII operations.
OVERVIEW. Net sales for the coach segment were Ps 1,670.7
million in 1994, a decrease of Ps 572.5 million, or 25.5% from the prior
year. The 1994 decline in coach sales reflects a 77% decrease in sales in
Mexico, partially offset by the acquisition of MCII with sales of Ps
1,206.2 million for the five months ended December 31, 1994. Gross profit
margins on coaches decreased from 20.2% in 1993 to 14.4% in 1994. This
decline reflects the pressures on margins in Mexico during 1994, partially
offset by gross margin contributed by MCII for the five months ended
December 31, 1994. The coach segment had operating income of Ps 25.1
million, excluding nonrecurring charges, compared to the prior year's
operating income of Ps 293.9 million. The 1994 results are comprised of a
net operating loss on the Mexican operation of Ps 30.3 million, partially
offset by operating earnings at MCII for the five months ended December
1994 of Ps 55.4 million.
EXPANDED DISCUSSION OF COACH SEGMENT USING PRO FORMA DATA. Due
to the impact of the operations of MCII, selected operating results for the
Company's coach segment are presented on a pro forma basis giving effect to
the MCII Acquisition as if it occurred January 1, 1993. This presentation
allows a more meaningful comparison of the ongoing operations of the coach
segment in both geographic areas of Mexico and the U.S./Canada. Moreover,
since the structure of the operations of MCII continue as they were before
the acquisition, management believes that the pro forma data is meaningful
in understanding future operations.
PRO FORMA TABLE FOR COACH SEGMENT FOR 1994 AND 1993 AS IF MCII
ACQUISITION OCCURRED JANUARY 1, 1993:
1994 1993
--------- --------
(In millions of Ps)
Net sales Ps 3,311.4 Ps 4,546.2
Gross profit 623.4 975.2
Operating expense 476.4 443.7
Operating Income, excluding
Nonrecurring Charges 147.0 531.6
Net sales. As depicted in the above table, net sales for the
coach segment in 1994 totaled Ps 3,311.4 million, a decrease of Ps 1,234.8
million, or 27.2%, from 1993. Net sales of the Mexican operation declined
79%, to Ps 475.5 million, as intercity coaches and transit buses sold in
Mexico decreased from 1,818 units in 1993 to 373 in 1994. This decline was
a result of a contraction in the Mexican coach market which was prompted by
a softening of the economy and by a consolidation of coach operators
beginning in late 1993. Sales of the entire Mexican industry in 1994
declined 47% from 1993 and 40% compared to 1992. During 1994, the Company's
position within the Mexican market declined to a market share of 16% from
42% in 1993. The consolidation of operators had a significant impact on
this market-share decline. The Company's principal customer group, Estrella
Blanca and its affiliates who represented approximately 69% of the
Company's coach sales in Mexico in 1993, acquired four smaller operators
and then combined its coach lines and restructured route coverage. During
1994, sales to this customer comprised 38% of the Company's coach sales in
Mexico.
MCII sales on a pro forma basis for the year-ended 1994 totaled
Ps 2,835.8 million reflecting an increase of 23.1%, compared to Ps 2,303.0
million for 1993. This increase was driven primarily by the sale of 1,059
new units, 162 (18%) more than 1993, and, to a lesser extent, by an
improved sales mix of higher-priced models.
Gross profit margins. The coach gross profit margins presented
in the table above indicate a decrease from a 21.5% margin in 1993 to 18.8%
in 1994. The Mexican operation's gross margin was 3.7% in 1994, compared to
21.3% for the prior year. The margin decline reflects the 1994 contraction
in the Mexican coach market which resulted in higher per unit overhead
costs due to lower production volume. MCII margins remained steady at 21.8%
for both 1994 and 1993.
Operating income (loss). The coach segment operating income,
excluding nonrecurring charges, of Ps 147.0 million is comprised of net
operating losses of the Mexican operation of Ps 122.6 million offset by
operating income of the MCII operation for the year-ended 1994 of Ps 269.6
million. The operating losses in Mexico resulted from the contracted market
for coaches. The Mexican coach operation operating loss of Ps 122.6
million, compared to income of Ps 234.4 million for 1993, resulted from the
decline in coach margins and sales, partially offset by lower selling and
administrative expenses which declined by 25.3% from 1993 to 1994.
Operating income attributable to the MCII operations increased
slightly from Ps 240.8 million in 1993 to Ps 269.6 million in 1994,
reflecting an increase in sales, partially offset by higher selling and
administrative expenses which resulted primarily from the increase in
production levels, and business improvement and development costs.
Comprehensive financing results. Net income includes the effects
of comprehensive result of financing, of provisions for certain taxes and
employee profit sharing, and of the equity in earnings of associated
companies. During 1994, the net loss of Ps 1,015.2 million included net
costs of financing of Ps 682.4 million, net expense from taxes and profit
sharing of Ps 93.5 million and Ps 4.8 million in earnings of associated
companies accounted for under the equity method. As is customary under
Mexican GAAP, four items are presented within comprehensive result of
financing: interest income, interest expense, foreign exchange gain or loss
and monetary position gain or loss.
For 1994, interest expense of Ps 247.2 million represented an
increase of Ps 113.8 million, or 85%, over 1993. This increase reflects the
MCII Acquisition in which the debt of MCII was assumed and the issuance by
Grupo Dina of Debentures to finance a portion of the purchase of MCII
Common Stock.
The 1994 loss on foreign exchange of Ps 630.2 million resulted
from the devaluation of the Peso in December 1994, compared to the slight
exchange gain for 1993 of Ps 4.7 million.
During 1994, the Company recorded a gain of Ps 53.9 million from
its monetary position, an increase over the Ps 45.6 million gain in 1993.
Tax and profit sharing provisions. Income and asset taxes and
employee profit sharing expenses totaled Ps 93.5 million for 1994 compared
to Ps 134.6 million in 1993. Income tax expense, net of tax benefits
utilized, was Ps 32.8 million for 1994, a decrease from the Ps 108.1
million for 1993. The income tax provision is determined on the basis of
separate taxable income of each company and, for 1994, primarily reflects
MCII income tax expense for the five months since its acquisition, of Ps
32.8 million.
The provision for asset tax in Mexico is a type of minimum tax
based on the average of the majority of restated assets less certain
liabilities, as defined by law, and is paid only to the extent it exceeds
net income tax expense. The 1994 asset tax, net of refundable taxes,
increased to a Ps 40.2 million expense from a Ps 7.5 million benefit in
1993, reflecting the lack of income tax expense in Mexico after the
utilization of loss carryforwards.
Employee profit sharing expense is based on taxable income
(loss) of each of the Mexican subsidiaries before reductions from
utilization of tax benefits and, due to Mexican subsidiaries with taxable
income, the Company had a Ps 13.6 million expense for employee profit
sharing even though the Company on a consolidated basis reported a net loss
for 1994.
Equity of affiliated companies. The equity in results of
affiliated companies represents the Company's share of 1994 earnings in its
finance affiliate and in Grupo Dina distributors.
LIQUIDITY AND CAPITAL RESOURCES
The Peso's devaluation since December 1994 and the resulting
contraction of the Mexican economy during 1995 led to sharp decreases
within Mexico in the demand for trucks and coaches including those of the
Company. The sharp reduction in sales has led to liquidity shortfalls for
Grupo Dina. The Peso devaluation has also made access to the United States
and international capital markets, which had been a source of liquidity in
the past, extremely difficult. During 1995, the major source of cash and
cash equivalents was the collection of sales and accounts receivable at the
beginning of the year. These cash and cash equivalents were used to finance
Grupo Dina's operations throughout 1995. In 1995, Grupo Dina experienced
difficulties collecting on its accounts receivable from Estrella Blanca,
Tres Estrellas and their respective licensees. Accordingly, in January
1996, Grupo Dina restructured all of its accounts receivable from Estrella
Blanca, Tres Estrellas and their respective licensees through global
restructuring agreements (the "Restructuring Agreements"). Pursuant to the
Restructuring Agreements, all balances payable to Grupo Dina were
renegotiated using as a reference "Units of Investment" ("UDIS") which
value changes based on the Mexican inflation rate. The principal balances,
increased for inflation, will be payable in equal monthly installments over
six years beginning July 1, 1997. These balances bear interest at a rate of
10% over the monthly reference value of UDIS payable beginning February 29,
1996.
On July 31, 1996, Grupo Dina sold the accounts receivable under
the Restructuring Agreements, which had a total value of Ps 306.9 million,
to AF Dina, a leasing company which provides financing in connection with
sales of Grupo Dina products. The debt resulting from this sale was
capitalized in AF Dina, which is currently negotiating the repayment of its
debt with several Mexican banks using these accounts receivable. Grupo Dina
has recorded a reserve in the amount of Ps 43.9 million for any loss that
may result from these negotiations. As of July 31, 1996, Grupo Dina owned
92.89% of the equity of AF Dina. Although the maximum ownership in finance
companies by non-financial companies permitted under Mexican law is 10%,
Grupo Dina has obtained authorization from the corresponding Mexican
authorities to maintain equity ownership levels in excess of the legal
limit for six months from July 31, 1996. During such interim period, Grupo
Dina will endeavor to complete a transaction whereby MCI Acceptance
Corporation, an indirect subsidiary of MCII Holdings, will acquire the
shares of AF Dina owned by Grupo Dina. In the event that such transaction
is not completed in such time period, Grupo Dina will be required to reduce
its equity ownership level in AF Dina to no more than 10%. See "Business of
Grupo Dina -- Business Strategy of Grupo Dina -- Sales Financing" and
"Certain Transactions."
Grupo Dina has mitigated the impact of liquidity shortfalls in
several important ways. First, Grupo Dina has undertaken severe cost
reduction measures, pursuant to its cost reduction strategy, including
worker lay-offs. See "Business of Grupo Dina -- Strategy." Second, Grupo
Dina intends to minimize its capital expenditures in Mexico for the
foreseeable future, other than its development of engine and cabin assembly
technology. Because of Grupo Dina's major investment in the modernization
of its plant and equipment in recent years, however, the decision to
minimize capital expenditures is not expected to negatively impact Grupo
Dina's ability to remain competitive. Third, Grupo Dina is in the process
of completing arrangements with a Mexican bank to provide a US$35 million
working capital facility of which up to US$20 million will be available to
finance exports by Grupo Dina to the United States and of which up to US$15
million will be available to finance exports to South America. Grupo Dina
has also created additional liquidity through a US$6.6 million loan
obtained in January 1996 which was initially repayable in July 1996 and
whose maturity has been extended to February 1997.
Net working capital (current assets less current liabilities) at
June 30, 1996 was Ps 1,607.8 million compared to Ps 2,333.9 million at
December 31, 1995, a decrease of 31%. This decrease in net working capital
resulted primarily from a Ps 585.1 million decrease in the level of
inventory and a Ps 114.5 million decrease in the net investment in
discontinued operations from December 31, 1995 to June 30, 1996. At
December 31, 1995, net working capital was Ps 2,333.9 million compared to
Ps 2,871.9 million at December 31, 1994. This 19% decrease in net working
capital resulted primarily from a Ps 309.0 million decrease in the level of
inventory, a Ps 227.1 million decrease in accounts receivable and the Ps
207.9 million decrease in the net investment in discontinued operations
from 1994 to 1995. At June 30, 1996, the current ratio (current assets to
current liabilities) was 2.3:1. The current ratio was 3.1:1 at year end
1995 compared to 2.7:1 at year end 1994. Excluding inventory and
discontinued operations from current assets and current liabilities
presents an acid test ratio as of June 30, 1996 of 0.79:1, which indicates
the Company's ability to pay off short-term obligations without relying on
the sale of inventories or the liquidation of the discontinued operations.
At year-end 1995, the acid test ratio was 1.2:1. Cash flows continue to be
constrained by the economic environment in Mexico and thus the Company is
negotiating with suppliers to extend terms of payments.
The Company has granted certain concessions to its customers. In
limited cases in the truck segment, the Company has extended the collection
period for receivables from a range of 30 to 60 days to 60 to 180 days.
While the time frame for collection may be over longer periods and may
place additional cash flow pressures on the Company, management believes
that the Company will be able to collect on these accounts. Furthermore,
management has established loss reserves for these amounts which it
believes to be adequate.
Management regularly reviews and forecasts cash flow
requirements. For 1996, due to the severe decrease in demand for trucks and
coaches in the Mexican market, management anticipates having an operating
loss in Mexico. The cash needs due to this expected operating loss may be
funded from various sources, including reductions in working capital
investments such as inventories and receivables. In 1995, the Company
consolidated substantially all functions into its Sahagun facilities. As
part of this process, the Mexico City corporate office building was sold in
October for approximately US$5 million. Only certain administrative
functions continue to be conducted in Mexico City. All other operations are
conducted at the Sahagun facility. All other operations are conducted
at the Sahagun facility. As of year-end 1995, the Company had available in
the U.S. short-term lines of credit of Ps 359.9 million while none were
available in Mexico. Because of the current economic situation's impact on
Mexican banks, the extension of these short-term lines of credit in Mexico
is restricted. While Grupo Dina received cash and other asset dividends
from MCII totaling US$40 million in 1994 and none in 1995 and anticipates
receiving up to US$30 million in dividends during 1996 and early 1997
(including US$20 million in dividends which have been paid as of the date
of this Prospectus) future dividends or loans to Grupo Dina are constrained
by loan covenants of MCII Holdings and MCII, as outlined below.
Most of the Company's operations involve the assembly of
components that are manufactured by others. Accordingly, large capital
expenditures normally associated with heavy equipment manufacturing are not
required of the Company. As of June 30, 1996, the Company did not have any
material commitments for capital expenditures. The Company currently
expects capital expenditures in Mexico of US$6 million in 1996, of which
US$2.2 million has been spent through August 1996, and US$10 million in
1997 for plant and systems reengineering and production start up of new
cabin models. Capital expenditures in the U.S. are expected to range from
US$15 to US$25 million annually during the next two years for plant and
systems reengineering and production start up of new coach models.
Anticipated capital expenditures in Mexico will be contingent upon the
timing and extent of a recovery in the Mexican economy.
For capital resources, the Company has customarily accessed both
the debt and equity markets. In August 1994, in conjunction with the MCII
Acquisition, Grupo Dina issued no par Series L shares, listed on the NYSE
in the form of Series L ADSs, and the Debentures, which are convertible
into Series L ADSs. The Series L ADSs and the Debentures were issued in
exchange for 51% and 49%, respectively, of the MCII Common Stock.
Grupo Dina's ratio of long-term debt to total capital (long-term
debt plus total stockholders equity, including minority interest) was
68.8%, 70.8%, and 68.2% at June 30, 1996, year-end 1995 and year-end 1994,
respectively. The decrease in the ratio of long-term debt to total capital
from year-end 1995 to June 30, 1996 is attributable to the decrease in
MCII's long-term debt during such period. The increase in such ratio from
1994 to 1995 is mainly due to the devaluation of the Peso since the total
long-term debt is denominated in dollars. The long-term debt balance at
December 31, 1994 of Ps 4.4 billion is an increase of Ps 3.5 billion over
year end 1993. This increase reflects the issuance of the Debentures and
the long-term debt of MCII as well as the revaluation of the Eurobonds and the
Debentures to reflect the Peso devaluation.
The long-term debt used by MCII in its operations is comprised
of a bank credit facility and term notes payable. In October 1996, MCII
established a new bank credit facility to replace its then existing bank
credit facility. While such facility is unsecured, it is guaranteed by
certain MCII subsidiaries and provides funding on a revolving basis through
September 1999. The facility will be used to provide working capital
financing, to issue standby letters of credit (up to US$35 million) and to
fund other general corporate needs, including a US$30 million dividend to
be paid to MCII Holdings, which will in turn pay dividends in the same
amount to Grupo Dina (of which US$20 million had been paid as of the date
of this Prospectus). The credit facility contains various covenants
including, among others, minimum net worth, leverage and fixed charges
coverage ratios. Furthermore, the new credit facility provides for various
events of default including an event of default that would be triggered by
the involuntary termination of certain executive officers of MCII Holdings
and its subsidiaries. In November 1994, MCII issued term notes payable as
private placement debt totaling US$125 million. While these notes are
unsecured debt, they are guaranteed by certain MCII subsidiaries and
contain various covenants, including, among others, limitations on dividend
payments, investments, sales of assets, transactions with affiliates, and
minimum net worth, leverage and current ratio requirements. Loan covenants
of MCII result in constraints on dividends, loans and other cash flows that
otherwise could be extended to the Company, thereby restricting the
Company's ability to access funds from MCII.
The principal of the Notes (together with all interest accrued
and unpaid thereon) may be accelerated upon certain events of default,
including, among others, the failure to pay principal and interest due on
the Notes, the failure to comply with certain of the covenants or
agreements in the Indenture if such failure continues beyond the applicable
notice period, the failure by MCII Holdings or any of its subsidiaries to
pay certain debts when due within the applicable grace period or the
acceleration of such debt, a default under the indenture governing the
Debentures or the fiscal agency agreement governing the Eurobonds, and the
occurrence of a Change of Control (as defined below).
The Notes are redeemable at the option of Grupo Dina at any time
on or after November 15, 1998 at 100% of the principal amount thereof plus
accrued and unpaid interest. Upon a Change of Control, holders of New Notes
will have the right to require Grupo Dina and MCII Holdings to repurchase
all or a portion of their Notes at a purchase price equal to the Accreted
Value thereof, if on or prior to November 15, 1998, and equal to the
aggregate principal amount thereof, plus accrued and unpaid interest, if
any, thereafter. See "Description of the Notes."
The Indenture includes covenants which place restrictions on
MCII Holdings' ability to, among other things, (i) incur debt; (ii) issue
preferred stock; (iii) make certain payments, including MCII Holdings'
ability to pay dividends on its capital stock; (iv) incur liens; (v)
dispose of the capital stock of MCII and (vi) consolidate or merge with any
person, or sell, lease, convey, transfer or otherwise dispose of all or
substantially all of its assets, or acquire all or substantially all of the
assets or capital stock of any other person. In the case of Grupo Dina, the
covenants under the Indenture restrict its ability to, among other things,
(i) make certain payments, including Grupo Dina's ability to pay dividends
on its capital stock; (ii) incur liens and (iii) sell, lease, convey,
transfer or otherwise dispose of its securities, property or other assets.
MCII Holdings' obligation under the New Notes is secured by, among other
things, a pledge of the shares it holds of MCII. See "Description of the
Notes."
The principal of the Debentures (together with all interest
accrued and unpaid thereon) may be accelerated upon certain events of
default, including, among others, the failure to pay principal and interest
due on the Debentures, the failure in the performance of any other covenant
of Grupo Dina in the related indenture beyond the applicable notice period
and the default under certain other types of indebtedness of Grupo Dina. In
addition, such indenture includes certain restrictions on Grupo Dina's
ability to consolidate with, or merge into, or sell, lease, transfer or
convey its properties or assets substantially as an entirety to another
person. Under certain circumstances, Grupo Dina may redeem the Debentures,
in whole or in part, at defined redemption prices.
At June 30, 1996, the Company was in compliance with its debt
covenants. While management believes the Company's cash flows and borrowing
capacity will be sufficient to satisfy operating and debt service needs for
the near-term, these sources and operating needs could also be impacted
negatively by a prolonged downturn in the Mexican economy. Moreover, the
Company's continued compliance with debt covenants, its access to debt and
equity markets and the declaration of future dividends also may be impacted
by any downturn and management's response thereto.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For U.S. GAAP financial statements, Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," is required
in 1996. SFAS No. 121 requires that long-lived assets be reviewed for
impairment whenever events or circumstances indicate that the carrying
amount of the asset may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest charges) from an asset
to be held and used in operations is less than the carrying value of the
assets, an impairment loss must be recognized in the amount of the
difference between the carrying value and the fair value. Assets to be
disposed of must be valued at the lower of carrying value or fair value
less cost to sell. In management's opinion, SFAS No. 121 has not had a
material impact on the Company's financial position under U.S. GAAP.
IMPACT OF GOVERNMENTAL POLICIES
In addition to the discussion relating to the Peso devaluation
presented above, the Mexican government will continue to have a significant
impact on the Company as a result of any fiscal or political changes which
it might implement. Now that NAFTA has been implemented, and assuming a
recovery from the current economic recession, management expects that
cross-border trade and tourism between Mexico and the U.S. will steadily
increase. This trend should generate additional truck sales in Mexico as
Mexican truck operators seek to compete with their U.S. and Canadian
counterparts by, among other strategies, upgrading their equipment and as
U.S. and Canadian truck operators, operating in Mexico through joint
ventures, invest in vehicles especially adapted to Mexican road conditions.
However, management expects competition to increase as U.S. automakers,
with a presence in the Mexican automobile market may also enter the truck
market. Sales of intercity coaches may also be favorably impacted by
increased cross-border tourism.
CONTINGENCIES
MCII Holdings is in the process of obtaining information in
order to quantify any potential liability related to certain U.S. and
Canadian tax contingencies. The time frame for ultimate resolution of this
matter is uncertain; however, based on information currently available,
management believes that any resulting liability will not be material to
the Company's financial condition or results of operations.
SELECTED FINANCIAL DATA OF MCII HOLDINGS
MCII Holdings was incorporated in connection with the issuance
of the Old Notes and carries out its operations through MCII and MCII's
subsidiaries. MCII Holdings was formed for the purpose of holding MCII as
its wholly owned subsidiary. On May 28, 1996, Grupo Dina transferred to
Holdings all 100 shares of MCII, US$.01 par value common stock, in exchange
for which MCII Holdings issued to Grupo Dina all 1,000 shares of its US$.01
par value common stock. As a result of this exchange between entities under
common control, the transaction was accounted for at historical cost in a
manner similar to that in a pooling of interests and, therefore, all prior
financial statements presented have been restated as if the exchange took
place at the beginning of such periods. The following selected consolidated
financial data as of and for the twelve months ended December 31, 1991,
1992, 1993, the seven months ended July 31, 1994, the five months ended
December 31, 1994 and the twelve months ended December 31, 1995 were
derived from the audited financial statements of MCII Holdings. The
selected consolidated financial data as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 has been derived from the unaudited
consolidated financial statements of MCII Holdings. The unaudited financial
statements for the six months ended June 30, 1995 and 1996 include all
adjustments, consisting of only normal recurring adjustments, that
management considers necessary for fair presentation of the financial
position and results of operations for the periods then ended. Results of
operations for the six months ended June 30, 1996 are not necessarily
indicative of results which may be expected for the entire year.
The Dial Corp. ("Dial") sold MCII pursuant to an initial public
offering on August 12, 1993. As a result, for periods prior to August 12,
1993, the summary consolidated financial data of MCII Holdings set forth
below represent the combined operating results and activities of Dial's
transportation manufacturing and replacement parts segment now conducted by
MCII Holdings, excluding the Canadian transit bus manufacturing business
formerly conducted by Dial that is not owned by MCII Holdings. In
accordance with U.S. GAAP, the assets and liabilities of the transportation
manufacturing and replacement parts business have been reflected in the
consolidated financial statements of MCII Holdings on the basis of Dial's
historical costs. Operating results and activities subsequent to August 12,
1993 mean the consolidated results and activities of MCII Holdings and its
subsidiaries. On August 8, 1994, Grupo Dina acquired all of the issued and
outstanding common stock of MCII (the "Merger"). The Merger was accounted
for as a purchase in accordance with Accounting Principles Board Opinion
No. 16 and therefore, the assets and liabilities of MCII were stated at
their estimated fair values as of the acquisition date ("purchase
accounting"). The excess of the consideration paid by Grupo Dina over the
estimated fair value of the net assets acquired was recorded as goodwill in
MCII's financial statements. As a result of the application of purchase
accounting, the financial statements before and after the Merger may not be
comparable in all material respects. For financial reporting purposes, the
Merger was accounted for effective August 1, 1994. Therefore, all financial
information for periods prior to August 1, 1994, is labeled as
"Predecessor." The following selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of MCII Holdings" and the consolidated
financial statements of MCII Holdings and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Predecessor
Year ended December 31, Six Months
Ended
Seven Five
Months Months Year
Ended Ended Ended
July December December June June
31, 31, 31, 30, 30,
1991 1992 1993 1994 1994 1995 1995 1996
(In millions, except number of new coaches delivered)
Income Statement
Information:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales..................... US$311.4 US$337.0 US$394.1 US$271.8 US$191.8 US$509.9 US$267.3 US$316.1
Finance income............ 8.0 7.0 4.9 1.3 2.6 6.4 2.7 3.7
319.4 344.0 399.0 273.1 194.4 516.3 270.0 319.8
Operating costs and
expenses:
Cost of sales
(exclusive of items shown
separately below)......... 237.5 253.6 303.1 203.5 151.6 397.4 203.8 249.1
Provision for relocation
of manufacturing
facilities................ 9.6
Depreciation and
amortization.............. 4.6 5.0 4.5 3.3 5.8 14.6 7.0 8.6
Interest expense,
finance
operations................ 3.4 2.5 .8 0.3 0.7 2.7 1.1 1.6
Research and
development
expenses.................. 2.5 2.3 1.4 1.3 0.5 2.9 1.4 3.4
Selling, general and
administrative expenses..... 34.9 38.0 43.9 27.8 26.6 60.4 28.3 28.4
Merger related expenses... 11.3
292.5 301.4 353.7 247.5 185.2 478.0 241.6 291.1
Operating income.......... 26.9 42.6 45.3 25.6 9.2 38.3 28.4 28.7
Other costs and
expenses:
Interest expense.......... .8 .7 1.5 1.8 2.5 13.4 6.4 6.7
Other (income)............ (1.7) (1.4) (0.2) (0.2) (0.5) (0.3) (0.5)
Gain from sale of
marketable securities..... (10.5)
Minority interests........ 1.8 2.4 2.0 0.4
2.6 1.4 2.1 2.0 2.3 2.4 6.1 6.2
Income before income
taxes..................... 24.3 41.2 43.2 23.6 6.9 35.9 22.3 22.5
Income taxes.............. 10.0 15.7 16.6 11.5 4.0 17.6 9.9 10.0
Income from continuing
operations................ 14.3 25.5 26.6 12.1 2.9 18.3 12.4 12.5
Discontinued operations... (30.2) (46.6) (60.4) (3.5) (5.0)
Income (loss) before
cumulative effect
of change in accounting
principle................. (15.9) (21.1) (33.8) 8.6 2.9 18.3 12.4 7.5
Cumulative effect of
change in accounting
principle(1).............. (2.9)
Net income (loss)
US$(15.9) US$(24.0) US$(33.8) US$8.6 US$2.9 US$18.3 US$12.4 US$7.5
========= ========= ======== ====== ====== ======= ======= ======
Number of New Coaches
Delivered................. 602 776 897 628 431 1,169 641 784
</TABLE>
<TABLE>
<CAPTION>
Predecessor
December 31, December June 30,
31,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Information:
Total assets.......... US$279.3 US$322.7 US$286.0 US$558.9 US$614.0 US$581.1 US$614.0
1
Working capital....... 28.0 84.7 70.3 103.3 156.7 116.0 128.3
Long-term debt, including
current portion........ 2.6 .8 90.5 195.0 217.8 178.9 195.7
Stockholders' equity(2).. 158.3 235.9 98.4 272.8 294.8 298.5 302.4
<FN>
- ---------------------
(1) Initial application of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
2) Stockholders' equity for periods prior to August 1993 represent Dial's
investment and advances in the transportation, manufacturing and
replacement parts segment now conducted by MCII Holdings.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF MCII HOLDINGS
The following discussion should be read in conjunction with the
historical financial statements of MCII Holdings and notes thereto included
elsewhere in this Prospectus and the information set forth under "Selected
Historical Consolidated Financial Data of MCII Holdings."
OVERVIEW
MCII Holdings, through its wholly owned subsidiary, MCII,
operates in two principal business segments--coach manufacturing and
support, and replacement parts. MCII's coach manufacturing and support
segment designs, manufactures, assembles and markets new coaches in the
United States and Canada, and supports its product offerings with new and
used coach dealership marketing services and, on a limited basis, coach
financing. During 1995, MCII Holdings' coach manufacturing and support
segment also began purchasing from Grupo Dina the Viaggio, an intercity
coach manufactured by Grupo Dina, for resale in the United States. MCII
Holdings' replacement parts distribution operation provides OEM-quality
replacement parts for intercity coaches and transit buses in the United
States and Canada which were manufactured by MCII Holdings or, in the case
of transit buses, MCII Holdings' predecessor or successors. MCII Holdings'
replacement parts operation also provides selected replacement parts for
non-MCII Holdings manufactured coaches, transit buses, school buses, and
diesel engines.
MCII's coach manufacturing business is highly cyclical, while
its replacement parts distribution business has certain counter cyclical
characteristics. During times of general economic weakness, many coach
manufacturing customers may postpone fleet replacement programs and, in
some cases, reduce the size of their fleets. As economic recovery occurs,
these customers tend to accelerate fleet replacement programs and, in some
cases, increase the size of their fleets. The replacement parts business is
affected by somewhat different factors than the coach manufacturing
business. Deferrals of new coach or transit bus purchases can have a
favorable impact on replacement parts sales as the resultant older fleet
requires increased maintenance and more parts. Reduced usage of an aging
fleet and overall fleet downsizing, however, may cause replacement parts
sales to decline.
On August 12, 1993, Dial sold, through an initial public
offering, 20 million shares of MCII pursuant to an underwriting agreement
dated August 5, 1993. Dial's transportation manufacturing and service parts
subsidiaries were transferred to MCII immediately after and in connection
with the public offering of MCII shares.
In November 1993, the Board of Directors approved a plan of
disposition of the transit manufacturing segment. This decision was based
upon management's review of market activities, business prospects,
competitive bidding, evaluation of backlogs, economic value analysis, and
opportunities for cost reduction, which indicated that the transit
manufacturing business may not achieve acceptable profitability in the
foreseeable future. As a result of this decision, a charge to discontinued
operations of US$87.2 million (US$53.6 million after-tax) was recorded in
the third quarter of 1993 to reflect the estimated loss on disposal of the
transit manufacturing segment. During 1994 and 1996, based upon further
analysis of the estimated loss to be incurred on the disposal, additional
provisions of US$5.4 million (US$3.5 million after-tax) and US$8.1 million
(US$5.0 million after-tax), respectively, were recorded.
In November 1994, MCII Holdings sold the fixed assets and
certain of the inventory of the transit manufacturing business for
aggregate consideration of US$14.9 million, consisting of US$10.0 million
in cash and a US$4.9 million note receivable. As part of the transaction,
the purchaser agreed not to distribute parts for transit buses previously
made by MCII Holdings for a period of five years. MCII Holdings retained
all other assets and remaining liabilities of the transit manufacturing
business, consisting primarily of accounts receivable, inventory, warranty
reserves, and reserves for employee benefits.
On November 4, 1993, the Board of Directors authorized an offer
by MCII (the "MCIL Offer") to acquire the approximately 2.6 million common
shares (31% of the total outstanding common shares) of MCIL that MCII did
not own, at a price of C$16.00 per share. MCII subsequently agreed to
make an additional payment of C$1.00 per share upon successful completion
of the Merger. The MCIL Offer closed on February 18, 1994, with over 92% of
the publicly held stock being tendered to MCII. MCII exercised its
statutory right to purchase the remaining publicly held stock and now owns
100% of MCIL (collectively the "MCIL Acquisition"). The acquisition was
accounted for as a purchase and all outstanding assets and liabilities of
MCIL were recorded at their estimated fair market value on the date of the
acquisition. The excess of the purchase price over the fair value of net
assets acquired was US$11.9 million and is recorded as goodwill, which is
being amortized over 40 years using the straight line method.
On August 8, 1994, Grupo Dina acquired all of the issued and
outstanding common stock of MCII for aggregate consideration of US$311.6
million. The transaction was effected through the exchange of 54.2 million
Series L shares of Grupo Dina for 51% of the outstanding shares of MCII and
US$164.0 million of the Debentures for the remaining 49% of the outstanding
shares. The Merger was accounted for as a purchase and "push-down
accounting" was applied, with the result that purchase accounting
adjustments were reflected in the financial statements of MCII and its
subsidiaries. Application of push-down accounting resulted in an adjustment
of all outstanding assets and liabilities of MCII to their estimated fair
market value on the date of the acquisition. The excess of the
consideration paid by Grupo Dina over the estimated fair value of the
assets acquired was US$236.1 million and is recorded as goodwill, which is
being amortized over 40 years using the straight line method. The
application of push down accounting has resulted in an increase in
depreciation expense due to the step-up in basis of property, plant and
equipment, and an increase in amortization expense due to the creation of
the goodwill.
RESULTS OF OPERATIONS
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
General. Revenues for the quarter ended June 30, 1996 were
US$177.8 million, an increase of 22.1% from US$145.6 million for 1995. The
increase is due to increases in both the coach manufacturing and support
segment and the replacement parts segment. The overall gross margin,
defined as sales less cost of sales (exclusive of depreciation and
amortization), as a percent of sales was 22.0% compared to 24.1% for the
second quarter of 1995.
Operating income was US$20.7 million in the second quarter of
1996 compared to US$17.8 million in 1995. The increase is primarily
attributable to increased sales volume partially offset by the lower gross
margin percentage, increased research and development expenses and
depreciation and amortization expenses.
Income from continuing operations was US$10.1 million, compared
to US$8.1 million for the second quarter of 1995. Net income for the second
quarter of 1996 was US$5.1 million and included an after-tax loss of US$5.0
million from discontinued operations which resulted from an adjustment to
the estimated loss on the disposal of the transit manufacturing segment.
Coach manufacturing and support. Coach manufacturing and support
sales (excluding finance income) for the second quarter of 1996 increased
25.1% to US$137.2 million, reflecting sales of 416 new units (351 MCIs and
65 Viaggios), compared to US$109.7 million for the same period of 1995
which was driven by sales of 313 new units (295 MCIs and 18 Viaggios). In
addition to the units sold, 55 units in 1996 and 59 units in 1995 were
delivered to customers who have entered into operating leases with the
Company and, as such, are not reflected in sales. Taking into account these
units, new coach deliveries increased 26.6% from 372 to 471 units. The
increase in unit deliveries is primarily due to increased deliveries to
GLI, which received 130 units during the second quarter of 1996 compared to
62 units during the comparable period for 1995. Additionally, continuing
customer acceptance has resulted in a large increase in deliveries of
Viaggios following this product's introduction to the United States which
occurred during the first half of 1995.
In the second quarter of 1996, the gross margin percentage was
22.1% compared to 24.5% for the second quarter of 1995. The decrease in
margin percentage reflects an increase in the volume of Viaggios sold,
which sales produced a 12.7% margin for MCII, lower-margins realized on the
resale of used units and sales of 75 lower-margin MC-12 units in the
second quarter of 1996 compared to no such sales in 1995.
Order backlog as of June 30, 1996 was 429 units, which included
96 units for GLI, compared to 280 units at June 30, 1995, which included 50
units for GLI.
Replacement parts. Replacement parts revenues were US$40.6
million in the second quarter of 1996 compared to US$35.9 million in 1995.
The 13.1% increase is primarily attributable to sales in the new diesel
engine and school bus product lines, increased sales of remanufactured
parts and sales promotion programs introduced in 1996. Gross margin
percentage decreased to 21.7% in 1996 from 23.1% in 1995. The lower gross
margins are primarily due to product mix, including remanufactured parts
which have a lower margin, and promotional pricing.
Depreciation and amortization. Depreciation and amortization
expenses increased to US$4.4 million in the second quarter of 1996, an
18.9% increase over the US$3.7 million recorded in 1995. The increase is
attributable to an increase in coaches held for lease and property, plant
and equipment additions.
Research and development. Research and development expenses
increased to US$1.5 million, a 36% increase over the US$1.1 million
recorded in 1995 reflecting increased expenditures for the new tour and
charter coach model to be introduced in 1997.
Selling, general and administrative expenses. Selling, general
and administrative expenses remained relatively constant at US$13.4 million
in the second quarter of 1996 compared to US$13.3 million in 1995. As a
percentage of sales, selling, general and administrative expenses decreased
to 7.6% from 9.2% in 1995.
Interest expense. Interest expense was virtually unchanged at
US$3.4 million in the second quarter of 1996 and US$3.5 million in the
second quarter of 1995.
Income taxes. MCII Holdings' effective income tax rates in the
second quarter of 1996 and 1995, excluding non-deductible goodwill
amortization, were comparable at 40.3% and 40.1% respectively.
FIRST HALF 1996 COMPARED TO FIRST HALF 1995
General. Revenues for the six month period ended June 30, 1996
were US$319.8 million, an increase of 18.4% from US$270.0 million for 1995.
The increase is due to increases in both the coach manufacturing and
support segment and the replacement parts segment. The overall gross
margin, defined as sales less cost of sales (exclusive of depreciation and
amortization), as a percent of sales was 21.2% compared to 23.8% for the
first six months of 1995.
Operating income was US$28.8 million in the first six months of
1996 compared to US$28.4 million in 1995. The increase is primarily
attributable to increased sales volume partially offset by the lower gross
margin percentage, increased research and development expenses and
depreciation and amortization expenses.
Income from continuing operations was US$12.5 million, compared
to US$12.4 million for the first six months of 1995. Net income for the
first six months of 1996 was US$7.5 million and included an after-tax loss
of US$5.0 million from discontinued operations which resulted from an
adjustment to the estimated loss on the disposal of the transit
manufacturing segment.
Coach manufacturing and support. Coach manufacturing and support
sales (excluding finance income) for the first six months of 1996 increased
19.8% to US$240.4 million, reflecting sales of 708 new units (609 MCIs and
99 Viaggios), compared to US$200.7 million for the same period of 1995
which was driven by sales of 580 new units (557 MCIs and 23 Viaggios). In
addition to the units sold, 76 units in 1996 and 61 units in 1995 were
delivered to customers who have entered into operating leases with the
Company and, as such, are not reflected in sales. Taking into account these
units, new coach deliveries increased 22.3% from 641 to 784 units. The
increase in unit deliveries is primarily due to increased deliveries to
GLI, which received 151 units during the first six months of 1996 compared
to 62 units during the comparable period for 1995. Additionally, continuing
customer acceptance has resulted in a large increase in deliveries of
Viaggios following this product's introduction to the United States which
occurred during the first half of 1995.
In the first half of 1996, the gross margin percentage was 21.0%
compared to 23.9% for the first half of 1995. The decrease in margin
percentage reflects an increase in the volume of Viaggios sold, which sales
produced a 10.5% margin for MCII, lower margins realized on the resale of
used units and sales of 75 lower-margin MC-12 units in 1996 compared to no
such sales in 1995.
Replacement parts. Replacement parts revenues were US$79.4
million in the first half of 1996 compared to US$69.3 million in 1995. The
14.6% increase is primarily attributable to sales in the new diesel engine
and school bus product lines, increased sales of remanufactured parts and
sales promotion programs introduced in 1996. Gross margin percentage
decreased to 21.7% in 1996 from 23.3% in 1995. The lower gross margins are
primarily due to product mix, including remanufactured parts which have a
lower margin, and promotional pricing.
Depreciation and amortization. Depreciation and amortization
expenses increased to US$8.6 million in the first half of 1996, a 22.9%
increase over the US$7.0 million recorded in 1995. The increase is
attributable to an increase in coaches held for lease and property, plant
and equipment additions.
Research and development. Research and development expenses
increased to US$3.4 million, a US$2.0 million increase over the US$1.4
million recorded in 1995, reflecting increased expenditures for the new
tour and charter coach model to be introduced in 1997.
Selling, general and administrative expenses. Selling, general
and administrative expenses remained relatively constant at US$28.4 million
in the first half of 1996 compared to US$28.3 million in 1995. As a
percentage of sales, selling, general and administrative expenses decreased
to 9.0% from 10.6% in 1995.
Interest expense. In the first half of 1996, interest expense
increased slightly to US$6.7 million from US$6.4 million in 1995. The
increase is primarily due to increased debt balances primarily to support
higher levels of coaches held for lease.
Income taxes. MCII Holdings' effective income tax rates in the
first half of 1996 and 1995, excluding non-deductible goodwill
amortization, were comparable at 40.7% and 40.6%, respectively.
1995 COMPARED TO 1994
General. Revenues for 1995 were US$516.3 million, up 10.4% from
US$467.5 million for 1994. The increase is primarily attributable to an
increase in new and used coach sales. The overall gross margin, defined as
sales less cost of sales (exclusive of depreciation and amortization) as a
percent of sales, was 22.1% for 1995 compared to 23.4% for 1994.
Operating income was US$38.3 million and US$34.7 million in 1995
and 1994, respectively. Excluding merger related expenses and the
additional depreciation and amortization which resulted from the Merger,
operating income would have been US$44.7 million in 1995 compared to
US$48.7 million in 1994. On an adjusted basis, the overall operating margin
declined from 10.4% in 1994 to 8.7% in 1995.
Income from continuing operations was US$18.3 million, up 22.0%
from US$15.0 million during 1994. Income from continuing operations in 1995
included an after-tax gain from the sale of an investment in GLI common
stock of US$6.9 million while 1994 included expenses of US$8.6 million
after tax related to the Merger. Excluding these items, income from
continuing operations would have been US$11.4 million and US$23.6 million
for 1995 and 1994, respectively.
Coach manufacturing and support. Coach manufacturing and support
sales (excluding finance income) were US$369.4 million reflecting 1,119 new
units sold (of which 112 units were Grupo Dina's Viaggio model) in 1995
compared to US$328.9 million based on 1,059 new units sold (of which none
were Viaggio models) in 1994. This increase in sales was due to an increase
in the average sales price of new coaches and a change in the mix of units
sold as higher-priced 45-foot models comprised a larger percentage of units
sold while lower-priced GLI models comprised a smaller percentage. GLI
purchased 282 units in 1994 compared to 111 units in 1995. Also, in 1995 50
units were delivered to GLI under intermediate-term leases and, as such,
these units were not included in sales for 1995. Including these 50 units,
total new coach deliveries in 1995 were 1,169 units compared to 1,059 units
for 1994. Gross margins decreased to 23.0% in 1995 from 23.7% in 1994. The
decrease in gross margin percentage resulted primarily from an increase in
sales of lower-margin units. Grupo Dina manufactured Viaggio units, which
only produced a 6.6% margin for MCII as the manufacturing profit accrues to
the benefit of Grupo Dina.
Replacement parts. Replacement parts revenues increased by 4.3%
to US$140.5 million in 1995 from US$134.7 million in 1994. The introduction
of a line of diesel engine parts and increased school bus parts sales and
sales to GLI contributed to the increase in replacements parts revenues.
The increase in school bus parts sales is primarily attributable to the
April 1995 acquisition of a school bus parts distribution company. Gross
margin as a percent of revenues decreased to 23.2% in 1995 from 24.9% in
the preceding year. The reduction in gross margin percentage primarily
resulted from higher distribution costs in 1995 compared to 1994 reflecting
an increase in capacity to accommodate anticipated growth from diesel
engine and school bus parts sales.
Depreciation and amortization. Depreciation and amortization
increased from US$9.1 million during 1994 to US$14.6 million during 1995.
The increase is due to the depreciation and amortization related to the
revaluation of fixed assets and recognition of goodwill, which occurred due
to the Merger with Grupo Dina.
Research and development expenses. For 1995 research and
development expenses were US$2.9 million, or US$1.2 million higher than
1994. The increase is due to higher spending in 1995 for the development of
a new "tour and charter" model which management expects to introduce in
early 1997.
Selling, general and administrative expenses. Selling, general
and administrative expenses increased to US$60.4 million for 1995 from
US$54.4 million for 1994. During 1995, MCII experienced increased payroll
and consulting expenses as a result of the introduction of the diesel
engine and school bus parts lines and implementation of a new information
system for use in new coach manufacturing. However, as a percentage of
revenues, selling, general and administrative expenses in 1995 were
consistent with 1994 at 11.7% and 11.6%, respectively.
Interest expense. Interest expense for 1995 was US$13.4 million
compared to US$4.3 million in the preceding year. The increase is a result
of additional borrowings outstanding and a higher average interest rate
during 1995 compared to 1994.
Other income. For 1995, other income increased primarily as a
result of the US$10.5 million gain on sale of an investment in GLI common
stock.
Income taxes. MCII Holdings' effective combined income tax
rates, excluding the effect of non-deductible goodwill amortization, merger
related costs in 1994, a lower Canadian capital gains rate and the tax
effect of a foreign dividend received were 40.7% and 41.2% for 1995 and
1994, respectively.
1994 COMPARED TO 1993
General. MCII Holdings' revenues in 1994 were US$467.5 million,
up 17.2% from US$399.0 million in the prior year. Both segments of the
Company contributed to this increase, with coach manufacturing posting the
strongest gains primarily due to shipments of 162 more units in 1994
compared with 1993. The gross margin percentage remained relatively
constant at 23.4% and 23.1% in 1994 and 1993, respectively.
Operating income decreased to US$34.7 million in 1994 from
US$45.4 million in 1993. Excluding the effects of the Merger (merger
related expenses and additional depreciation and amortization) and the MCIL
Acquisition, operating income improved by US$4.9 million in 1994, an
increase of 9.7% compared to 1993. The adjusted operating margin fell
slightly to 10.6% in 1994 from 11.4% in 1993.
Income from continuing operations was US$15.0 million, down
43.6% from US$26.6 million in 1993. However, excluding the effects of the
Merger and the MCIL Acquisition, income from continuing operations
increased US$0.6 million compared to 1993. The improvement in income from
continuing operations primarily reflects stronger operating results which
is partially offset by higher interest expense in 1994 and a one-time tax
benefit of US$1.3 million in 1993.
Net income for 1994 was US$11.5 million, compared to a US$33.8
million loss in 1993. Net income in 1994 includes a US$3.5 million
provision (after tax) for the additional estimated losses to be incurred on
the disposal of MCII Holdings' transit business. The 1993 net loss includes
a US$53.6 million charge recognized upon discontinuance of the transit
manufacturing segment as well as transit manufacturing operating losses of
US$6.8 million.
Coach manufacturing and support. Coach manufacturing and support
sales (excluding finance income) increased 22.8% to US$328.9 million based
on 1,059 new units delivered in 1994 from US$267.9 million based on 897
units delivered in the prior year. The sales improvement reflects stronger
volume in new coach sales to independent operators which also results in a
favorable mix of models with higher sales prices primarily due to the lower
percentage of lower-cost GLI units, and stronger used coach volume. Gross
margins were 23.7% and 22.0% in 1994 and 1993, respectively. The
improvement reflects lower 1993 margins primarily resulting from higher
engineering costs incurred on production start-up for the 45-foot coach
model and as a result of increased warranty expense in 1993 due to
difficulties with a then new cooling system, while margins were improved in
1994 primarily due to efficiencies achieved through higher line rates,
partially offset by lower margins in the used and custom coach segments.
Replacement parts. Replacement parts revenue improved US$8.5
million, or 6.7%, to US$134.7 million in 1994 compared with US$126.2
million in 1993. The improvement in revenues reflects volume increases of
9% and 14% to transit customers and GLI, respectively. Gross margins
decreased slightly to 24.9% from 25.4% in 1993.
Depreciation and amortization. Depreciation and amortization
increased to US$9.1 million during 1994 from US$4.5 million during 1993.
The increase is principally due to depreciation and amortization related to
the revaluation of fixed assets and recognition of goodwill, which occurred
as a result of the MCIL Acquisition and the Merger.
Selling, general and administrative expenses. Selling, general
and administrative expenses increased by US$10.5 million or 23.9% in 1994
from US$43.9 million in 1993. The increase results from higher revenues and
additional costs incurred as a stand-alone company for a full year in 1994
compared with only five months in 1993. When viewed as a percentage of
revenues, selling, general and administrative expenses remained relatively
constant at 11.6% and 11.0% in 1994 and 1993, respectively.
Merger related expenses. In connection with the Merger in 1994,
MCII Holdings incurred US$11.3 million of Merger related expenses for the
cash settlement of all outstanding stock options and the acceleration of
vesting on all unvested restricted stock (US$6.8 million) and for
professional fees, printing, travel and other costs related to the
transaction (US$4.5 million).
Interest expense. Interest expense was US$4.3 million and US$1.5
million in 1994 and 1993, respectively. The increase in interest expense
results primarily from higher average external debt during 1994. Prior to
the initial public offering of MCII in August 1993, Dial provided funding
for MCII Holdings' operations and capital expenditures, and such Dial
advances were reflected in the financial statements on an interest-free
basis. Subsequent to the initial public offering, MCII has utilized
external financing to meet its cash needs.
Income taxes. MCII Holdings' effective combined income tax
rates, excluding the effect of non-deductible goodwill amortization and
Merger-related costs, as well as a one time deferred tax benefit of US$1.3
million resulting from a 1% increase in the U.S. corporate tax rate in
1993, were 41.2% and 41.4% for 1994 and 1993, respectively.
SEASONALITY
Generally, MCII Holdings' results of operations are somewhat
seasonal, as quarterly sales and earnings in the intercity coach business
have been stronger in the second quarter and weaker in the third quarter
since operators have tended to request delivery just prior to their busiest
travel season and not prior to non-peak seasons. In addition, MCII Holdings
traditionally shuts down its plants in the third quarter for routine
maintenance and employee vacations, thus reducing the number of production
days in the quarter.
The following table sets forth the condensed quarterly operating
results of MCII Holdings. In the opinion of management, such quarterly
information has been prepared on the same basis as MCII Holdings' annual
audited consolidated financial statements and includes all adjustments
consisting of normal recurring adjustments, necessary to present fairly the
information for the periods when read in conjunction with the consolidated
financial statements and notes thereto. The operating results for any one
quarter are not necessarily indicative of the results to be achieved for a
full year or any future quarter.
<TABLE>
<CAPTION>
(In millions of Dollars)
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31 Jun 30,
1994 1994 1994(a) 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- --------- --------- ------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 105.9 132.7 110.1 118.7 124.4 145.6 96.6 149.7 142.1 177.7
Operating Income 12.1 22.1 (2.3) 2.9 10.6 17.8 1.4 8.5 8.1 20.6
Income From
Continuing Operations 6.6 12.7 (4.1) (0.1) 4.2 8.1 (1.8) 7.8 2.4 10.1
Discontinued
Operations (3.5) (5.0)
Net Income (Loss) 6.6 12.7 (7.6) (0.1) 4.2 8.1 (1.8) 7.8 2.4 5.1
</TABLE>
- ----------------------
(a) The unaudited data for the quarter ended September 30,
1994 includes the recognition of Merger related expenses
(US$11.3 million pre-tax).
LIQUIDITY AND CAPITAL RESOURCES
MCII Holdings has historically relied primarily on internally
generated funds, funds available through credit facilities, and, for the
periods prior to August 1993, funds provided by Dial to finance its
operations and capital expenditures. MCII Holdings' working capital
requirements can vary greatly from period to period, depending on the
volume of production, the timing of deliveries of coaches, and to a lesser
extent, replacement parts, the payment terms offered to customers and the
level of MCII Holdings' financing activities. However, MCII Holdings
believes that its cash flows from operations and the availability of
additional borrowings under credit facilities will be sufficient to satisfy
its working capital and capital expenditure requirements for the
foreseeable future.
Cash flows used in operating activities were US$0.3 million and
US$12.6 million for 1995 and 1994, respectively. Cash flows from operating
activities were primarily impacted by changes in operating assets and
liabilities which used cash of US$26.0 million and US$33.6 million over
such periods respectively. The cash flows used for operating assets and
liabilities were primarily affected by increases in inventories. In 1995,
the increase in inventories was a result of product line expansion and an
increase in used coach inventory. The product line expansion included
diesel engine and school bus products in the parts segment and the Grupo
Dina produced Viaggio in the new coach segment while the increase in used
coaches was due to a greater mix of higher value (newer model) coaches.
During the 1994 period, the increase was primarily related to an increase
in parts inventories to improve customer service levels and an increase in
coach manufacturing inventories due to higher line rates.
Cash flows provided by or (used) in investing activities were
US$7.2 million and US$(54.5) million for 1995 and 1994, respectively. In
1995, the cash provided by investing activities was principally due to
realization of US$24.2 million through the disposition of assets of the
discontinued operations, partially offset by US$12.6 million of capital
expenditures. In 1994 investment activities were primarily the purchase of
the remaining 31% of MCI Ltd., a net increase of US 37.8 million in coach
financings, partially offset by a US$24.2 million reduction in the
investment in discontinued operations.
Cash flows provided by financing activities were US$16.7 million
and US$68.2 million for 1995 and 1994, respectively. Cash flows provided
during 1995 and 1994, were primarily related to the net additional
borrowing on the long term credit facility to fund MCII Holdings' operating
and investing cash flow needs and dividends to Grupo Dina.
The long-term debt used by MCII in its operations is comprised
of a bank credit facility and term notes payable. In October 1996, MCII
established a new bank credit facility to replace its then existing bank
credit facility. While such facility is unsecured, it is guaranteed by
certain MCII subsidiaries and provides funding on a revolving basis through
September 1999. The facility will be used to provide working capital
financing, to issue standby letters of credit (up to US$35 million) and to
fund other general corporate needs, including a US$30 million dividend to
be paid to MCII Holdings, which will in turn pay dividends in the same
amount to Grupo Dina (of which US$20 million had been paid as of the date
of this Prospectus). The credit facility contains various covenants
including, among others, minimum net worth, leverage and fixed charges
coverage ratios. Furthermore, the new credit facility provides for various
events of default including an event of default that would be triggered by
the involuntary termination of certain executive officers of MCII Holdings
and its subsidiaries. In November 1994, MCII issued term notes payable as
private placement debt totaling US$125 million. While these notes are
unsecured debt, they are guaranteed by certain MCII subsidiaries and
contain various covenants, including, among others, limitations on dividend
payments, investments, sales of assets, transactions with affiliates, and
minimum net worth, leverage and current ratio requirements. Loan covenants
of MCII result in constraints on dividends, loans and other cash flows that
otherwise could be extended to the Company, thereby restricting the
Company's ability to access funds from MCII.
MCII's capital expenditures were US$3.9 million, US$12.6
million, US$6.8 million and US$5.5 million for the six months ended June
30, 1996, and the years ended December 31, 1995, 1994 and 1993,
respectively. Although MCII did not have any material commitments for
capital expenditures as of June 30, 1996, MCII expects to make capital
expenditures at levels ranging from US$15 to US$25 million per year during
the next three years. The increase over historical levels is for plant
reengineering and systems, as well as machinery, tooling and production
start up expenditures for the expected introduction of new coach models.
Most of MCII's operations involve the assembly of components manufactured
by others and, therefore, large capital expenditures associated with heavy
manufacturing operations generally are not required in MCII's business.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Issuers will accept for exchange Old
Notes which are properly tendered on or prior to the Expiration Date and
not withdrawn as permitted below. As used herein, the term "Expiration
Date" means 5:00 p.m., New York City time, on November __, 1996; provided,
however, that if the Issuers, in their sole discretion, have extended the
period of time for which the Exchange Offer is open, the term "Expiration
Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, US$206,499,680 aggregate
principal amount of the Old Notes is outstanding. This Prospectus, together
with the Letter of Transmittal, is first being sent on or about October __,
1996, to all holders of Old Notes known to the Issuers. The Issuers'
obligation to accept Old Notes for exchange pursuant to the Exchange Offer
is subject to certain conditions as set forth below under "--Certain
Conditions to the Exchange Offer."
The Issuers expressly reserve the right, at any time or from
time to time, to extend the period of time during which the Exchange Offer
is open, and thereby delay acceptance for exchange of any Old Notes, by
giving oral or written notice of such extension to the holders thereof as
described below. During any such extension, all Old Notes previously
tendered will remain subject to the Exchange Offer and may be accepted for
exchange by the Issuers. Any Old Notes not accepted for exchange for any
reason will be returned without expense to the tendering holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Old Notes tendered in the Exchange Offer must be in
denominations of principal amount of US$1,000 and any integral multiple
thereof or denominations of less than US$1,000 as provided under the
Indenture.
The Issuers expressly reserve the right to amend or terminate
the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any of the events
specified below under "--Certain Conditions to the Exchange Offer." The
Issuers will give oral or written notice of any extension, amendment,
non-acceptance or termination to the holders of the Old Notes as promptly
as practicable, such notice in the case of any extension to be issued by
means of a press release or other public announcement no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuers of Old Notes by a holder thereof as
set forth below and the acceptance thereof by the Issuers will constitute a
binding agreement between the tendering holder and the Issuers upon the
terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to
IBJ Schroder Bank & Trust Company, as Exchange Agent, at the address set
forth below under "--Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by
the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL
OR OLD NOTES SHOULD BE SENT TO THE ISSUERS.
Signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, must be guaranteed unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Old Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
herein). 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 guarantees must be by a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or by a commercial bank or trust company having an
office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by
the Issuers in their sole discretion, duly executed by, the registered
Holder with the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of Old Notes tendered for exchange will be
determined by the Issuers in their sole discretion, which determination
shall be final and binding. The Issuers reserve the absolute right to
reject any and all tenders of any particular Old Notes not properly
tendered or to not accept any particular Old Notes which acceptance might,
in the judgment of the Issuers or their counsel, be unlawful. The Issuers
also reserve the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration
Date (including the Letter of Transmittal and the instructions thereto) by
the Issuers shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes for
exchange must be cured within such reasonable period of time as the Issuers
shall determine. Neither the Issuers, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes, for exchange, nor
shall any of them incur any liability for failure to give such
notification.
If the Letter of Transmittal is signed by a person or persons
other than the registered holder or holders of Old Notes, such Old Notes
must be endorsed or accompanied by appropriate powers of attorney, in
either case signed exactly as the name or names of the registered holder or
holders that appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of
attorney 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 the Issuers, proper evidence satisfactory to the
Issuers of their authority to so act must be submitted.
By tendering, each holder will represent to the Issuers that,
among other things, the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the New
Notes. In the case of a holder that is not a broker-dealer, each such
holder, by tendering, will also represent to the Issuers that such holder
is not engaged in, or intends to engage in, a distribution of the New
Notes. If any holder or any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Issuers, or is engaged in or
intends to engage in or has an arrangement or understanding with any person
to participate in a distribution of such New Notes to be acquired pursuant
to the Exchange Offer, such holder or any such other person (i) could not
rely on the applicable interpretations of the staff of the SEC and (ii)
must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where such Old 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 any resale
of such New Notes. See "Plan of Distribution." The Letter of Transmittal
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.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Issuers will accept, promptly after the Expiration
Date, all Old Notes properly tendered and will issue the New Notes promptly
after acceptance of the Old Notes. See "-- Certain Conditions to the
Exchange Offer." For purposes of the Exchange Offer, the Issuers shall be
deemed to have accepted properly tendered Old Notes for exchange when, as
and if the Issuers have given oral or written notice thereof to the
Exchange Agent, with written confirmation of any oral notice to be given
promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old
Note will receive a New Note having a principal amount equal to that of the
surrendered Old Note. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any payment in respect of accrued interest on such Old Notes
otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer. If the Exchange
Offer is not consummated by December 30, 1996, the Old Notes will bear
additional interest as described under "Description of the Notes --
Registration Rights."
In all cases, issuance of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only
after timely receipt by the Exchange Agent of certificates for such Old
Notes or a timely Book-Entry Confirmation of such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Old Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount that the holder desired to
exchange, such unaccepted or non-exchanged Old Notes will be returned
without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry procedures
described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account
with respect to the Old Notes at the Book-Entry Transfer Facility for
purposes of the Exchange Offer within two business days after the date of
this Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Old
Notes by causing the Book-Entry Transfer Facility to transfer such Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
in accordance with such Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or facsimile thereof, with any required signature guarantees
and any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent at one of the addresses set forth below
under "-- Exchange Agent" on or prior to the Expiration Date.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal
must be received by the Exchange Agent at one of the addresses set forth below
under "-- Exchange Agent." Any such notice of withdrawal must specify the name
of the person having tendered the Old Notes to be withdrawn, identify the Old
Notes to be withdrawn (including the principal amount of such Old Notes), and
(where certificates for Old Notes have been transmitted) specify the name in
which such Old Notes are registered, if different from that of the withdrawing
holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuers, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the
Issuers shall not be required to accept for exchange, or to issue New Notes
in exchange for, any Old Notes and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such Old Notes for exchange
or the exchange of the New Notes for such Old Notes, any of the following
events shall occur:
(a) there shall be threatened, instituted or pending
any action or proceeding before, or any injunction, order of
decree shall have been issued by, any court or governmental
agency or other governmental regulatory or administrative
agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or
seeking any damages as a result thereof, or (ii) resulting in a
material delay in the ability of the Issuers to accept for
exchange or exchange some or all of the Old Notes pursuant to
the Exchange Offer; or any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any
of the transactions contemplated by the Exchange Offer by any
government or governmental authority, domestic or foreign, or
any action shall have been taken, proposed or threatened, by
any government, governmental authority, agency or court,
domestic or foreign, that in the sole judgment of the Issuers
might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the reasonable
judgment of the Issuers, might result in the holders of New
Notes having obligations with respect to resales and transfers
of New Notes which are greater than those described in the
interpretation of the SEC referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed
with the Exchange Offer; or
(b) there shall have occurred (i) any general
suspension of or general limitation on prices for, or trading
in, securities on any national securities exchange or in the
over-the-counter market, (ii) any limitation by any
governmental agency or authority which may adversely affect the
ability of the Issuer to complete the transactions contemplated
by the Exchange Offer, (iii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in
the United States or any limitation by any governmental agency
or authority which adversely affects the extension of credit or
(iv) a commencement of a war, armed hostilities or other
similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing
existing at the time of the commencement of the Exchange Offer,
a material acceleration or worsening thereof; or
(c) any change (or any development involving a
prospective change) shall have occurred or be threatened in the
business, properties, assets, liabilities, financial condition,
operations, results of operations or prospects of the Issuers
and its subsidiaries taken as a whole that, in the reasonable
judgment of the Issuers, is or may be adverse to the Issuers,
or the Issuers shall have become aware of facts that, in the
reasonable judgment of the Issuers, have or may have adverse
significance with respect to the value of the Old Notes or the
New Notes;
which in the reasonable judgment of the Issuers in any case, and regardless
of the circumstances (including any action by the Issuers) giving rise to
any event described above, makes it inadvisable to proceed with the
Exchange Offer and/or with such acceptance for exchange or with such
exchange.
The foregoing conditions are for the sole benefit of the Issuers
and may be asserted by the Issuers regardless of the circumstances giving
rise to any such condition or may be waived by the Issuers in whole or in
part at any time and from time to time in its sole discretion. The failure
by the Issuers at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, the Issuers will not accept for exchange any Old
Notes tendered, and no New Notes will be issued in exchange for any such
Old Notes, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939 (the "TIA").
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
Delivery To: IBJ Schroder Bank & Trust Company
By Mail: By Overnight Courier or Hand:
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attention: Securities Processing
Attention: Reorganization Dept. Window, SC-1
By Facsimile:
(212) 858-2611
For Information Call:
(212) 858-2103
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
FEES AND EXPENSES
The Issuers will not make any payment to brokers, dealers, or
others soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with
the Exchange Offer and paid by the Issuers are estimated in the aggregate
to be US$________.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that
holders who instruct the Issuer to register New Notes in the name of, or
request that Old Notes not tendered or not accepted in the Exchange Offer
be returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Old
Notes and the restrictions on transfer of such Old Notes as set forth in
the legend thereon as a consequence of the issuance of the Old Notes
pursuant to an exemption from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Issuers do not currently anticipate that they
will register Old Notes under the Securities Act. See "Description of the
Notes -- Registration Rights." Based on interpretations by the staff of the
SEC, as set forth in no-action letters issued to third parties, the Issuers
believe that New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder which is an "affiliate" of the
Issuers 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 holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such
New Notes. However, the Issuers do not intend to request the SEC to
consider, and the SEC has not considered, the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
SEC would make a similar determination with respect to the Exchange Offer
as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage
in, a distribution of New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If any holder is an affiliate
of the Issuers, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could
not rely on the applicable interpretations of the staff of the SEC and (ii)
must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where such Old 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 any resale
of such New Notes. See "Plan of Distribution." In addition, to comply with
the state securities laws, the New Notes may not be offered or sold in any
state unless they have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is
complied with. The offer and sale of the New Notes to "qualified
institutional buyers" (as such term is defined under Rule 144A of the
Securities Act) is generally exempt from registration or qualification
under the state securities laws. The Issuers currently do not intend to
register or qualify the sale of the New Notes in any state where an
exemption from registration or qualification is required and not available.
BUSINESS OF GRUPO DINA
GENERAL
Grupo Dina is a holding company organized in 1989 in the United
Mexican States as a limited liability company with variable capital
(sociedad anonima de capital variable or S.A. de C.V.). It operates its
businesses through four primary subsidiaries: Camiones, the truck
operation, Autobuses, the Mexican coach operation, Comercializadora, the
truck and coach sales and marketing operation, and MCII Holdings and its
subsidiaries, the United States and Canadian coach operation.
Grupo Dina and its subsidiaries (collectively, the "Company")
operate in two principal business segments -- truck manufacturing and
intercity coach manufacturing. The Company is one of the leading suppliers
of medium-duty and heavy-duty trucks and tractor trailers in Mexico and of
intercity coaches in North America. In 1994, approximately 28.1% of the
Company's revenues resulted from sales of medium-duty trucks, 26.6% from
heavy-duty trucks and 38.8% from the coach operations. In 1995,
approximately 6.4% of the Company's revenues resulted from sales of
medium-duty trucks, 16.8% from heavy-duty trucks and 82.2% from the coach
operations.
The truck segment assembles and markets class 5, 6, and 7 trucks
(medium-duty trucks) and class 8 trucks (heavy-duty trucks). The
technology, design and components of the trucks are principally purchased
from third parties. In addition, the Company manufactures plastic
components and distributes replacement parts for trucks and coaches.
The coach segment manufactures, assembles and markets intercity
coaches. Historically, its sales have been in Mexico, using designs and
technology most of which have been purchased from third parties. In 1994,
the coach segment expanded by entering the United States and Canadian coach
markets through the acquisition of MCII. MCII Holdings' coach operation
includes designing, manufacturing, assembling and marketing intercity
coaches, as well as providing replacement parts for the intercity coach and
transit bus markets. MCII Holdings represented 37.3% and 47.1% of the
Company's consolidated assets at year-end 1994 and 1995, respectively, in
each case as determined in accordance with Mexican GAAP. MCII Holdings
represented 76% and 78% of the Company's consolidated revenues, and 141.5%
and 99.4% of the Company's consolidated earnings, for the year ended
December 31, 1995 and for the first half of 1996, respectively, in each
case as determined in accordance with Mexican GAAP.
Set forth below is an organizational chart for Grupo Dina and
its direct subsidiaries with a net book value as of June 30, 1996 greater
than 2% of the net book value of Grupo Dina, as well as the principal
operating subsidiaries of MCII Holdings. The principal business segment of
each subsidiary is described.
CONSORCIO G GRUPO DINA, S.A. de C.V. and SUBSIDIARIES
Consorcio G
Grupo Dina, S.A. de C.V.
(holding company)
__________________________
_____|_______________
| _______________|___________100%_
92.59%* | MCII Holdings (USA), Inc.
Dina Camiones, S.A. de C.V. | (holding company)
(truck manufacturing and marketing) | 31%
22% | ________________________________
_____________________________________| |
99.99% | ___________________________100%_
Dina Autobuses, S.A. de C.V. | Motor Coach Industries
(coach manufacturing and marketing) | International, Inc.
20% | holding company
_____________________________________| ________________________________
99.99% | |
Dina Comercializadora, | ________________________________
S.A. de C.V. | | Transportation Manufacturing
Plasticos Automotrices Dina, | | Operations, Inc.
S.A. de C.V. | | (holding company and
(truck and coach sales and marketing)| | corporate operations)
19% | |_______________________________
_____________________________________| | MCIL Holdings, Ltd.
99.99% | | (Canadian coach manufacturing,
Plasticos Automotrices Dina, | | new coach sales and replacement
S.A. de C.V. | | parts sales)
(plastic manufacturing and marketing)| |_______________________________
3% | | Motor Coach Industries, Inc
_____________________________________| | (U.S. coach manufacturing)
|_______________________________
| Hausman Bus Sales, Inc.
| (U.S. new and used coach sales)
|________________________________
| Universal Coach Parts, Inc.
| (U.S. replacement parts sales)
|________________________________
* Denotes percentage ownership by Grupo Dina.
HISTORICAL BACKGROUND
The Company business traces its origins to the establishment of
Diesel Nacional, S.A. ("Diesel Nacional") in 1951, which was formed by the
Mexican government with minority ownership by Mexican and Italian private
investors. Diesel Nacional manufactured trucks, tractor trailers and
coaches. In 1988, the Mexican government, consistent with its policy of
privatization of certain sectors of the Mexican economy, announced an
auction for the sale of Diesel Nacional's businesses. On November 27, 1989,
Grupo Dina, which was formed for the purpose of participating in the
auction and acquiring the assets of Diesel Nacional, acquired majority
ownership of its operating subsidiaries from Diesel Nacional. The total
consideration paid by Grupo Dina was US$84 million.
On August 8, 1994, Grupo Dina acquired MCII. MCII is the leading
manufacturer of intercity coaches in the United States and Canada. MCII,
through its Canadian subsidiary, began manufacturing intercity coaches and
distributing replacement parts in Canada in 1932 and in the United States
in 1963.
Minority ownership reflected in the consolidated financial
statements of the Company represents 7.4% of the capital stock of Camiones
which is owned by Navistar.
Capitalization of the Company reflects the manner in which it
has accessed both debt and equity markets in the past. In November 1992,
Grupo Dina issued the Eurobonds with a principal of US$150 million, the net
proceeds of which were used for working capital and to prepay bank
borrowings.
In April 1993, Grupo Dina made an initial public offering of
33,966,810 no par common shares of which 10,190,043 shares were sold in
Mexico and listed on the Mexican Stock Exchange and 23,776,767 shares in
the form of ADSs were sold in the United States and other countries and
listed on the NYSE. The net proceeds from the issuance of such shares,
US$129.8 million, were utilized for plant and equipment.
In August 1994, in conjunction with the acquisition of MCII,
Grupo Dina issued no par Series L shares and Debentures. The Series L
shares, which have limited voting rights, are listed on the Mexican Stock
Exchange with the related ADSs listed on the NYSE. The Debentures, with a
face value of US$163,993,000 and convertible into Series L ADSs, are also
listed on the NYSE. The Series L ADSs and Debentures were issued in
exchange for 51% and 49%, respectively, of the MCII Common Stock for an
aggregate consideration of US$311.6 million.
In November 1994, MCII issued term notes payable as private
placement debt totaling US$125 million. These notes are unsecured debt and
are due in annual installments beginning in November 1998 and extending
through November 2002.
On May 24, 1996, the Company completed its offer to exchange
Eurobonds for Old Notes, pursuant to which US$206,499,680 aggregate
principal amount of Old Notes were issued and exchanged for US$143,040,000
aggregate principal amount of Eurobonds. The Old Notes were exchanged at an
aggregate principal amount equal to 1.417 times the principal amount of the
Eurobonds. Concurrently with such exchange offer, the Company completed its
solicitation of consents from the holders of the Eurobonds in connection
with proposed amendments to the Eurobonds and the related fiscal agency
agreement dated as of November 18, 1992 (the "Fiscal Agency Agreement") and
a waiver to any defaults thereunder for the purpose of rescinding the
obligations of certain guarantors and eliminating most of the restrictive
covenants under the Fiscal Agency Agreement. Grupo Dina executed a
supplemental fiscal agency agreement dated as of May 28, 1996 giving effect
to such amendments and waiver. In connection with such exchange offer,
Grupo Dina contributed its ownership interest in MCII to MCII Holdings, and
MCII Holdings pledged such interest for the benefit of holders of Notes.
Under an October 1996 agreement, MCII has an unsecured credit
facility with a group of banks. Borrowings are available on a revolving
basis for up to US$125 million through September 1999. The outstanding
borrowings under such facility were used in part to repay borrowings under
MCII's previous bank credit facility and to fund US$20 million in dividends
to MCII Holdings, which has in turn paid dividends in the same amount to
Grupo Dina.
BUSINESS STRATEGY OF GRUPO DINA
General
Grupo Dina's principal business strategy is to capitalize on its
strengths and its market position as one of the leading suppliers of
medium-duty and heavy-duty trucks in the Combined Class 5, 6, 7 and 8 truck
market in Mexico and as one of the most important suppliers of intercity
coaches in the Mexican market. Grupo Dina believes that its strengths are
its quality products, state of the art technology, brand name recognition,
quality research and development capabilities, the high degree of
automation at its production facilities, low cost base, nationwide and
developing Latin American distribution networks, and access to the United
States market through its MCII subsidiary. Grupo Dina faces significant
competition from Mexican and other assemblers in the Class 7 and 8 truck
markets and the intercity coach market, including competition from
companies which may have substantial financial resources. To meet this
competition, and in order to maintain a substantial market share, Grupo
Dina is attempting to increase its manufacturing efficiency thereby
lowering unit costs and has introduced new product models, improved product
quality and incorporated state-of-the-art technology (particularly in the
areas of emissions control and fuel efficiency) in its products. Grupo Dina
believes that successful implementation of its business strategy will aid
it in competing effectively both within and outside of Mexico.
From time to time, Grupo Dina evaluates opportunities to expand
its business both within and outside of Mexico. The Merger with MCII has
created the largest intercity coach manufacturer in North America, offering
economies of scale and strategic benefits to Grupo Dina. MCII Holdings'
existing distribution network and service organization aids Grupo Dina in
selling coaches in the United States and Canada. In addition, Grupo Dina
coaches can be exported through MCII Holdings' nascent Far Eastern export
activities. The merged operations are gradually reducing the cost of
components, such as engines, axles, transmissions and other drive train
components. In addition, fixed design and engineering expenses are being
spread over a larger base of operations, and both companies are benefiting
from technology transfers and improvement in manufacturing techniques. The
combined companies plan to take strategic advantage of MCII Holdings'
replacement parts business to achieve greater replacement part sales in
Mexico and to secure volume discounts from vendors.
Grupo Dina believes that, given prevailing economic conditions
in Mexico, it must increase the availability of financing to its customers
in order to maintain its competitive position in the medium-duty and
heavy-duty truck and intercity coach markets. To this end, AF Dina has
created a number of financing options at competitive rates for the
customers of Grupo Dina. See "--Sales Financing."
Because of the Mexican recession, Grupo Dina is directing its
efforts at developing markets in Central and South America as well as in
Europe and Asia. These efforts have resulted in an export volume of 754
trucks and 131 coaches in 1995, compared with 521 trucks and no coaches
during the same period in 1994. Truck exports sales have been made to
Chile, Colombia, Ecuador, Bolivia, Venezuela and El Salvador, and Grupo
Dina was recently authorized by the Argentinean government to begin sales
in Argentina and expand its sales from there to the other Mercosur
countries. In the case of coaches, export sales have been made to the
United States through MCII's sales force.
Trucks
There is a high correlation between truck sales and the state of
the economy. The 1995 recession significantly reduced the demand for trucks
in Mexico. Grupo Dina expects a slight economic recovery in 1996 and growth
in the demand for medium-duty and heavy-duty trucks in Mexico beginning in
1997, given the need to replace aging fleets and to comply with government
regulations.
Since 1993 Grupo Dina has spent over Ps 117.4 million (US$15.5
million) to improve truck production efficiency and to reduce costs. Grupo
Dina has expanded manufacturing capacity to enable consolidation of all
production on a more efficient single shift configuration. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Grupo Dina--Liquidity and Capital Resources." Given the
current economic situation in Mexico, Grupo Dina only produced 1,599
medium-duty and heavy-duty truck units in 1995, compared to 10,761 units in
1994 and 10,029 units in 1993. The estimated plant capacity is 30,000 units
per year using two full shifts per day. Under normal circumstances, and for
the foreseeable future, Grupo Dina will only run one full shift per day.
In recent years, Grupo Dina has increased its production
efficiency through modification of its production line configuration and
inventory management systems as well as through major changes in its union
contracts, such as the removal of provisions linking production levels to
the number of workers. Grupo Dina has also implemented a number of steps to
increase its manufacturing efficiency so as to lower unit costs. These
steps include the adoption of an advanced inventory system, enhanced
automation of the manufacturing process and new training programs for
manufacturing employees. In response to Mexico's current economic
situation, Grupo Dina has cut its truck plant headcount by approximately
23%. See "--Grupo Dina's Truck Business--Manufacturing Operations."
Grupo Dina has been seeking to increase its market penetration
in the Mexican truck market using various strategies, which include
expanding its product lines (including chassis for urban buses) by offering
premium products and a variety of options, customizing its Class 8 trucks
for large fleet operations, strengthening its distribution network through
the establishment and training of new dealerships, and otherwise improving
its marketing capabilities through an increase in its internal sales force
and, in conjunction with AF Dina and other financial institutions, through
an increase in the availability of financing for its customers, including
certain operating lease programs.
To date, only Mexican manufacturers have imported medium-duty
and heavy-duty trucks into Mexico. Imports of used trucks are generally not
permitted. In addition, Grupo Dina presently enjoys the benefit of a 10%
tariff for the NAFTA countries (20% tariff for non-NAFTA countries) that is
imposed by Mexico on truck imports. Grupo Dina has benefitted from
protection from competition to the extent these restrictions have limited
imports of trucks into Mexico. Grupo Dina anticipates that, as a result of
NAFTA, it will gradually face increased competition from U.S. and Canadian
truck suppliers, as tariff restrictions on new truck imports are eliminated
over a ten-year period and non-tariff restrictions are eliminated over a
five-year period. Grupo Dina also expects that, over time, NAFTA will
result in gradual reductions in costs for parts and components used in the
manufacture of its products, a substantial portion of which are imported
from the United States. There is currently no program, nor is the Company's
management aware of any negotiations, which would have the effect of
reducing import tariffs relating to non-NAFTA countries. Over the long
term, Grupo Dina expects the Mexican truck market to expand as a result of
increased trade due to the implementation of NAFTA. Grupo Dina believes its
strategy of increasing domestic production capacity, lowering unit costs,
improving product quality and continuing technological and product
innovation will position it to compete effectively with both existing
competitors and potential new competitors in the medium-duty and heavy-duty
truck markets. See "Risk Factors--Government Regulations and Environmental
Matters" and "--North American Free Trade Agreement and Potential
Competition" and "-- Regulation."
Camiones has agreements with Navistar that allow Camiones to use
Navistar technology and parts. Camiones has notified its distributors of
its decision not to continue its relationship with Navistar. Camiones is in
the process of obtaining alternative sources of parts and technology and/or
developing its own technology as an alternative solution. See "Truck
Segment--Production" and "Risk Factors--Termination of Navistar Contract."
Truck Segment
In 1993, Grupo Dina began exporting trucks to certain Latin
American countries. Grupo Dina has increased exports to these countries
from approximately 429 units in 1993, to 521 units in 1994 and 754 units
for 1995. Grupo Dina believes that there are important export opportunities
for certain of its truck models in Central and South America and the
Caribbean and that there may be further export opportunities in Asia,
Africa and elsewhere. Therefore, Grupo Dina its continuing its efforts to
establish a dealer presence in these areas. An international sales group is
responsible for developing Grupo Dina's truck export business.
Sales of replacement parts for Grupo Dina trucks have increased
from Ps 105.6 million in 1993, to Ps 205.8 in 1994, Ps 169.2 in 1995, and
Ps 88.5 for the six months ended June 30, 1996. Grupo Dina believes that
opportunities exist for further increases in truck replacement parts sales.
Coaches
Grupo Dina's business strategy for increasing unit sales and
market share in Mexico has been based on marketing two distinct lines of
coaches: the more expensive European-style Paradiso and Viaggio model
coaches for the executive and first class segments of the intercity coach
market, and the less expensive U.S.-style Avante Plus and Dorado model
coaches concentrated in the first-class segment of the intercity coach
market. Grupo Dina broadened this strategy in April 1994 by introducing a
new European-style coach, the Viaggio 850, for its entry into the economy
class segment of the intercity coach market. In 1993, the economy class
segment of the Mexican intercity coach market represented approximately 26%
of the total Mexican intercity coach market. With the introduction of the
Viaggio 850, Grupo Dina offers a complete line of coaches for all segments
of the Mexican intercity coach market. Grupo Dina is also seeking to
improve its market penetration through the launching of a sales effort
designed to encourage new coach purchases by the smaller fleet operators
and/or other independent coach operators which historically have purchased
used coaches from the larger fleet operators.
Grupo Dina invested a total of Ps 94.8 million (US$12.5 million)
in 1993 and 1994 to increase coach production capacity, improve
manufacturing efficiency and improve product quality. Grupo Dina now has
the ability to accommodate the assembly of the Viaggio 850 model in its
Mexican plant facilities and, consistent with its obligations under the
Indenture, has the option to relocate to Mexico some of the coach assembly
operations currently undertaken in the U.S. by MCII. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Grupo Dina-Liquidity and Capital Resources." Advanced technology used in
Grupo Dina's coaches includes a Grupo Dina-built chassis, its own
"torsilastic" advanced suspension system, which was co-designed with The
B.F. Goodrich Company ("B.F. Goodrich"), and engines that meet current
emission standards of the Mexican and U.S. governments.
Grupo Dina believes that its coaches are competitive on a cost
basis as compared to similar products produced by North American and other
manufacturers. Accordingly, Grupo Dina anticipates that recent and planned
reductions in restrictions on coach exports to NAFTA countries will create
export opportunities. Together with MCII, Grupo Dina is the largest coach
manufacturer in North America, with products that comply with Mexican,
Canadian and United States legal requirements established under NAFTA.
Because of the economic recession affecting the Mexican coach
market, Grupo Dina has started an export program to penetrate the United
States market with its Viaggio model, which meets all DOT standards and is
very cost-competitive. Grupo Dina plans to base its United States market
export program on MCII's sales network. Grupo Dina believes that there is a
significant opportunity for export sales of its coaches in Central and
South America, Asia and elsewhere. Development of an export business will
require, among other things, establishment of a dealer and servicing
presence in these new markets.
Since 1994, the Mexican intercity coach industry has shrunk
significantly due to the national economic crisis and the consolidation of
the industry brought about by an aggressive acquisition strategy being
pursued by the largest intercity coach operators. Grupo Dina expects that
this market trend will continue during 1996 with a gradual recovery after
1997, due to the need to replace an aging fleet, increased use of such
coaches by charter, sightseeing tour and shuttle operators, major
corporations and other specialized users and the implementation in late
1994 of new Mexican emissions, length and weight regulations for coaches.
Even assuming such a recovery, as outlined above, Grupo Dina will continue
to expand its export efforts to the U.S. and other markets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Grupo Dina."
Sales Financing
Grupo Dina believes that its competitive position in the
medium-duty and heavy-duty truck and intercity coach markets will be
enhanced by increasing the availability of financing to its customers. To
this end, Grupo Dina has been working with several United States investment
banking firms and Mexican development banks, as well as with AF Dina, to
provide specialized financing for Grupo Dina's truck and coach sales. The
financing of Grupo Dina trucks and coaches by AF Dina has been, and is
expected to continue to be, on customary "arms' length" commercial terms
comparable to those offered by other financial institutions. See "Certain
Transactions."
For the years ended December 31, 1993 and 1994, AF Dina provided
US$44.3 million and US$72.3 million, respectively, in financing for the
sales of Grupo Dina trucks, and US$45.8 million and US$33.2 million,
respectively, for the sales of Grupo Dina coaches. In 1995, AF Dina did not
provide any financing for either the sales of Grupo Dina trucks or for the
sales of Grupo Dina coaches.
As AF Dina developed its business in 1993, Grupo Dina guaranteed
certain AF Dina borrowings. For this support, AF Dina pays Grupo Dina an
annual fee ranging from 1.25% to 1.75% of the borrowings guaranteed,
depending upon the amount so guaranteed. At June 30, 1996, Grupo Dina has
extended loan guarantees for funding provided to AF Dina by one Mexican
bank of approximately Ps 20 million.
As of July 31, 1996, Grupo Dina owned 92.89% of the equity of AF
Dina. Although the maximum ownership in finance companies by non-financial
companies permitted under Mexican law is 10%, Grupo Dina has obtained
authorization from the corresponding Mexican authorities to maintain equity
ownership levels in excess of the legal limit for six months from July 31,
1996. During such interim period, Grupo Dina will endeavor to complete a
transaction whereby MCI Acceptance Corporation, an indirect subsidiary of
MCII Holdings, will acquire the shares of AF Dina owned by Grupo Dina. In
the event that such transaction is not completed in such time period, Grupo
Dina will be required to reduce its equity ownership level in AF Dina to no
more than 10%. "See Management's Discussion and Analysis of Financial
Condition and Results of Operations of Grupo Dina -- Liquidity and Capital
Resources" and "Certain Transactions."
BUSINESS SEGMENTS
The following table provides the total unit sales of trucks and
coaches in Mexico and the Company's share of those sales for the periods
indicated:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
1993 1994 1995 1996
TRUCKS (CLASSES 5 THROUGH 8)
<S> <C> <C> <C> <C>
Company......................... 10,936 9,942(6) 1,766(6) 604(6)
Total Mexican industry.......... 28,277(1) 28,341(2) 5,219 2,968
Company market share............ 39% 35% 34% 20%
INTERCITY COACHES
Company(3)...................... 1,818 297(4) 21(7) 16(7)
Total Mexican industry(5)....... 4,318 2,040(8) 174 171
Company market share............ % 15% 12% 11%
TRANSIT BUSES
Company......................... -- 77 34 --
Total Mexican industry.......... -- 258 59 32
Company market share............ -- 30% 58% 0%
<FN>
(1) Includes 1,788 gasoline powered Class 7 trucks produced by Chrysler
Corporation ("Chrysler"). The Company's share of the diesel powered
segment of the truck market in 1993 was 42%.
(2) Includes 1,413 gasoline powered Class 7 trucks produced by Chrysler.
The Company's share of the diesel powered segment of the truck
market in 1994 was 37%.
(3) Dina introduced its chassis-based Paradiso model in June 1992, its
chassis-based Viaggio 1000 model in June 1993 and its chassis-based
Viaggio 850 in April 1994.
(4) This figure does not include sales of 77 transit buses first
introduced in November 1994.
(5) Includes executive, first-class and economy service coaches.
(6) This figure does not include export sales of 521 trucks in 1994 and
754 in 1995 and 51 in 1996.
(7) This figure does not include export sales of 2 coaches and
intercompany sales to MCII of 129 coaches in 1995.
(8) This figure does not include sales of 77 transit buses of Dina and
181 Masa coaches.
Source: Asociacion Mexicana de la Industria Automotriz (Mexican Automotive
Industry Association or "AMIA") for 1992 and Asociacion Nacional de
Productores de Autobuses, Camiones y Tractocamiones (National Association
of Coach, Truck and Tractortrailer Producers or "APsACT") for 1993 and
1994.
</TABLE>
Although exact market statistics are not available, based on the
data that is available, management believes that, with the acquisition of
MCII, the Company leads the intercity coach market in the United States and
Canada with a market share in excess of 50% and that it is the largest
distributor of replacement parts to the intercity coach and transit bus
industries in the United States and Canada.
Truck Segment
MARKET. Trucks are the principal method of transporting freight
in Mexico. Truck transport is more important in Mexico than in some other
countries due to the lack of a well-developed, modern rail system or
significant domestic seaborne shipping. In addition, a substantial number
of medium-duty truck chassis are fitted with bus-type bodies and used in
urban transit systems.
In the industry, trucks are classified according to established
weight categories. There are eight principal classifications, Class 1 to
Class 8, with each classification indicating an increased gross vehicle
weight. Of the truck classifications which Camiones sells, classes 5, 6 and
7 trucks are considered medium-duty trucks, while Class 8 trucks are
considered heavy-duty.
Camiones' truck sales are predominantly in Mexico. However, in
1993, Camiones started exporting trucks to other Latin American countries
where management believes important opportunities exist for certain of its
truck models. Due to the economic crisis in Mexico, there has been a
significant decline in the demand for medium-duty and heavy-duty trucks. In
response to this crisis, the Company's strategy has been to focus its
efforts on exporting trucks outside of the Mexican market. Export sales
have largely been made to Central and South America. Additional efforts
have been made to export to Africa, Asia and Europe. Even if the Mexican
economy were to improve, Grupo Dina expects to continue its strategy of
developing export opportunities throughout the world, as management
foresees this as a basic necessity for the future growth and development of
the Company's financial position. An example of Grupo Dina's progress with
respect to this strategy is the authorization granted to the Company by the
Argentinean government, by which the Company can start operations in that
country with the ability to expand its operations from there to the rest of
the Mercosur countries. In addition, a distribution contract with Saudi
Arabia has been executed as part of this growth strategy with similar
efforts being made in other European and Asian countries.
Another market segment is that of truck replacement parts. Since
trucks in Mexico generally are driven to the end of their useful life,
management believes there is a significant market for truck replacement
parts in Mexico.
PRODUCTS. Camiones manufactures trucks in classes 5 through 8 of
the medium and heavy-duty truck market under the brand names "DINA" in
Mexico and "DIMEX" outside of Mexico. The names "DINA" and "DIMEX" are
registered trademarks of Camiones. Approximately 70% of the trucks sold in
1995 and the first half of the 1996 were built using Navistar design and
technology and the remaining 30% of the trucks were built using proprietary
technology and design. In 1994, approximately 80% of the trucks sold were
built using Navistar design and technology, with the remaining 20% of
trucks built using proprietary technology and design. See "-- Production."
Camiones' trucks are assembled using a range of components and
specialized bodies and are thus capable of being highly customized.
Engines, transmissions, axles, and a substantial percentage of other
components are selected according to customer specifications, with United
States-designated components being the clear preference of Mexican truck
operators in the Class 5, 6, 7 and 8 markets. Camiones provides a limited
use warranty for all of its trucks and currently provides the longest
warranty available in the Mexican market. Warranties on engines are
provided by suppliers.
CUSTOMERS. The customer base for medium and heavy-duty trucks in
Mexico is composed of private fleet owners, common carriers (which provide
freight services to the public), urban transit operators (which use trucks
with passenger bodies for urban bus services), governmental entities and
others. Of class 8 trucks, over 60% are sold to common carriers who are
typically members of the Camara Nacional de Carga, the national association
of common carriers ("Canacar"). Canacar negotiates purchases on behalf of
its members to achieve the most favorable terms.
Camiones' base of truck customers is reflected in 1995 truck
sales of approximately 50% to private fleet companies and 50% to common
carriers, urban transit operators, governmental entities and others.
COMPETITION. During 1995, Camiones primarily competed against
four other major companies in Mexico --the Mexican subsidiary of Daimler
Benz A.G. of Germany ("Mercedes Benz"), Chrysler Corporation, Ford Motor
Company and Kenworth which markets class 8 trucks. Camiones' 1994 market
share of 35% represents a slight decline from 39% for 1993 and 1992. As of
December 31, 1995, Camiones' market share stood at 34%. Grupo Dina believes
that this market share statistic is not an accurate reflection of the
market given the low level of total truck sales as well as the lack of
consistency in sales in 1995. The bases for competition in the medium-duty
truck market are principally sale price and parts availability.
As a result of the implementation of the North American Free
Trade Agreement ("NAFTA") on January 1, 1994, the Company expects that it
will gradually face increased competition from United States and Canadian
truck suppliers as restrictions on new truck imports are eliminated over a
five-year period, which commenced in 1994, and restrictions on used truck
imports are eliminated over a ten-year period, which will commence in 2009.
Through 1994, independent parties could import up to 15% of the Mexican
truck production by class. However, such percentage increased to 20% in
1996 and is scheduled to increase to 30% in 1997. Commencing in 1999, such
import limitation is scheduled to be eliminated. Management expects that,
over time, NAFTA will generally result in gradual reductions in costs for
parts and components used in the manufacture of its products. In addition,
management expects the Mexican truck market to expand as a result of
increased trade subsequent to the implementation of NAFTA. Management
believes its strategy of increasing domestic production capacity, lowering
unit costs, improving product quality and continuing technological and
product innovation will position it to compete effectively with existing
competitors and potential new entrants in the medium and heavy-duty truck
markets.
DISTRIBUTION. Trucks are currently sold primarily through
independent distributors. As of June 30, 1996, the 28 largest distributors
accounted for approximately 95.8% of net sales of trucks. As of June 30,
1996, Camiones' distributor network was composed of 39 independent
distributors and branches who, under agreement, are dedicated exclusively
to Dina truck sales, and who also sell replacement parts and provide
maintenance and repair service. While fleet sales are negotiated directly
by Camiones, such sales are booked through the distributors in order to
register warranties and provide better aftermarket service. For more
details about relationships with dealers, see "Production." While the
Company has entered into preliminary discussions with certain distributors
and will begin in the near future to consider revising its exclusivity
agreements with such distributors, Camiones maintains good relations with
its distributors and actively supports their marketing, training, service
and sales efforts. The Company owns minority interests in certain of its
distributors.
PRODUCTION. Upon the purchase of the truck operations from the
government in 1989, the management of Grupo Dina decided to exit the major
component manufacturing business, which included capital-intensive
machining operations, and focus instead on developing efficient assembly
capabilities. Camiones assembles the trucks at its plant in Ciudad Sahagun,
Mexico, using parts and components purchased from various suppliers. Of the
eight principal classifications for trucks, Camiones manufactures trucks in
Class 5 (16,001-19,500 lbs. GVW), Class 6 (19,501-26,000 lbs. GVW), Class 7
(26,001-33,000 lbs. GVW) and Class 8 (over 33,000 lbs. GVW). Class 5, 6 and
7 trucks are considered to be medium-duty trucks, while Class 8 trucks,
which are characterized primarily by "cabs" consisting of a separate engine
and drive compartment section to which trailers are attached, are
considered heavy-duty trucks.
Camiones assembles trucks of its own design, which currently
represent 20% of its product line and also has agreements with Navistar
that allow Camiones to assemble and sell trucks in Mexico using Navistar
technology and parts. Pursuant to several agreements with Navistar,
Camiones has the right to assemble and sell current year models of the 9400
tractor truck and the QSP Series of medium-duty trucks, as well as to
install Navistar medium-duty diesel engines, using technical information
supplied by Navistar. Camiones must pay fees to Navistar under these
agreements based on a percentage of net sales, by Camiones, of the
corresponding product, net of purchases of components by Camiones from
Navistar.
With the exception of the spare parts supply contract for the
truck division which will continue for ten more years, the components and
technology supply contracts with Navistar will expire as of March 1998.
Accordingly, Grupo Dina is in the process of negotiating an agreement with
a manufacturer of standard engines to replace its current product
offerings. In addition, Grupo Dina is in the process of exploring
development of its own technology in the area of cabin assembly or,
alternatively, of establishing a relationship with a cabin manufacturer.
Management estimates that development of its own cabin assembly technology
will cost approximately US$30 million and that establishment of new
relationships with engine and cabin manufacturers will cost approximately
US$15 million. Camiones has notified its distributors of its decision not
to continue its relationship with Navistar. Grupo Dina expects to reach a
decision concerning the alternative to be pursued by it by the end of 1996.
The transition to alternate technology, whether obtained from a new
supplier or developed internally, will entail additional capital
expenditures and may result in production disruption. See "Risk Factors --
Expiration of Navistar Contract."
Following the decision to not continue the relationship with
Navistar, two former employees of Grupo Dina became employed by Navistar's
Mexican subsidiary in strategic positions. Grupo Dina has brought legal
action against these individuals asserting various claims, including
infringement of intellectual property rights.
In addition, Navistar is a minority shareholder in Camiones and
currently holds approximately 7.4% of the capital stock of Camiones.
Pursuant to a shareholders' agreement (the "Camiones Shareholders'
Agreement") between Navistar and Camiones, Navistar has the right to
appoint a member of the board of directors of Camiones and one member of
the executive committee of the board of directors. The Camiones
Shareholders' Agreement imposes restrictions on the transfer of the common
shares of Camiones, and Navistar and Camiones each hold a right of first
refusal with respect to any transfers of such shares by the other party.
Although Grupo Dina and Navistar have in the past held discussions
concerning possible transactions involving Camiones, including a possible
purchase of Camiones by Navistar, no such discussions are being pursued at
this time.
Dina trucks are assembled using a wide range of components and
bodies. Engines, transmissions and axles, as well as a substantial
percentage of other components, are supplied by, or by Mexican affiliates
of, United States manufacturers such as Detroit Diesel Corporation, Cummins
Engine Company, Fuller Manufacturing Co., Dana Corp., Eaton Corp. and
Rockwell International Corporation. United States-designed components are
the clear preference of Mexican truck operators in the Class 5, 6, 7 and 8
markets. Other than Navistar, Camiones is not materially dependent on any
single supplier. Management does not foresee any material shortages of raw
materials or energy sources. Notwithstanding the expiration of the Navistar
contract, as of June 30, 1996, Grupo Dina had strengthened its relationship
with 46 concessionaries to sell new units, replacement parts and provide
maintenance services through 54 distribution centers pursuant to
exclusivity contracts that run through the year 2000.
Coach Segment
The coach industry is comprised of coaches designed for
passenger travel between cities, "intercity coaches," and for passenger
transportation within urban areas, "transit buses." Due to the distinct
nature of the two geographic markets in which the Company operates, namely,
Mexico and the United States/Canada, the operations of Autobuses are
discussed below and the operations of MCII Holdings are discussed in
"Business of MCII Holdings," below.
The Company's Mexican coach subsidiary, Autobuses, is a leading
producer of intercity coaches in Mexico and, in October 1994, entered the
transit bus market.
MARKET. Over 90% of passenger travel from city to city in Mexico
is by intercity coach. Coaches are an integral part of the transportation
system in Mexico given the nation's under-developed railway system and the
high cost of air travel. Intercity coaches sold in the Mexican market in
1992, 1993, 1994 and 1995 were 3,809, 4,318, 2,040 and 174, respectively,
of which Autobuses sold 31%, 42%, 15% and 12%, respectively. As of June 30,
1996, 171 intercity coaches were sold in the Mexican market of which
Autobuses sold 16, or 9% of the total Mexican market. In addition, in 1995,
Grupo Dina exported to MCII in the United States 129 coaches as well as 2
coaches to buyers in South America. Autobuses exported 128 coaches during
the first half of 1996.
Prior to 1990, bus fares in the Mexican intercity coach market
were controlled by the government which resulted in mostly economy-class
service, which has more stops and fewer coach amenities. In 1990, the
Mexican government discontinued the regulation of bus fares, resulting in
the development of two new classes of service, executive and first class,
which have more direct routes and greater amenities. Autobuses provides
coaches for all three classes of service. The intercity coach industry in
Mexico has been subject to significant cyclical volatility. Industry cycles
are influenced by overall levels of economic activity, by interest rates
and by government actions which may have both short-term and long-term
effects on demand.
PRODUCTS. Autobuses produces for the Mexican coach market
coaches under the brand names Avante Plus, Dorado, Paradiso and Viaggio.
The Avante Plus and Dorado, which names are trademarks of Autobuses, are
integral-frame models and are produced primarily to meet the demands of the
first-class coach market. The Paradiso and Viaggio, which names are
trademarks of Marcopolo S.A. -- Carrocerias e Omnibus ("Marcopolo") of
Brazil used under license by Autobuses, are chassis-construction models and
serve primarily the needs of the executive and first class markets. In
April 1994, Autobuses introduced a new model, the Viaggio (Viaggio 850),
targeted at the economy coach market.
In 1994 and 1995, sales of units designed by Autobuses (Avante
Plus and Dorado models) comprised approximately 10% and 0% of Autobuses'
Mexican coach sales, respectively, with a unit sales price exceeding Ps
830,076. During the same periods, sales of units using Marcopolo technology
(the Paradiso and Viaggio models) comprised approximately 90% and 100% of
Mexican coach sales, respectively, with a unit sales price exceeding Ps
1,064,200. In November 1994, approval was received from the U.S. Department
of Transportation (the "DOT") for the export of the Viaggio 1000 model
intercity coach to the United States. During 1995 and for the first half of
1996, exports of these units were 129 and 128, respectively.
Autobuses' coaches can be tailored to directly meet the needs of
the customer through a wide array of seating options and amenities. The
coaches have a reputation for high quality and durability in the industry.
The limited use warranty provided for all of its coaches is currently for
one year or 200,000 kilometers, whichever occurs first. Warranties on
engines are provided by suppliers.
In October 1994, Autobuses entered into the transit bus market
segment with the introduction of its new line of integral-frame transit
buses, the Citus and Quadro. As of December 31, 1995, sales of the Citus
and Quadro comprised approximately 34 units with a unit sales price
exceeding Ps 308,618. As a result, Autobuses now has a presence in all the
segments of the coach and bus markets in Mexico. However, due to the
economic crises, management has decided to suspend temporarily the
production of the integral urban buses because of its high production cost.
In the meantime, Autobuses is looking for alternatives to produce these
integral buses with a less expensive production cost. To satisfy the urban
bus market, Grupo Dina, through Camiones, will continue manufacturing its
chassis for the urban transportation market in which Camiones is a leader.
CUSTOMERS. The customer base for intercity coaches is
centralized in a handful of dominant fleet operators. Principal operators
include Estrella Blanca, Tres Estrellas, Mexico Pachuca and to a much
lesser extent Grupo Toluca, Flecha Amarilla and Autobuses de Oriente. These
seven groups are the largest intercity coach operators in Mexico and
currently represent approximately 60% of the Mexican coach fleet. The
remaining customer base is represented by several smaller operating groups
and many individual customers.
Autobuses' customer base is equally concentrated. For 1992 and
1993, Tres Estrellas, a related party to Autobuses during 1992 and Estrella
Blanca, which acquired Tres Estrellas in 1993, accounted for approximately
74% of consolidated net coach sales in 1992 and 70% in 1993. In 1994, these
two entities accounted for approximately 10% of consolidated net coach
sales. No sales were made to these companies in 1995 due to the reduction
in demand for intercity coach transportation, the consolidation of the
fleets of Tres Estrellas and Estrella Blanca and because Tres Estrellas was
on strike for almost all of 1995. In 1996, Estrella Blanca and Tres
Estrellas entered into agreements with Grupo Dina whereby certain accounts
receivable were restructured. See "Management's Discussion and Analysis of
the Financial Condition and Results of Operations of Grupo Dina --
Liquidity and Capital Resources."
COMPETITION. During 1995, Autobuses competed against four other
major companies --Mercedes Benz, Mexicana de Autobuses (MASA), Trailers de
Monterrey (TRAMOSA), and Omnibus Integrales. Autobuses' market share of 12%
in 1995 represents a decline from the 15%, 42% and 31% for 1994, 1993 and
1992, respectively. This decline reflects a decrease in orders received
from Estrella Blanca and Tres Estrellas, as well as a general contraction
in the coach operator market due to the economic downturn which began in
1994. During the 1988-1990 period, Autobuses' market share in the intercity
coach market averaged 71.8%. In 1991 and 1992, market share decreased to
39% and 31%, respectively, as competitors entered the market for the first
time and as Autobuses shut down coach operations for three months to
install a new production line.
The bases for competition in the intercity coach market are
original sales price, parts availability, and United States-manufactured
componentry. Autobuses believes it enjoys a competitive position due to its
domestic production facilities, its United States-designed components, the
ability to tailor bodies to customer specifications by offering a wide
array of seating options and other amenities, the well-established Dina
brand names and nationwide replacement parts availability.
As a result of the implementation of NAFTA on January 1, 1994,
tariff restrictions on new coach imports will be eliminated over a ten-year
period and non-tariff restrictions on new chassis-based coach imports will
be eliminated over a five-year period, such periods having begun in 1994.
Restrictions on used coach imports are scheduled to be eliminated over a
ten-year period starting in 2009. Management expects that, over time, NAFTA
will generally result in greater competition, but it may also have the
effect of gradually reducing costs for United States parts and components
used in the manufacture of Grupo Dina products.
DISTRIBUTION. Coaches and transit buses are currently sold by
Autobuses without the use of distributors.
PRODUCTION. Autobuses uses two basic types of coach
construction, integral frame and chassis-based. Integral-frame coaches
combine both the powertrain and the body as a single unit. Chassis-based
coaches contain a separate platform (i.e., frame, engine, transmission,
axles, suspension and wheels) to which a customized body is added. The body
of a chassis-based coach can be tailored to customer length, width and
height specifications.
The technology used in the chassis and suspension system of
Autobuses' chassis and integral-frame models has been designed or
co-designed by Autobuses. However, strategic alliances and purchased
technology have become increasingly important in the Mexican coach
operation. During 1992, Autobuses contracted with Marcopolo for technology
with respect to the assembly and mounting of Marcopolo's European-style
coach bodies, for technical training and access to all future Marcopolo
models. Under the agreement with Marcopolo, Autobuses has the exclusive
right in Mexico to assemble and sell coaches with Marcopolo bodies, while
Autobuses has granted Marcopolo an exclusive right in Brazil to sell
coaches using the Dina chassis. Also, under the agreement with Marcopolo,
Autobuses purchases the components for Marcopolo bodies necessary to
assemble and mount the bodies on chassis. Further, Autobuses has the
non-exclusive right to sell the Marcopolo bodies in other North, Central
and South American countries other than Mexico. Autobuses must pay
Marcopolo royalties based on the value of the parts and components of the
bodies it imports. Such agreement will expire by its terms in 2001, but may
be extended upon mutual agreement of the parties. In addition to the
Marcopolo bodies, Autobuses uses several suppliers, primarily in the United
States, for materials, components and other parts. Purchases from these
suppliers provide substantially all of Autobuses' requirements for diesel
engines, transmissions, suspensions, axles, brakes, electronic components,
glass parts and most components for bodies.
In addition, in 1994, Autobuses entered into a contract with
Navistar to purchase its Navistar New Generation Diesel, EPA '94 engine for
urban transportation for use with the Company's new line of transit buses.
This contract expires March 1997 and can be extended for an additional
three years by the parties. Based on this contract, management believes
Autobuses complies with the standards set by both the Ministry of the
Environment, Natural Resources and Fisheries (the "Ministry of the
Environment") in Mexico and the Environmental Protection Agency in the
United States.
By focusing the business on assembling from purchased parts,
Autobuses does not have the large investment in plant and equipment
required of a heavy manufacturing operation. The level of manufacturing
integration has been managed to improve access to the lowest cost sources
of material, parts and components and to reduce inventory carrying
requirements. Autobuses is not materially dependent on any single supplier
other than Marcopolo. Management does not foresee any material shortages of
raw materials or energy sources.
RESEARCH AND DEVELOPMENT
The Company maintains in-house research and development
capabilities to develop technology on its own and in conjunction with
others and also obtains technology from third parties.
Grupo Dina has a trust arrangement with Banca Cremi, S.A., as
trustee, to earmark deductible funds for research and development of
technology. Grupo Dina is authorized to make use of these funds for
specific purposes, and the fund may be increased by future contributions in
accordance with the provisions of the contract, or by interest, dividends
and capital gains earned by the fund. The fund was established in 1990 and
no subsequent cash contributions were made. During 1993, Ps 20.6 million
was used for research and development and is included in expenses. There
were no expenditures for research and development in 1992, 1994 and 1995.
However, these funds will be used for developing new technology
alternatives.
TRADEMARKS AND PATENTS
Grupo Dina has registered certain trademarks, including the
names DINA, DIMEX, Citus, Quadro and the names of its Avante, Avante Plus
and Dorado coach models. The names of its Paradiso and Viaggio coach models
are registered trademarks of Marcopolo which are used under license from
Marcopolo. The Company has received approval for patents covering its
"torsilastic" advanced suspension system for coaches, its MTC brand of
truck suspensions and various components used in trucks and coaches. The
Company operates under licenses for numerous patents relating to its
products and their manufacture held by third parties and pays royalties
under these licenses. While many of these patents are considered to be
important to particular products, no particular patent or group of related
patents is considered by the Company to be essential to its business as a
whole.
EMPLOYEES
As of December 31, 1994 and 1995, the Company had 6,307 and
5,388 employees, respectively. As of June 30, 1996, the Company had 5,237
employees, the change from year end 1995 is mainly due to a decrease in
Grupo Dina employees during the first half of 1996. The decrease in
employees during 1995 reflects one of the measures taken by the Company in
response to the economic downturn in Mexico, as the Company announced in
December 1994 a reduction in office and plant personnel in Mexico of
approximately 38%. In January 1996, the Company laid off 150 employees from
Camiones. On May 27, 1996, Grupo Dina filed for an arbitration procedure
before the labor authorities requesting, after completion of the
arbitration procedure, to lay-off 250 union workers from Camiones.
Approximately 1,500 Mexican employees are represented by the
Independent Union of Workers in the Automotive and Related Industries (the
"Automotive Workers Union"), which entered into new, more flexible
collective bargaining agreements with each of the Company's Mexican
operating subsidiaries in February 1992. In accordance with Mexican law,
the salary provisions of these agreements are renegotiated every year and
the benefits provisions every two years. The salary and benefits provisions
were renegotiated in February 1994. The Company experienced a labor strike
in Mexico in early 1992 and in February 1994 which resulted in a loss of
one day's production in each case. These strikes were resolved when the
Company entered into collective bargaining agreements with the Automotive
Workers Union. Supervisory personnel at the Company's manufacturing plants
are no longer covered by the union agreements.
During February 1995, the Company entered into negotiations with
its unions in Mexico to review the wage component of the contract. On
February 6, 1995, the Company announced it had reached an agreement with
the labor union. The negotiations included a general increase in union
salaries of 7% plus 3% for productivity. In addition, both parties agreed
to a temporary shut-down of the plants for an initial duration of 60
working days, which was extended until December 14, 1995, based on
consumption of existing inventories and the improvement of the economic
situation in Mexico.
Grupo Dina, following its cost reduction strategy, has filed for
new collective bargaining agreements for both Autobuses and Camiones in
order to do so before the Automotive Workers Union files for new salary
increases and because of various other considerations. As a result of these
efforts, the prior collective bargaining agreement, which was to expire on
February 7, 1996, was extended for two additional years.
This cost reduction strategy basically seeks the reduction of
operation costs by increasing manpower and energy efficiency and thereby
improve the manufacturing process.
ENVIRONMENTAL MATTERS
The operations and products of the Company are subject to
Mexican federal and state laws and regulations relating to the protection
of the environment. The fundamental environmental law in the Mexican
federal system is the Ley General de Equilibrio Ecologico y Proteccion al
Ambiente (the General Law of Ecological Balance and Environmental
Protection, or the "Ecological Law"). Under the Ecological Law, rules have
been promulgated concerning water pollution, air pollution, noise pollution
and hazardous substances. Additionally, the Mexican federal government has
enacted regulations concerning the importation and exportation of hazardous
materials and hazardous wastes. The Ministry of the Environment, in
conjunction with other governmental entities, state and municipal
governments and with the participation of the social and private sectors,
is the Mexican federal agency in charge of overseeing compliance with the
federal environmental laws. The Ministry of the Environment has the
authority to enforce the Mexican federal environmental laws. As part of its
enforcement powers, the Ministry of the Environment can bring
administrative and criminal proceedings against companies that violate
environmental laws, and it also has the power to close noncomplying
facilities.
It is possible that changes in Mexican federal and state
environmental laws, or their interpretation or enforcement, could result in
material costs to the Company. At this time, management of the Company is
not aware of any pending legislation which might, if passed, result in
material costs to the Company. Although not required to do so under current
environmental laws, in 1993 the Company installed an industrial and
sanitary water treatment facility at its plants.
Because of environmental concerns in Mexico City, gasoline and
diesel powered trucks currently may operate only four days per week. Trucks
utilizing natural gas or liquid propane gas may operate five days per week,
giving them a slight advantage over gasoline and diesel powered trucks. It
is possible to convert a gasoline engine to utilize natural gas. The
Company has entered into a contract with Hercules Engines, Inc. to provide
gas engines for certain of its trucks. All of the engines used on the
Company's trucks and coaches comply with current Mexican and U.S.
government emissions standards.
GOVERNMENT REGULATION
After the implementation of NAFTA in 1994, the Mexican
Auto-Transportation Decree was eliminated, and replaced with a transitional
system of quotas which will be phased out over five years. Commencing in
1994, NAFTA permits Mexican manufacturers to import up to 50% of their
Mexican production, while non-Mexican manufacturers will be permitted to
import a specified percentage of total Mexican production--15% in 1994 and
1995, 20% in 1996 and 30% in 1997 and 1998, on the basis of an auction
system. Commencing in 1999, such import limitation is scheduled to be
eliminated. NAFTA permits Mexico to maintain quotas on parts and components
for a ten-year period. Under NAFTA, Mexican import tariffs for 1994 were
18% for trucks, 9% for components and 8% for engines. These tariffs will be
phased out over a ten-year period with respect to new United States and
Canadian trucks and coaches that satisfy NAFTA's U.S., Canadian and Mexican
regional content requirements (50% regional content required to qualify for
reduced tariffs in 1994 to 1998, 55% in 1999 to 2002 and 60% thereafter).
In addition, under NAFTA, Mexican import tariffs on truck and coach parts
and components will be phased out over a ten-year period. The present
prohibition on importing used trucks and coaches into Mexico will be
maintained under NAFTA for fifteen years and then will be eliminated over a
ten-year transition period, permitting the importation of used trucks and
coaches into Mexico with model ages not exceeding 10 years. Grupo Dina
products imported by MCII for sale in the U.S. and Canada are subject to
various U.S. and Canadian laws and regulations.
PROPERTIES
The Company owns four manufacturing and assembly plants in
Mexico, one in Canada and one in the U.S. Additionally, the Company owns or
leases various replacement parts and repair facilities in the U.S. and
Canada. The following table is a summary of the approximate square footage
of the Company's facilities as of June 30, 1996.
Mexico U.S. Canada Total
Facility Type
Manufacturing 7,600,000 186,000 767,000 8,553,000
Replacement Parts --- 486,000 104,000 590,000
Modification or repair --- 174,000 --- 174,000
--------- ------- -------- ----------
Total square feet 7,600,000 846,000 871,000 9,317,000
========= ======= ======= =========
Ownership
Owned property 7,600,000 426,000 811,000 8,837,000
Leased property --- 420,000 60,000 480,000
--------- ------- - ------ ----------
Total square feet 7,600,000 846,000 871,000 9,317,000
========= ======== ======= ==========
The Company also owns or leases other properties in Mexico,
including a vehicle and parts distribution center in Vallejo.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is party to
various employment and other legal actions, as plaintiff or defendant. The
Company is not involved in any litigation or arbitration proceedings which,
if determined adversely to the Company, individually or in the aggregate
would, in management's opinion, have a material adverse effect on the
Company or its operations, nor, so far as it is aware, are any such
proceedings threatened.
Manufacturers and sellers of defective products in Mexico may be
subject to liability for loss and injury caused by such products under
Mexican law. The Company does not carry product liability insurance for
product sales in Mexico, but does carry such insurance for U.S. and
Canadian sales. Although the Company has never had a product liability
claim brought against its Mexican operations and the Mexican laws providing
for such liability appear to have been seldom utilized, no assurance can be
given that the Company may not be exposed to future product liability
claims in Mexico and, if such claims are successful, that the Company will
have sufficient resources to pay such claims.
BUSINESS OF MCII HOLDINGS
GENERAL
Grupo Dina acquired ownership of MCII in August 1994. In
connection with the issuance of the Notes, MCII became a wholly owned
subsidiary of MCII Holdings and MCII Holdings became a wholly owned
subsidiary of Grupo Dina.
MCII Holdings will not engage in any activities, for so long as
the Notes are outstanding, other than its participation in the exchange of
Old Notes for Eurobonds and Exchange Offer, acquiring, owning, holding,
pledging, and otherwise dealing with the MCII Shares (as defined below);
acquiring, owning and holding the capital stock of Autobuses, should
Autobuses become a subsidiary of MCII Holdings, and any other transactions
provided for in the Indenture. Article III of MCII Holdings' Restated
Certificate of Incorporation (the "MCII Holdings Certificate of
Incorporation") limits MCII Holdings' activities to the above activities
and to any activities incidental to and necessary or convenient for the
accomplishment of such purposes. Article V of the MCII Holdings Certificate
of Incorporation requires that at least one of MCII Holdings' directors not
be a stockholder, director, officer, employee, associate customer,
supplier, or relative of any stockholder, director, officer or employee of
Grupo Dina, MCII or any affiliate of Grupo Dina or MCII. Article V also
provides that the board of directors of MCII Holdings (the "MCII Holdings
Board of Directors") shall consist of no more than five members. Article VI
of MCII Holdings' Certificate of Incorporation prohibits MCII Holdings,
without the unanimous affirmative vote of the MCII Holdings Board of
Directors, including the affirmative vote of its independent director, from
(1) dissolving or liquidating or (2) merging or consolidating with any
corporation unless that corporation has a certificate of incorporation
containing provisions identical to Articles III, V, VI, VII, VIII and XI(c)
of the MCII Holdings Certificate of Incorporation. Article VII requires
MCII Holdings to maintain corporate records separate from Grupo Dina, MCII
and any other company. Article XI(c) provides that the right of any
director or officer of MCII Holdings, other than any independent director,
to be indemnified by MCII Holdings shall be subordinated in all respects to
the obligations of MCII Holdings under the Indenture. Article VIII of the
MCII Holdings Certificate of Incorporation prohibits MCII Holdings, without
the unanimous affirmative vote of the MCII Holdings Board of Directors,
from amending or repealing Articles III, V, VI, VII, VIII and XI(c).
MCII Holdings will enter into a management agreement with MCII
pursuant to which MCII or an affiliate thereof will provide administrative,
accounting and clerical serves and office space to MCII Holdings. MCII
Holdings has not engaged in operations prior to the transaction described
herein and does not anticipate having any other major assets other than its
interest in the MCII Shares and the capital stock of Autobuses.
Steps have been taken in order to assure holders of Notes that
any voluntary or involuntary petition for relief under Title 11 of the
United States Code or any other Federal, state or foreign bankruptcy,
insolvency or similar law ("Insolvency Laws") with respect to Grupo Dina
will not result in a similar voluntary petition with respect to MCII
Holdings so long as MCII Holdings is solvent and does not reasonably
foresee becoming insolvent, which determination shall be made after giving
effect to the subrogation rights of MCII Holdings in respect of the Notes.
These steps include (1) the creation of MCII Holdings as a separate,
special purpose subsidiary, pursuant to the MCII Holdings Certificate of
Incorporation, (2) obtaining an agreement from each of Grupo Dina and MCII
Holdings to do all things within its power to satisfy the legal
requirements applicable for the recognition of MCII Holdings as a corporate
entity separate and apart from Grupo Dina and (3) obtaining an agreement
from Grupo Dina to cause at least one of MCII Holdings' directors to be an
independent director as required by the MCII Holdings Certificate of
Incorporation and not to interfere with or prevent MCII Holdings from
maintaining its separate corporate identity. MCII Holdings has no intent to
file, and Grupo Dina has advised MCII Holdings that it has no intent to
cause the filing of, a voluntary petition under the Insolvency Laws with
respect to MCII Holdings so long as MCII Holdings is solvent and does not
reasonably foresee becoming insolvent, which determination shall be made
after giving effect to the subrogation rights of MCII Holdings in respect
of the Notes.
MCII Holdings, through its wholly owned subsidiary, MCII,
designs, manufactures, assembles and markets intercity coaches and
replacement parts for intercity coaches and transit buses. MCII is the
leading manufacturer of intercity coaches in the United States, with a
market share consistently in excess of 50%. Management believes that MCII
is the largest distributor of replacement parts to the combined intercity
coach and transit bus industries in the United States and Canada.
Revenues and operating income from continuing operations for
each of the segments for the last three years are as follows:
Year Ended
December 31
1995 1994 1993
---- ---- ----
(in millions)
Revenues:
Coach manufacturing
and support............ US$ 375.8 US$ 332.8 US$ 272.8
Replacement parts........ 140.5 134.6 126.2
516.3 467.4 399.0
Operating income:
Coach manufacturing
and support........... 23.3 26.8 25.2
Replacement parts........ 15.0 19.2 20.2
Non recurring merger
expenses.............. (11.3)
---------- --------- -------
38.3 34.7 45.4
COACH
MCII Holdings is the industry leader in the design, manufacture,
assembly and marketing of intercity coaches and their replacement parts in
the United States and Canada. MCII Holdings, through its indirect
subsidiary, Motor Coach Industries Limited, a Canadian corporation
("MCIL"), began manufacturing intercity coaches and providing replacement
parts in Canada in 1932, and began manufacturing these products in the
United States with the incorporation of Motor Coach Industries, Inc.
("MCI") in 1963. In 1995, MCII began marketing in the United States an
intercity coach manufactured by Grupo Dina. This coach, the Viaggio, is
used primarily for tour and charter service and intercity regularly
scheduled passenger service. MCII's coaches are used primarily for
intercity regularly scheduled passenger service, tour and charter service
and suburban commuting. Management believes that MCII's coaches have a
reputation for solid construction, durability, ease of maintenance and
comfort.
MARKET. MCII Holdings' management believes that there is
currently an industry-wide fleet of over 30,000 intercity coaches in
operation in the United States and Canada, having an average age of
approximately nine years. Coaches are used primarily to transport
passengers between cities at regularly scheduled intervals ("line-haul
operations") or on special tour or charter trips. Certain state and
municipal transportation agencies, such as New Jersey Transit, utilize
intercity coaches to transport passengers who have a relatively long daily
commute.
The coach business in the United States and Canada is highly
cyclical. During times of general economic weakness, many coach operators
postpone fleet replacement programs and may even reduce the size of their
fleets. As economic recovery occurs, they tend to accelerate fleet
replacement and may increase fleet size.
BACKLOG. MCII Holdings' coach backlog was 450 units at June 30,
1996 which included 96 units for GLI, compared to 280 units at June 30,
1995, which included 50 units for GLI. No material part of MCII Holdings'
backlog at June 30, 1996 is attributable to government orders.
PRODUCTS. MCII Holdings currently produces, under the trademark
of MCI, three integral-frame models. Two of MCII Holdings' models are
standard 40-foot long vehicles and the third is a 45-foot long vehicle. The
Model 102D3 is a 40-foot long, 102-inch wide European-styled vehicle. The
Model 102DL3 is a 45-foot long, 102-inch wide model with increased
passenger and baggage capacity, with a standard configuration of 55 seats,
giving it an increased passenger capacity of 17% over the 40-foot models
which generally enables operators to reduce their operating cost per
passenger mile. The MC-12 model is a lower-priced, line-haul coach, 40-feet
long and 96 inches wide, produced principally for GLI.
The two 40-foot coach models generally sell in a price range of
US$240,000 to US$325,000 and the 45-foot coach sells in a range of
US$290,000 to US$350,000. These prices depend on width, options, special
features and volume purchased. Substantially all of MCII's coaches are
built to order with over 2,000 options available. The standard warranty
period is 24 months.
MCII Holdings also markets the Viaggio, a body-on-chassis
constructed model manufactured by Grupo Dina. The Viaggio, which name is a
trademark of Marcopolo S.A. -- Carrocerias e Omnibus of Brazil used under
license by Grupo Dina, sells in a range of US$225,000 to US$270,000. The
standard warranty period for the U.S. market is 24 months.
MCII Holdings is currently in the process of developing two new
coach models to replace its current product offerings. The first model,
which management expects to introduce in early 1997, will consist of a
45-foot luxury tour and charter model. The second model will consist of a
lower-priced, durable line-haul model, which management anticipates
offering in 41-foot, 45 foot and 11 meter versions. The introduction of the
41-foot line-haul model is expected in late 1998. These development efforts
will result in significant product development and capital expenditures
being made over the next few years.
MARKETING. In the United States and Canada MCII Holdings relies
on its direct-sales force to market the MCI and Viaggio coaches, with 18
full-time new coach sales representatives who make regular visits to both
current and potential customers and attend major industry trade shows.
Management believes that the attentiveness and visibility of MCII Holdings'
sales force among coach operators solidify MCII Holdings' reputation and
enhance its sales position. MCII Holdings uses agents to market its coaches
overseas. MCII Holdings does not use distributors in the United States or
Canada.
CUSTOMERS. The customer base in the intercity coach industry in
the United States and Canada is highly diversified. The largest coach
transportation company in the United States, GLI, currently has a fleet of
over 2,000 coaches, or 7% of the 30,000 industry-wide fleet. Thus, the
remaining 93% of the market is comprised of smaller to mid-size operators.
The primary customers for intercity coaches are independent coach
operators, national coach fleet operators, including GLI and Greyhound
Lines of Canada, Ltd. ("GLOC"), government agencies that use coaches for
public transit services, international customers and custom coach
converters. While management estimates that in the past three years the
average order size (excluding GLI orders) for any single operator has been
approximately 2.7 units, order size has ranged from one coach up to
approximately 100 coaches.
INDEPENDENT OPERATORS. Management estimates that in the United
States, independent regional operators (i.e., operators other than GLI and
GLOC) of regular route or tour and charter operations account, on average,
for approximately 75% of MCII Holdings' annual coach sales. Management
believes that purchasing decisions by these buyers are based upon a number
of factors, including service and parts availability, operating costs,
resale value, financing terms, curbside appeal and interior amenities. In
1995, MCII Holdings sold coaches to 317 different independent operators of
whom only 42 purchased five or more coaches.
GLI AND GLOC. GLI is a nationwide regular route operator in the
United States and GLOC is a regular route operator throughout most of
Canada. GLI's fleet totaled over 2,000 coaches at June 30, 1996. Management
believes that GLOC currently operates approximately 500 coaches. For the
years ended 1995, 1994 and 1993, GLI and GLOC accounted for 11%, 17% and
23%, respectively, of consolidated revenue and less than 10% in the first
half of 1996.
Management believes that important purchase criteria for GLI and
GLOC include life cycle costs, reliability, availability of replacement
parts and support, passenger comfort, interior amenities and purchase
price. MCII and GLI have an agreement, which extends through March 18,
1998, which provides that GLI will purchase from MCII at least 75% of its
annual requirements for new coaches of the type produced (or planned, at
the time ordered, to be produced) by MCII Holdings. MCII Holdings and GLOC
have entered into a similar agreement which runs through 2002. Pursuant to
those agreements, GLI purchased 111 coaches from MCII Holdings in 1995 and
placed orders for 151 MCII Holdings coaches to be delivered in 1996 of
which all were delivered under operating leases as of June 30, 1996. GLOC
purchased 34 coaches in 1995 and 7 through June 30, 1996. No assurance can
be given regarding GLI's and GLOC's future ability or need to purchase
coaches from MCII.
GOVERNMENT AGENCIES. Government-funded public transportation
agencies utilize a variety of commuter, wheelchair-lift compatible and
other specialty coaches. Management believes that the primary buying
criterion for such customers is initial price for a given set of design
specifications, with overall lifecycle costs as a secondary concern. The
demand from such customers varies widely from year to year as government
agencies periodically make large procurements, every three to six years on
average, and in any given year, such customers may represent over 10% of
MCII's sales of new coaches.
MCII sold 700 coaches to the New Jersey Transit Authority
("NJTA") which were delivered in 1982 through 1984, and 415 coaches to NJTA
which were delivered in 1987 and 1988. NJTA uses these coaches for public
transport of passengers with relatively long daily commutes or in intercity
service. MCII Holdings believes NJTA is preparing to replace the coaches
purchased in 1982 through 1984. Because over 90% of NJTA's fleet consists
of MCII Holdings coaches, management believes it will have a competitive
advantage when NJTA's next purchase is made. However, there can be no
assurance that NJTA will order new coaches, when such order will occur or
that MCII Holdings will be awarded the contract.
Government contracts generally contain provisions permitting the
purchaser to terminate the contract at will. Such contracts provide that
the purchaser must reimburse the manufacturer for completed product and pay
the manufacturer's cost of termination. It is MCII Holdings' experience
that this type of provision is rarely exercised.
COACH CONVERTERS. The coach conversion market involves the
customizing of a coach interior for personal or corporate use. MCII
Holdings sells coach shells to coach conversion companies and, until 1996,
customized coaches for sale to the final user. In June 1996, MCII Holdings
exited the business of customizing coaches for sale to the final user by
selling the units of Custom Coach Corporation ("Custom Coach"), MCII
Holdings' former coach conversion subsidiary. Custom Coach served the high
end of the coach conversion market, focusing on motor homes for commercial
and personal applications, executive style coaches for business travel,
specialized units for training and entertainer bunkhouse units. Over the
past three years, MCII Holdings has averaged sales of 17 units, including
sales to Custom Coach, to the conversion market.
EXPORT. The majority of MCII Holdings' coaches are sold in the
United States and Canada, however, MCII Holdings has sold units to other
countries, principally Taiwan. In 1992, the last year in which MCII
Holdings had a significant level of exports, 108 units were delivered to
Taiwan.
COMPETITION. MCII Holdings has two principal competitors in the
United States and Canadian coach market: Prevost, a subsidiary of Volvo,
which management believes to be the largest of its competitors, and Van
Hool. MCII Holdings has maintained a strong market position in the new
coach market in the face of lower prices by competitors, which management
believes is primarily due to customer loyalty stemming from a quality
product and strong aftermarket parts and service capability. An additional
factor contributing to customer loyalty is the convenience and cost
efficiencies which operators derive from managing and servicing a fleet of
coaches manufactured and supported by a single supplier. These efficiencies
may exist for both larger, multi-site operators as well as smaller,
independent operators, which rely on MCII Holdings for a variety of support
services.
FINANCING. MCII Holdings primarily sells coaches for cash,
occasionally offers terms (generally net 30 days) to its most creditworthy
customers, and provides long-term financing as a necessary adjunct to its
coach manufacturing business. Demand for new coach financing from MCII is
primarily dependent upon the annual level of new coach sales as well as the
availability of alternative sources of financing. MCII Holdings had US$42.3
million of contract receivables at June 30, 1996.
MCII provides new and used coach financing to its intercity
coach customers principally through its financing subsidiary, MCI
Acceptance Corp. ("MCIAC"). MCIAC provides financing primarily at a
floating rate of interest for three to five years, in the case of used
coaches, and seven to 10 years in the case of new coaches. MCII, through
its leasing subsidiary BusLease, Inc., also provides coaches to customers
under operating leases. The leases require security deposits and usually
have a duration of three to seven years.
Periodically, MCIAC sells contract receivables to financial
institutions and provides a limited guarantee to those institutions against
losses related to such contracts with respect to debtor defaults.
USED COACHES
MCII Holdings provides used coach brokerage and dealership
services through Hausman Bus Sales Inc. ("HBSI"), which was acquired in
1989. The used coach operations provided revenues for the six months ended
June 30, 1996 and for the years 1995, 1994, and 1993 of US$28.2 million,
US$47.2 million, US$46.8 million and US$31.2 million, respectively. During
that period, the used coach operation accounted for US$15.0 million to
US$25.0 million of MCII's inventories. The size of the used coach business
is dependent upon several factors, including the size of the entire coach
fleet, new coach orders which generate trade-ins and the level of changes
in the fleet composition of coach operators. Management estimates that the
existing industry-wide fleet of over 30,000 coaches changes ownership every
12 years, creating an average used coach volume of about 2,500 units per
year.
Due to MCII Holdings' installed base of coaches, its maintenance
and repair capabilities, customer network and industry knowledge, HBSI is
able to repurchase and resell a substantial volume of used coaches.
Management believes that MCII Holdings' capacity to accept used coaches in
support of new coach sales and resell them through its distribution system
provides MCII Holdings with a competitive advantage. Management believes
that HBSI's largest competitor in the dealership business is ABC Bus, Inc.,
which also serves as Van Hool's United States sales agent for new coaches.
RESEARCH AND DEVELOPMENT. As part of MCII Holdings' new coach
development project it received US$7.5 million in contributions from the
Government of Canada and the Province of Manitoba. These contributions have
been applied against research and development expenses. Contributions may
be repayable should the project not be completed, or, for the first five
years following project completion, should the ratio of Canadian employees
to total employees of MCII be less then 40%.
REPLACEMENT PARTS
Management believes that MCII Holdings is a leading supplier of
original equipment manufacturer ("OEM") quality replacement parts for the
combined intercity coach and transit bus aftermarkets in the United States
and Canada. MCII Holdings offers over 58,000 items necessary for coach and
bus repair and regularly scheduled maintenance. MCII Holdings has six
strategically located distribution outlets in the United States and Canada
which allow MCII Holdings to promptly (if necessary, within 24 hours)
deliver replacement parts nationwide. Management believes that MCII
Holdings' breadth of product line and geographic scope are unmatched in the
industry. In addition to the core intercity coach and transit bus parts
business, MCII Holdings also distributes parts for school buses and diesel
engines.
In the replacement parts business, MCII Holdings has improved
responsiveness to customer demands through the development of its
information systems. MCII Holdings has installed remote order entry
terminals in over 250 customer locations in order to minimize lead times
and to accelerate the delivery process. Management believes that the
installation of these electronic order entry terminals at customer
locations expedites replacement parts orders and strengthens customer
loyalty.
MCII Holdings' competitive position in the parts business is
further enhanced by the large installed base of its vehicles. The
approximately 23,000 coaches and 33,000 transit buses in the United States
and Canada produced by MCII Holdings create a core demand for MCII Holdings
parts, approximately 20% of which are proprietary to MCII Holdings and may
not be purchased elsewhere. Despite the fact that MCII Holdings no longer
manufactures transit buses, MCII Holdings continues to supply replacement
parts to the Canadian transit bus market, and until November 1999, will
provide OEM replacement parts for transit buses previously manufactured in
the United States by MCII Holdings.
PRODUCT LINE. The replacement parts business is segmented into
high quality parts supplied by an OEM which may fit coaches made by other
manufacturers, and non-OEM parts, which are marketed primarily on a value
basis. Management believes that MCII Holdings' current strength is in
providing OEM parts that are either manufactured by MCII Holdings or
acquired by MCII Holdings from the original equipment manufacturer. MCII
Holdings' Universal Coach Parts ("UCP") subsidiary in the United States and
MCIL in Canada offer a wide selection of replacement and repair parts to
MCII Holdings' coach customers. In an effort to leverage further the
competitive strength of its replacement parts business and distribution
facilities, UCP has developed its own brand of alternate, non-OEM parts
under the COACHGUARD name. More than sixty products have been introduced
for this segment since its inception in 1993. MCII Holdings has also
developed a line of remanufactured parts and components, which were
introduced in the first six months of 1994. Management believes that the
availability of remanufactured products will permit MCII Holdings to access
new markets that are currently served by local and regional parts
rebuilders.
In 1994, MCII Holdings began marketing diesel engine parts under
the name DIESEL GUARD and also began targeting the school bus parts market.
As a result of its focus on the school bus market, MCII Holdings purchased
the operations of a school bus parts distributor in April 1995 for US$2.9
million.
MARKETING. For sales of replacement parts, MCII Holdings
utilizes 13 full-time field representatives, as well as telemarketing
salespersons. The sales force makes regular visits to both current and
potential customers, attends major industry trade shows, responds to
advertisements for bids to supply replacement parts and uses telemarketing
techniques. In addition, customer orders are facilitated through the use,
by the sales force and certain of MCII Holdings' larger customers, of
remote order entry terminals to minimize lead time. Management believes
that MCII Holdings' efficiency and responsiveness allow customers to
minimize inventory holding costs and to increase fleet utilization ratios.
COACH PARTS CUSTOMERS. Customers served by MCII Holdings include
both purchasers of MCII Holdings coaches as well as purchasers of non-MCII
coaches such as Grupo Dina's Viaggio coach model. Management believes that
customers place considerable emphasis on the quality of parts purchased as
well as the speed and efficiency provided by their parts suppliers. Under
an agreement with GLI, which is terminable by either party upon 180 days
notice but not before April 30, 1997, MCII Holdings supplies and manages
most of GLI's inventory of replacement parts.
TRANSIT PARTS CUSTOMERS. Management believes that the demand for
transit parts is a function of the number of transit buses currently in
operation, the average level of usage for each bus and the average age of
the bus fleet. Management believes that purchasers of transit parts are
more price-sensitive and less service sensitive than customers in the coach
aftermarket, as the opportunity cost to the transit authority of a transit
bus out of operation is less significant than the lost revenue of a
line-haul coach operator. As a result, a large percentage of transit parts
purchases are conducted on a public bid basis. Customers often choose to
make a major purchase of parts inventory upon the procurement of additional
new transit buses to ensure the availability of parts and to minimize cost
through volume purchasing.
COMPETITION. The replacement parts business is highly fragmented
and competitive. Management believes that MCII Holdings' largest
competitors are Prevost and Mohawk, for coach replacement parts, and the
major transit manufacturers - Flxible, BIA and Neopart (the parts operation
of Neoplan), for transit bus replacement parts. The remaining competitors
include other coach manufacturers, diesel engine manufacturers, niche
marketers and local vendors. Management believes that the factors
influencing the choice of parts suppliers include a supplier's proximity to
the customer, the number of replacement parts offered, level of technical
knowledge and support and, to a lesser extent, minimum price. In addition,
management believes that the installed base of vehicles manufactured by
MCII Holdings, its predecessors and successors also provides MCII Holdings
a distinct competitive advantage.
Management estimates that MCII Holdings has consistently
captured a significant share of the replacement parts business in its core
intercity coach and transit bus parts segments (excluding engines,
transmissions and related parts). As of the date of this Prospectus, MCII
Holdings has negotiated the purchase for US$12.2 million of certain assets
of The Flxible Corporation, its third largest competitor in the replacement
parts industry.
DISCONTINUED OPERATIONS
In November 1993, the Board of Directors of MCII approved a plan
of disposition of the transit manufacturing segment. This decision was
based upon management's review of market activities, business prospects,
competitive bidding, evaluation of backlogs, economic value analysis, and
opportunities for cost reduction, which indicated that the transit
manufacturing business may not achieve acceptable profitability in the
foreseeable future. In November 1994, MCII sold the fixed assets and
certain of the inventory of the transit manufacturing business, as well as
the right to manufacture, remanufacture and distribute transit buses
previously made by MCII. Additionally, the purchaser, for a period of five
years from the sale date, has agreed not to distribute parts to transit
buses previously made by MCII. MCII retained all other assets and all of
the remaining liabilities of the transit manufacturing business. As of June
30, 1996, the remaining net assets of the transit manufacturing business
totaled US$0.6 million and were comprised principally of receivables,
warranty and product liability reserves.
INTERNATIONAL
MCII has pursued expansion opportunities in selected
international markets, with both direct sales efforts and joint ventures.
In 1995, MCII Holdings invested 10 used coaches in a joint venture with a
Chinese company to provide bus transportation for long-distance passengers
and tourists in China.
RAW MATERIALS/COMPONENTS
MCII Holdings' manufacturing operations utilize raw materials
supplied by diverse sources and component parts provided by other original
equipment manufacturers, which are assembled into intercity coaches. For
axles, stainless steel tubing, transmissions and engines, MCII Holdings
relies on limited sources of supply, although alternative sources of all
such components are available.
GOVERNMENT REGULATION
The operations of, and the products manufactured by, MCII
Holdings' subsidiaries are subject to various United States federal and
state and Canadian federal and provincial laws and agency regulations. In
the United States, these regulations include the Clean Air Act and other
environmental acts which regulate coach engine emissions and plant
operations; federal motor vehicle safety standards which establish minimum
safety standards for various components of coaches; the Americans with
Disabilities Act which specifies accessibility standards for the physically
challenged; and Buy America legislation prohibiting the use of federal
funds for coaches with less than 60% United States content. In Canada,
regulations include various environmental acts which regulate coach plant
operations and Canadian motor vehicle safety regulations which establish
minimum safety standards for various coach components. Although the
Canadian government has not adopted accessibility standards for the
physically challenged, such standards are currently the subject of several
official studies. MCII Holdings cannot accurately predict future expenses
or liability which might be incurred as a result of such laws and
regulations.
The Americans with Disabilities Act requires, among other
things, that the U.S. Department of Transportation (the "DOT") promulgate
handicapped accessibility standards for coaches. Although the DOT has not
issued proposed regulations for public comment, there are indications that
the regulations (which are expected to be issued for comment in December
1996 and finalized in 1997) might require each coach in an operator's fleet
to be handicapped accessible, rather than permitting the operation of a
limited number of accessible coaches. Requiring complete fleet
accessibility could have a material adverse effect on an operator's
business and possibly on MCII Holdings' coach business. The final
regulations will be applicable to operators with larger fleets 2 years
after issuance of the final regulations and applicable to operators with
smaller fleets 3 years after issuance of the final regulations.
PATENTS AND TRADEMARKS
MCII Holdings, through its wholly owned subsidiary, MCII, owns
numerous trademarks representing goodwill in the businesses using the marks
and own a number of patents which MCII believes give it a competitive
advantage in the marketplace. United States trademark registrations are for
a term of 10 years, renewable every 10 years so long as the trademarks are
used in the regular course of trade. The trademarks owned and used by MCII
Holdings include the well known MCI marks. The marks COACH GUARD and DIESEL
GUARD are in use in the replacement parts operations and filings have been
made to register these trademarks. MCII Holdings owns numerous patents
protecting, among other things, various aspects of the MCI coaches. Patents
are granted for a term of 17 years. MCII Holdings has the right to use the
Greyhound name and the "Image of the Running Dog" for the manufacture and
sale of intercity coaches, transit buses and replacement parts in all
countries other than the United States, Canada and Mexico.
EMPLOYEES
MCII Holdings had approximately 3,200 employees, as of June 30,
1996, with approximately 1,300 in the United States and 1,900 employees in
Canada. The hourly workers at most locations are organized and represented
by unions. Approximately 2,000 employees of the total work force are
represented by labor unions. The largest contracts are with the
International Association of Machinists and Aerospace Workers (the "IAM")
in Winnipeg, Manitoba and Pembina, North Dakota. The IAM contracts with
Winnipeg/Pembina expire September 30, 1997. MCII's subsidiaries have
historically enjoyed satisfactory relations with both union and nonunion
employees.
LEGAL MATTERS
MCII and certain of its subsidiaries are parties either as
plaintiffs or defendants to various actions, proceedings and pending
claims, certain of which involve claims for compensatory, punitive or other
damages. Litigation is subject to many uncertainties and it is possible
that some of the legal actions, proceedings or claims referred to above
could be decided against MCII. Although the ultimate amount for which MCII
may be held liable with respect to matters where MCII is a defendant is not
ascertainable, MCII Holdings believes that any resulting liability will not
materially affect its financial condition or results of operations.
MCII's Canadian income tax returns for 1982 through 1992 are
currently under review by Revenue Canada, which is reviewing certain profit
allocation procedures between MCIL and MCI and may seek to impute
additional Canadian income to MCIL. MCII is of the opinion that Revenue
Canada's arguments are without merit. See "Risk Factors -- MCII Canadian
Tax Liability."
PROPERTIES
COACH. MCII Holdings conducts its coach manufacturing operations
through subsidiaries located both in the United States and Canada. The
operations in Winnipeg produce metal bus components, fiberglass parts,
subassemblies for intercity coaches and complete intercity coach shells.
Once assembled, outer shells of coaches are transported by truck-hauled
flatbed trailers to its Pembina, North Dakota plant. In Pembina, the
manufacturing process is completed by installing components such as
engines, transmissions, axles, wheels, tires, electrical components, air
conditioning systems and passenger seats, as well as completing final paint
scheme requirements. Finished units are distributed from the Pembina
facility to customers throughout the United States and are returned to
Winnipeg for sale and delivery to Canadian customers. With the
Winnipeg/Pembina complex in full production, MCII Holdings is capable of
producing approximately 1,400 coach units per year.
PARTS. MCII Holdings distributes products from six locations,
strategically located across the United States and Canada, with sites in
Dayton, New Jersey; Chicago, Illinois; Los Angeles, California; Huntsville,
Texas; Winnipeg, Manitoba; and Newcastle, Ontario.
OTHER PROPERTIES. MCII Holdings leases its headquarters in
Phoenix and has other leases on warehouses and parking lots.
MCII Holdings believes that its facilities are adequate for its
present needs and that its properties are generally in good condition, well
maintained and suitable for their intended use. The following table is a
summary of MCII's primary facilities as of June 30, 1996.
<TABLE>
<CAPTION>
LOCATION/
OWNERSHIP
MANUFACTURING AND ASSEMBLY PLANTS: U.S. CANADA BUILDING SQ. FT. SEGMENT
<S> <C> <C> <C> <C>
1149 St. Matthews Ave.................. - Owned 128,000 Coach
Winnipeg, Canada
841 & 850 Erin Street.................. - Owned 78,000 Coach
Winnipeg, Canada
400 Archibald Street................... - Owned 36,000 Coach
Winnipeg, Canada
1475 Clarence Ave...................... - Owned 381,000 Coach
Winnipeg, Canada
552 W. Stutsman Ave.................... Owned - 186,000 Coach
Pembina, ND
140 Otter Street....................... - Owned 144,000 Coach
Winnipeg, Canada
MODIFICATION OR REPAIR FACILITIES:
10 E. Golf Road........................ Owned - 60,000 Coach Support
Des Plaines, IL
9846 Atlantic Ave...................... Leased - 16,000 Coach Support
Southgate, CA
14 Harmon Dr........................... Leased - 28,000 Coach Support
Blackwood, NJ
1250 Slocum Street..................... Leased - 30,000 Coach Support
Dallas, TX
REPLACEMENT PARTS FACILITIES:
1558 Wilson Place...................... - Leased 60,000 Parts
Winnipeg, Canada
105 E. Oakton.......................... Owned - 180,000 Parts
Des Plaines, IL
55 Howard Street....................... Leased - 75,000 Parts
Des Plaines, IL
9 Nicholas Court....................... Leased - 106,000 Parts
Dayton, NJ
7030 East Slauson...................... Leased - 50,000 Parts
Los Angeles, CA
Huntsville, TX......................... Leased - 75,000 Parts
260 Toronto Street..................... - Owned 44,000 Parts
Newcastle, Ontario
</TABLE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Grupo Dina
Grupo Dina is managed by its board of directors (the "Grupo Dina
Board of Directors"), which currently consists of twelve directors and five
alternate directors. The directors (together with the alternate directors)
are generally elected once a year at Grupo Dina's annual ordinary meeting
of stockholders. Directors and alternate directors are generally elected by
majority vote; however, Grupo Dina's corporate charter and by-laws
(Estatutos Sociales) provide that any stockholder or group of stockholders
who own ten percent of the outstanding common stock are entitled to appoint
one director and one alternate director. Two of the directors and one
alternate director are elected by the holders of shares of Grupo Dina
Series L Stock (the "Grupo Dina Series L Stock").
Alternate directors participate and are entitled to vote at the
Grupo Dina Board of Directors' meetings only when principal directors are
absent. Each alternate director may substitute for any of the principal
directors. Grupo Dina's executive officers are appointed by the Grupo Dina
Board of Directors and hold office at the discretion of the Grupo Dina's
Board of Directors.
In accordance with Mexican law, Grupo Dina also has one or more
statutory auditors. The primary role of a statutory auditor is to report to
Grupo Dina's stockholders at the annual ordinary general meeting of
stockholders regarding the accuracy of the financial information presented
to the stockholders by the Grupo Dina Board of Directors. A statutory
auditor is also authorized (i) to call ordinary or extraordinary general
meetings, (ii) to place items on the agenda for meetings of stockholders or
of the Grupo Dina Board of Directors, (iii) to attend meetings of
stockholders and of the Grupo Dina Board of Directors and (iv) generally to
monitor the affairs of Grupo Dina.
Grupo Dina may have an executive committee, the members of which
must be directors and appointed at the stockholders' meeting. Currently, no
executive committee has been appointed. The members of the Grupo Dina Board
of Directors and the alternate directors, as well as the statutory auditor,
are as follows:
<TABLE>
<CAPTION>
Current
Position
Name Position Held Since Alternate
<S> <C> <C> <C>
Rafael Gomez Flores.................. Chairman 1992(1) Jose Luis Olvera Caballero
Alejandro Cumming Soliveras.......... Director 1992 Humberto Gonzalez Hernandez
Wilfrido Gonzalez Balboa............. Director 1992 Gamaliel Garcia Cortes
David Ibarra Munoz................... Director 1992 Hector Arangua Morales
Luis German Carcova.................. Director 1995
Guillermo Gomez Flores............... Director 1994
Luis Huante Rodriguez................ Director 1994
Antonio Mijares Ricci................ Director 1994
Hector Larios Santillan.............. Director 1996
Juan Gargallo Costa.................. Director 1996
Francois Bouffard.................... Director 1996
Guillermo Kareh Aarun................ Secretary 1993
Francisco Javier Soni Ocampo......... Deputy Statutory 1996 Carlos Mendez Rodriguez
Auditor
Martin Josephi Wellman Series L Director 1995
James Bernacchi Series L Director 1996 Jerry Bost
<FN>
- -------------------
(1) Rafael Gomez Flores has been a Director of Grupo Dina since 1989. He
succeeded O. Raymundo Gomez Flores as Chairman of the Board in 1992.
Grupo Dina's executive officers are as follows:
</TABLE>
Current Position
Name Position Held Since
---- -------- ----------------
Rafael Gomez Flores Chief Executive Officer 1996
Gamaliel Garcia Cortes Commercial Director 1995
Jose Luis Olvera Caballero Director of Finance 1994
James P. Bernacchi Chief Operating Officer 1996
Alberto Halliuis Morfin General Manager - Spare Parts 1995
Valente Espinoza Director of Acquisitions 1995
Guillermo Kareh Aarun Director of Legal Affairs 1995
and Human Resources
Mr. Gomez Flores became the Chief Executive Officer of Grupo
Dina following the termination of the employment of George Aucott in March
1996, and Mr. Bernacchi became its Chief Operating Officer following the
termination of the employment of his predecessor, John Nasi, in April 1996.
Although officers of Grupo Dina do not generally have employment
contracts, Mr. Olvera entered into an employment agreement in September
1996 in connection with the establishment by MCII of its new bank credit
facility. Such agreement provides for employment terms and severance rights
in accordance with Grupo Dina's general severance policy for executives.
MCII Holdings
The following table sets forth certain information (ages as of
July 1, 1996) concerning the directors and executive officers of MCII
Holdings. All directors serve until their resignation or removal.
Name Age Position
Rafael Gomez Flores............. 39 President and Director
Jose Luis Olvera Caballero...... 42 Vice President, Chief Financial
Officer and Director
Guillermo Kareh Aarun........... 40 General Counsel, Secretary and
Director
Gamaliel Garcia................. 42 Vice President and Director
Stephen P. Glennon.............. 52 Director
James P. Bernacchi.............. 50 Chief Operating Officer of MCII
Jeff W. Sanders................. 34 Controller
Kristin Schloemer............... 46 Assistant Secretary
Albert J. Abram................. 39 Treasurer
Mr. Gomez Flores has been President and Director of MCII
Holdings since May 1996, Director of Grupo Dina since 1991 and Chairman of
the Board of Directors of Grupo Dina since 1992. Rafael Gomez Flores and
Guillermo Gomez Flores, Director of Grupo Dina, are brothers.
Mr. Olvera Caballero has been a Director of MCII Holdings since
May 1996, and Director of Finance of Grupo Dina since 1994. Mr. Olvera
Caballero was Managing Partner of Price Waterhouse Mexico from 1991 to
1994.
Mr. Kareh Aarun has been General Counsel, Secretary and Director
of MCII Holdings since May 1996 and General Counsel of Grupo Empresarial G,
S.A. de C.V., an affiliate of Grupo Dina, since 1993. Mr. Kareh Aarun
served as General Counsel of Procter & Gamble Mexico from 1981 to 1993.
Mr. Garcia has been Vice President and Director of MCII Holdings
since May 1996. Mr. Garcia was General Manager of Premium International
from 1991 to 1995.
Mr. Glennon has been Director of MCII Holdings since May 1996.
Mr. Glennon was designated as an independent director of MCII Holdings by
the holder of at least a majority of the Old Notes pursuant to the
Indenture. Mr. Glennon has been CEO of Glennon Associates since 1991,
Director of New Water Street Corp. since 1993 and Director of Arden Group,
Inc. since 1994.
Mr. Bernacchi has been Chief Operating Officer of MCII and Grupo
Dina since February 1996. From August 1995 to February 1996, Mr. Bernacchi
served as Executive Vice President - Operations for Grupo Dina. From
December 1991 through August 1995, Mr. Bernacchi held the position of Vice
President-Group Procurement for MCII. Mr. Bernacchi has been employed with
the MCII organization in various capacities since March 1988.
Mr. Sanders has been Controller of MCII Holdings since May 1996
and director of financial reporting and then controller of MCII since its
formation in 1993. Prior to being employed by MCII, Mr. Sanders was
employed by the accounting firm of Deloitte & Touche LLP from 1985 to 1993
in various positions, including senior manager in the audit department.
Ms. Schloemer has been Assistant Secretary and in-house counsel
of MCII Holdings since May 1996 and has served as in-house counsel to MCII
since its formation in 1993. Prior to employment with MCII, Ms. Schloemer
was employed in the law department of The Dial Corp from 1981 to 1993 in
various positions, working primarily on matters relating to Dial's bus
manufacturing and bus parts distribution businesses.
Mr. Abram has been Treasurer of MCII Holdings since May 1996 and
has served as assistant treasurer and then treasurer of MCII since its
formation in 1993. Prior to being employed by MCII, Mr. Abram was employed
by The Dial Corp or subsidiaries of The Dial Corp beginning in 1985 in
various capacities in the treasury function.
COMPENSATION OF DIRECTORS AND OFFICERS OF GRUPO DINA
The aggregate amount of compensation paid by Grupo Dina to all
individuals serving as executive officers of the registrant during 1995 was
Ps 25.4 million. Grupo Dina did not accrue any pension or retirement
benefits for its directors or executive officers in 1995.
Currently, members of Grupo Dina's Board of Directors who are
not employees of Grupo Dina or its subsidiaries receive as compensation an
annual fee equivalent to US$10,000.
COMPENSATION OF DIRECTORS OF MCII HOLDINGS
Mr. Glennon, independent director of MCII Holdings designated by
the holders of the Old Notes pursuant to the Indenture, receives annual
compensation equal to US$10,000 for his services as an independent Director
of MCII Holdings. The other directors of MCII Holdings, who are employees
of MCII or any subsidiary thereof, do not receive additional compensation
by reason of their membership on, or attendance at meetings of, the Board.
MCII HOLDINGS EXECUTIVE COMPENSATION
MCII Holdings is a holding company with no business operations
of its own and, accordingly, engages in its business through MCII and its
subsidiaries. The officers of MCII Holdings receive no compensation for
their services to MCII Holdings. Accordingly, the following table sets
forth certain compensation awarded to, earned by or paid to the Chief
Executive Officer of MCII and the four most highly paid executive officers
of MCII and its subsidiaries, other than the Chief Executive Officer, who
served as executive officers of MCII at December 31, 1995 for services
rendered in all capacities to MCII and its subsidiaries during 1995 and the
two prior fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Award
----------------------------------- ------------------------------------------
Name and Principal Position
Other Securities
Annual Restricted Under-
Compen- Stock lying LTIP All Other
Salary Bonus sation Awards Options Payouts Compensation
Year US$ US$ US$(1) US$(2) #(3) US$(4) US$(5)
---------- --------- ------ ---------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George W. Aucott(6)... 1995 420,000 794,000 1,213,910 0 0 0 1,455,663
Chief Executive Officer and 1994 377,865 571,367 19,106 0 0 209,887 6,354
Chairman of the Board, MCII 1993 161,763 285,400 237,691 175,183 55,000 0 740
John R. Nasi(7)........ 1995 346,667 571,300 506,682 0 0 0 2,596,390
President and Chief 1994 326,667 416,600 45,724 0 0 203,882 9,000
Operating Officer, MCII 1993 306,667 225,100 476,088 150,162 93,716 0 14,045
Truman W. Netherton(8).... 1995 237,900 229,600 11,759 0 0 0 7,137
Group Executive 1994 226,667 208,675 113,564 0 0 369,920 4,500
Vice President, North 1993 214,333 147,200 5,778 116,438 57,447 0 7,157
American Coach Group
Jerry W. Bost............ 1995 210,093 199,000 3,845 0 0 0 6,320
President and Chief Executive1994 195,333 148,358 92,052 0 0 80,898 5,860
Officer, Universal Coach 1993 166,669 93,000 49,390 97,031 43,710 0 2,205
Parts, Inc.
James P. Bernacchi....... 1995 136,800 147,000 6,124 0 0 0 3,155
Executive Vice President 1994 119,267 93,250 37,378 0 0 0 0
Procurement and Manufac- 1993 110,733 63,200 41,366 32,344 14,061 0 470
turing
Transportation Manufacturing
Operations, Inc..
(1) Perquisites are less than the lower of 10% salary and bonus or
US$50,000, except that (i) the amount for Mr. Aucott in 1993 includes
perquisites for moving expenses (US$49,940), financial counseling
(US$5,886), country club dues (US$4,558) and personal use of company
car (US$2,635), and (ii) the amount for Mr. Bernacchi in 1993 includes
perquisites for moving expenses (US$27,161), personal use of company
car (US$964) and country club dues (US$75). The amount for Mr. Aucott
in 1995 represents a gross-up of the taxes due for reimbursed financial
counseling expenses (US$5,840), reimbursed travel expenses (US$2,036)
and supplemental pension plan funding (US$1,206,034). The amount for
Mr. Nasi in 1995 represents a gross-up of the taxes due for reimbursed
counseling expenses (US$8,494) and supplemental pension plan funding
(US$498,188). The amount for Mr. Netherton in 1995 represents a
gross-up of the taxes due for reimbursed financial counseling expenses
(US$2,716) and travel expenses (US$9,043). The amount for Mr. Bost in
1995 represents a gross-up of the taxes due for reimbursed financial
counseling expenses (US$2,716) and travel expenses (US$1,129). The
amount for Mr. Bernacchi in 1995 represents a gross-up of the taxes due
for reimbursed financial counseling expenses (US$1,816) and travel
expenses (US$4,308).
(2) There were no restricted stock holdings at December 31, 1995.
(3) There were no stock options at December 31, 1995.
(4) Represents pro rata payment of outstanding awards under the MCII's
incentive plans for the 1992-1994, 1993-1995 and 1994-1996 cycles.
(5) The amount for Mr. Aucott in 1995 represents payments by MCII under
401(k) plans (US$9,000), supplemental pension plan funding
(US$1,442,451) and life insurance payments (US$4,212). The amount for
Mr. Nasi in 1995 represents payments by MCII under 401(k) plans
(US$9,000) and supplemental pension plan funding (US$595,848) and
payment under the MCII executive severance plan (US$1,991,542). The
amount for Mr. Netherton in 1995 represents payments by MCII under
401(k) plans (US$7,137). The amount for Mr. Bost in 1995 represents
payments by MCII under 401(k) plans (US$6,320). The amount for Mr.
Bernacchi in 1995 represents payments by MCII under 401(k) plans
(US$3,155).
(6) Mr. Aucott became empoyed by MCII in July 1993. His employment
terminated on March 31, 1996.
(7) Mr. Nasi served as Chief Executive Officer of MCII until August 1993.
His employment terminated on April 1, 1996.
(8) Mr. Netherton's employment terminated on June 30, 1996.
</TABLE>
Years of Service
----------------------------------------------
Renumeration 10 15 20 25
- ----------------------- --------- ---------- ---------- --------
US$100,000 .......... US$15,350 US$ 23,025 US$ 30,700 US$ 38,375
US$200,000 .......... 32,850 49,275 65,700 82,125
US$300,000 .......... 50,350 75,525 100,700 125,875
US$400,000 .......... 67,850 101,775 135,700 169,625
US$500,000 .......... 85,350 128,025 170,700 213,375
US$600,000 .......... 102,850 154,275 205,700 257,125
US$700,000 .......... 120,350 180,525 240,700 300,875
US$800,000 .......... 137,850 206,775 275,700 344,625
US$900,000 .......... 155,350 233,025 310,700 388,375
The above table shows the estimated annual retirement benefit
payable on a straight life annuity basis to participating employees,
including officers, in the earnings and years of service classifications
indicated, under MCII's retirement plans which cover most officers and
other salaried employees on a non-contributory basis. MCII's plans provide
for the payment of benefits to an employee's surviving spouse or other
beneficiary.
Covered compensation includes salary and bonus. The calculation
of retirement benefits under the plans generally is based upon average
annual earnings for the highest five consecutive years. The credited years
of service for Messrs. Aucott, Nasi, Netherton, Bost and Bernacchi are 2,
14, 4, 3 and 7, respectively. Mr. Aucott's average annual earnings for the
29 months ended December 31, 1995 were US$838,462. Mr. Bost's average
annual earnings for the 39 months ended December 31, 1995 were US$303,061.
Mr. Netherton's average annual earnings for the 54 months ended December
31, 1995 were US$404,332. Mr. Nasi's average annual earnings for the five
years ended December 31, 1995 were US$478,428 and Mr. Bernacchi's were
US$145,909.
Section 401(a)(17) and 415 of the Internal Revenue Code of 1986,
as amended, limit the annual benefits which may be paid from a
tax-qualified retirement plan. As permitted by the Employee Retirement
Income Security Act of 1974 ("ERISA"), MCII has supplemental plans which
authorize the payment out of the general funds of MCII of any benefits
calculated under provisions of the applicable retirement plan which may be
above the limits under these sections.
The basis on which benefits under the plans are computed are:
years of service, age at retirement and compensation. The benefits listed
in the above Pension Plan Table are not subject to any deduction or other
offset amounts.
MCII Benefit Plans
The following are descriptions of certain agreements and benefit
plans provided to management employees of MCII and its subsidiaries.
MCII Employment Agreements. In 1994, in connection with the
Merger, MCII entered into a three year employment agreement with Mr. Aucott
providing for a base salary of US$350,000 per year, an annual incentive
award under the MCII annual management incentive plan with a target amount
of 60% of base salary and a long-term incentive award with a target amount
of 60% of base salary. Mr. Aucott terminated his employment on March 31,
1996.
In September 1996 in connection with the establishment by MCII
of its new bank credit facility, Messrs. Olvera, Bernacchi, Sanders, Abram
and Bost entered into employment agreements. Such agreements provide for
employment terms and severance rights in accordance with Grupo Dina's
general severance policy for executives.
Letter Agreements. In 1994 in connection with the Merger, Grupo
Dina and MCII entered into letter agreements (the "New Letter Agreements"),
with each of George Aucott, James Bernacchi, Jerry Bost and Truman
Netherton (collectively, the "Executives"). The employment of Messrs.
Aucott and Netherton terminated on March 31, 1996 and June 30, 1996,
respectively. Accordingly, their New Letter Agreements terminated on such
dates. Each of the New Letter Agreements, which are all substantially
similar, provide, among other things, that, for 18 months following
consummation of the Merger, as long as such Executive remains employed by
Grupo Dina or any of its subsidiaries or affiliates, such Executive's
compensation package will not be reduced and will remain competitive with
compensation packages for executives (exclusive of bonus, stock options,
restricted stock and other incentive or severance arrangements) in
positions substantially similar to such Executive's position at the time of
the Merger who are employed by similarly situated United States
corporations. Such 18 month period expired on February 7, 1996. In
addition, the New Letter Agreements provide that, for as long as an
Executive remains employed by Grupo Dina or any of its subsidiaries or
affiliates, such Executive will be entitled to participate in a management
incentive plan substantially similar to MCII's existing management
incentive plan and that, as long as such Executive remains employed by
Grupo Dina or any of its subsidiaries or affiliates, such Executive will be
entitled to an annual cash payment through the year 2000. The amount of the
cash payment to be made to each Executive was established in such
Executive's New Letter Agreement and determined based on a percentage of
such Executive's total current compensation package.
MCII Executive Severance Plan. MCII adopted an executive
severance plan ("Executive Severance Plan") covering a number of employees,
including Mr. Nasi, providing severance benefits in the event of
termination of employment for reasons other than death, disability or
normal retirement, within 18 months after a change in control of MCII.
Under the plan, in the event of such termination, Mr. Nasi would receive
three times salary, bonuses and other benefits and three years' credit for
pension service. In addition, the Executive Severance Plan provided that if
Mr. Nasi elected to terminate his employment during April 1996, Mr. Nasi
would be entitled to receive two times salary, bonus and other benefits,
and two years' credit for pension service, in each case net of any amounts
paid under any other severance agreement or arrangement. Mr. Nasi's
terminated his employment on April 1, 1996.
GRUPO DINA MANAGEMENT STOCK SALES PLAN
At an extraordinary general stockholders' meeting held on
October 9, 1992, the stockholders of Grupo Dina approved the issuance of
8,234,360 shares of common stock with a current aggregate book value of
approximately Ps 37.8 million (US$5.06 million, based on an exchange rate
as of June 3, 1996 of Ps 7.4747=US$1.00) which have been subscribed for and
fully paid by the trust (the Grupo Dina Management Trust") established to
implement Grupo Dina's Management Stock Sales Plan. The Grupo Dina
Management Trust purchased the shares of common stock on October 14, 1992
at a price of Ps 3.04 (US$0.98) per share of common stock. Executive
officers of Grupo Dina were awarded options to purchase common stock from
the Grupo Dina Management Trust which are exercisable over the course of
the next ten years in accordance with guidelines established by a technical
committee, which includes representatives of Grupo Dina's principal
stockholder. The common stock will be purchased by officers at the same
price the trust paid for the common stock. As of June 30, 1996, 6,111,156
shares of common stock remained in the Grupo Dina Management Trust.
OWNERSHIP OF COMMON STOCK
GRUPO DINA
The capital stock of Grupo Dina consists of one series of voting
stock, the common stock, and one class of limited voting stock, the Series
L Stock. The following table sets forth, at June 30, 1996, information,
known to Grupo Dina, with respect to beneficial owners of more than 5% of
the outstanding shares and beneficial ownership of outstanding shares by
all officers and directors as a group.
<TABLE>
<CAPTION>
Percent of
Title of Number of Shares Outstanding
Class Name and Address of Owner Owned(1) Common Stock(1)
<S> <C> <C> <C>
Common Grupo Empresarial G, S.A. de C.V. 127,912,420 62.8%
Boulevard Puerta de hierro No. 5200 3er. Piso
Fraccionamiento Puerta de Hierro
Zapopan, Julisco 45110, Mexico
Common Rafael Gomez Flores 1,666,287 0.8%
Boulevard Puerta de hierro No. 5200 3er. Piso
Fraccionamiento Puerta de Hierro
Zapopan, Julisco 45110, Mexico
Common O. Raymundo Gomez Flores 1,666,309 0.8%
Boulevard Puerta de hierro No. 5200 3er. Piso
Fraccionamiento Puerta de Hierro
Zapopan, Julisco 45110, Mexico
Common Armando Gomez Flores 1,666,308 0.8%
Boulevard Puerta de hierro No. 5200 3er. Piso
Fraccionamiento Puerta de Hierro
Zapopan, Julisco 45110, Mexico
Common Alfonso Miguel Gomez Flores 1,666,309 0.8%
Boulevard Puerta de hierro No. 5200 3er. Piso
Fraccionamiento Puerta de Hierro
Zapopan, Julisco 45110, Mexico
Common Guillermo Gomez Flores 1,666,289 0.8%
Boulevard Puerta de hierro No. 5200 3er. Piso
Fraccionamiento Puerta de Hierro
Zapopan, Julisco 45110, Mexico
Common Grupo Dina Management Trust 6,111,156 0.8%
Tlacoquemecatl 41
Colonia del Valle
03100, Mexico, D.F. Mexico
Common All officers and directors as a group(2) 9,955,993 4.9%
Series L Frost-Nevada, Limited Partnership (3) 1,933,803 14.6%
4400 Biscayne Boulevard
Miami, Florida 33137
Series L Goldman, Sachs & Co. (4) 1,579,027 11.4%
85 Broad Street
New York, New York 10004
Series L All officers and directors as a group(5) 516,944 1.0%
- -------------
(1) Since each of the named members of the Gomez Flores family has
voting power or shares voting power and/or investment power over
the shares owned of record by Grupo Empresarial G, S.A. de C.V.
("Empresarial"), each such family member may be deemed to be the
beneficial owner of such shares in addition to the shares owned
of record by such family member.
(2) Includes all shares held of record by officers and directors of
Grupo Dina and all shares held in the Grupo Dina Management
Trust which together total 5,082,656 shares. However, such
shares do not include shares held of record by Empresarial which
members of the Gomez Flores family may be deemed to beneficially
own.
(3) Based upon the information contained in Amendment No. 6 dated
August 14, 1996 to a Schedule 13D filed by Frost-Nevada,
Limited Partnership ("F-N LP"), Frost-Nevada Corporation ("F-N
Corp."), F-N LP's general partner, and Phillip Frost, M.D., the
sole stockholder of F-N Corp. Each of F-N Corp. and Dr. Frost
may be deemed to be the beneficial owner of these shares.
(4) Based upon the information contained in Amendment No. 4 dated
September 10, 1996 to a Schedule 13G filed by Goldman, Sachs &
Co. and Goldman Sachs Group, L.P.
(5) Includes shares owned by certain individuals who as of the date
of this Prospectus are no longer officers or directors.
</TABLE>
Empresarial is a holding company owned by the members of the
Gomez Flores family listed in the table above. Approximately 62.8% of the
outstanding shares of common stock of Grupo Dina are owned by Empresarial
and therefore may be deemed to be beneficially owned by members of the
Gomez Flores family. Consequently, as of the date of this Prospectus,
Empresarial and, through it, those family members have the power to elect
all of Grupo Dina's directors other than the two directors entitled to be
elected by the holders of Series L Stock and as otherwise discussed in
"Management" and to determine the outcome of any actions requiring
stockholder approval, including the declaration, amount and payment of
dividends by Grupo Dina. Through Empresarial, the Gomez Flores family is
engaged in a wide range of business activities in Mexico, including real
estate development and residential and commercial real estate construction
and food related businesses.
There are no arrangements known to management, the operation of
which may at a subsequent date result in a change in control of the Grupo
Dina.
MCII HOLDINGS
All of the outstanding common stock of MCII Holdings is owned by
Grupo Dina.
CERTAIN TRANSACTIONS
GRUPO DINA
In the ordinary course of its business, Grupo Dina has from time
to time engaged in a variety of transactions with Empresarial, other
affiliates of the Gomez Flores family and certain of its subsidiaries.
Empresarial and members of the Gomez Flores family, who in turn control
Empresarial, are the controlling shareholders of Grupo Dina. The principal
transactions with such related parties during the period from January 1,
1995 through the date of this Prospectus are as follows:
(i) On July 31, 1996, Grupo Dina sold the accounts
receivable under the Restructuring Agreements with Tres
Estrellas, Estrella Blanca and their respective licensees,
which had a total value of Ps 306.9 million, to AF Dina, a
leasing company which provides financing in connection with
sales of Grupo Dina products. In connection with the sale of
the accounts receivable to AF Dina, Grupo Dina acquired new
shares of AF Dina increasing its equity interest in AF Dina to
92.89%. Also in connection with this transaction, the Gomez
Flores family's interest in AF Dina decreased from 80.0% to
4.68% of the outstanding capital stock of AF Dina. Grupo Dina
may provide assistance to AF Dina in the form of guarantees of
its borrowings. See "Business of Grupo Dina - Business Strategy
of Grupo Dina -- Sales Financing."
(ii) In 1993, MCII purchased a 10% ownership interest
in Mexicana de Autobuses, S.A. de C.V. ("MASA"), a coach
manufacturing company in Mexico, for US$6,000,000. In December
1994, MCII distributed the MASA shares to Grupo Dina as a
dividend. In December 1995, MCII repurchased the MASA shares
from Grupo Dina for US$1,200,000.
MCII HOLDINGS
In the ordinary course of its business, Grupo Dina has from time
to time engaged in a variety of transactions with MCII and other
subsidiaries. The principal transactions with MCII and such other
subsidiaries during the period from January 1, 1995 through the date of
this Prospectus are as follows:
(i) Pursuant to an exchange offer completed in June
1996, Grupo Dina and MCII Holdings issued as joint obligations
Senior Secured Discount Notes due 2002 with an aggregate
principal amount of US$206,500,000 primarily in exchange for
US$143,040,000 aggregate principal amount of 10.5% guaranteed
notes issued by Grupo Dina on November 18, 1992.
(ii) On August 1, 1995, Autobuses, a wholly-owned
subsidiary of Grupo Dina, and Hausman Bus Sales, Inc.
("Hausman"), an indirect subsidiary of MCII Holdings, entered
into a coach purchase agreement (the "Coach Purchase
Agreement") whereby Hausman agreed to purchase motor coaches
assembled by Autobuses.
(iii) Grupo Dina is contemplating the contribution of
Autobuses to MCII, although at this time there can be no
assurance that such contribution will be completed.
DESCRIPTION OF THE NOTES
The New Notes offered hereby will be issued pursuant to the
Indenture among Grupo Dina, MCII Holdings and IBJ Schroder Bank & Trust
Company, as Trustee, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus constitutes a part. The
following summary, which describes certain provisions of the Indenture and
the Notes, does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the TIA and all of the
provisions of the Indenture and the Notes, including the definitions
therein of terms not defined in this Prospectus. Certain terms used in this
section are defined below for purposes of this section under "-- Certain
Definitions." New Notes are identical in all material respects to the Old
Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by December 30, 1996, the Old Notes will bear additional
interest as described under "-- Registration Rights" below.
GENERAL
The Notes will be dated as of, and accrue interest from,
November 18, 1995 and will bear interest initially at the rate of 12% per
annum through maturity; provided, that, if the Notes are not rated either
BB-or better by S&P or Ba3 or better by Moody's at November 15, 1999, the
per annum interest rate shall be increased on such date to 15%, until
maturity. Prior to and including the interest payment due on November 15,
1998, the Notes will accrue interest on a zero coupon basis and,
accordingly, the principal value of each New Note will accrete from
US$705.65 at November 18, 1995 for each US$1,000 in principal amount to
US$1,000 at November 15, 1998. Thereafter, all interest will be payable in
cash semiannually on May 15 and November 15 of each year (each a "Cash
Interest Payment Date"), commencing May 15, 1999. Interest on the Notes
will be paid to the Persons who are registered holders of Notes at the
close of business on the first day of the month in which such interest
payment date occurs. The Notes will be transferable and exchangeable
initially at the office of the Trustee and will be issued only in fully
registered form, without coupons, in denominations of US$1,000 and any
integral multiple thereof. Interest will be computed on the basis of a
360-day year of twelve 30-day months. Additional interest may be payable on
the Notes under the circumstances described below under "--Registration
Rights."
Grupo Dina and MCII Holdings will be fully and unconditionally
liable with respect to payments of principal and interest on the Notes. It
is intended that all payments in respect of the Notes will be paid by Grupo
Dina, and that payments will be made by MCII Holdings only in the event of
failure to pay by Grupo Dina. MCII Holdings will have subrogation rights
against Grupo Dina if MCII Holdings is required to make any payments under
the Notes. Such subrogation rights will be subordinated to the prior
payment in full of the Notes and the Eurobonds. Holders of the Notes, by
their acceptance of the Notes, will agree to report the Notes as
indebtedness of Grupo Dina which is guaranteed by MCII Holdings for all tax
purposes. In addition, Grupo Dina and MCII Holdings intend to treat the
Notes as debt of Grupo Dina guaranteed by MCII Holdings for all tax
purposes.
The principal amount of the Notes will be payable on November
15, 2002. The Notes will be general senior obligations of Grupo Dina and
MCII Holdings. The obligation of MCII Holdings will be secured by (i) a
pledge of the MCII Shares and (ii) a perfected first priority security
interest in any cash deposited with the Trustee in accordance with the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments by MCII Holdings" below. MCII Holdings may sell the MCII Shares
and MCII may issue and sell additional MCII stock in accordance with the
covenant described under "--Certain Covenants--Limitation on Issuance and
Sale of Capital Stock of MCII" below. The obligation of Grupo Dina in
respect of the New Notes will rank pari passu with the Old Notes and with
all other outstanding unsecured and unsubordinated obligations of Grupo
Dina, present or future, other than obligations which are mandatorily
preferred by statute or operation of law. The obligation of MCII Holdings
in respect of the New Notes will rank pari passu with the Old Notes and, by
reason of the security interests referred to above, will effectively rank
senior to any outstanding unsecured obligations of MCII Holdings. MCII
Holdings will not incur indebtedness for borrowed money except for
indebtedness subordinated to the Notes as described under "--Certain
Covenants--Limitation on MCII Holdings Debt" below.
At June 30, 1996, Grupo Dina had outstanding Ps 2,442.2 million
in aggregate principal amount of indebtedness that, by reason of its being
secured by collateral, ranks effectively senior to the Old Notes and the
New Notes. At such date, MCII Holdings had no outstanding indebtedness
ranking senior to the Old Notes or the New Notes. At such date, MCII and
its subsidiaries had outstanding indebtedness in an aggregate principal
amount of US$195.6 million that is structurally senior to the Old Notes and
the New Notes.
Under the terms of the Indenture, Grupo Dina or MCII Holdings,
as the case may be, may be obligated or have the option to repurchase the
Notes. Selection of Notes to be repurchased pursuant to the Indenture will
be made by lot, pro rata or by such other method as the Trustee shall deem
to be fair and appropriate. The Indenture provides that if any Note is to
be redeemed in part only, the notice of redemption relating to such Note
shall state the portion of the principal amount (in integral multiples of
US$1,000) to be redeemed and that on and after the date fixed for
redemption, upon surrender of such Note, a new Note or Notes in principal
amount equal to the unredeemed portion thereof may be issued in the name of
the holder thereof, or the Trustee may note such partial redemption upon
such security. Grupo Dina or MCII Holdings will comply with any tender
offer rules under the Exchange Act which may then be applicable, including
Rule 14e-1, in connection with any offer made by Grupo Dina or MCII
Holdings to repurchase the Notes. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant,
Grupo Dina or MCII Holdings will comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations
under this covenant by virtue thereof.
For each Old Note accepted for exchange the holder of such Old
Note will receive a New Note having a principal amount equal to that of the
surrendered Old Note.
All Old Notes and New Notes will be treated as a single class of
securities under the Indenture.
SECURITY FOR THE NOTES
The Notes will be secured by (i) a pledge of the MCII Shares
held by MCII Holdings and (ii) a perfected first priority security interest
in any cash or Cash Equivalents deposited with the Trustee in accordance
with the covenant described under "--Certain Covenants--Limitation on
Restricted Payments by MCII Holdings" below. MCII Holdings may sell the
MCII Shares and MCII may issue and sell additional MCII stock in accordance
with the covenant described under "--Certain Covenants--Limitation on
Issuance and Sale of Capital Stock of MCII" below.
OPTIONAL REDEMPTION
The Notes may be redeemed, in whole or in part, at the option of
Grupo Dina, upon not less than 30 nor more than 60 days' notice mailed to
each holder of Notes at its address at any time on or after November 15,
1998, at a price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the redemption date. In addition,
the Notes may be redeemed, in whole but not in part, at the option of Grupo
Dina or MCII Holdings at any time at 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, through the redemption date in
the event of certain changes affecting withholding taxes. See "--Tax
Redemption" below.
CHANGE OF CONTROL
A Change of Control will constitute an Event of Default under
the Indenture (i) if within 30 days after such Change of Control neither
Grupo Dina nor MCII Holdings, as the case may be, has notified the Trustee
in writing of such Change of Control and mailed a notice to holders of
Notes stating (A) that Grupo Dina or MCII Holdings is making an offer to
all holders of the New Notes to purchase all Notes properly tendered (a
"Change of Control Offer") at a purchase price (the "Change of Control
Purchase Price") equal to the aggregate Accreted Value thereof on the date
of purchase, if on or prior to November 15, 1998, and equal to the
aggregate principal amount thereof, plus accrued and unpaid interest, if
any, thereafter, to the date of purchase (subject to the right of holders
of record on the relevant record date to receive interest due on the
relevant Cash Interest Payment Date); (B) the purchase date (which will be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Change of Control Purchase Date"); and (C) the instructions,
determined by Grupo Dina or MCII Holdings, consistent with the Indenture,
that a holder must follow in order to tender its Notes; or (ii) neither
Grupo Dina nor MCII Holdings, as the case may be, purchases all Notes
properly tendered in accordance with the Change of Control Offer on such
Change of Control Purchase Date.
The failure of Grupo Dina or MCII Holdings, as the case may be,
to make the Change of Control Offer or to pay the Change of Control
Purchase Price on the Change of Control Purchase Date will result in the
Trustee and the holders of the Notes having the rights described under
"--Events of Default" below. Grupo Dina's or MCII Holdings' ability to pay
cash to the holders of the Notes upon a repurchase may be limited by Grupo
Dina's or MCII Holdings' then existing financial resources, and there can
be no assurances that Grupo Dina or MCII Holdings will have the financial
resources necessary to repurchase the Notes upon a Change of Control.
The provisions under the Indenture relating to Grupo Dina's or
MCII Holdings' obligation to make an offer to repurchase Notes as a result
of a Change of Control may be waived or modified with the written consent
of the holders of a majority in principal amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others the
following:
Limitation on MCII Holdings Debt. Excluding the Notes, MCII
Holdings may not, directly or indirectly, create, incur, issue, assume,
suffer to exist, Guarantee or in any other manner become directly or
indirectly liable with respect to or become responsible for (collectively,
to "incur") any Debt. Notwithstanding the foregoing, MCII Holdings may
incur Debt subordinated to the Notes provided that the Notes are rated BBB-
or better by S&P and Baa3 or better by Moody's at the time of and
immediately after the incurrence of such subordinated Debt.
Limitation on Subsidiary Debt and Preferred Stock. MCII Holdings
will not permit MCII or any other Subsidiary to, directly or indirectly,
incur any Debt or issue Preferred Stock if it would result in the aggregate
amount of Subsidiary Debt exceeding at any time the sum of (i) the Adjusted
Subsidiary Debt Amount and (ii) the Debt, if any, of Autobuses, if
Autobuses shall become a direct Subsidiary of MCII Holdings; provided,
however, that if (x) the total principal amount of Notes outstanding on
November 15, 1998 and (y) the aggregate amount of Subsidiary Debt exceeds
the Maximum Permitted Debt Amount at November 15, 1998, then to the extent
that Notes are not prepaid on such date, MCII Holdings shall cause its
Subsidiaries to reduce Debt on and after November 15, 1998 for so long as
and to the extent necessary to ensure that the aggregate amount of Notes
outstanding and the aggregate amount of Subsidiary Debt does not at any
time exceed the Maximum Permitted Debt Amount for so long as any Notes
shall be outstanding. For purposes of the foregoing, the Maximum Permitted
Debt Amount means US$420 million; provided, however, that upon contribution
by Grupo Dina of 100% of the issued and outstanding Capital Stock of
Autobuses to MCII Holdings or MCII, the Maximum Permitted Debt Amount shall
mean US$440 million. For purposes of the foregoing, Debt shall exclude
Permitted Debt, and for purposes of the preceding sentence, but not the
first sentence, of this paragraph, Debt shall exclude additional Debt in an
amount not to exceed 80% of MCII Receivables. Notwithstanding the
foregoing, if Autobuses becomes a direct Subsidiary of MCII Holdings, no
other Subsidiary of MCII Holdings shall Guarantee or otherwise be
responsible for the Debt, if any, of Autobuses.
Limitation on Restricted Payments by MCII Holdings. The
Indenture prohibits any MCII Holdings Restricted Payments; provided,
however, that MCII Holdings may declare and pay dividends, so long as at
the time of such dividend and after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing, as follows: (i) in
the one year period following the Expiration Date, MCII Holdings may
declare and pay one or more dividends on its Capital Stock aggregating not
more than US$25 million and (ii) MCII Holdings may declare and pay
dividends on its Capital Stock in an amount (excluding dividends under
clause (i)) equal to the greater of (a) US$3 million per calendar year and
(b) 50% of the Consolidated Net Income of MCII since January 1, 1996
(treated as one accounting period), provided that, in the event of a
dividend permitted under clause (b) but not under clause (a), MCII Holdings
has on deposit with the Trustee for the benefit of the holders an amount of
cash and/or Cash Equivalents not less than the cash interest due on the
Notes then outstanding within the six month period following the payment of
such dividend and (iii) subject to compliance by MCII Holdings with the
"Limitation on Issuance and Sale of Capital Stock of MCII" covenant, MCII
Holdings may declare and pay any dividend in an amount not to exceed the
amount of Required Proceeds from the sale of Capital Stock of MCII not
required for the repurchase of Notes pursuant to such covenant.
In addition, MCII Holdings may declare and pay any dividend not
permitted under clauses (i) and (ii), provided that (1) it shall have first
offered to apply up to the difference between the amount of such dividend
and the maximum amount then permitted under clause (ii) (the "Extraordinary
Dividend Amount") to the repurchase of Notes pursuant to a Qualifying
Offer. To the extent that the aggregate Accreted Value or the principal
amount (together with accrued interest, if any) of Notes tendered pursuant
to such Qualifying Offer is less than the amount of the Extraordinary
Dividend Amount, MCII Holdings may declare and pay as a dividend the
portion of such Extraordinary Dividend Amount that is not required in order
to purchase Notes so tendered. MCII Holdings may reduce the Extraordinary
Dividend Amount offered to repurchase Notes by the amount, if any, it shall
have paid in the 180 days preceding the commencement of the relevant
Qualifying Offer to purchase or otherwise retire Notes other than in
satisfaction of this or any other covenant under the Indenture.
Limitation on MCII Holdings Liens. MCII Holdings will not,
directly or indirectly, incur any Lien of any kind on or with respect to
any property or assets now owned or hereafter acquired, or any interest
herein or any income or profits therefrom, for the benefit of any Debt that
is subordinated to the Notes. If MCII Holdings acquires the Capital Stock
of Autobuses, MCII Holdings will not, directly or indirectly, incur any
Lien of any kind on or with respect to the Capital Stock of Autobuses.
Limitation on the Issuance and Sale of Capital Stock of MCII.
MCII Holdings will not convey, sell, assign, transfer or otherwise dispose
of, and will not permit MCII to issue and sell, Capital Stock of MCII (an
"MCII Shares Sale"); provided, however, that MCII may issue and sell, or
MCII Holdings may convey, sell, assign, transfer, or otherwise dispose of,
MCII Capital Stock, other than Redeemable Stock or Preferred Stock, if
immediately after giving effect to such an MCII Shares Sale (i) MCII
Holdings shall continue to hold a Majority of the Voting Stock of MCII and
(ii) MCII Holdings or MCII, as the case may be, makes a Qualifying Offer to
apply 80% of the Net Proceeds of such MCII Shares Sale (such 80% the
"Required Proceeds") to purchase Notes properly tendered pursuant to such
Qualifying Offer. To the extent that the aggregate Accreted Value or the
principal amount (together with accrued interest, if any) of the Notes
tendered pursuant to such Qualifying Offer is less than the amount of the
Required Proceeds, MCII Holdings and MCII may use such portion of the
Required Proceeds that is not required in order to purchase Notes so
tendered for any purpose whatsoever. Notwithstanding the foregoing, (i) no
Capital Stock of MCII may be sold without the affirmative vote of the
holders of at least 662/3% of the outstanding aggregate principal amount of
the Notes unless the implied value of 100% of the Capital Stock of MCII
(based upon the price per share to be realized in the proposed sale) would
exceed the aggregate Accreted Value of the Notes then outstanding; (ii)
MCII Holdings shall not permit MCII at any time to issue and sell
Redeemable Stock or Preferred Stock; and (iii) in the event that the
Capital Stock of Autobuses is contributed to MCII or any Subsidiary of
MCII, no additional Capital Stock, Redeemable Stock or other securities
shall be issued in respect of such contribution.
The Trustee will execute any and all necessary documents to
permit the release of the Lien on the Capital Stock of MCII to be sold
pursuant to this covenant.
Transactions with Affiliates. The Indenture provides that,
subject to certain exceptions, including, without limitation, any agreement
entered into on or before the date of the Indenture, MCII Holdings will
not, and will not permit any Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including, without limitation, the purchase, sale, transfer,
lease or exchange of any assets or property or the rendering of any
service) with, or for the benefit of, Grupo Dina or any Affiliate of Grupo
Dina (other than MCII Holdings or a Subsidiary) on terms that are not in
the best interest of MCII Holdings or such Subsidiary, as the case may be,
or on terms that are less favorable to MCII Holdings or such Subsidiary, as
the case may be, than those which might be obtained at the time of such
transaction from a Person who is not such an Affiliate. Any business,
transaction or series of related transactions involving aggregate payments
in excess of US$5 million will require affirmative approval from the Board
of Directors of MCII Holdings and a favorable written fairness opinion from
an independent appraisal or investment banking firm, except that MCII may
maintain up to US$30 million in inventory representing bus and bus parts
purchases from Grupo Dina without affirmative approval from the Board of
Directors of MCII Holdings or a favorable written fairness opinion from an
independent appraisal firm.
Notwithstanding the foregoing, MCII Holdings or any Subsidiary
thereof may repurchase and cancel the New Notes at any time.
Limitation on Mergers, Consolidations or Sales of Assets. The
Indenture provides that, without the unanimous affirmative vote of all
members of the Board of Directors of MCII Holdings, MCII Holdings will not,
in any transaction or series of transactions, consolidate or merge with or
into any Person, or sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of its assets, or acquire all or
substantially all of the assets or Capital Stock or other ownership
interest of, any other Person; provided, however, that the following shall
not be subject to this covenant: (a) any MCII Shares Sale in accordance
with the covenant described under "--Limitation on Issuance and Sale of
Capital Stock of MCII" above and (b) any acquisition by MCII Holdings of
the Capital Stock of Autobuses. In addition, any such transaction by MCII
Holdings receiving the unanimous affirmative vote of all members of the
Board of Directors of MCII Holdings may only be consummated if: (1) the
entity formed by or surviving any such consolidation or merger (if MCII
Holdings is not the surviving entity) or the Person to which such sale,
conveyance, assignment, transfer, lease or other disposition of all or
substantially all of MCII Holdings' Property is made (the "Surviving
Person") shall be a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia; and (2)
every such successor or assign shall, as a part of such consolidation,
merger, conveyance, assignment, transfer, sale, lease or disposition and in
consideration thereof enter into and execute an instrument supplemental to
the Indenture whereby such successor or assign covenants: (i) to pay
punctually when due the principal of and interest and Additional Amounts,
if any, on the Notes; and (ii) to observe and perform each and every
covenant and agreement of MCII Holdings contained in the Notes and the
Indenture as fully and completely as if it had itself executed the Notes
and the Indenture as MCII Holdings.
MCII Holdings will not permit MCII, in any transaction or series
of transactions, to consolidate with or merge with or into, or sell,
convey, assign, transfer, lease or otherwise dispose of all or
substantially all of its assets to, any Person unless: (i) MCII shall be
the surviving Person (the "Surviving Person"), or the Surviving Person (if
other than MCII) formed by such consolidation or into which MCII is merged
or to which the assets of MCII are transferred shall be a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia; (ii) the Surviving Person (if other
than MCII) shall expressly assume all of the obligations of MCII; and (iii)
immediately before and immediately after giving effect to such transaction,
no Event of Default shall have occurred and be continuing; provided,
however, that no transaction or series of transactions which would
otherwise constitute a disposition of substantially all the assets of MCII
shall be treated as such for purposes of the Indenture, including this
covenant, unless such disposition also constitutes a disposition of all or
substantially all the assets used in the bus manufacturing business of
Grupo Dina and its Subsidiaries. For the purposes of the preceding
sentence, Grupo Dina and its Subsidiaries will be considered as a single
entity.
Limitation on Business of MCII Holdings. MCII Holdings may not
engage in any business other than (i) holding the MCII Shares and, if MCII
Holdings acquires the Capital Stock of Autobuses, holding the Capital Stock
of Autobuses, (ii) pledging the MCII Shares as collateral under the Notes,
(iii) satisfying its obligations under the Notes in the event of a failure
to pay by Grupo Dina, (iv) making investments in Cash Equivalents and (v)
any other transactions expressly provided for in the Indenture.
Corporate Separateness of MCII Holdings. Pursuant to MCII
Holdings' Certificate of Incorporation and the Indenture, for so long as
any Notes shall be outstanding, (i) MCII Holdings' Board of Directors will
consist of not more than three members, at least one of which will be
selected by the holders of a Majority of the Notes and (ii) MCII Holdings
will not be authorized, without the unanimous consent of the Board of
Directors, to (A) dissolve or liquidate, in whole or in part, or institute
proceedings to be adjudicated bankrupt or insolvent, (B) consent to the
institution of bankruptcy or insolvency proceedings against it, (C) file a
petition seeking or consent to reorganization or relief under any
applicable federal, state or foreign law relating to bankruptcy, (D)
consent to the appointment of a receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of MCII Holdings or a substantial
part of its property, (E) make a general assignment for the benefit of
creditors, (F) admit in writing its inability to pay its debts generally as
they come due or (G) take any corporate action in furtherance of the
actions set forth in clauses (A) through (F) of this paragraph. In
addition, no director will be under any duty to nor may be required by
Grupo Dina to consent to the institution of bankruptcy or insolvency
proceedings against MCII Holdings so long as it is solvent and does not
reasonably foresee becoming insolvent, which determination shall be made
after giving effect to the subrogation rights of MCII Holdings in respect
of the Notes. The Indenture provides that, for so long as any Notes are
outstanding, (i) each of Grupo Dina and MCII Holdings shall do all things
within its power to satisfy the legal requirements applicable from time to
time for the recognition of MCII Holdings as a corporate entity separate
and apart from Grupo Dina (or any Person subsequently controlling Grupo
Dina) and (ii) each of Grupo Dina and MCII Holdings shall fulfill its
obligations under, and shall not waive any of its rights provided by, the
Corporate Separateness Agreement.
Reports to Holders of the Notes. Each of Grupo Dina and MCII
Holdings shall file with the Trustee and provide holders of the Notes,
within 15 days after it files them with the Commission, copies of its
annual report and the information, documents and other reports which Grupo
Dina and MCII Holdings are required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. Notwithstanding that Grupo Dina
and MCII Holdings may or may not be required to become or to remain subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
Grupo Dina and MCII Holdings shall continue to provide the holders of the
Notes with the annual reports and the information, documents and other
reports which are specified in Section 13 and 15(d) of the Exchange Act,
including, in the case of MCII Holdings, quarterly reports and all other
reports required of issuers that are not foreign private issuers as defined
under Rule 3b-4 of the Exchange Act.
Impairment of Security Interest. MCII Holdings shall not take or
knowingly or negligently omit to take any action, which action or omission
might or would have the result of materially impairing the security
interest with respect to the Collateral for the benefit of the Trustee and
the holders of the Notes, and MCII Holdings shall not, and shall not permit
any of its Subsidiaries to, grant to any Person other than the Trustee and
the holder of Notes, any interest whatsoever in any Collateral.
Limitation on Restricted Payments By Grupo Dina. The Indenture
prohibits any Grupo Dina Restricted Payments until such time as Grupo Dina
or any of its Subsidiaries shall have made one or more Qualifying Offers to
purchase New Notes representing at least 75% of the Original Principal
Amount of the New Notes, such amount to be reduced by the principal amount
of any Notes purchased or otherwise retired by Grupo Dina or any of its
Subsidiaries other than pursuant to a Qualifying Offer.
Limitation on Grupo Dina Liens. Grupo Dina will not, directly or
indirectly, incur any Lien of any kind on or with respect to any property
or assets now owned or hereafter acquired, or any interest therein or any
income or profits therefrom, for the benefit of any Debt that is
subordinated to the New Notes.
Limitation on Asset Sales by Grupo Dina. The Indenture provides
that the following covenant shall be in effect until such time as Grupo
Dina or any of its Subsidiaries shall have made one or more Qualifying
Offers to purchase Notes representing at least 75% of the Original
Principal Amount of the Notes, such amount to be reduced by the principal
amount of any Notes purchased or otherwise retired by Grupo Dina or any of
its Subsidiaries other than pursuant to a Qualifying Offer.
Grupo Dina shall not, and shall not permit any of its
Subsidiaries (other than MCII Holdings or any Subsidiary of MCII Holdings)
to, directly or indirectly, consummate any Asset Sale with Net Proceeds
thereof exceeding US$10 million unless (i) Grupo Dina or such Subsidiary,
as the case may be, receives consideration (the "Asset Sale Proceeds") at
least equal to the fair market value of the property subject to such Asset
Sale and (ii) at least 75% of the consideration therefor received by Grupo
Dina or such Subsidiary consists of cash, Cash Equivalents and/or liquid
securities which Grupo Dina or such Subsidiary, as the case may be, plans
in good faith to convert into cash within the 180-day period following such
Asset Sale.
In addition, within 365 days of the receipt of any Asset Sale
Proceeds, Grupo Dina or any Subsidiary may (i) reinvest such Asset Sale
Proceeds (or any portion thereof) in additional assets used in the truck
and bus manufacture and supply business (or in any other business directly
related or incidental thereto) or (ii) purchase or otherwise retire
Euronotes, Notes or the Debentures; provided that the amount applied to
purchase Debentures does not exceed US$20 million, such amount to be
reduced by the amounts applied by Grupo Dina or any of its Subsidiaries to
repurchase or otherwise retire Debentures since the date of original
issuance of Notes; and provided further that not more than 25% of any Asset
Sale Proceeds of any Asset Sale or series of related Asset Sales may be
applied to purchase Debentures. Any proceeds that are not so reinvested or
applied to retire such Debt within such period shall constitute "Excess
Asset Sale Proceeds."
Each time the aggregate amount of Excess Asset Sale Proceeds
equals or exceeds US$10 million, Grupo Dina shall make a Qualifying Offer
to repurchase Notes with the Excess Asset Sale Proceeds.
WAIVER OF CERTAIN COVENANTS
Subject to certain exceptions, the Indenture provides that Grupo
Dina and/or MCII Holdings may omit in any instance to comply with any
covenant or condition set forth in the foregoing covenants if before the
time for such compliance the holders of at least a majority of the
outstanding aggregate principal amount of New Notes shall either waive such
compliance in such instance or generally waive compliance with such
covenants or condition, but no such waiver shall extend to or affect such
covenants or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of Grupo Dina, MCII
Holdings and the duties of the Trustee under the Indenture in respect of
any such covenant or condition shall remain in full force and effect.
EVENTS OF DEFAULT
The following, in addition to the events described under
"--Change of Control," constitute "Events of Default" with respect to the
Notes pursuant to the Indenture:
(1) failure to pay interest on any of the Notes when
due if such failure continues for 30 days;
(2) failure to pay principal or premium, if any, on
any of the Notes when due at maturity, upon acceleration,
optional redemption, required purchase or otherwise;
(3) failure to comply with any of the covenants and
agreements in the Indenture (other than the obligations
specified in clauses (1) and (2) above) if such failure exists
for more than 45 days following notice from the Trustee or
holders of 331/3% of the outstanding principal amount of Notes;
(4) Debt of MCII Holdings or any Subsidiary thereof
is not paid when due within the applicable grace period or is
accelerated by the holders thereof and, in either case, the
total amount of such unpaid or accelerated Debt exceeds US$20
million;
(5) certain events of bankruptcy, insolvency or
reorganization;
(6) any judgment or decree aggregating more than
US$20 million entered against MCII Holdings or any Subsidiary
thereof remains unsatisfied or unstayed for more than 60 days;
(7) any unwaived and uncured Event of Default under
the indentures relating to the Subordinated Debentures or any
outstanding Euronotes; and
(8) the Indenture or any of the security documents
ceases to be in full force and effect or ceases to create in
favor of the Trustee a valid and perfected first priority Lien
on the Collateral.
If an Event of Default specified in clause (4) or clause (7)
above occurs under the Indenture, and if the relevant lender whose Debt was
accelerated later rescinds such acceleration (or such acceleration is later
cured), then any cross acceleration of the Debt under the Notes shall be
automatically rescinded (or cured) as well.
If an Event of Default (other than certain events of bankruptcy,
insolvency or reorganization of MCII Holdings) occurs, the Trustee or the
holders of at least 331/3% in principal amount of the outstanding Notes may
declare the principal of and accrued but unpaid interest on all the Notes
to be due and payable. Upon such a declaration, such principal and interest
shall be due and payable immediately. If an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of MCII Holdings
occurs and is continuing, the principal of and interest on the Notes will
automatically become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the
Notes. Under certain circumstances, the holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with
respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the
duties of the Trustee, if an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of
the Notes unless such holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Except to
enforce the right to receive payment of principal, premium (if any) or
interest when due, no holder of a Note may pursue any remedy with respect
to the Indenture or the Notes unless (i) such holder has previously given
the Trustee notice that an Event of Default is continuing, (ii) holders of
at least 25% in principal amount of the outstanding Notes have requested
the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or
expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity and (v)
the holders of a majority in principal amount of the outstanding Notes have
not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a
majority in principal amount of the outstanding Notes are given the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder of a
Note or that would involve the Trustee in personal liability.
The Indenture provides that if an Event of Default occurs and is
continuing and is known to the Trustee, the Trustee must mail to each
holder of the New Notes notice of the Event of Default within 90 days after
it occurs. Except in the case of an Event of Default in the payment of
principal of or interest on any Note, the Trustee may withhold notice if
and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the
Notes. In addition, each of Grupo Dina and MCII Holdings is required to
deliver to the Trustee, within 120 days after the end of each fiscal year,
a certificate indicating whether the signers thereof know of any Event of
Default that occurred during the previous year. Each of Grupo Dina and MCII
Holdings also is required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
an Event of Default, its status and what action Grupo Dina or MCII
Holdings, as the case may be, is taking or proposes to take in respect
thereof.
MODIFICATION OF INDENTURE
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the holders of at least a
majority of the outstanding aggregate principal amount of such Notes, and
any past Event of Default or noncompliance with any provision thereof may
be waived with the consent of the holders of at least a majority of the
outstanding aggregate principal amount of such Notes. See "--Waiver of
Certain Covenants" and "--Events of Default." Without the consent of any
holder of Notes, Grupo Dina and MCII Holdings may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency or to
make any change that does not adversely affect the rights of any holder of
Notes. Without the consent of the holder of each Note affected, an
amendment, supplement or waiver with respect to the Indenture may not:
reduce the principal amount of Notes the holders of which must consent to
an amendment, supplement or waiver; reduce the rate of or extend the time
for payment of interest on any Note; reduce the principal amount of or
extend the maturity date of any Note; reduce the amount payable upon the
redemption of any Note or change the time at which any Note may or shall be
redeemed; make any Note payable in money other than that stated in the
Note; make any change in the provisions concerning waiver of Events of
Default by holders of the Notes; adversely affect the ranking of the Notes;
permit the creation of any Lien on the Collateral or any part thereof
(other than the Lien of the Indenture and the other security documents) or
terminate the Lien of the Indenture or the other security documents as to
the Collateral or any part thereof or deprive the holders of the Notes of
the security afforded by the Lien of the Indenture and the other security
documents or any part thereof, in each case other than as contemplated by
the Indenture.
ADDITIONAL AMOUNTS
All payments by Grupo Dina in respect to the Notes shall be made
free and clear of and without withholding or deduction for or on account of
any present or future taxes, duties, assessments, or other governmental
charges of whatsoever nature imposed or levied by or on behalf of Mexico,
or any political subdivision or authority thereof or therein having power
to tax, unless Grupo Dina is compelled by law to deduct or withhold such
taxes, duties, assessments, or governmental charges under relevant law or
by the interpretation or administration thereof. In such event, Grupo Dina
shall pay such additional amounts (including the Additional Amounts)
("Additional Amounts") as may be necessary to ensure that the net amounts
receivable by the holders of Notes after such withholding or deduction
shall equal the respective amounts of principal and interest which would
have been received in respect of Notes in the absence of such withholding
or deduction. No Additional Amounts shall be payable in respect of any Note
presented for payment with respect to:
(a) any tax, duty, assessment or other governmental
charge which would not have been so imposed but for (i) the
existence of any present or former connection between such
holder (or between a fiduciary, settlor, beneficiary, member or
shareholder of, or a person having a power over, such holder,
if such holder is an estate, a trust, a partnership or a
corporation) and Mexico, including, without limitation, such
holder (or such fiduciary, settlor, beneficiary, member,
shareholder or person having such a power) being or having been
a citizen or resident or treated as a resident thereof or
having been engaged in a trade or business therein or being or
having been present therein or having had a permanent
establishment therein, (ii) the failure of such holder to
comply with any requirement under the income tax laws or
regulations of Mexico to establish entitlement to exemption
from such tax, assessment or other governmental charge or (iii)
payment of principal or interest or the retirement, redemption,
exchange or transfer being made in Mexico;
(b) any tax, duty, assessment or other governmental
charge which would not have been so imposed but for the
presentation by the holder of such Note for payment on a date
more than 10 days after the date on which such payment became
due and payable or the date on which payment thereof is duly
provided for, whichever occurs later;
(c) any estate, inheritance, gifts, sales, transfer,
personal property, interest equalization or any similar tax,
assessment or governmental charge;
(d) any tax, duty, assessment or other governmental
charge which is payable otherwise than by withholding from
payment of principal of or interest on such Note;
(e) any tax, duty, assessment or other governmental
charge which is payable by a holder that is not the beneficial
owner of such Note or a portion thereof, or that is a fiduciary
or partnership, but only to the extent that a beneficial owner
or member of the partnership would not have been entitled to
the payment of an Additional Amount had the beneficial owner or
member received directly its beneficial or distributive share
of the payment; or
(f) any combination of items (a), (b), (c), (d) and
(e).
For the purposes of the foregoing, the holding of or the receipt
of any payment with respect to a Note shall not constitute a connection
between the holder (or between a fiduciary, settlor, beneficiary, member or
shareholder of, or a person having a power over, such holder if such holder
is an estate, a trust, a partnership or a corporation) and Mexico.
In the event that Additional Amounts actually paid with respect
to the Notes are based on rates of deduction or withholding of Mexican
taxes in excess of the appropriate rate applicable to the holder or
beneficial owner of such Notes, and, as a result thereof, such holder or
beneficial owner is entitled to make a claim for a refund or credit of such
excess, then such holder or beneficial owner will, by accepting the Notes,
be deemed to have assigned and transferred all right, title and interest to
any such claim for a refund or credit of such excess to Grupo Dina.
However, by making such assignment, the holder or beneficial owner makes no
representation or warranty that Grupo Dina will be entitled to receive such
claim for a refund or credit and incurs no other obligation with respect
thereto (including without limitation executing any other instrument of
transfer or incurring any expense in connection with this transfer). Any
reference herein or in the Notes to principal and/or interest shall be
deemed also to refer to any Additional Amounts which may be payable under
the covenant referred to in this provision.
To the extent MCII Holdings becomes obligated to pay principal
or interest on the Notes, it will pay such Additional Amounts as may be
necessary to ensure that the net amounts receivable by the holders of Notes
(including the Additional Amounts) after any withholding or deduction shall
equal the respective amounts of principal and interest which would have
been received in respect of Notes in the absence of such withholding or
deduction.
TAX REDEMPTION
If, as a result of any amendment to, or change in, the laws (or
any regulation or rulings thereunder) of Mexico or any political
subdivision or taxing authority thereof or therein affecting taxation, or
any amendment to or change in an official interpretation or application of
such laws or regulations, which amendment or change of such laws or
regulations becomes effective on or after the date of original issuance of
Notes, Grupo Dina or MCII Holdings would be obligated, for reasons outside
its control, to pay Additional Amounts in excess of those attributable to
the maximum Mexican withholding tax applicable on the date of original
issuance of Notes (15%) imposed on interest payments (See "Tax
Considerations--Mexican Taxation"), then, at Grupo Dina's option, or at
MCII Holdings' option if it becomes obligated to pay Additional Amounts on
the Notes, the Notes may be redeemed in whole, but not in part, at any
time, on giving not less than 30 nor more than 60 days' notice at 100% of
the principal amount thereof, plus accrued and unpaid interest, if any,
through the redemption date; provided, however, that (i) no such notice of
redemption may be given earlier than 90 days prior to the earliest date on
which Grupo Dina or MCII Holdings, as the case may be, would be obligated
to pay such Additional Amounts, and (ii) at the time such notice of
redemption is given, such obligation to pay such Additional Amounts remains
in effect.
Prior to the publication of any notice of redemption pursuant to
this provision, Grupo Dina or MCII Holdings, as the case may be, will
deliver to the Trustee (i) a certificate signed by a duly authorized
representative stating that Grupo Dina or MCII Holdings, as the case may
be, is entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent of the right of Grupo Dina or
MCII Holdings, as the case may be, so to redeem have occurred, and (ii) an
opinion of independent Mexican legal counsel of recognized standing to the
effect that Grupo Dina or MCII Holdings, as the case may be, has or will
become obligated to pay such Additional Amounts as a result of such change
or amendment. Such notice, once delivered by Grupo Dina or MCII Holdings,
as the case may be, to the Trustee, will be irrevocable.
CERTAIN DEFINITIONS
"Accreted Value" for any Note means as of any date prior to
November 15, 1998, the sum of (a) US$705.65, which is the initial principal
value as of November 18, 1995 of such Note, and (b) the portion of the
excess of such Note over such initial principal value which shall have been
accreted thereon through such date, such amount to be so accreted on a
daily basis at the rate of 12% per annum of the initial principal value of
the Notes, compounded semi-annually on each May 15 and November 15 from
November 18, 1995 through the date of determination computed on the basis
of a 360-day year of twelve 30-day months, and as of any date of
determination on or after November 15, 1998, US$1,000.
"Adjusted Subsidiary Debt Amount" means the maximum amount of
consolidated Debt of MCII which in the aggregate would not cause the ratio
of MCII's consolidated Debt to MCII's Consolidated Capitalization to exceed
0.5 to 1.00; provided, that for purposes of any such determination, Debt
shall be deemed to exclude Contingent Liabilities.
"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 the purposes of
this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means, with respect to any Person, any sale, lease,
conveyance, transfer or other disposition (or series of related sales,
leases, conveyances, transfers or dispositions) of any securities (whether
or not upon issuance but excluding securities issued by such Person),
Property or other assets (each referred to for the purposes of this
definition as a "disposition") by such Person or any of its Subsidiaries,
whether for cash or other consideration, other than (i) a disposition by a
Wholly-Owned Subsidiary of such Person to such Person or another
Wholly-Owned Subsidiary of such Person, (ii) a disposition by such Person
to a Wholly-Owned Subsidiary of such Person, (iii) an exchange of assets
for like kind assets, provided the assets received are to be used in the
lines of business engaged in by such Person or any of its consolidated
Subsidiaries or reasonably related extensions of such lines of business,
(iv) a disposition pursuant to a merger or consolidation of MCII Holdings
permitted by the Indenture, (v) a disposition of inventory in the ordinary
course of business, or (vi) a disposition of assets in one or a series of
related transactions which in the reasonable opinion of such Person, are
obsolete and no longer useful in the business of such Person or any
Subsidiary.
"Board of Directors" means the Board of Directors of Grupo Dina,
MCII Holdings or MCII, as the case may be, or, if the context so requires,
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a legal holiday in
the United States or Mexico.
"Capital Lease Obligation" means an obligation that is required
to be classified and accounted for as a capital lease for financial
reporting purposes in accordance with GAAP, and the amount of Debt
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP; and the maturity thereof
shall be the date of the last payment of rent or any other amount due under
such lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares,
interests (including partnership interests), rights to purchase, warrants,
options, participations or other equivalents of or interest in (however
designated) equity of such Person, including any warrants, common shares or
Preferred Stock, but excluding any debt securities convertible into such
equity; provided, however, that Capital Stock shall not include Redeemable
Stock.
"Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank having, or which is the
principal banking subsidiary of a bank holding company having, a long-term
unsecured debt rating of at least "A" or the equivalent thereof from S&P or
"A2" or the equivalent thereof from Moody's with maturities of not more
than six months from the date of acquisition by such Person, (iii)
repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (ii)
above, (iv) commercial paper issued by any Person incorporated in the
United States rated at least A-1 or the equivalent thereof by S&P or at
least P-1 or the equivalent thereof by Moody's and in each case maturing
not more than six months after the date of acquisition by such Person, and
(v) investments in money market funds substantially all of whose assets are
comprised of securities of the types described in clauses (i) through (iv)
above.
"Change of Control" means:
(i) with respect to Grupo Dina (a) any Person (other than
Permitted Holders) becomes the beneficial owner (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) of a Majority of the Voting Stock of
Grupo Dina; (b) Persons who constitute a majority of the Board of Directors
of Grupo Dina are not nominated by the Permitted Holders; or (c) Grupo Dina
consolidates with or merges into any Person, or conveys, transfers or
leases all or substantially all of its Property, or any Person consolidates
with or merges into Grupo Dina, in any such event pursuant to a transaction
upon consummation of which none of the events described in clauses (a) or
(b) of this clause (i) shall have occurred in respect of such surviving
entity; and
(ii) with respect to MCII Holdings (a) Grupo Dina or the
Permitted Holders fail to be the beneficial owner, directly or indirectly,
of at least a Majority of the Voting Stock of MCII Holdings; or (b) MCII
Holdings consolidates with or merges into any Person, or conveys, transfers
or leases all or substantially all of its Property, or any Person
consolidates with or merges into MCII Holdings, in any such event pursuant
to a transaction upon consummation of which the event described in clause
(a) of this clause (ii) shall have occurred in respect of such surviving
entity.
"Collateral" means (i) the MCII Shares, (ii) all certificates
representing any of the pledged MCII Shares and (iii) any cash or Cash
Equivalents deposited with the Trustee in accordance with the covenant
described under "--Certain Covenants--Limitation on Restricted Payments by
MCII Holdings" below.
"Consolidated Capitalization" means (without duplication) the
sum of (i) the Consolidated Net Worth of MCII and its Subsidiaries
determined in accordance with GAAP decreased by the amount of any
intangible created or acquired after August 8, 1994 and included in such
Consolidated Net Worth and (ii) the total amount of the consolidated
long-term Debt (including the current portion thereof) of MCII and its
Subsidiaries as determined in accordance with GAAP.
"Consolidated Net Income" means for any period the gross
revenues of a Person and its Subsidiaries for such period less all expenses
and other proper charges (including taxes on income), determined on a
consolidated basis in accordance with GAAP, but excluding (i) earnings of
any Subsidiary for the periods preceding the date of acquisition of such
Subsidiary by such Person, (ii) any gains or income resulting from the
write-up of assets or changes in accounting principles, (iii) the net
income (or loss) of any Person, the net income of which is not consolidated
with the income of such Person and its Subsidiaries in accordance with GAAP
except to the extent of the amount of dividends or other distributions
actually paid to such Person or any of its Subsidiaries by such Person
during such period, (iv) any gain or loss realized upon the sale or other
disposition of any Property of such Person or its consolidated Subsidiaries
(including pursuant to any sale/leaseback transaction) other than sales of
inventory in the ordinary course of business, and (v) any extraordinary
gain or loss.
"Consolidated Net Worth" of any Person means the stockholders'
equity of such Person and its Subsidiaries, as determined on a consolidated
basis in accordance with GAAP, less (to the extent included in
stockholders' equity) amounts attributable to Redeemable Stock of such
Person or its Subsidiaries.
"Contingent Liabilities" means, without duplication, any
repurchase or reimbursement obligations in respect of (i) Residual Value
Guarantees, Trade-in Value Guarantees and contracts entered into by MCII or
any Subsidiary obligating it to repurchase motor coach finance contracts,
and the related collateral, upon the occurrence of certain events, in each
case in the ordinary course of business and consistent with past practice,
(ii) surety bonds and other instruments that guarantee performance by MCII
or its Subsidiaries of a contract entered into (other than in connection
with borrowing money or obtaining credit) in the ordinary course of
business consistent with past practice (collectively, "Surety Bonds"),
(iii) letters of credit issued for purposes similar to Surety Bonds, and
(iv) letters of credit issued for the account of MCII or any Subsidiary in
the ordinary conduct of business of MCII and its Subsidiaries. At such time
as any Contingent Liability, in the case of clause (i), becomes operative
or (ii), in the case of clauses (ii) - (iv), is drawn upon by any
beneficiary thereof and a reimbursement or similar obligation of MCII or
such Subsidiary becomes effective, such Contingent Liability shall cease to
be a Contingent Liability but shall continue to constitute Debt. Any (x)
rate protection agreement (including any interest rate swap agreement) with
respect to Debt then outstanding or anticipated to be incurred and (y)
currency exchange agreement with respect to foreign currency-denominated
revenues and expenses anticipated during the term of such currency exchange
agreement or Debt which is denominated in foreign currency and otherwise
permitted under the Indenture shall not constitute Contingent Liabilities.
"Currency Exchange Protection Agreement" means in respect of a
Person any foreign exchange contract, currency swap agreement or other
similar agreement to which such Person is a party or a beneficiary.
"Debt" means, with respect to any Person, (i) all (A)
obligations of such Person for borrowed money (including obligations
evidenced by notes, indentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable) or which have been
incurred in connection with the acquisition of Property, (B) obligations
under capitalized leases which in accordance with GAAP would be classified
upon a balance sheet of such Person as liabilities of such Person, (C)
Limited-recourse Amounts incurred after August 12, 1993, (D) obligations of
such Person under Contingent Liabilities or under a conditional sale or
title retention agreement, (E) obligations of such Person issued or assumed
as a full or partial payment for Property whether or not secured by a
purchase money mortgage or under notes payable or drafts accepted
representing extensions of credit and (F) obligations secured by any Lien
on any Property owned or held by such Person subject thereto, whether or
not the obligations secured thereby shall have been assumed by such Person,
(ii) any Debt (as described within clause (i)) of any partnership or joint
venture of which such Person or any Subsidiary thereof is a general partner
or joint venturer which is not expressly non-recourse to such Person or
Subsidiary, (iii) all Debt (as described within clause (i)) of others with
respect to which such Person has become liable by way of a Guarantee and
(iv) all renewals, extensions and modifications of the foregoing.
"GAAP" means (i) in the case of a United States Person, United
States generally accepted accounting principles; and (ii) in the case of a
Mexican Person, Mexican generally accepted accounting principles.
"Grupo Dina Restricted Payment" means, whether directly or
indirectly, (i) the declaration or payment of any dividend on or any
distribution in respect of any Capital Stock or Redeemable Stock of Grupo
Dina or to Grupo Dina's stockholders in their capacity as such (other than
dividends or distributions payable solely in shares of Capital Stock), (ii)
the purchase, redemption or other acquisition or retirement for value of
any Capital Stock or Redeemable Stock of Grupo Dina or any Affiliate of
Grupo Dina (except any such transfers to Grupo Dina or a Subsidiary of
Grupo Dina) or (iii) the purchase, redemption or other acquisition or
retirement for value prior to its stated maturity of any Debt of Grupo Dina
which is subordinate to the New Notes.
Notwithstanding the foregoing, the following shall not
constitute Grupo Dina Restricted Payments: (1) the purchase or other
retirement of the Debentures after the date of the original issuance of New
Notes for cash and/or a principal amount of subordinated Debt not eligible
for exchange pursuant to clause (2) below aggregating up to US$20 million
(including repurchases pursuant to the covenant described under "--Certain
Covenants--Limitation on Asset Sales by Grupo Dina"), (2) an exchange of
Capital Stock or subordinated Debt of Grupo Dina for outstanding
subordinated Debt of Grupo Dina provided such new subordinated Debt has an
average life equal to or greater than the remaining average life and
matures on or after the maturity of any subordinated Debt which is being
refinanced, (3) any retirement of equity securities of Grupo Dina in
connection with a reorganization, recapitalization, reclassification,
merger or consolidation in which the stockholders of Grupo Dina receive in
exchange for, or in substitution of the shares of Grupo Dina's Capital
Stock held by them, Capital Stock, excluding Redeemable Stock and Preferred
Stock, of a newly-formed corporation or partnership which, immediately
following such reorganization, reclassification, merger or consolidation,
is the parent entity of Grupo Dina, and (4) any dividend or distribution
on, or any purchase, redemption or other acquisition or retirement for
value of, any Capital Stock of Grupo Dina or securities convertible into or
exercisable or exchangeable for such Capital Stock, in consideration of the
consolidation or merger of Grupo Dina with or into any other Person if such
consolidation or merger is otherwise permitted under the Indenture,
provided that the only consideration issued by the surviving Person with
respect to any such dividend, distribution, purchase, redemption or other
acquisition or retirement shall be in the form of Capital Stock (excluding
Redeemable Stock and Preferred Stock) of such surviving Person.
"Guarantee" means, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to
any Debt, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course
of business) or discounted or sold with recourse by such Person, or in
respect of which such Person is otherwise directly or indirectly liable,
including, without limitation, (i) any such obligation in effect guaranteed
by such Person through any agreement, (contingent or otherwise) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, (ii) any obligation to provide funds for the payment or discharge
of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), (iii) any obligation to
maintain the solvency or any balance sheet or other financial condition of
the obligor of such obligation, or (iv) any obligation to make such payment
for any products, materials or supplies or for any transportation or
services regardless of the non-delivery or non-furnishing thereof, in any
such case if the purpose or intent of such agreement is to provide
assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of
such obligation will be protected against loss in respect thereof.
"Guarantee" shall include any other contract which, in economic effect, is
substantially equivalent to the foregoing types of Guarantees. The amount
of any Guarantee shall be equal to the outstanding principal amount of the
obligation Guaranteed or such lesser amount to which the maximum exposure
of the guarantor shall have been specifically limited.
"Hedging Obligations" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency Exchange
Protection Agreement.
"Interest Rate Agreement" means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or
collar agreement or other financial agreement or arrangement designed to
protect such Person or its Subsidiaries against fluctuations in interest
rates, as in effect from time to time.
"Lien", with respect to any Property, means any mortgage,
security interest, pledge, lien or other encumbrance other than (i)
mechanics' and similar liens arising in the ordinary course of business in
respect of obligations not due or being contested in good faith; (ii) Liens
arising from deposits with or the giving of any form of security to any
governmental authority required as a condition to the transaction of
business or exercise of any privilege, franchise or license; (iii) Liens
for taxes, assessments or governmental charges or levies not yet delinquent
or which, if delinquent, are being contested in good faith; (iv) Liens
(including judgment liens) arising from legal proceedings being contested
in good faith and, in the case of judgment liens, so long as execution
thereof is stayed or (v) any extension, renewal or replacement (or
successive extensions, renewals or replacements), in whole or in part, of
any Lien referred to in the foregoing clauses (i) through (iv), inclusive.
"Limited-recourse Amount" means, with respect to any
non-recourse or limited recourse sale of receivables (including sales with
a first-loss guaranty), that portion of assets retained by MCII or any of
its Subsidiaries and representing the amount of overcollateralization or
the amount of recourse, first-loss or other credit reserves or obligations
provided in such transaction.
"Majority" means a majority of the class or group of classes of
Voting Stock that can elect a majority of the Board of Directors of Grupo
Dina or MCII Holdings, as the case may be.
"MCII Holdings Restricted Payment" means, whether directly or
indirectly, (i) the declaration or payment of any dividend on or any
distribution in respect of any Capital Stock or Redeemable Stock of MCII
Holdings or to MCII Holdings' stockholders in their capacity as such (other
than dividends or distributions payable solely in shares of its Capital
Stock); (ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock or Redeemable Stock of MCII Holdings or any
Affiliate of MCII Holdings (except any such transfers to MCII Holdings or
any Subsidiary of MCII Holdings); (iii) any investment (other than
investments in Cash Equivalents and in Subsidiaries) in any Person or (iv)
any principal payment on, or the redemption, repurchase, defeasance or
other acquisition or retirement for value prior to any scheduled principal
payment, scheduled sinking fund payment or stated maturity of, Debt of MCII
Holdings which is subordinate to the New Notes other than from the proceeds
of Debt which is equally subordinated to the New Notes and which has an
average life equal to or greater than the remaining average life and
matures on or after the maturity of the Debt which is refinanced.
Notwithstanding the foregoing, the following shall not
constitute MCII Holdings Restricted Payments: (1) 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
hereof; (2) any retirement of equity securities of MCII Holdings in
connection with a reorganization, recapitalization, reclassification,
merger or consolidation in which the stockholders of MCII Holdings receive
in exchange for, or in substitution of, the shares of MCII Holdings'
Capital Stock held by them, Capital Stock, excluding Redeemable Stock and
Preferred Stock, of a newly-formed corporation or partnership which,
immediately following such reorganization, reclassification, merger or
consolidation, is the parent entity of MCII Holdings and (3) any dividend
or distribution on, or any purchase, redemption or other acquisition or
retirement for value of, any Capital Stock of MCII Holdings or securities
convertible into or exercisable or exchangeable for such Capital Stock, in
consideration of the consolidation or merger of MCII Holdings with or into
any other Person if such consolidation or merger is otherwise permitted
under the Indenture.
"MCII Receivables" means the recorded value of, or the book
value of, any receivables of, or lease obligations due to, MCII or any of
its Subsidiaries arising in the ordinary course of business from sales or
leases of motor coaches to Persons other than Affiliates of Grupo Dina all
as determined in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by any
Person in respect of any transaction, net of the direct costs relating to
such transaction (including, without limitation, legal, accounting and
investment banking fees, and sales commission) and, in the case of an Asset
Sale, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Debt secured by a Lien
on the asset or assets that are the subject of such Asset Sale and any
reserve for adjustments in respect of the sale price of such asset or
assets. Net Proceeds shall exclude any non-cash proceeds received, but
shall include such proceeds when and as converted to cash. Notwithstanding
the foregoing, (i) for purposes of determining the Net Proceeds of any
issuance or sale of any Capital Stock of MCII, and for purposes of
determining the amount of Required Proceeds to be offered to purchase Notes
in connection with any Qualifying Offer following such issuance or sale of
any Capital Stock of MCII, the fair market value of all non-cash proceeds
shall be deemed to be cash proceeds and (ii) such issuance or sale of any
Capital Stock of MCII shall be deemed not to be an Asset Sale for purposes
of this definition.
"Original Principal Amount" means US$206,499,680.
"Permitted Debt" means any and all of the following: (i) Debt
owed to MCII or any Subsidiary, provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such
Subsidiary ceasing to be a Subsidiary or any subsequent transfer of such
Debt (other than to another Subsidiary) shall be deemed, in each case, to
constitute the incurrence of such Debt by the obligor; (ii) Hedging
Obligations consisting of Interest Rate Agreements and Currency Exchange
Protection Agreements; and (iii) Contingent Liabilities.
"Permitted Holders" means Grupo Empresarial G, S.A. de C.V. or
any successor corporation controlled by other Permitted
Holders, Rafael Gomez Flores, O. Raymundo Gomez Flores, Armando
Gomez Flores, Alfonso Miguel Gomez Flores, Guillermo Gomez Flores, and the
heirs thereof, and the Grupo Dina Management Trust.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or
any other entity.
"Preferred Stock" of any Person means Capital Stock of such
Person of any class or classes (however designated) that ranks prior, as to
the payment of dividends and/or as to the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person;
provided, however, that Preferred Stock shall not include Redeemable Stock.
"Property" means, with respect to any Person, any interest of
such Person in any kind of property or asset, whether real, personal or
mixed, or tangible or intangible, including, without limitation, Capital
Stock in any other Person (but excluding Capital Stock or other securities
issued by such Person).
"Qualifying Offer" means any offer made by Grupo Dina or a
Subsidiary thereof to all holders of Notes to purchase for cash New Notes
properly tendered at a purchase price equal to the Accreted Value thereof
on the date of repurchase, if on or prior to November 15, 1998, and equal
to the principal amount thereof, plus accrued and unpaid interest, if any,
thereafter, to the date of repurchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
Cash Interest Payment Date) provided that the purchase date is no earlier
than 30 nor later than 60 days from the date notice of the offer is mailed
and the offeror purchases all New Notes properly tendered in accordance
with such offer on such purchase date subject to proration in the event
that the number of New Notes tendered exceeds the number of New Notes for
which the offer is made.
"Redeemable Stock" of any Person means any equity security of
such Person that by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or otherwise (including
on the happening of an event), is or could become required to be redeemed
for cash or other Property or is or could become redeemable for cash or
other Property at the option of the holder thereof, in whole or in part, on
or prior to the first anniversary of the stated maturity of the New Notes;
or is or could become exchangeable at the option of the holder thereof for
Debt at any time, in whole or in part, on or prior to the first anniversary
of the stated maturity of the New Notes; provided, however, that Redeemable
Stock shall not include any security by virtue of the fact that it may be
exchanged or converted at the option of the holder for Capital Stock of
such Person having no preference as to dividends or liquidation over any
other Capital Stock of such Person.
"Residual Value Guarantees" means any agreement entered into by
MCII or any of its Subsidiaries to promote the sale of any bus or coach,
pursuant to which MCII or any of its Subsidiaries is guarantying at some
future time any minimum value (which may be determined by a formula) of
such bus or coach as specified in such agreement regardless of the actual
fair market value of such bus or coach at such future time.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of
the total voting power of shares of Capital Stock or other interests
(including partnership interests) 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 (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
"Trade-In Value Guarantees" means any agreement entered into by
MCII or any of its Subsidiaries to promote the sale of any bus or coach,
pursuant to which MCII or any of its Subsidiaries is obligated to accept
such bus or coach for trade-in in connection with the sale of such bus or
coach at a value specified in such agreement (which may be determined by a
formula) regardless of the actual fair market value of such bus or coach at
the time of such trade-in.
"Voting Stock" of a Person means all classes of Capital Stock of
such Person then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by
other Persons to the extent such shares are required by applicable law to
be held by such other Persons) is owned by a Person or one or more Wholly
Owned Subsidiaries of such Person.
REGISTRATION RIGHTS
Holders of New Notes are not entitled to any registration rights
with respect to the New Notes. Pursuant to the Registration Agreement,
holders of Old Notes are entitled to certain registration rights. Under the
Registration Agreement, the Issuers have agreed, for the benefit of the
holders of the Old Notes, that they will, at their cost, (i) by October 1,
1996, file a registration statement with the SEC with respect to the
Exchange Offer and (ii) by November 30, 1996, cause such registration
statement to be declared effective under the Securities Act. The
Registration Statement of which this Prospectus is a part constitutes the
registration statement for the Exchange Offer.
In the event that (i) any change in law or applicable
interpretations of the staff of the SEC do not permit the Issuers to effect
the Exchange Offer, (ii) for any other reason the registration statement
with respect to the Exchange Offer is not declared effective by November
30, 1996, (iii) any holder of Notes so requests because it is not eligible
to participate in the Exchange Offer, or (iv) any initial purchaser so
requests with respect to Notes held by it following the consummation of the
Exchange Offer because it does not receive freely tradeable New Notes in
exchange for Old Notes, then, the Issuers will, at their cost, (a) as
promptly as practicable, file a shelf registration statement covering
resales of the Old Notes (the "Shelf Registration Statement"), (b) cause
the Shelf Registration Statement to be declared effective under the
Securities Act and (c) use its best efforts to keep effective the Shelf
Registration Statement until three years after its effective date or until
one year after such effective date if such Shelf Registration Statement is
filed at the request of the holders of the Old Notes. The Issuers will, in
the event the filing of the Shelf Registration Statement becomes necessary,
provide to each holder of the Old Notes copies of the prospectus which is a
part of the Shelf Registration Statement, notify each such holder when the
Shelf Registration Statement for the Old Notes has become effective and
take certain other actions as are required to permit unrestricted resales
of the Notes. A holder of Old Notes who sells such Old Notes pursuant to
the Shelf Registration Statement generally would be required to be named as
a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will
be bound by the provisions of the Registration Agreement which are
applicable to such a holder (including certain indemnification
obligations).
In the event that the Exchange Offer is not consummated or the
Shelf Registration Statement is not declared effective on or prior to
December 30, 1996, interest will accrue (in addition to stated interest on
the Notes) from and including the next day following December 30, 1996. In
each case such additional interest (the "Special Interest") will be payable
in cash semiannually in arrears each May 15 and November 15 at a rate per
annum equal to 0.50% of the principal amount of the Notes. The aggregate
amount of Special Interest payable pursuant to the above provisions will in
no event exceed 1.50% per annum of the principal amount of the Notes. Upon
the consummation of the Exchange Offer or the effectiveness of the Shelf
Registration Statement, as the case may be, after December 30, 1996, the
Special Interest payable on the Notes from the date of such effectiveness
or consummation, as the case may be, will cease to accrue from the date of
such consummation or effectiveness, as the case may be.
In the event that the Shelf Registration Statement is declared
effective pursuant to the paragraph preceding the immediately preceding
paragraph, if Grupo Dina or MCII Holdings fails to keep such Registration
Statement continuously effective for the period required by the
Registration Agreement, then from such time as the Shelf Registration
Statement is no longer effective until the earlier of (i) the date that the
Shelf Registration Statement is again deemed effective, (ii) the date that
is the third anniversary of the date of the original issuance of the Notes
or (iii) the date as of which all of the Notes are sold pursuant to the
Shelf Registration Statement, Special Interest shall accrue at a rate per
annum equal to 0.50% of the principal amount of the Notes (1.00% thereof if
the Shelf Registration Statement is no longer effective for 30 days or
more) and shall be payable in cash semiannually in arrears each May 15 and
November 15.
The summary herein of certain provisions of the Registration
Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Registration Agreement, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus constitutes a part.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes may be issued in the form of one or more global
securities (collectively, the "Global Note"). The Global Note will be
deposited with, or on behalf of, the Depository and registered in the name
of the Depository or its nominee. Except as set forth below, the Global
Note may be transferred, in whole and not in part, only to the Depository
or another nominee of the Depository. Investors may hold their beneficial
interests in the Global Note directly through the Depository if they have
an account with the Depository or indirectly through organizations which
have accounts with the Depository.
The Depository has advised the Issuers as follows: The
Depository is a limited-purpose trust company and organized under the laws
of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depository was created
to hold securities of institutions that have accounts with the Depository
("participants") and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in the accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to the Depository's
book-entry system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will
credit, on its book-entry and transfer system, the principal amount of the
Notes represented by the Global Note to the accounts of participants.
Ownership of beneficial interests in the Global Note will be shown on, and
the transfer of those ownership interests will be effected only through,
records maintained by the Depository (with respect to participants'
interests) and such participants (with respect to the owners of beneficial
interests in the Global Note other than participants). The laws of some
jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer or pledge beneficial interests in
the Global Note.
So long as the Depository, or its nominee, is the registered
holder and owner of the Global Note, the Depository or such nominee, as the
case may be, will be considered the sole legal owner and holder of the
related New Notes for all purposes of such New Notes and the Indenture.
Except as set forth below, owners of beneficial interests in the Global
Note will not be entitled to have the New Notes represented by the Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of certificated New Notes in definitive form and will not
be considered to be the owners or holders of any New Notes under the Global
Note. Accordingly, each person owning a beneficial interest in the Global
Note must rely on the procedures of the Depository and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interests, to exercise any right of a holder of New Notes
under the Global Note. The Issuers understand that under existing industry
practice, in the event an owner of a beneficial interest in the Global
Notes desires to take an action that the Depository, as the Holder of the
Global Note, is entitled to take, the Depositary would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or
would otherwise act upon the instructions of beneficial owners owning
through them.
Payment of principal of and interest on New Notes represented by
the Global Note registered in the name of and held by the Depository or its
nominee will be made to the Depository or its nominee, as the case may be,
as the registered owner and holder of the Global Note.
The Issuers expect that the Depository or its nominee, upon
receipt of any payment of principal of or interest on the Global Note, will
credit participants' accounts with payment in amounts proportionate to
their respective beneficial interests in the principal amount of the Global
Note as shown on the records of the Depository or its nominee. The Issuers
also expect that payments by participants to owners of beneficial interests
in the Global Note held through such participants will be governed by
standing instructions and customary practices and will be the
responsibility, of such participants. The Issuers will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global
Note for any New Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for other
aspects of the relationship between the Depositor and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for
certificated New Notes in definitive form, the Global Note may not be
transferred except as a whole by the Depository to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository.
Although the Depository has agreed to the foregoing procedures
in order to facilitate transfers of interests in the Global Note among
participants of the Depository, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Trustee nor the Issuers will have any
responsibility for the performance by the Depository or its participants or
indirect participants of their respective obligation under the rules and
procedures governing their operations.
CERTIFICATED NOTES
The New Notes represented by the Global Note are exchangeable
for certificated New Notes in definitive form of like tenor as such New
Notes in denominations of US$1,000 and integral multiples thereof if (i)
the Depository notifies the Issuers that it is unwilling or unable to
continue as Depository for the Global Note or if at any time the Depository
ceases to be a clearing agency registered under the Exchange Act, (ii) the
Issuers in their discretion at any time determines not to have any of the
New Notes represented by the Global Note, (iii) a default entitling the
holders of the New Notes to accelerate the maturity thereof has occurred
and is continuing or (iv) the holder of the New Notes so requests. Any New
Note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated New Notes issuable in authorized
denominations and registered in such names as the Depository will direct.
TAX CONSIDERATIONS
GENERAL
The following is a general summary of certain anticipated
Mexican and U.S. federal income tax consequences of the exchange of Old
Notes for New Notes pursuant to the Exchange Offer and the ownership and
disposition of the New Notes by holders who acquire the New Notes pursuant
to the Exchange Offer. Holders of the New Notes, by their acceptance of the
New Notes, will agree to report the New Notes as indebtedness of Grupo Dina
which is guaranteed by MCII Holdings. In addition, Grupo Dina and MCII
Holdings intend to treat the New Notes as debt of Grupo Dina guaranteed by
MCII Holdings for all tax purposes. This summary does not purport to be a
comprehensive description of all of the tax considerations that may be
relevant to the Exchange Offer and the New Notes and is based on present
law. No tax consequences are described other than those arising under the
laws of Mexico and the United States.
EACH PROSPECTIVE HOLDER OF NEW NOTES SHOULD CONSULT ITS TAX
ADVISOR AS TO THE MEXICAN, UNITED STATES, OR OTHER TAX CONSEQUENCES OF THE
EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES,
INCLUDING THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAX LAWS.
MEXICAN TAXATION
This summary of certain Mexican tax considerations deals only
with holders of Old Notes that are not residents of Mexico for Mexican tax
purposes and that do not conduct a trade or business through a permanent
establishment in Mexico (a "Foreign Holder"). For purposes of Mexican
taxation, an individual is a resident of Mexico if he has established his
home in Mexico, unless he has resided in another country for more than 183
days, whether consecutive or not, in any one calendar year and can
demonstrate that he is a resident of that country for tax purposes. A legal
entity is a resident of Mexico if its principal administrative office is
located in Mexico. A Mexican citizen or a legal entity with its corporate
domicile in Mexico and established under Mexican law is presumed to be a
resident of Mexico unless such person or entity can demonstrate the
contrary.
THE EXCHANGE OFFER
The disposition of the Old Notes in exchange for New Notes by
Foreign Holders pursuant to the Exchange Offer will not be subject to
Mexican income tax including, without limitation, Mexican withholding tax.
NEW NOTES
Interest and Additional Amounts. Payments of interest and
Additional Amounts made by the Grupo Dina in respect of the New Notes to a
Foreign Holder will generally be subject to a Mexican withholding tax at a
rate of 15% if, as expected, certain conditions are satisfied. Pursuant to
recently enacted legislation, such rate has been reduced to 4.9% (the
"Special Rate") if the effective beneficiary of such payments of interest
resides in a country that has an income tax treaty with Mexico and certain
other conditions are satisfied. Grupo Dina anticipates that these
conditions will be satisfied by the registration of the New Notes with the
SEC. Payments of interest made with respect to the New Notes by Grupo Dina
to non-Mexican pension or retirement funds will be exempt from Mexican
withholding taxes, provided that any such fund (i) is duly incorporated
pursuant to the laws of its country of origin, (ii) is exempt from income
tax in such country, and (ii) is registered with the Mexican Ministry of
Finance (Secretaria de Hacienda y Credito Publico) for that purpose.
Apart from the Special Rate, other reduced rates of Mexican
withholding tax may apply with respect to payments of interest and
Additional Amounts. The United States and Mexico have signed a Convention
for the Avoidance of Double Taxation (the "Tax Treaty"). The Tax Treaty
entered into force as of January 1, 1994. Pursuant to the Tax Treaty, the
Mexican withholding tax rate has been reduced to no more than 10% (4.9%
effective January 1, 1999) (the "Treaty Rate") for certain holders who are
residents of the United States (within the meaning of the Tax Treaty) under
certain circumstances therein. Generally, if the New Notes are listed and
regularly and substantially traded on a "recognized securities exchange"
for the purposes of the Tax Treaty, then the withholding tax rate will be
reduced to no more than 10% (4.9% effective January 1, 1999) for holders
who are residents of the United States (within the meaning of the Tax
Treaty). It is not currently contemplated that the New Notes will initially
be listed on a "recognized securities exchange"; the New Notes may later be
listed on such an exchange. The United States and Mexico have also entered
into an agreement that covers the exchange of information with respect to
tax matters. In addition to the Tax Treaty, Mexico has entered into and is
negotiating other tax treaties that may reduce the amount of Mexican
withholding tax to which the New Notes may be subject. Prospective holders
of the New Notes should consult their tax advisors to the applicability of
such treaties.
Grupo Dina has agreed, subject to specified exceptions and
limitations, to pay Additional Amounts in respect of the above-mentioned
Mexican withholding taxes to the holders of the New Notes. If Additional
Amounts are paid in respect of such Mexican withholding taxes, any refunds
of such Additional Amounts will be for the account of Grupo Dina. See
"Description of the Notes--Additional Amounts."
There are certain regulations or administrative pronouncements
specifying procedures which must be carried out by the Grupo Dina or
holders of New Notes to establish that a rate of Mexican withholding tax
lower than the statutory rate of 15% should apply to payments of interest
and Additional Amounts in respect of the New Notes. Grupo Dina may request
certain information or documentation from Foreign Holders or take such
other actions as it considers necessary to enable Grupo Dina to establish
the appropriate Mexican withholding tax rate (including the Special Rate or
the Treaty Rate) applicable to such holders or beneficial owners. In the
event that the specified information or documentation concerning the
residence of any holder or beneficial owner, if requested, is not provided,
Grupo Dina will remain obligated to any Additional Amounts with respect to
Mexican withholding taxes as set forth under "Description of the Notes --
Additional Amounts."
Payments of Principal; Sale or Disposition. Payments of
principal (except for original issue discount) with respect to the New
Notes made by Grupo Dina to Foreign Holders will not be subject to Mexican
income or other taxes (whether in the form of withholding or otherwise).
Other Mexican Taxes. Other than the withholding tax described
above, no Mexican taxes will be imposed on the ownership, transfer or
disposition of New Notes by Foreign Holders. There are no Mexican stamp,
issue, registration or similar taxes or duties payable by Foreign Holders
of New Notes, and Foreign Holders of New Notes will not be liable for
Mexican estate, gift inheritance or similar tax with respect to the New
Notes, although gratuitous transfers of New Notes to residents of Mexican
may, in certain circumstances, result in a Mexican tax imposed upon the
transferee.
UNITED STATES TAXATION
The following summary of U.S. federal income tax consequences is
limited to U.S. Holders (as defined below) who hold the Old Notes and will
hold the New Notes as "capital assets" within the meaning of Section 1221
of the Internal Revenue Code of 1986 (the "Code") and whose "functional
currency" within the meaning of Section 985 of the Code is the U.S. Dollar.
This summary does not address all U.S. federal tax considerations that may
be relevant to a U.S. Holder. Certain holders (including, but not limited
to, insurance companies, tax-exempt organizations, financial institutions,
persons subject to the alternative minimum tax) may be subject to special
rules not discussed herein. In addition, the discussion below also does not
address the effect of any state or local tax laws. The term "U.S. Holder"
means any holder who is a citizen or resident of the United States, a
corporation organized under the laws of the United States or any state
thereof, or any person that is subject to United States federal income
taxation on a net income basis in respect of the Old Notes and the New
Notes.
THE EXCHANGE OFFER
The exchange of Old Notes pursuant to the Exchange Offer will
not be treated as a taxable event for U.S. federal income tax purposes
because the New Notes do not differ materially from the Old Notes. Rather,
the New Notes received by a holder will be treated as a continuation of the
Old Notes in the hands of such holder. As a result, there will be no U.S.
federal income tax consequences to holders who exchange Old Notes for New
Notes pursuant to the Exchange Offer and any such holder will have the same
tax basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
THE NEW NOTES
Original Issue Discount. The Old Notes were issued with OID for
federal income tax purposes. Each U.S. Holder of the Old Notes generally
will be required to include OID in income as it accrues under a constant
yield method in advance of cash payments attributable to such income
(regardless of whether the U.S. Holder is a cash or accrual basis
taxpayer). Inasmuch as the New Notes are a continuation of the Old Notes,
the exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not affect the amount of OID includible in income by a U.S. Holder and the
amount of OID with respect to the New Notes will be the same as the amount
of OID with respect to the Old Notes, as described below.
The amount of OID with respect to the New Notes will be the same
as the amount of OID with respect to the Old Notes, i.e., the excess of the
"stated redemption price at maturity" of the Old Notes over the "issue
price" of the Old Notes. The "stated redemption price at maturity" will
include all cash payments required to be made on the New Note and the Old
Note with respect to which New Note is a continuation, whether denominated
as principal or interest. The issue price of the New Notes will equal the
issue price of the Old Notes. Due to the fact that Old Notes were publicly
traded, the issue price of the Old Notes would be fair market value.
Each U.S. Holder of a New Note will be required to include in
gross income an amount equal to the sum of the daily potions of OID for
each day during the taxable year in which the New Note is held. The daily
portions of OID are determined by allocating to each day in an accrual
period (e.g., each six-month period ending each November 15 and May 15 or
the short initial period ending May 15, 1996) the pro rata portion of the
OID that is allocable to the accrual period. Subject to the rules,
described below regarding acquisition premium, the amount of OID that is
allocable to an accrual period will be determined by multiplying the
adjusted issue price of the Old Note at the beginning of an accrual period
by a fraction of the yield to maturity of such Old Note based on the length
of the accrual period. The adjusted issue price of a Old Note at the
beginning of an accrual period will be equal to its original issue price
increased by all previously accrued OID and reduced by the amount of all
previous payments. Interest payments will not be taxable, but will be
treated as a payment of previously accrued OID.
The amount of OID allocable to an accrual period will be reduced
if the Old Notes are considered to have been issued with "acquisition
premium", which will result if a holder held Old Notes with an adjusted tax
basis in excess of the issue price of such Old Notes immediately after the
issuance over the issue price of the Old Notes and the denominator is the
stated redemption price at maturity of the Old Notes. Alternatively, a
holder of Old Notes may elect to compute OID accruals by treating its
adjusted tax basis in the Old Notes as the issue price of the Old Notes.
The Trustee will report annually to the IRS and the U.S. Holders
of New Notes the amount of OID accrued with respect to a New Note.
Effect of Mexican Withholding Taxes. As discussed, above, cash
interest payments with respect to the New Notes will be subject to Mexican
withholding taxes and Grupo Dina will pay additional Amounts so that U.S.
Holders of New Notes will receive the same amounts that would have been
payable had such withholding taxes not been imposed. U.S. Holders of New
Notes should be treated as actually receiving any amount withheld by Grupo
Dina from payments of cash interest with respect to a New Note and then as
having paid over such amount to the Mexican taxing authorities. As a
result, the amount of the interest payment includible in income by a U.S.
Holder will be greater than the amount of cash actually received (or
receivable) by such U.S. Holder from Grupo Dina with respect to such
payment.
Pursuant to the characterization of the New Notes as
indebtedness of Grupo Dina which is guaranteed by MCII Holdings, payments
of interest and Additional Amounts by Grupo Dina will be foreign source
interest income for foreign tax credit purposes. Such income generally will
constitute "high withholding tax interest" for foreign tax credit purposes
unless and until the Mexican withholding tax rate applicable to the U.S.
Holder is imposed at a rate below 5% (such as during any period in which
the Special Rate is in effect) in which case such income generally will
constitute "passive income" or, in the case of certain U.S. Holders,
"financial services income". Mexican withholding taxes paid should be
treated as foreign income taxes eligible as a credit against such U.S.
Holder's United States federal income tax liability, subject to generally
applicable limitations and conditions, or, at the election of such U.S.
Holder, as a deduction in computing such U.S. Holder's taxable income. A
U.S. Holder should consult its tax advisor regarding the availability of
foreign tax credits. If the New Notes are characterized as indebtedness of
MCII Holdings, as opposed to indebtedness of Grupo Dina which is guaranteed
by MCII Holdings, interest payments will be U.S. source income, thus
possibly adversely affecting a U.S. Holder's ability to utilize any foreign
tax credits with respect to Mexican withholding taxes.
Sale or Disposition. A U.S. Holder of a New Note generally will
recognize gain or loss upon the sale, exchange, retirement or other taxable
disposition of a New Note equal to the difference between the amount
realized on such sale, exchange, retirement or other taxable disposition
and the U.S. Holder's adjusted tax basis in the New Note. Such gain or loss
generally will be capital gain or loss, and will be long-term if the New
Note is held for more than one year. A U.S. Holder's holding period for the
New Notes will include its holding period for the Old Notes.
The foregoing does not discuss special rules that may affect the
treatment of purchasers that acquire New Notes other than at the time of
original issuance at the issue price, including (but limited to) those
provisions of the Code relating to the treatment of "market discount," and
"amortizable bond premium."
PLAN OF DISTRIBUTION
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 any resale of such New Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Issuers have
agreed that, starting on the Expiration Date and ending on the close of
business on the first anniversary of the Expiration Date, they will make
this Prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale. In addition, until ___________,
1996, all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
The Issuer will not receive any proceeds from any sale of New
Notes by broker-dealers. New Notes received by 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
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 broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes
that were received by it for its own account pursuant to the Exchange Offer
and any broker or dealer that participates in a distribution of such New
Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any 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 broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the Issuers
will promptly send additional copies of this Prospectus and any amendment
or supplement to this Prospectus to any broker-dealer that requests such
document in the Letter of Transmittal. The Issuers have agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one
counsel for the holders of the Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the
issuance of the New Notes will be passed upon for the Issuers by Skadden,
Arps, Slate, Meagher & Flom, New York, U.S. counsel to the Issuers. The
validity of the New Notes and certain other matters of Mexican law relating
to the New Notes will be passed upon for the Issuers by Ritch, Heather y
Mueller, S.C., Mexico City, Mexico, Mexican counsel to the Issuers.
Skadden, Arps, Slate, Meagher & Flom may rely, as to matters of Mexican
law, on the opinions of Ritch, Heather y Mueller, S.C.
EXPERTS
The consolidated financial statements of Grupo Dina as of
December 31, 1995 and 1994 and for each of the years in the three-year
period ended December 31, 1995 and of MCII Holdings as of December 31, 1995
and for the year then ended, included in this Prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing. The financial statements of
MCII as of December 31, 1994 and for the five month period ended December
31, 1994, the seven month period ended July 31, 1994 and the year ended
December 31, 1993 included in this prospectus and in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports appearing herein and in the registration
statements and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
Page
Audited Financial Statements:
Report of Independent Public Accountants F-3
Consolidated Balance Sheets as of December 31,
1994 and 1995 F-4
Consolidated Statements of Income
(Loss) for the years ended
December 31, 1993, 1994 and 1995 F-5
Consolidated Statements of Stockholders'
Equity for the years
ended December 31, 1993, 1994 and 1995 F-6
Consolidated Statements of Changes in Financial
Position for the years ended
December 31, 1993, 1994 and 1995 F-7
Notes to Consolidated Financial Statements as
of December 31, 1993, 1994 and 1995 F-9
Unaudited Financial Statements:
Consolidated Balance Sheets (unaudited) and
related financial information (unaudited)
as of December 31, 1995 and June 30, 1996 F-40
Consolidated Statements of Income (Loss)
(unaudited) and related financial information
(unaudited) for the six months ended June 30,
1995 and 1996 F-41
Consolidated Statements of Changes in Financial
Position (unaudited) for the six
months ended June 30, 1995 and 1996 F-42
Notes to Consolidated Financial Statements (unaudited) F-43
CONSORCIO G GRUPO DINA, S.A. DE C.V.
Audited Financial Statements:
Report of Independent Public Accountants F-49
Balance Sheets as of December 31, 1995 and 1994 F-51
Statements of Income (Loss) for the years ended
December 31, 1995 and 1994 F-52
Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1994 F-53
Statements of Changes in Financial Position for
the years ended December 31, 1995 and 1994 F-54
Notes to Financial Statements as of December
31, 1995 and 1994 F-55
MCII HOLDINGS (USA), INC.
Audited Financial Statements:
Reports of Independent Public Accountants F-67
Consolidated Balance Sheet as of December 31,
1995 and 1994 F-70
Statement of Consolidated Income for the year ended
December 31, 1995, the five month period ended
December 31, 1994, the seven month period ended
July 31, 1994 and the year ended December 31, 1993 F-71
Statement of Consolidated Changes in Stockholder's
Equity for the year ended December 31, 1995, the
five month period ended December 31, 1994, the seven
month period ended July 31, 1994 and the year ended
December 31, 1993 F-72
Statement of Consolidated Cash Flows for the year
ended December 31, 1995, the five month period ended
December 31, 1994, the seven month period ended
July 31, 1994 and the year ended December 31, 1993 F-73
Notes to Consolidated Financial Statements F-74
Unaudited Financial Statements:
Consolidated Balance Sheet (unaudited) as of
June 30, 1996 and December 31, 1995 F-96
Statement of Consolidated Income (unaudited) for
the six months ended June 30, 1996 and 1995 F-97
Statement of Consolidated Income (unaudited) for
the three months ended June 30, 1996 and 1995 F-98
Statement of Consolidated Changes in Stockholder's
Equity (unaudited) for the six months ended
June 30, 1996 and 1995 F-99
Statement of Consolidated Cash Flows (unaudited)
for the six months ended June 30, 1996 and 1995 F-100
Notes to Consolidated Financial Statements (unaudited) F-101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Consorcio G Grupo Dina, S.A. de C.V.:
We have audited the consolidated balance sheets of CONSORCIO G GRUPO
DINA, S.A. DE C.V. (incorporated in Mexico) and subsidiaries (collectively
referred to as the "Company") as of December 31, 1994 and 1995 and the
related consolidated statements of income (loss), stockholders' equity and
changes in financial position for each of the three years in the period
ended December 31, 1995. These financial statements have been prepared in
accordance with generally accepted accounting principles in Mexico, and
therefore have been expressed in Mexican pesos with purchasing power as of
June 30, 1996. 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 did not audit the financial
statements of Motor Coach Industries International, Inc. (MCII) as of
December 31, 1994 and for the five month period then ended, a subsidiary
acquired by the Company on August 8, 1994, which statements reflect assets
and revenues of 38.5% and 27.9%, respectively of the consolidated totals as
of December 31, 1994 and for the year then ended. Those statements were
audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for Motor Coach
Industries International, Inc., is based solely on the report of the other
auditors.
We have conducted our audits in accordance with generally accepted
auditing standards in Mexico, which are substantially the same as those
followed in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
As explained in Note 3 to the accompanying consolidated financial
statements, during 1995 the Company changed its accounting to reflect the
goodwill related to the acquisition of its subsidiary, MCII, under
"pushdown" accounting rules. Accordingly, the goodwill is now considered an
asset of the subsidiary. This change resulted in an increase in goodwill of
Ps.1,045,434,014 and a corresponding increase in "cumulative translation
adjustment", an increase in amortization expense of Ps.59,296,147, a
decrease in exchange loss charged to operations of Ps.292,629,510 and a
decrease in the gain on monetary position of Ps.586,443,213.
The devaluation of the Mexican peso in December 1994 and the resulting
financial crisis in Mexico has had an unfavorable impact on the Company's
operations. During 1994 and 1995 the demand for inter-city passenger buses
suffered a severe decline in Mexico and in 1995, there was also a
significant decline in the demand for trucks. Notes 1, 2, 4, 14 and 28 b)
and c) to the accompanying consolidated financial statements describe the
actions taken by the Company to expand its operations in the United States
and restructure its long-term financing, as well as other actions taken by
management.
Accounting practices used by the Company in preparing the accompanying
financial statements conform with accounting principles generally accepted
in Mexico, but do not conform with accounting principles generally accepted
in the United States. A description of these differences and a partial
reconciliation as permitted by Form 20-F of consolidated net income (loss)
and stockholders' equity to U.S. generally accepted accounting principles
is set forth in Notes 19, 20, 23 and 24.
In our opinion, based on our audits and the report of other auditors
for the financial statements of MCII as of December 31, 1994 and for the
five month period then ended, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Consorcio G Grupo Dina, S.A. de C.V. and its subsidiaries as of
December 31, 1994 and 1995 and the consolidated results of their operations
and changes in their financial position for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles in Mexico.
Also, in our opinion, the translated amounts in the accompanying
financial statements translated into U.S. dollars have been computed on the
basis set forth in Note 1.
ARTHUR ANDERSEN
Mexico, D.F., Mexico
February 29, 1996
(except with respect to the matters discussed
in Note 28 b) and c), as to which the date is
April 22, 1996 and the restatement to constant
pesos as of June 30, 1996, as discussed in Notes
1 and 3, as to which the date is September 20, 1996).
<TABLE>
<CAPTION>
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING POWER
AS OF JUNE 30, 1996
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
1994 1995 1995
----------- ---------- ---------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents Ps. 467,606 Ps.302,588 $ 39,912
Notes and accounts receivable, net 1,010,130 783,016 103,281
Inventories, net 2,277,584 1,968,581 259,659
Prepaid expenses 56,190 43,557 5,745
Investment in and advances to
discontinued operations 705,833 339,344 44,760
----------- ---------- -----------
Total current assets 4,517,343 3,437,086 453,357
LONG-TERM NOTES AND ACCOUNTS RECEIVABLE, net 538,002 532,325 70,215
INVESTMENT IN EQUITY SECURITIES 83,863 29,237 3,856
PROPERTY, PLANT AND EQUIPMENT, net 1,455,611 1,641,217 216,479
OTHER ASSETS 206,416 249,611 32,924
DEFERRED INCOME TAXES 276,029 260,668 34,383
GOODWILL 1,154,182 1,686,027 222,390
----------- ---------- -----------
8,231,446 7,836,171 1,033,604
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
Bank loans and current portion of long-term debt 150,371 15,779 2,081
Notes and accounts payable to suppliers 523,726 376,478 49,658
Other payables and accrued expenses 614,635 491,261 64,798
Investment in and advances to discontinued
operations 288,729 130,124 17,164
Dividends payable 54,257 0 0
Income taxes, asset tax and employee profit
sharing 13,697 89,529 11,809
------- ---------- -----------
Total current liabilities 1,645,415 1,103,171 145,510
LONG-TERM DEBT 4,370,950 4,621,389 609,569
RESERVE FOR EMPLOYEES' SEVERANCE BENEFITS 98,570 84,586 11,157
OTHER DEFERRED ITEMS AND INSURANCE RESERVES 74,084 124,600 16,435
STOCKHOLDERS' EQUITY:
Majority interest-
Capital stock 196,545 196,545 25,925
Capital stock-unsubscribed (35,754) (35,754) (4,716)
Restatement of capital stock 204,627 204,627 26,990
Additional paid-in capital 1,626,020 1,626,020 214,475
Reserve for repurchase of shares 122,857 122,857 16,205
Accumulated earnings (losses) 276,492 (206,038) (27,177)
Cumulative effect of restatement (442,604) (822,103) (108,437)
Cumulative translation adjustment 14,387 767,191 101,194
----------- ---------- -----------
Total majority stockholders' equity 1,962,570 1,853,345 244,459
Minority interest 79,857 49,080 6,474
----------- ---------- -----------
Total stockholders' equity 2,042,427 1,902,425 250,933
----------- ---------- -----------
8,231,446 7,836,171 1,033,604
=========== ========== ===========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<TABLE>
<CAPTION>
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS
ENDED DECEMBER 31, 1993, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
1993 1994 1995 1995
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
NET SALES Ps.5,236,538 Ps.4,327,466 Ps.4,742,895 $ 625,596
COST OF GOODS SOLD 4,129,637 3,531,290 3,724,905 491,322
---------- ----------- ---------- -----------
Gross profit 1,106,901 796,176 1,017,990 134,274
OPERATING EXPENSES:
Selling 178,138 281,482 246,440 32,506
Administrative 381,491 483,538 739,308 97,516
---------- ----------- ---------- -----------
559,629 765,020 985,748 130,022
OTHER CHARGES 0 323,335 101,303 13,362
---------- ----------- ---------- -----------
Operating income (loss) 547,272 (292,179) (69,061) (9,110)
COMPREHENSIVE RESULT OF FINANCING:
Interest income 116,595 141,020 219,608 28,967
Interest expense (133,413) (247,161) (548,116) (72,297)
Exchange gain (loss), net 4,687 (630,176) (363,066) (47,889)
Gain on net monetary position 45,552 53,939 399,355 52,676
---------- ----------- ---------- -----------
33,421 (682,378) (292,219) (38,543)
OTHER INCOME, net 34,194 39,239 84,794 11,185
COST OF IDLE PLANT 0 0 (81,329) (10,727)
---------- ----------- ---------- -----------
Income (loss) before the following
provisions (credits), and results
of affiliated companies 614,887 (935,318) (357,815) (47,195)
PROVISIONS (CREDITS) FOR:
Income tax 109,640 167,563 146,524 19,327
Asset tax 17,721 42,134 20,267 2,674
Employee profit sharing 39,889 13,610 0 0
Tax arising from temporary
differences (5,940) 6,948 18,994 2,505
Utilization of tax loss
carryforwards (1,552) (134,749) (303) (39)
Refundable asset tax (25,181) (1,962) 0 0
---------- ----------- ---------- -----------
134,577 93,544 185,482 24,467
Income (loss) before participation
in results of affiliated companies 480,310 (1,028,862) (543,297) (71,662)
EQUITY IN RESULTS OF AFFILIATED
COMPANIES 0 4,770 (2,643 (349)
---------- ----------- ---------- -----------
Net income (loss) 480,310 (1,024,092) (545,940) (72,011)
========== =========== ========== ==========
NET INCOME (LOSS) APPLICABLE TO:
Majority interest 465,736 (1,015,226) (529,900) (69,895)
Minority interest 14,574 (8,866) (16,040) (2,116)
---------- ----------- ---------- ----------
Net income (loss) 480,310 (1,024,092) (545,940) (72,011)
========== =========== ========== =========
INCOME (LOSS) PER SHARE:
Majority interest 2.39 (4.50) (2.05) (0.27)
Minority interest 0.07 (0.04) (0.06) (0.01)
---------- ----------- ---------- ---------
Net income (loss) per share 2.46 (4.54) (2.11) (0.28)
========== =========== ========== =========
Weighted average shares out-
standing (000's) 194,867 225,491 258,026 258,026
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
<CAPTION>
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(Thousands of Mexican pesos)
Capital Stock
------------------------------------------------------ Additional Reserve for
Number Paid-in Repurchase
of Shares Authorized Unsubscribed Restatement Capital of Shares
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1992 169,833,640 Ps.105,832 Ps.- Ps.157,263 Ps. - Ps.-
Increase in capital stock 33,966,810 21,167 -- 20,361 714,977 --
Transfer to reserve for
repurchase of shares -- -- -- -- -- 122,857
Dividends declared -- -- -- -- -- --
Changes in equity in real terms -- -- -- -- -- --
Net income for the year -- -- -- -- -- --
Minority interest in net income
and cumulative effect of
restatement -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1993 203,800,450 126,999 -- 177,624 714,977 122,857
Increase in capital stock 54,225,686 69,546 (35,754) 27,003 911,043 --
Dividends declared -- -- -- -- -- --
Changes in equity in real terms -- -- -- -- -- --
Net loss for the year -- -- -- -- -- --
Minority interest in loss for
the year and cumulative
effect of restatement -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1994 258,026,136 196,545 (35,754) 204,627 1,626,020 122,857
Change in accounting policy -- -- -- -- -- --
Cancellation of dividends
declared -- -- -- -- -- --
Changes in equity in real
terms -- -- -- -- -- --
Net loss for the year -- -- -- -- -- --
Minority interest in net loss
and cumulative effect of
restatement -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1995 258,026,136 Ps.196,545 Ps.(35,754) Ps.204,627 s.1,626,020 Ps.122,857
</TABLE>
<TABLE>
<CAPTION>
Accumulated Cumulative Cumulative
Earnings Effect of Translation Minority
(Losses) Restatement Adjustment Interest Total
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1992 Ps. 1,111,678 Ps. (336,748) Ps. - Ps.92,737 Ps.1,130,762
Increase in capital stock -- -- -- -- 756,505
Transfer to reserve for
repurchase of shares (122,857) -- -- -- --
Dividends declared (81,452) -- -- (7,680) (89,132)
Changes in equity in real terms -- (71,658) -- -- (71,658)
Net income for the year 465,736 -- -- -- 465,736
Minority interest in net income
and cumulative effect of
restatement -- -- -- 12,024 12,024
---------- ---------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1993 1,373,105 (408,406) -- 97,081 2,204,237
Increase in capital stock -- -- -- -- 971,838
Dividends declared (81,387) -- -- (8,439) (89,826)
Changes in equity in real terms -- (34,198) 14,387 -- (19,811)
Net loss for the year (1,015,226) -- -- -- (1,015,226)
Minority interest in loss for
the year and cumulative
effect of restatement -- -- -- (8,785) (8,785)
---------- ---------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1994 276,492 (442,604) 14,387 79,857 2,042,427
Change in accounting policy -- -- 1,045,434 -- 1,045,434
Cancellation of dividends
declared 47,370 -- -- -- 47,370
Changes in equity in real
terms -- (379,499) (292,630) -- (672,129)
Net loss for the year (529,900) -- -- -- (529,900)
Minority interest in net loss
and cumulative effect of
restatement -- -- -- (30,777) (30,777)
---------- ---------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1995 Ps.(206,038) Ps.(822,103) Ps.767,191 Ps.49,080 Ps.1,902,425
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
<CAPTION>
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING POWER
AS OF JUNE 30, 1996
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
1993 1994 1995 1995
---------- ----------- ---------- --------
OPERATIONS:
<S> <C> <C> <C> <C>
Income (loss) net Ps.480,310 Ps.(1,024,092) Ps.(545,940) $(72,011)
Add (deduct)- Non-cash items-
Depreciation 56,733 86,573 110,024 14,512
Tax arising from timing differences (5,940) 6,948 18,994 2,505
Deferred income taxes - 14,321 (3,633) (479)
Other deferred items and insurance reserves - - 50,515 6,663
Provision for doubtful accounts receivable 4,339 20,518 46,470 6,129
Provision for slow-moving inventories 5,556 18,626 72,584 9,574
Provision for employees' severance benefits 8,456 13,758 15,692 2,070
Participation in results of associated companies - (4,770) 2,643 349
Restructuring charges - 274,379 98,230 12,957
Amortization of goodwill - 20,965 115,616 15,250
Change in operating assets and liabilities-
Decrease (increase) in-
Notes and accounts receivable (658,499) 72,955 122,167 16,114
Inventories 140,595 (89,750) (69,952) (9,227)
Prepaid expenses (26,321) (971) 12,633 1,666
Investment in and advances to
discontinued operations - 216,902 207,884 27,420
Income taxes and employee profit
sharing 21,104 (44,694) 5,832 10,002
Other assets 28,663 50,475 (43,195) (5,697)
Increase (decrease) in-
Notes and accounts payable to suppliers 342,666 (402,210) (147,248) (19,422)
Other payables and accrued expenses (39,057) 17,729 (123,374) (16,273)
Dividends payable - 54,257 (54,257) (7,157)
Pension plan funding and payments of
severance benefits (9,282) (4,888) (29,676) (3,913)
Resources generated by (applied to) operations 349,323 (702,969) (67,991) (8,968)
INVESTMENTS:
Notes and accounts receivable (long-term) - (397,180) (21,459) (2,830)
Additions to property, plant and equipment (333,683) (113,466) (534,821) (70,544)
Net book value of retirements 13,248 48,537 265,426 35,010
Investment in shares - (79,093) 31,745 4,187
Goodwill - (1,167,702) - -
Net assets from acquisition of subsidiary - (859,922) - -
Long-term portion of receivable from the trust
for stock sales plan 11,743 (2,765) (1,133) (149)
---------- ----------- ---------- --------
Net cash applied to investment activities (308,692) (2,571,591) (260,242) (34,326)
FINANCING:
Increase (decrease) in short-term bank loans (293,350) 142,906 (83,170) (10,970)
Increase (reduction) in current and long-term debt
due to restatement in constant pesos (97,789) (57,648) (1,546,180) (203,944)
Increase in peso terms of US dollar debt due to
exchange rate changes - 868,036 1,549,485 204,380
Proceeds from long-term debt - 1,068,067 195,710 25,815
Payments on principal of long-term debt (253) (312) - -
Dividends (declared) canceled (81,452) (81,387) 47,370 6,247
Dividends declared by subsidiaries to
minority shareholders (7,680) (8,439) - -
Increase in capital stock 41,528 60,795 - -
Additional paid-in capital 714,977 911,043 - -
---------- ----------- ---------- ----------
Net cash generated by financing activities 275,981 2,903,061 163,215 21,528
Cash balance from acquisition of subsidiary - 114,611 - -
Cash and cash equivalents at beginning
of year 407,882 724,494 467,606 61,678
Cash and cash equivalents at end of year Ps.724,494 Ps. 467,606 Ps.302,588 $ 39,912
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income and asset taxes paid Ps. 73,420 Ps. 135,710 Ps. 65,445 $ 8,632
========== =========== ========== =========
Employee profit sharing paid Ps. 19,866 Ps. 35,410 Ps. 8,741 $ 1,153
========== =========== ========== ===========
Interest paid Ps.138,124 Ps. 169,937 Ps.357,217 $ 47,118
========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING
POWER AS OF JUNE 30, 1996
(STATED IN THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
1. ACTIVITIES, BASIS OF CONSOLIDATION AND PRESENTATION
The financial statements of Consorcio G Grupo Dina, S.A. de C.V. and
the subsidiaries of which it is the controlling stockholder (collectively,
"the Company") are presented on the basis of generally accepted accounting
principles in Mexico ("Mexican GAAP"). Certain accounting practices applied
by the Company that conform with Mexican GAAP, do not conform with
generally accepted accounting principles in the United States ("U.S.
GAAP"). See Notes 23 and 24 for explanation of differences and
reconciliation of net income and stockholders' equity to U.S. GAAP.
Consorcio G Grupo Dina, S.A. de C.V. is a subsidiary of Grupo
Empresarial G, S.A. de C.V. and is the controlling stockholder of a group
of companies engaged in the manufacture and sale of trucks and buses. As
discussed in Note 2, during 1994 Motor Coach Industries International, Inc.
("MCII"), a U.S. corporation, was acquired. MCII manufactures and sells
coaches and coach parts in the United States (U.S.) and Canada.
Because of the severe decline in demand for buses during 1994 and 1995,
and the reduction in demand for trucks in 1995, DINA (as herein defined)
laid off plant workers and employees. The utilization of plant capacity
also decreased and the bus and truck plants were closed for significant
periods of time. The depreciation of the plants during the shut-down period
is presented as "cost of idle plant" and the severance expense related to
the layoffs are included in "restructuring charges" (see Note 26), in the
accompanying consolidated statements of income (loss).
Consolidated financial statements include the financial statements of
Consorcio G Grupo Dina, S.A. de C.V. and its subsidiaries. The major
subsidiaries are Dina Camiones, S.A. de C.V., Dina Autobuses, S.A. de C.V.,
Plasticos Automotrices Dina, S.A. de C.V., Dina Comercializadora, S.A. de
C.V. (collectively DINA or the Mexican subsidiaries) and Motor Coach
Industries International, Inc. and its subsidiaries (MCII or the U.S.
subsidiary). The consolidated statements of income (loss) and changes in
financial position include the transactions of MCII as of the date of
acquisition. All significant intercompany transactions and balances have
been eliminated in the accompanying consolidated financial statements.
U.S. dollar amounts shown in the financial statements have been
included solely for the convenience of the reader and are translated from
Mexican pesos, as a matter of arithmetic computation only, at the rate
quoted by Banco de Mexico for June 30, 1996 of 7.5814 Mexican pesos per
U.S. dollar. Such translation should not be construed as a representation
that the peso amounts have been or could be converted into U.S. dollars at
this or any other rate.
Certain amounts in the financial statements at December 31, 1994 and
1993 have been reclassified in order to conform with the presentation of
the financial statements at December 31, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
2. ACQUISITION OF MCII
On August 8, 1994, Consorcio G Grupo Dina, S.A. de C.V. acquired all of
the outstanding shares of MCII for an aggregate consideration of $311,627.
The transaction was made through the exchange of 54,225,462 Series "L"
shares of Consorcio G Grupo Dina, S.A. de C.V. for 51% of the outstanding
shares of MCII, with the remaining 49% of the outstanding shares exchanged
for a face amount of $163,993 of 8% convertible subordinated debentures. To
guarantee the convertibility of this debt, 24,624,278 Series "L" shares and
32,749,940 common shares were placed in treasury.
The acquisition was accounted for as a purchase which resulted in a
preliminary adjustment of all outstanding assets and liabilities of MCII to
their estimated fair value on the date of the acquisition. MCII is also in
the process of obtaining additional information to quantify the potential
liability related to certain U.S. and Canadian tax contingencies. MCII does
not expect a significant liability. Once those amounts have been
quantified, the contingencies may be recorded as an additional purchase
accounting adjustment. The excess of the consideration exchanged by
Consorcio G Grupo Dina, S.A. de C.V. over the estimated fair value of the
net assets acquired, based upon the preliminary purchase accounting
adjustment, was $234,064 and is being amortized for Mexican GAAP over 20
years using the straight-line method. The amount amortized from the
acquisition date to December 31, 1994 and for 1995 was Ps.20,965 and
Ps.115,616, respectively, and is included in administration expenses.
3. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are presented in "Mexican pesos"
(Ps.), which is the name of the "new Mexican pesos" (NPs.) as of January 1,
1996.
The significant accounting policies followed by the Company, which are
in accordance with Mexican GAAP, are summarized below:
Change in Accounting Policy-
Beginning in 1995, Bulletin A-8 issued by the Mexican Institute of
Public Accountants became effective. This bulletin requires that if there
are no accounting principles in Mexico which specifically address a
transaction, international accounting standards, or the accounting
principles of the country most closely related to the Company's operations,
must be used. Therefore, as of 1995, the Company began using "pushdown"
accounting to reflect the acquisition of MCII. The goodwill related to the
purchase is now considered an asset of MCII, and is converted to pesos
using the method explained below. This change resulted in an increase in
the peso amount of goodwill of Ps.1,045,434 and a corresponding increase in
"cumulative translation adjust- ment" in stockholders' equity of which
Ps.387,792 relate to 1994 and Ps.657,642 relate to 1995. In addition,
amortization of goodwill increased by Ps.59,296 for 1995, which was
recorded in the fourth quarter of 1995. The increase in goodwill in pesos
in the consolidated financial statements also resulted in an increase in
the amount of exchange loss which can be included in the "cumulative
translation adjustment" rather than results of operations. This change
resulted in a reduction of exchange loss of Ps.292,630 compared to the
amount computed without using "pushdown" accounting. The gain on monetary
position decreased by Ps.586,443 because the debt is now included on
MCII's financial statements and the U.S.inflation index was applied.
Basis of Conversion of Financial Statements of U.S. Subsidiary-
The accounts of MCII are prepared in U.S. dollars as the functional
currency and have been converted to Mexican pesos in conformity with
International Accounting Standards No. 21 (now incorporated as a supple- ment
to Mexican GAAP) "The Effects of Changes in Foreign Exchange Rates and
Translation of Financial Statements in Foreign Currency," which, as applied to
MCII, does not differ significantly from U.S. Statement of Financial
Accounting Standards N(degree) 52 "Foreign Currency Translation."
The conversion to Mexican pesos was as follows:
- - The effects of inflation on the financial information as described below
have been recognized using the consumer price index for the U.S.
- - All of the balance sheet accounts, except for capital stock, have been
converted using the exchange rate in effect at the balance sheet date.
- - The capital stock was converted at the exchange rate in effect at the
date of the acquisition of MCII.
- - The statement of income was converted at the average exchange rate for
the applicable month, and then restated using the U.S. inflation rate.
The prior periods have been restated using the Mexican inflation rate
applied to the consolidated peso amounts reported in prior periods.
The accounts of MCII were also converted to Mexican GAAP for inclusion
in the consolidated financial statements of the Company presented in
Mexican GAAP. See Note 23 for differences between U.S. and Mexican GAAP.
Recognition of the Effects of Inflation on the Financial Statements-
The consolidated financial statements of the Company have been prepared
in accordance with Bulletin B-10, "Recognition of the Effects of Inflation on
Financial Information," as amended, issued by the Mexican Institute of Public
Accountants, which recognizes the effects of inflation. Accordingly, the
financial statements have been restated to the purchasing power of the Mexican
peso as of June 30, 1996, using the Mexican National Consumer Price Index (the
"NCPI"), published by Banco de Mexico. In this manner, the financial
statements are comparable with those of previous years, as all are stated in
currency of the same purchasing power.
To recognize the effects of inflation in terms of Mexican pesos with
purchasing power as of year end, the procedures were as follows:
- - Balance sheet:
Inventory costs include labor, material and factory overhead.
Inventories are stated at the lower of replacement cost or realizable
value. Cost of sales are stated utilizing the replacement cost at time
of sale.
Property, plant and equipment are restated to net replacement cost,
as determined by independent appraisers or using inflation indices
for the U.S. subsidiary. Depreciation is calculated based on those
values and the useful lives as determined by the appraisers.
Goodwill amortization is computed using the straight-line method over
20 years.
Capital stock and retained earnings are restated applying the NCPI.
The restatement represents the amount necessary to maintain
stockholders' equity in terms of the purchasing power of the amount
originally invested or retained.
The cumulative effect of restatement primarily represents the gain or
loss from holding nonmonetary assets, and is determined by comparing
the replacement values versus the value obtained from applying
factors derived from the NCPI in the restatement of nonmonetary
assets (mainly inventories and property, plant and equipment).
- - Statement of income:
Revenues and expenses which are associated with a monetary item (cash,
trade receivables, liabilities, etc.) are restated from the month in
which they arise through year end, based on factors derived from the
NCPI.
Costs and expenses associated with nonmonetary items are restated
through year end, as a function of the restatement of the nonmonetary
asset which is being consumed or sold.
The comprehensive result of financing represents the sum of interest
earned and incurred, exchange gains and losses and the gain or loss from
monetary position, which is the result of maintaining monetary assets
and liabilities whose real purchasing power is affected by inflation.
During each of the three years ended December 31, 1993, 1994 and 1995
monetary liabilities exceeded monetary assets; consequently, there was a
gain from monetary position during each of those years.
- - The statement of changes in financial position presents the changes in
constant currency, based on the financial position as of the beginning
of the year, restated to currency of the current year end.
Cash Equivalents-
Cash equivalents consist of unsecured short-term investments from banks
at fixed rates plus accrued interest, with a maturity of less than 3 months.
Investment in Equity Securities-
The investment in equity securities, in which the Company has
significant influence, is recorded under the equity method. Investments in
which the Company holds 10% or less of the outstanding shares are recorded at
cost (as restated).
Goodwill-
Management of the Company has assessed the recoverability of the
goodwill related to the purchase of MCII using an undiscounted cash flow
projection. Based on this assessment, in the opinion of the Company's
management, there is no impairment in the value of this asset.
Income Taxes and Employee Profit Sharing-
The provisions for income taxes and employee profit sharing are
calculated based on taxable income, which differs from book income due to
certain permanent and temporary differences in the recognition of income
and expenses for tax and book purposes. Deferred taxes and deferred
employee profit sharing are not provided for recurring temporary
differences which are expected to be replaced by temporary differences of a
similar nature and amount.
Transactions in Foreign Currency-
Transactions in foreign currency are recorded at the rate of exchange
in effect at the date of the transaction. Foreign currency assets and
liabilities are adjusted to the rate of exchange at the end of the year.
Any gain or loss resulting from the translation is included in the income
statement.
Warranty Expense-
Most of DINA's warranty costs are paid by the suppliers of engines and
other purchased parts. A warranty reserve has been established for the
estimated amounts to be incurred which are not covered by DINA's suppliers.
MCII establishes an accrual for warranty claims at the time of sale,
based on management's estimate of future warranty liabilities. Actual
warranty expenditures are charged to the accrual as incurred, and
periodically the accrual is reviewed for adequacy in light of actual
experience and adjustments are recorded if necessary.
Earnings per Share-
The Company issued 10,000 shares in 1989, 1,853,480 shares on January
18, 1990 and 6,216,484 shares on August 29, 1991. On March 31 and April 1
of 1993, 33,966,810 shares were issued in an initial public offering. On
August 8, 1994, 54,225,686 shares were issued in connection with the
acquisition of MCII. Except for 1,200,000 shares of the January 18, 1990
issuance and the shares exchanged for shares of MCII, all of the shares
were issued in exchange for cash. The Company determined its earnings per
share based on the weighted average number of shares outstanding during the
years ended December 31, 1993, 1994 and 1995.
Gains and Losses on Disposals of Fixed Assets-
The gain or loss on disposal of fixed assets is recognized in the
income statement by comparing the value of the fixed assets restated to
constant pesos as of the date of the sale or abandonment to the sale price
or realizable value.
4. FOREIGN CURRENCY POSITION
Since the devaluation of the Mexican peso in December 1994, there has
been significant instability in the financial and exchange rate markets.
At December 31, 1995, the DINA's assets and liabilities denominated in
foreign currency are represented principally by U.S. dollars and were
converted at the exchange rate of 7.7396 Mexican pesos per U.S. dollar. The
assets and liability of MCII are denominated in U.S. dollars and Canadian
dollars. At December 31, 1995, the Company's foreign currency position
expressed in thousands of U.S. dollars was as follows:
DINA MCII Total
(a)
Assets-
Current $ 21,758 $ 229,626 $ 251,384
Long-term (includes
goodwill of MCII) 16,015 377,803 393,818
---------- ---------- ---------
37,773 607,429 645,202
---------- ---------- ---------
Liabilities-
Current 16,133 72,793 88,926
Long-term 300,847 239,828 540,675
---------- ---------- ---------
316,980 312,621 629,601
---------- ---------- ---------
Net asset (liability)
position in foreign
currency $ (279,207) $ 294,808 $ 15,601
========= ========= ========
- -----------------
(a) For the purpose of this information amounts are presented in accordance
with U.S. GAAP.
As explained in Note 22, MCII enters into foreign exchange forward
contracts to hedge certain firm and anticipated purchase commitments which
are settled in Canadian dollars, amounting to $52,902,000 Canadian dollars.
At February 29, 1996, the unaudited foreign currency position was
similar to that at December 31, 1995, and the exchange rate was 7.6296
Mexican pesos per U.S. dollar.
Significant transactions in foreign currency undertaken by DINA during
1994 and 1995 were as follows:
1994 1995
------------ ---------
Export sales $ 23,498 $ 58,085
Purchases other than fixed assets (182,883) (26,513)
Interest paid (26,252) (34,313)
Technical support (3,505) (638)
--------- --------
Net $(189,142) $ (3,379)
========= ========
5. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include:
1994 1995
------------ --------
Cash Ps.21,059 Ps.6,244
Unsecured short-term investments
from banks at fixed rates of
interest with maturities less
than 3 months 446,547 296,344
----------- ----------
Ps.467,606 Ps.302,588
6. NOTES AND ACCOUNTS RECEIVABLE
Notes and accounts receivable include:
1994 1995
------------ --------
Trade Ps.795,187 Ps.642,259
Current portion of long-term
notes receivable 132,130 67,092
Less- Allowance for doubtful
accounts (89,211) (62,303)
838,106 647,048
Short-term portion of receivable from
trust for stock sales plan 4,388 2,886
Refundable income tax 53,492 16,847
Refundable asset tax 2,297 7,373
Refundable value added tax 31,903 17,153
Other 79,944 91,709
--------- --------
Ps.1,010,130 Ps.783,016
The changes in the allowance for doubtful accounts were as follows:
1993 1994 1995
------------ ------------ ----------
Beginning balance Ps. 3,299 Ps. 7,190 Ps.159,661
Acquisition of MCII - 15,484 -
Provision 4,339 137,740 133,217
Charge-offs (205) - (1,820)
Recoveries - (280) (135)
Effect of inflation (243) (473) (64,643)
--------- --------- ---------
Ending balance Ps. 7,190 Ps.159,661 Ps.226,280
========= ========== ==========
The balance of the allowance for doubtful accounts is as follows:
1993 1994 1995
------------ ------------ --------
Current Ps. 7,190 Ps.89,211 Ps.62,303
Long-term - 70,450 163,977
--------- --------- ---------
Total Ps. 7,190 Ps.159,661 Ps.226,280
========= ========== ==========
7. INVENTORIES
Inventories consist of the following:
1994 1995
------------ ------------
Finished goods Ps.1,236,890 Ps.1,098,543
Work in process 324,779 375,162
Raw materials 894,306 709,394
Merchandise in transit and
advances to suppliers 68,436 24,608
------------ -----------
2,524,411 2,207,707
Less- Allowance for obsolete and slow-moving
items (246,827) (239,126)
---------- -----------
Ps.2,277,584 Ps.1,968,581
The changes in the allowance for obsolete and slow-moving items were as
follows:
1993 1994 1995
------------ ------------ --------
Beginning balance Ps.20,184 Ps.23,734 Ps.246,827
Acquisition of MCII - 103,397 -
Provision 5,556 140,737 84,069
Sales of obsolete
inventory (348) (15,494) (47,124)
Effect of inflation (1,658) (5,547) (44,646)
--------- ---------- ----------
Ending balance Ps.23,734 Ps.246,827 Ps.239,126
The provision for obsolete and slow-moving items is based on the
restated value of the inventory as of the date the provision is recorded. All
of the provision was changed to results of operations.
8. LONG-TERM NOTES AND ACCOUNTS RECEIVABLE
Long-term notes and accounts receivable include:
1994 1995
------------ --------
Notes receivable Ps.598,239 Ps.690,718
Less- Allowance for doubtful
accounts (70,450) (163,977)
---------- ----------
527,789 526,741
Receivable from trust for stock
sales plan 10,213 5,584
---------- ----------
Ps.538,002 Ps.532,325
The maturity of notes receivable, net of reserves, is as follows:
Year
-------------
1996 Ps 67,092
1997 54,281
1998 87,355
1999 88,712
2000 and thereafter 296,393
----------
Total 593,833
Less-current portion (67,092)
----------
Long-term notes receivable Ps.526,741
==========
Notes Receivable-
DINA-
In January 1996, DINA restructured all its accounts receivable from
Autobuses Estrella Blanca, S.A. de C.V. (EB), Autotransportes Tres
Estrellas de Oro, S.A. de C.V. (TEO) and both companies' licensees, though
a global restructuring agreement. These companies are related and all are
involved in intercity transport in Mexico, which has been negatively
affected by the peso devaluation and the economic crisis. As a result of
this global restructuring, all balances payable to DINA were renegotiated
using as a reference "Units of Investment" (UDIS) which value changes based
on the Mexican inflation rate. The principal balance, increased for
inflation, will be payable in equal monthly installments over six years
beginning July 1, 1997. These balances will bear interest at a rate of 10%
over the monthly reference value of UDIS payable beginning February 29,
1996. This agreement will be prepared individually for each specific
company and/or licensee.
At December 31, 1995, the account receivable from TEO and its licensees
amounts to US$25 million and was translated to Mexican pesos at the
exchange rate of $4.50 per US dollar, included in the above mentioned
restructuring. The difference between the exchange rate at year end and
$4.50 was recorded as expense and a reserve established at December 31,
1995.
These accounts receivable are guaranteed with the buses acquired, as
well as with the shares of EB and TEO, which will allow DINA to operate the
related units to ensure the collection of its receivables. Should these
companies fail to perform in accordance with the contracts and the
collateral prove to be of no value, the accounting loss would be Ps.
229,632. The accompanying financial statements include the effect of this
restructuring at December 31, 1995 and the related accounts receivable have
been classified as long-term.
In addition to the restructuring, DINA initiated procedures with Fondo
Bancario de Proteccion al Ahorro (Banking Fund for the Protection of
Savings (FOBAPROA)), to transfer its balances receivable from EB and TEO to
FOBAPROA, and use the resources obtained from this transfer in the
capitalization of Arrendadora Financiera Dina, S.A. de C.V. (related
party), so that this company may obtain additional financing to sell DINA
products in the future. These transactions are in the process of being
formalized and are expected to be concluded by the end of May 1996.
FOBAPROA has verbally agreed to purchase the receivables at a discount of
20.5%, which is equivalent to $59,213. This discount is included in the
provision for doubtful accounts for the year ended December 31, 1995. The
accompanying financial statements include a reserve for this amount. The
Company's management does not expect any changes in the percent of
discount.
The account receivable from Union de Credito para el Autotransporte,
S.A. de C.V., which acted as an intermediary between DINA and EB and its
licensees, was ceded to DINA together with the underlying rights, effective
retroactively as of December 31, 1995 and is included in the above
mentioned restructuring and has also been classified under long-term
receivables at December 31, 1995.
The notes receivable, net of reserves, due to DINA from its intercity
bus customers, restructured as of December 31, 1995 are as follows:
Autobuses Estrella Blanca, S.A. de C.V. Ps.139,681
Autotransportes Tres Estrellas de Oro, S.A. de C.V.
(Tres Estrellas de Oro) 18,503
Licensees of Tres Estrellas de Oro 86,190
----------
Total restructured Ps.244,374
==========
The total provision for uncollectible accounts for the restructured notes was
Ps. 110,143 and Ps. 92,064 for 1994 and 1995, respectively.
MCII-
During the year ended December 31, 1995 and the five month period ended
December 31, 1994, MCII sold $42,366 and $21,486 of its notes receivable
for $44,126 and $22,386 respectively. MCII has agreed to repurchase, for
the unpaid balance, any contract for which there has been a material breach
of any warranty, representation, covenant or other obligation of MCII as
specified in the contract. In the case of default by a debtor, the
purchaser, after taking possession of the underlying collateral equipment,
may permit MCII to remarket the equipment. MCII is required to reimburse
the purchaser for any losses as a result of defaults up to an aggregate of
$8,467 at December 31, 1995.
On October 13, 1993, the Company advanced to Grupo Empresarial G
$30,000 at a rate of 11%, which was paid on November 15, 1993. During 1994
and 1995, the Company advanced Ps. 11,508 and Ps. 3,634, respectively to
Grupo Empresarial G, unsecured, which bears interest at 3% over the average
bank cost of funds.
Receivable from Trust for Stock Sales Plan-
In 1992, the Company created a trust with Inverlat, to establish a
stock sales plan for the executives of DINA. The trust is managed in
accordance with instructions set forth by a Technical Committee, which
consists of the principal stockholders and certain executives of the
Company.
The initial contribution was used to subscribe and pay for 8,234,360
common shares without par value, at a price of Ps.3.04 per share.
At December 31, 1992, the trust completed the sale of the shares to the
executives of DINA subject to the following conditions:
- The sale will be in equal installments over ten years. The payment
to the trust must be made within 365 days of the signing of the
sales contract for each year.
- The contract automatically expires should the executive cease to
be employed at any of DINA's subsidiaries, and the employee will
forego the right to receive any remaining shares under the
contract.
The consolidated financial statements of the Company reflect the
account receivable from the trust at its present value which at December
31, 1995 was Ps.8,470, of which Ps.5,584 is long term.
The account receivable from the trust is recorded as an asset.
Furthermore, no compensation expense has been or will be recorded in
connection with this program.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
1994 1995
------------ --------
Buildings and improvements Ps.1,035,386 Ps.1,164,828
Machinery and equipment 824,068 821,604
Transportation equipment 141,873 315,003
Furniture and fixtures 125,312 100,032
------------ ------------
2,126,639 2,401,467
Less- Accumulated depreciation (792,607) (868,933)
----------- -----------
1,334,032 1,532,534
Land 121,579 108,683
------------ ------------
Ps.1,455,611 Ps.1,641,217
============ ============
The average annual depreciation rates are as follows:
1994 1995
--------- ---------
Buildings and improvements 3% to 25% 3% to 25%
Machinery and equipment 6% to 33% 8% to 33%
Transportation equipment 9% to 20% 4% to 20%
Furniture and fixtures 11% 8%
10. DISCONTINUED OPERATIONS OF MCII
In November 1993, the Board of Directors of MCII approved a plan of
disposition of the transit manufacturing segment of MCII. This decision was
based upon management's review of market activities, business prospects,
competitive bidding, evaluation of backlogs, economic value analysis, and
opportunities for cost reduction, which indicated that the transit
manufacturing business would not achieve acceptable profitability in the
foreseeable future. As a result of this decision, this segment was classified
as discontinued operations in 1993.
In November 1994, MCII sold the fixed assets and certain of the
inventory of the transit manufacturing business, as well as the right to
manufacture, remanufacture and distribute transit buses previously made by
MCII, for an aggregate consideration of $14,947, of which $4,877 was in the
form of a note receivable and the remainder was in cash. Additionally, the
purchaser, for a period of five years from the sale date, has agreed not to
distribute parts for transit buses previously manufactured by MCII. MCII
retained all other assets and all of the remaining liabilities of the
transit manufacturing business.
The summarized balance sheet of the transit manufacturing segment at
December 31, 1994 and 1995 was as follows (stated in thousands of U.S.
dollars):
1994 1995
------------ --------
Assets-
Accounts receivable $ 32,257 $ 18,247
Inventories 20,878 -
Other current assets 3,997 2,548
Deferred taxes and other assets 23,509 17,230
---------- ----------
$ 80,641 $ 38,025
========== ==========
Liabilities and investment and
advances-
Accounts payable $ 1,598 $ 378
Other current liabilities 28,460 12,858
Other liabilities 2,929 1,345
MCII's investment and advances 47,654 23,444
---------- ----------
$ 80,641 $ 38,025
========== ==========
The following is a summary of the operating results of the transit
manufacturing segment for the five month period ended December 31, 1994 and
the year ended December 31, 1995:
1994 1995
------------ ----------
Revenues $ 50,767 $ 24,278
Operating cost and expenses 51,283 24,881
---------- ----------
(516) (603)
Income tax benefit 199 232
---------- ----------
Losses charged to discontinued
operations reserve $ (317) $ (371)
========== ==========
11. RESEARCH AND DEVELOPMENT OF TECHNOLOGY
Two subsidiaries of the Company have a trust arrangement to earmark
deductible funds for research and development of technology for the
companies. The companies will be authorized to make use of these funds for
specific purposes, and the fund may be increased by future contributions in
accordance with the provisions of the contract, or by interest, dividends
and capital gains earned by the fund.
The fund was established in 1990 and no subsequent cash contributions
were made. During 1993, Ps.21,303 was used for research and development and
is included in expenses. There were no expenditures for research and
development in 1994 and 1995. The balance of the fund as of December 31,
1995 was Ps.20,748 and is included in other assets.
MCII has undertaken a research and development project with the
cooperation of the Government of Canada and the Province of Manitoba.
Agreements were entered into between the parties for the research and
development project which includes commitments for contributions. During
the five month period ended December 31, 1994 and the year ended December
31, 1995 MCII recorded $698 and $3,305, respectively from the contribution
programs, which has been applied against research and development expenses.
Contributions may be repayable should the project not be completed. As of
December 31, 1995, the amount of such contributions totaled $6,033.
12. BANK LOANS
Short-term bank loans were as follows:
Average Weighted
Weighted Amount Average
Balance at Average Outstanding Interest Rate
End of the Interest During the During the
Year Rate Year (a) Year (b)
---------- -------- ----------- -------------
1994 Ps.150,371 23.63% Ps.188,131 19.99%
========== ===== ========== =====
1995 Ps.15,779 60.03% Ps.37,547 61.06%
========= ===== ========= =====
(a) Average amounts outstanding were calculated by dividing the average
monthly borrowings by the number of months during the year.
(b) The weighted average interest rates were calculated by dividing the
total interest expense during the year by the average amounts outstanding
as calculated in (a) above.
13. OTHER PAYABLES AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
1994 1995
------------ -----------
Taxes other than income tax Ps. 92,275 Ps.126,679
Commissions 3,057 10,732
Interest payable 64,151 95,332
Warranty reserve 45,990 48,021
Other 409,162 210,497
---------- ----------
Ps.614,635 Ps.491,261
14. LONG-TERM DEBT
An analysis of long-term debt is as follows:
1994 1995
------------ -----------
Eurobonds Ps.1,312,915 Ps.1,338,634
Subordinated convertible debentures 1,435,384 1,463,502
Bank credit facility 612,694 821,029
Term notes payable 1,094,097 1,115,528
Other 2,419 15,779
Less-
Discount on issuance of
subordinated convertible
debentures (85,084) (117,305)
Current maturities of long-term
debt (1,475) (15,778)
------------ ------------
Ps.4,370,950 Ps.4,621,389
============ ============
As of December 31, 1995, MCII had available short-term lines of credit
totaling Ps.359,905.
Eurobonds-
On November 18, 1992 Eurobonds through Guaranteed Notes with a
principal amount of $150,000 were issued. The 10.5% Guaranteed Notes are
due November 18, 1997 with interest payable semi-annually in arrears on May
18 and November 18. See Note 28 c) for an explanation of the Exchange Offer
for these Eurobonds.
The terms of the Eurobonds restrict the disposition of the stock of
subsidiaries and fixed assets unless the proceeds are subsequently
reinvested, and limit the pledging of assets or granting of guarantees on
additional debt. The Eurobonds are guaranteed by each of Dina Camiones,
S.A. de C.V., Dina Autobuses, S.A. de C.V. and Dina Comercializadora, S.A.
de C.V., subsidiaries of the Company.
As of the date of issuance of these financial statements, the Company
is in compliance with these restrictions.
Subordinated Convertible Debentures-
On August 8, 1994, DINA issued subordinated convertible debentures for
$163,993, with a discount of $14,759, due in August 2004, with interest
payable semi-annually at 8%, net of certain taxes. DINA has the option of
redeeming the debentures after three years and before 5 years with a
prepayment penalty, if the market price of the American Depositary shares
(ADS) of Series "L" stock of the Company exceeds $22.86 for a specified
period of time. The debentures are convertible at the option of the holder
to 56.88 ADSs per one thousand dollars of principal amount. The discount
will be amortized through August 2004 on a straight-line basis.
Bank Credit Facility-
Long-term bank credits are available to MCII from participating banks
under an agreement (the "Bank Credit Facility") which provides up to
$125,000 for borrowing purposes, of which up to $35,000 is available for
issuance of standby letters of credit. Borrowings were available at
December 31, 1995 on a revolving basis until July 31, 1998. At December 31,
1995, there were borrowings of $92,000 outstanding under the Bank Credit
Facility and $6,920 of standby letters of credit were issued.
Canadian revolving credit loans are available to a subsidiary of MCII
which provide for loans up to the Canadian equivalent of $7,329, of which
no amounts were outstanding at December 31, 1995. Borrowings were available
at December 31, 1995 on a revolving basis until January 31, 1996, with
outstanding borrowings then converting into a term loan repayable in 36
equal monthly installments.
The interest rates applicable to borrowings under these agreements are,
at MCII's option, indexed to the bank prime rate or the London
Inter-banking Offering Rate ("LIBOR"), plus appropriate spreads over such
indices during the period of each borrowing agreement. The agreements also
provide for commitment fees. Such spreads and fees can change based upon
changes in MCII's financial ratios. Annually, with the participating banks'
consent, the term of the agreements may be extended for one year.
Term Notes Payable-
MCII has $125,000 of term notes payable which are due in annual
installments of $25,000 beginning in November 1998 and extending through
November 2002. Interest on the notes is at a fixed rate of 9.02%, however,
MCII has entered into an interest rate swap agreement which effectively
changes the interest rate on the notes to LIBOR plus 1.14%. During 1995,
MCII terminated $62,500 of the swap in exchange for $4,950 which will be
amortized as a reduction of interest expense over the remaining life of the
notes. As a result, the effective interest rate on $62,500 of the notes is
at LIBOR plus 1.14% and $62,500 is at a fixed rate of 7.44%.
MCII long-term debt agreements include various restrictive covenants
and require the maintenance of certain defined financial ratios with which
MCII is in compliance.
At February 29, 1996, the Company has guaranteed revolving lines of
credit on behalf of a related company in an amount of Ps.22,830. There are
also other guarantees between affiliates for Ps.16,737.
Long-term debt maturities are as follows:
1994 1995
------------ -----------
1996 Ps. 943 Ps. -
1997 1,925,609 1,338,634
1998 218,820 1,044,135
1999 218,820 223,105
2000 and thereafter 2,006,758 2,015,515
---------- ----------
Ps.4,370,950 Ps.4,621,389
15. STOCKHOLDERS' EQUITY
On March 23, 1995 the stockholders voted to cancel the dividends
declared in August 1994, unpaid as of December 31, 1994, which totaled
Ps.47,371.
At December 31, 1994 and 1995, capital stock consisted of the following:
<TABLE>
<CAPTION>
Number of Shares
---------------------------
Common Series "L" Amount
------ ---------- ------.
<S> <C> <C> <C>
Nominative shares without par
value, represented by fixed
capital not subject to withdrawal
and of free subscription 203,800,450 - Ps.126,999
Nominative shares with no par
value, sub-series 2/94 and 1/94,
represented by variable capital,
freely subscribable, and which
may not exceed 10 times fixed
capital. Series L shares have
limited voting rights and may
not exceed 25% of capital 32,749,940 78,849,964 69,546
---------- ---------- ---------
236,550,390 78,849,964 196,545
Less- Unissued shares (32,749,940) (24,624,278) (35,754)
Capital stock outstanding 203,800,450 54,225,686 Ps.160,791
</TABLE>
In accordance with the by-laws of the Company, foreign investors may
purchase up to 49% of the shares of the Company.
Dividends paid by the Mexican subsidiaries are not subject to income
taxes, as long as they are paid from "net taxable income" ("UFIN"). For the
minority stockholders, dividends not paid from UFIN must include a 34% income
tax. The majority stockholders are not subject to income tax withholding
because the Company is a tax controlled entity under the rules of
consolidation for tax purposes. If capital is reduced, the excess of the
reduction over price-level adjusted paid-in capital will be taxable as a
dividend in accordance with the formula prescribed by Mexican tax law.
The annual net income of each Mexican subsidiary is subject to a legal
requirement that 5% thereof be transferred to a legal reserve each year until
the reserve equals 20% of capital stock. This reserve is not available for
distribution to stockholders during the existence of the Company, except in
the form of a stock dividend.
16. TAX ENVIRONMENT
DINA-
Income and Asset Tax-
DINA is subject to income and asset taxes. Income tax is computed by
taking into consideration the taxable and deductible effects of inflation,
such as depreciation calculated on restated asset values, the deduction of
purchases in lieu of cost of sales, which permit the deduction of current
costs, and taxable income is increased or reduced by the effects of inflation
on certain monetary assets and liabilities through the inflationary component.
Income taxes are calculated in terms of currency at the time the transaction
occurred and not in terms of currency at the end of the period.
The objective of the Mexican Income Tax Law is to tax or to allow the
tax deduction of the interest in- come/expense and/or the foreign exchange
gain/loss in real terms, that is, deducting from the nominal amount its
inflationary component in a calculation similar to that used to determine
the comprehensive financing result in the Statement of Income.
The asset tax is computed at an annual rate of 1.8% (2% through 1994)
of the average of the majority of restated assets less certain liabilities,
and the tax is paid only to the extent that it exceeds the income tax of
the period. Any required payment of asset tax can be offset against the
excess of income tax over asset tax in the following ten years.
The provisions for income taxes and employee profit sharing have been
determined on the basis of the separate taxable income (loss) of each
individual company. Grupo Empresarial G (the Company's parent) is permitted
by the Mexican tax authorities to file a consolidated return.
Employee Profit Sharing-
Employee profit sharing is calculated based on taxable income, after
certain adjustments, primarily depreciation, the tax gain or loss on monetary
position and exchange gains or losses when realized. The difference between
the statutory rate of 10% and the actual provision represents timing
differences in the recording of employee profit sharing. Under Mexican GAAP,
recording the effect of these timing differences is not required.
Tax Loss Carryforwards and Recoverable Asset Tax-
At December 31, 1995 DINA had the following tax loss carryforwards and
recoverable asset tax, which will be indexed for inflation through the date
used to offset future taxable income or income tax payable, respectively:
Tax Loss
Year of Expiration Carryforward Asset Tax
1999 Ps. - Ps.13,106
2000 - 10,182
2001 3,892 8,143
2002 21,735 13,633
2003 4,768 8,116
2004 908,852 14,814
2005 208,665 30,290
--------- ---------
Ps.1,147,912 Ps.98,284
MCII-
MCII's U.S. subsidiaries are included in MCII's consolidated U.S.
federal and other applicable income tax returns. Taxable income of MCII's
Canadian subsidiaries is included in separate tax returns filed in Canada.
MCII is also subject to various state income taxes.
The deferred tax asset of Ps.260,668 represents the future tax benefit
to be received from deductions for U.S. tax purposes.
At December 31, 1995 MCII had $34,713 of tax loss carryforwards which
will expire as follows:
Tax Loss
Year of Expiration Carryforwards
------------------ -------------
2007 $ 2,690
2008 6,261
2009 22,988
2010 2,774
-------
$34,713
17. PROVISION (BENEFIT) FOR INCOME TAX
The following items represent the principal differences between Mexican
income tax computed at the statutory tax rate and the Company's Mexican
Subsidiaries' provision for income tax for 1993:
Statutory tax rate 34.75%
Permanent differences:
Gain from monetary position (7.57)
Inflationary component 5.98
Non-deductible items 1.35
Other 5.21
Temporary differences:
Depreciation (11.99)
Cost of sales vs. purchases,
labor and overhead (1.00)
Advance payments from customers (28.21)
Reserves 1.63
Advance payments to suppliers 7.83
Subsidiaries with tax losses 9.85
-----
Effective tax rate 17.83%
During 1994 and 1995, the Company's Mexican subsidiaries recorded a
book loss but no net income tax benefit. The Company's U.S. subsidiary
recorded income tax expense, which under Mexican GAAP does not include
temporary differences. Therefore, these differences must be shown in the
reconciliation of the statutory rate to the effective rate.
<TABLE>
<CAPTION>
1994 1995
-------------------------------------- ---------------------------------------
DINA MCII Total DINA MCII Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) expense at
statutory rate Ps.(339,924) Ps. 21,914 Ps. (318,010) Ps.(247,864) Ps. 109,769 Ps.(138,095)
Permanent differences-
Gain from monetary
position (15,699) (7,765) (23,464) (69,282) 15,390 (53,892)
Inflationary component 23,666 - 23,666 114,818 - 114,818
Non-deductible items 6,317 - 6,317 43,697 - 43,697
Intangible amortization - 9,553 9,553 - 12,470 12,470
State income taxes - 2,466 2,466 - 5,836 5,836
Canadian tax differences - 3,296 3,296 - 4,808 4,808
Temporary differences-
Depreciation (17,395) - (17,395) (12,268) - (12,268)
Cost of sales vs. pur-
chases, labor and
overhead 9,207 - 9,207 78,976 - 78,976
Reserves 59,295 - 59,295 45,863 - 45,863
Net operating losses of
discontinued operations - 5,811 5,811 - - -
Other (34,385) (2,461) (36,846) (1,272) (16,289) (17,561)
Tax loss carryforwards
which will be used in
the future 316,002 - 316,002 52,987 - 52,987
Subsidiaries with taxable
income 127,665 - 127,665 - - -
Intercompany sales tax-
able to Mexican sub-
sidiary - - - 8,885 - 8,885
-------- ------- -------- ------- -------- -------
Income tax provision
Utilization of tax
loss carryforwards (134,749) - (134,749) (303) - (303)
-------- ------- -------- ------- -------- -------
Ps. - Ps.32,814 Ps. 32,814 Ps. 14,237 Ps. 131,984 Ps.146,221
=========== ========= =========== ========== ============ ==========
</TABLE>
United States and Canadian income before income taxes for the five
month period ended December 31, 1994 and the year ended December 31, 1995
were as follows:
1994 1995
---------- ---------
United States $ 4,649 $ 12,979
Canada 2,195 22,916
---------- ----------
$ 6,844 $ 35,895
========== ==========
MCII's U.S. federal income tax returns have been examined through 1990
and are currently being examined for 1991, 1992 and the seven month period
ended July 1993.
MCII's Canadian income tax returns for 1982 through 1992 are currently
under review by Revenue Canada. Authorities have proposed imputing
additional income relating to transactions with a U.S. based subsidiary of
MCII. A formal reassessment has been issued by Revenue Canada on the 1985
return. A notice of objection has been filed by MCII for 1985. In the event
of an adverse judgment, the additional income taxes for 1982 through 1992
could amount to up to $25,000 plus interest of approximately $25,000 and,
in addition MCII may be subject to potential reassessments for years
subsequent to 1992 on the same basis which could result in additional
income taxes and interest, all before recoveries of U.S. Federal income
taxes which may be available to offset a portion of any additional taxes
paid to Canada. Although MCII is in the process of obtaining additional
information, based upon its review of current relevant information,
including the advice of outside counsel, MCII is of the opinion that
Revenue Canada's arguments are without merit and that any liability from
this matter will not be material to its financial condition or results of
operations.
18. COMMITMENTS
The Company leases certain property and equipment used in its
operations under capital and operating leases with a net book value as of
December 31, 1995 of Ps.94,570.
Rental expense was Ps.4,899, Ps.11,418 and Ps.26,772 for the years
ended December 31, 1993, 1994 and 1995, respectively.
At December 31, 1995, the aggregate minimum rental commitments under
non-cancelable leases were approximately as follows:
Capital Operating
Leases Leases
-------- ------------
1996 Ps.2,848 Ps.25,048
1997 2,293 19,117
1998 2,142 12,408
1999 2,142 10,361
2000 and thereafter 1,786 22,775
-------- --------
Total 11,211 Ps.89,709
======== =========
Less- Interest 6,350
Present value of net minimum
lease payments 4,861
Less- Current installments 4,861
Long-term obligation at
December 31, 1995 Ps. -
19. PENSION PLAN COSTS
DINA-
Under Mexican Labor Law, companies are liable for severance payments to
employees terminated under certain circumstances. Additionally, there is a
liability under the union contracts for voluntary retirements by plant
employees with 5 or more years of service.
The Company provides retirement pensions, seniority premiums,
incidental related death benefits and defined benefit pension plans that
cover substantially all employees of DINA. Seniority premiums are paid to
employees who leave the Company after fifteen years of service and are
based on the number of years of service. For union employees, additional
seniority premiums are a part of the union contracts. The union contracts
also define the provision of the pension plans for union employees. The
benefits are revised periodically for all covered employees mainly in
conjunction with union negotiations.
The largest subsidiaries established irrevocable trusts to cover the
employees' accrued benefits. No contributions were made during 1993, 1994 or
1995. The Company follows the funding recommendations of its actuaries. At
December 31, 1995, the balance of this fund amounts to Ps.46,755 and the
assets of the trust consist of stock traded on the Mexican Stock Exchange
(31%) and certain fixed-rate investments (69%).
MCII-
Trusted, non-contributory and contributory pension plans cover
substantially all employees. Benefits for the non-contributory plans are
based primarily on final average salary and years of service. Funding
policies provide that payments to pension trusts shall be at least equal to
the minimum funding required by applicable regulations. Contributions and
cost for the contributory plans are determined as a percentage of each
covered employee's regular wages.
The following rates, which include inflation, were used in determining
the actuarial present value of accumulated plan benefits for the Company's
pension plans:
December 31,
-----------------------------------------------
1994 1995
---------------- ----------------
1993 DINA MCII DINA MCII
---- ---- ---- ---- ----
Discount rate 9% 9% 8% 25% 8%
Salary increase rate 8% 8% 5% 20% 5%
Return on assets 11% 11% 9% 30% 9%
The components of net periodic pension cost consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1994 1995
------------------------ -----------------------------
1993 DINA MCII Total DINA MCII Total
<S> <C> <C> <C> <C> <C> <C> <C>
Service cost Ps.6,112 Ps.7,223 Ps.3,289 Ps.10,512 Ps. 3,684 Ps. 8,684 Ps.12,368
Interest on projected
benefit obligation 6,494 6,077 2,590 8,667 3,379 9,100 12,479
Actual return on plan
assets (6,537) (6,262) (2,024) (8,286) (11,936) (15,458) (27,394)
Amortization of unrecognized
obligations 2,387 954 1,912 2,866 (881) 19,120 18,239
Net cost for the year Ps.8,456 Ps.7,992 Ps.5,767 Ps.13,759 Ps.(5,754) Ps.21,446 Ps.15,692
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1993 1994
---------- -------------------------------------------------
MCII
Assets Accumulated
Exceed Benefits
Accumulated Exceed
DINA Benefits Assets Total
<S> <C> <C> <C> <C> <C>
Vested benefit obligation Ps. 1,618 Ps.14,046 Ps.62,775 Ps.25,060 Ps.101,881
Non-vested benefit obligation 16,677 15,281 11,300 954 27,535
--------- --------- --------- --------- ---------
Accumulated benefit obligation 18,295 29,327 74,075 26,014 129,416
Additional benefits related to
future compensation increases 53,857 44,981 22,556 1,426 68,963
--------- --------- --------- --------- ---------
Projected benefit obligation 72,152 74,308 96,631 27,440 198,379
Fair value of plan assets (49,047) (58,410) (104,360) (884) (163,654)
--------- --------- --------- --------- ---------
Unfunded projected benefit
obligation Ps.23,105 Ps.15,898 Ps.(7,729) Ps.26,556 Ps.34,725
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1995
--------------------------
MCII
Assets Accumulated
Exceed Benefits
Accumulated Exceed
DINA Benefits Assets Total
<S> <C> <C> <C> <C>
Vested benefit obligation Ps.20,799 Ps.78,052 Ps.12,940 Ps.111,791
Non-vested benefit obligation 4,597 12,396 1,090 18,083
--------- --------- --------- ----------
Accumulated benefit obligation 25,396 90,448 14,030 129,874
Additional benefits related to
future compensation increases 20,700 24,157 2,115 46,972
--------- --------- --------- ----------
Projected benefit obligation 46,096 114,605 16,145 176,846
Fair value of plan assets (46,755) (124,627) (1,445) (172,827)
--------- --------- --------- ----------
Unfunded projected benefit
obligation Ps. (659) Ps.(10,022) Ps.14,700 Ps. 4,019
========= ========== ========= ==========
</TABLE>
20. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
MCII has defined benefit post-retirement plans that provide medical
and life insurance for eligible retirees and dependents. The net periodic
post-retirement benefit cost for MCII is based upon the provisions of SFAS
No. 106 "Employers' Accounting for Post-retirement Benefits Other than
Pensions."
The net periodic post-retirement benefit cost for the five month
period ended December 31, 1994 and the year ended December 31, 1995
included the following components:
1994 1995
---------- ------
Service cost benefits attributed to
service during the period Ps.1,183 Ps.3,083
Interest cost on the accumulated
post-retirement benefit obligation 1,019 2,971
Net amortization and deferral (32) (333)
Net periodic post-retirement benefit
cost Ps.2,170 Ps.5,721
The status of the plans at December 31, 1994 and 1995 was as follows:
1994 1995
---------- ------
Accumulated post-retirement benefit
obligation-
Retirees Ps.9,988 Ps.10,467
Other fully eligible active
plan participants 11,552 12,717
Other active plan participants 29,390 32,895
50,930 56,079
Unrecognized prior service cost 368 303
Unrecognized net gain 1,058 2,938
------- -------
Accrued post-retirement benefit
cost Ps.52,356 Ps.59,320
The assumed health care cost trend rate used in measuring the
accumulated post-retirement benefit obligation ("APBO") was 12% in 1995,
gradually declining to 5% by the year 2002 and remaining at that level
thereafter for retirees below age 65, and 8.5% in 1995, gradually declining
to 5% by the year 2002 and remaining at that level thereafter for retirees
above age 65. A one percentage point increase in the assumed health care
cost trend rate for each year would increase the APBO as of December 31,
1995 by approximately 21% and the net periodic post-retirement benefit cost
would increase by approximately 25%.
The assumed discount rate used in determining the APBO was 7.5% in
1994 and 1995.
21. LITIGATION AND CONTINGENCIES
Certain U.S. entities are plaintiffs or defendants to various
actions, proceedings and pending claims. Some of the foregoing involve or
may involve claims for compensatory, punitive or other damages in material
amounts. Litigation is subject to many uncertainties and it is possible
that some of these legal actions, proceedings and pending claims could be
decided against the Company. Although the amount of liability at December
31, 1995 with respect to these matters is not ascertainable, the Company's
management and its outside counsel believe that any resulting liability
would not materially affect the financial condition or results of
operations of the Company.
22. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR
VALUE OF FINANCIAL INSTRUMENTS
Financial Instruments with Off-Balance Sheet Risk-
MCII enters into foreign exchange forward contracts to hedge certain
firm and anticipated purchase commitments which are settled in Canadian
dollars. These contracts are purchased to reduce the impact of Canadian
dollar currency fluctuations on operating results. MCII does not engage in
Canadian dollar currency speculation and the contracts do not subject MCII
to risk due to exchange rate movements as gains and losses on the contracts
offset gains and losses on the materials being purchased. At December 31,
1995 and 1994, MCII had approximately $52,902,000 and $68,068,000 Canadian
dollar exchange forward contracts outstanding. MCII's theoretical risk in
these transactions is the cost of replacing, at current market rates, these
contracts in the event of default by the other party. Management believes
the risk of incurring such losses is remote as the contracts are entered
into with major financial institutions.
As a necessary adjunct to its new and used coach business, MCII has
entered into repurchase and first loss agreements with certain companies
which provide financing for coaches, pursuant to which MCII agrees to
either repurchase coaches from such companies or guarantees the payment of
certain obligations of coach owners or operators. The amount of such
agreements as of December 31, 1994 and 1995 was approximately $4,787 and
$3,462, respectively. Additionally, as a result of certain sales of notes
receivables and leases during 1994 and 1995, MCII is required to reimburse
the purchaser of such notes and leases for any losses as a result of
defaults up to $5,936 as of December 31, 1994 and $9,536 as of December 31,
1995. MCII has experienced no material losses in respect to such
agreements, and losses under existing agreements are not expected to exceed
the amount reserved for such losses.
On December 28, 1994, MCII sold $24,425 of accounts receivables to a
major financial institution with recourse. At December 31, 1995, none of
the receivables sold remained outstanding. As a result, MCII had no
exposure under the recourse provisions.
At December 31, 1994, MCII had an interest rate swap outstanding with
a commercial bank which effectively changed the interest rate on MCII's
$125,000 term notes payable to LIBOR plus 1.14%. In June 1995, MCII settled
$62,500 notional principal amount of the swap, resulting in proceeds to the
Company of $4,950 which are being amortized as an adjustment to interest
expense of the term notes over the remaining life of the notes. Under the
terms of the swap agreement, MCII receives interest of 7.88% and pays
interest at LIBOR. At December 31, 1995, the notional amount on which the
interest is calculated is $62,500 and matures ratably at the same time the
related term notes mature. The counterparty to the agreement has the right
to designate a cash settlement of the swap 10 days prior to the maturity
date of MCII (180)s Bank Credit Facility. The maturity date of the Bank
Credit Facility as of December 31, 1995, is July 31, 1998, but is expected
to be extended annually by mutual agreement. In the event of a cash
settlement designated by the counterparty, MCII intends to defer the
proceeds received, or payments made, as a result of the settlement and
immediately enter into a new swap agreement. The deferred settlement would
then be amortized over the remaining life of the new swap, thus preserving
the effective change in the interest rate on the term notes payable at
LIBOR plus 1.14%. MCII is exposed to credit loss in the event of
non-performance by the other party; however, MCII does not anticipate
non-performance as the counter party is a major financial institution.
Fair Value of Financial Instruments-
The estimated fair value amounts have been determined by the Company
using available market information and valuation methodologies described
below. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein may not be indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions on valuation methodologies may have a material effect on the
estimated fair value amounts. The carrying values of cash and cash
equivalents, receivables, bank overdrafts and accounts payable approximate
fair values due to the short-term maturities of these instruments. The
carrying amounts and estimated fair values of the Company's other financial
instruments at December 31, 1995 are as follows:
1994 1995
------------------- ---------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
Notes receivable $37,312 $37,284 $ 35,631 $35,658
Investment in equity
instrument - - 1,200 1,200
Debt (195,000) (194,337) (217,816) (229,678)
Interest rate swap - (663) - 5,891
Subordinated convertible
debentures (163,993) (121,354) (163,993) (59,857)
Eurobonds (150,000) (135,000) (150,000) (109,500)
Foreign exchange forward
contracts - (4,486) - 84
The methods and assumptions used to estimate the fair values of the
financial instruments are summarized as follows:
Notes receivable-Estimated by discounting the future cash flows using
rates currently used for notes of similar terms and maturities.
Investment in equity instrument-Estimated at its carrying value as
the investment was acquired December 28, 1995.
Debt-Estimated by discounting the future cash flows, using rates
currently available for debt of similar terms and maturity. The fair value
of long-term debentures and Eurobonds, which are traded, is based on the
market value at year end.
Interest rate swap-Estimated by discounting future cash flows using
rates currently available. Represents the unrealized gain or (loss) if the
agreement had been settled at year-end. The swap agreement specifically
hedges portions of the Company's term notes payable. As market interest
rates fluctuate, the unrealized gain or loss on the swap moves to offset
the change in fair value of that portion of the term notes payable.
Foreign exchange forward contracts (used for hedging purposes)-
Estimated using quoted exchange rates.
23. DIFFERENCES BETWEEN MEXICAN AND U.S. GAAP
Note 24 presents a reconciliation of net income (loss) and
stockholders' equity to U.S. GAAP. However, this reconciliation to U.S.
GAAP does not include the reversal of the restatement of the financial
statements to comprehensively recognize the effects of inflation, as
required under Mexican GAAP Bulletin B-10, "Recognition of the Effects of
Inflation on Financial Information," as amended. The application of
Bulletin B-10 represents a comprehensive measure of the effects of price
level changes in the inflationary Mexican economy and, as such, is
considered a more meaningful presentation than historical cost-based
financial reporting for both Mexican and U.S. accounting purposes.
The principal differences between Mexican GAAP and U.S. GAAP are
described below together with an explanation, where appropriate, of the
method used in the determination of the adjustments that affect net income
(loss) and total stockholders' equity.
Cash Flow Information-
Under Mexican GAAP, the Company presents consolidated statements of
changes in financial position.
Bulletin B-12 specifies the appropriate presentation of the statement
of changes in financial position when the financial statements have been
restated in constant pesos in accordance with the third amendment to
Bulletin B-10 and prior years' presentations have been restated
accordingly. Bulletin B-12 identifies the generation and application of
resources representing differences between beginning and ending financial
statement balances in constant pesos. The Bulletin also requires that
monetary and foreign exchange gains and losses not be treated as
nonmonetary items in the determination of resources provided by operations.
The changes in the consolidated financial statement balances included
in this statement constitute cash flow activity stated in constant pesos
(including monetary and foreign exchange gains and losses, which are
considered cash gains and losses in the constant peso financial
statements).
In accordance with Mexican GAAP, the reduction in current and
long-term debt due to restatement in constant pesos is presented in the
consolidated statements of changes in financial position as a resource used
by financing activities and the gain from monetary position and exchange
gains and losses are presented as components of operating activities. Under
U.S. GAAP, Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows," does not provide guidance with respect to inflation
adjusted financial statements.
Restatement and Translation of U.S. Dollar Account to Constant Pesos-
Under Mexican GAAP, the Company converts the U.S. dollar amounts for
MCII to pesos using the exchange rate at the time of the transaction for
income statement amounts and the exchange rate at the close of the period
for balance sheet amounts. The peso amounts are then restated using the
U.S. inflation rate. Under US GAAP, the restatement would be required to be
made using the Mexican inflation rate. The effect on net loss for 1995, had
this method been applied, amounted to a decrease in net loss of
approximately 48.7 million pesos. The effect on 1994 net loss was not
significant since the inflation rate in Mexico was 7% and MCII was owned
for only five months of that year. The balance sheet amounts reported would
be the same under both methods.
The Mexican Accounting Principles Board is also considering an
alternative method. Although no standards have been issued in writing, this
method would require that U.S. dollar amounts be restated for the U.S.
inflation rate, then restated at the exchange rate at the close of the
period for the most recent financial statements presented. If this method
had been used, the Company would have reported approximately $52.5 million
pesos less net loss in 1995 and $12 million pesos less net loss in 1994.
This method is not acceptable under US GAAP.
Deferred Income Taxes-
Under Mexican GAAP, deferred taxes are provided only for
non-recurring temporary differences, which are defined as items which will
reverse and not be replaced by a similar item. Under U.S. GAAP, which
requires the liability method of accounting, deferred income taxes are
recognized for the tax consequenc- es of all temporary differences, both
recurring and non-recurring, between the financial statement carrying
amounts, which have been adjusted for inflation and appraised values, and
the tax bases of assets and liabilities. The deferred taxes related to
restatements of assets to appraised values or for the NCPI have been
considered as a part of the provision. Deferred income taxes under U.S.
GAAP arise principally due to the deduction of purchases and production
costs remaining in inventory for book purposes which are charged to expense
for tax purposes, differences due to indexation of depreciation, and the
recording of tax loss carryforwards as deferred tax assets, which is
prohibited under Mexican GAAP.
Cost of Pension Plans and Other Employee Benefits-
On January 1, 1989, Statement of Financial Accounting Standards No.
87 ("SFAS No. 87"), "Employers' Accounting for Pensions," became effective
for pension plans outside the United States. The Company has prepared a
study of pension costs under U.S. GAAP (see Note 19). Under Mexican GAAP,
the requirement to record liabilities for employee benefits using actuarial
computations was required beginning in 1994.
The Company's Mexican subsidiaries have no post-retirement health
care insurance or other benefit plans, other than the pension plan referred
to in Note 19. Therefore, Statement of Financial Accounting Standards No.
106 "Employers' Accounting for Post-retirement Benefits Other Than
Pensions" and Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Post-employment Benefits" would have no effect
on financial position of the Company's Mexican subsidiaries. See Note 20
for discussion of post-retirement benefits of U.S. subsidiaries.
Stock Sales Plan-
Under Mexican GAAP, the net present value of the receivable from the
trust for the stock sales plan is recorded as an asset (see Note 8). Under
U.S. GAAP, this receivable is deducted from stockholders' equity to reflect
the reduction in the capitalization of the Company.
As of December 31, 1993, the date of grant, the market value of the
shares, based on the selling price of the shares in a public offering was
significantly higher than the purchase price of the shares. For Mexican
GAAP, no compensation expense has been or will be recorded by the Company
for these share transactions. Under U.S. GAAP, compensation expense must be
recognized to the extent of the difference between the selling price of the
shares and their fair market value on the date of grant, accrued over the
respective service periods specified in the grant.
Minority Interest-
Under Mexican GAAP, Bulletin B-8, minority interest in subsidiaries
must be included as a component of stockholders' equity. Consequently,
minority interest in the income of subsidiaries is not presented as an
expense in the statement of income. Under U.S. GAAP, minority interest in
subsidiaries is shown below liabilities on the balance sheet, and is not
part of stockholders' equity.
Amortization of Goodwill-
Under Mexican GAAP, the amortization period for goodwill is limited
to 20 years, whereas under U.S. GAAP, goodwill may be amortized over up to
40 years.
Pushdown Accounting-
Under U.S. GAAP, the purchase adjustments related to the acquisition
of a business must be "pushed-down" to the financial statements of the
business acquired. Prior to 1995, Mexican GAAP did not require pushdown
accounting. Under Bulletin A-8 which became effective in 1995, if there are
no Mexican accounting principles which specifically apply, international
accounting standards, or the accounting principles of the Country most
applicable to the Company's operations must be applied. Therefore, in 1995
the financial statements reflect the effects of "pushdown accounting" and
there is no longer a reconciling item for U.S. GAAP other than for the
difference in amortization periods.
Under Mexican GAAP, since pushdown accounting was not used for 1994,
the goodwill which arose from the purchase of MCII was recorded on DINA's
balance sheet and is restated for Mexican inflation. Under U.S. GAAP, the
goodwill is "pushed down" to MCII'S balance sheet. When the U.S. dollar
amount of goodwill was translated to Mexican pesos at the year end exchange
rate, it was significantly higher than at the acquisition date, due to the
devaluation. A higher peso amount results for U.S. GAAP purposes.
The segment data and geographic data under U.S. GAAP pushdown
accounting for 1994 reflects the goodwill related to the acquisition of
MCII as an identifiable asset of the buses segment rather than as
corporate, and the goodwill was considered a U.S. asset rather than an
asset of Mexico.
Cumulative Translation Adjustment and Investment in MCII as a
Designated Hedge-
Under both U.S. and Mexican GAAP, an investment in a foreign company
may be considered to be a "designated hedge" against debt denominated in
the same foreign currency. DINA has designated the investment in MCII as a
hedge against the U.S. dollar convertible debentures which were issued to
partially finance the acquisition of MCII. Accordingly, the exchange losses
on this debt up to the amount of the translation gain related to the
investment is recorded as a part of the cumulative translation adjustment
in stockholders' equity. Under U.S. GAAP, since the goodwill was considered
to be part of the investment in 1994, the translation gain recorded as
cumulative translation adjustment is higher than under Mexican GAAP.
Therefore, the exchange loss on the related debt, which was considered to
be hedged by the investment, was higher under U.S. GAAP in 1994.
24. RECONCILIATION OF MEXICAN GAAP TO U.S. GAAP
Net income (loss) and stockholders' equity, adjusted to take into
account the material differences between Mexican GAAP and U.S. GAAP, except
for the comprehensive effects of price level changes, are as follows:
<TABLE>
<CAPTION>
(Thousands of Mexican pesos and thousands of U.S. dollars, except for share data)
Year Ended December 31,
1993 1994 1995 1995
--------------- --------------- --------------- ------------
NET INCOME (LOSS):
Net income (loss) applicable to majority
<S> <C> <C> <C> <C>
interest under Mexican GAAP Ps. 465,736 Ps. (1,015,226) Ps. (529,900) $ (69,895)
--------------- --------------- --------------- -------------
Approximate U.S. GAAP adjustments:
Deferred income tax (125,498) 255,285 128,792 16,988
Deferred employee profit sharing 38,453 27,604 37,538 4,951
Compensation expense for stock sales plan (13,709) (12,816) (8,801) (1,161)
Effect of amortizing goodwill over 40 years - 13,685 63,586 8,387
Additional exchange loss recorded as
cumulative translation adjustment
under U.S. GAAP - 197,563 - -
Effect of accounting for receivable from
stock sales plan as a reduction in equity
rather than as a receivable 27,856 (4,388) 17,361 2,290
Effects on minority interest of
U.S. GAAP adjustments 8,423 2,990 6,965 919
--------------- --------------- --------------- -------------
(64,475) 479,923 245,441 32,374
--------------- --------------- --------------- -------------
Approximate net income (loss) under
U.S. GAAP Ps. 401,261 Ps. (535,303) Ps. (284,459) $ (37,521)
=============== =============== =============== =============
Weighted average common shares
outstanding 194,866,714 225,490,658 258,026,136 258,026,136
=============== =============== =============== =============
Approximate net income (loss) per share
under U.S. GAAP Ps. 2.06 Ps. (2.37) Ps. (1.10) $ (0.15)
=============== =============== =============== =============
</TABLE>
<TABLE>
<CAPTION>
December 31,
1994 1995 1995
-------------------- ----------------- --------------
STOCKHOLDERS' EQUITY:
<S> <C> <C> <C>
Majority stockholders' equity under Mexican GAAP Ps. 1,962,570 Ps. 1,853,345 $ 244,459
--------------- ---------------- --------------
Approximate U.S. GAAP adjustments:
Deferred income tax 83,324 212,114 27,978
Deferred employee profit sharing (106,605) (69,068) (9,110)
Pension plan accumulated costs (26,903) (26,903) (3,549)
Accumulated effects of amortizing
goodwill over 40 years 13,685 77,271 10,192
Receivable from trust for stock sales plan (23,009) (14,449) (1,906)
Goodwill under pushdown accounting 342,898 - -
Effects on minority interest of U.S. GAAP
adjustments 17,830 24,795 3,270
--------------- ---------------- --------------
301,220 203,760 26,875
--------------- ---------------- --------------
Approximate stockholders' equity
under U.S. GAAP Ps. 2,263,790 Ps. 2,057,105 $ 271,334
=============== ================ ==============
</TABLE>
Deferred Income Taxes and Employee Profit Sharing-
The effect of temporary differences that generated deferred tax
and employee profit sharing liabilities under U.S. GAAP are as follows:
<TABLE>
<CAPTION>
Deferred Income Taxes Deferred Employee Profit Sharing
December 31, December 31,
-------------------------------------- ------------------------------------
1994 1995 1994 1995
--------------- --------------- --------------- -------------
Current-
<S> <C> <C> <C> <C>
Reserves Ps. 48,453 Ps. 84,552 Ps. 14,252 Ps. 21,031
Inventories (285,400) (110,251) (83,941) (32,426)
Long term-
Property, plant and equipment (52,342) (83,313) (47,076) (59,372)
Tax loss carryforwards 329,217 390,600 - -
Asset taxes recoverable 91,756 135,708 - -
Other 45,628 16,644 10,160 1,700
--------------- --------------- --------------- --------------
177,312 433,940 (106,605) (69,067)
Less- Valuation reserve for tax loss
carryforwards (93,988) (221,825) - -
---------------- ---------------- --------------- --------------
Total net asset (liability) Ps. 83,324 Ps. 212,115 Ps. (106,605) Ps. (69,067)
=============== =============== ================ ==============
</TABLE>
The Company records all of deferred tax and employee profit sharing
in results of operations. If the deferred effects related to the
restatement of fixed assets and inventories had been recorded directly to
equity in "Cumulative effect of restatement," the adjustment to net income
(loss) under U.S. GAAP for deferred taxes would have been Ps.54,128,
Ps.92,175 and Ps.136,437 and for employee profit sharing, Ps.15,466,
Ps.26,525 and Ps.40,129 for 1993, 1994 and 1995, respectively.
Cash Flow Information-
As explained in Note 23, the Company presents consolidated statements
of changes in financial position.
The changes in the consolidated financial statement balances included
in this statement constitute cash flow activity stated in constant pesos
(including monetary and unrealized foreign exchange gains and losses, which
are considered cash gains and losses in the constant peso financial
statements), except that the acquisition of property and equipment under
capital lease obligations, which is a non-cash investing and financing
activity, is included as a resource used by investment activities. These
amounts are not significant.
In accordance with Mexican GAAP, the reduction in current and
long-term debt due to restatement in constant pesos is presented in the
statement of changes in financial position as a resource used by financing
activities and the gain from monetary position is presented as a component
of operating activities. Statement of Financial Accounting Standards No. 95
("SFAS No. 95"), "Statement of Cash Flows," however, does not provide
guidance with respect to inflation adjusted financial statements. If the
gain from monetary position and the unrealized exchange loss on the
long-term dollar denominated debt was treated as a component of financing
activities, the statement of changes in financial position would have been
as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------------- ----------------- ---------------
<S> <C> <C> <C>
Resources generated by (applied to) operations Ps. 299,082 Ps. (343,636) Ps. (312,165)
============== ================= ===============
Net cash applied to investment activities Ps. (308,691) Ps. (2,354,689) Ps. (52,359)
=============== ================= ===============
Net cash generated by financing activities Ps. 326,221 Ps. 2,326,824 Ps. 199,504
============== ================ ===============
</TABLE>
Realizability of Long-Lived Assets-
The Company continually evaluates the carrying value and the economic
useful lives of its long-term assets, including property plant and
equipment, based on the Company's operating results and anticipated future
cash flows. The estimated future cash flows of the Company's Mexican
operations are highly sensitive to the future stability of the Mexican
economy, including interest rates, exchange rates and availability of funds
to purchasers of DINA's products. The Company will adjust the carrying
value and related amortization period if and when appropriate.
25. SUMMARY FINANCIAL DATA BY BUSINESS SEGMENT AND
GEOGRAPHIC DATA
The presentation below sets forth certain financial information
regarding the Company's Industry Segments: trucks, buses, engines and
plastic parts. Inter-segment transactions have been eliminated.
Operating income is total net sales less cost of goods sold and
operating expenses. In computing operating income, none of the following
items has been added or deducted: general corporate expense, comprehensive
financing results, income taxes, asset tax or employee profit sharing.
Identifiable assets are those assets that are used in the Company's
operations in each industry segment. Corporate assets are principally cash
and properties.
Identifiable assets are those assets that are used in the
Company's operations in each industry segment. Corporate assets are
principally cash and properties.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1993 1994 1995
--------------- ---------------- --------------
<S> <C> <C> <C>
Net sales-
Trucks Ps. 2,967,760 Ps. 2,625,248 Ps. 809,167
Buses 2,243,181 1,670,673 3,898,747
Engines 18,364 8,282 -
Plastic parts 7,011 8,910 17,273
Corporate services 222 14,353 17,708
--------------- ---------------- --------------
Ps. 5,236,538 Ps. 4,327,466 Ps. 4,742,895
=============== ================ ==============
Operating income (loss)-
Trucks Ps. 274,483 Ps. 1,500 Ps. (209,220)
Buses 293,856 (234,793) 322,366
Engines (20,218) (7,822) -
Plastic parts (3,325) (28,375) (21,123)
Corporate services 2,476 (22,689) (161,084)
--------------- ----------------- ---------------
Ps. 547,272 Ps. (292,179) Ps. (69,061)
=============== ================= ===============
Depreciation-
Trucks Ps. 24,664 Ps. 26,246 Ps. 25,472
Buses 13,984 43,412 71,549
Engines 7,428 3,898 -
Plastic parts 4,348 3,769 5,448
Corporate services 6,309 9,248 7,555
--------------- ---------------- --------------
Ps. 56,733 Ps. 86,573 Ps. 110,024
=============== ================ ==============
Capital expenditures-
Trucks Ps. 30,919 Ps. 23,474 Ps. 40,266
Buses 78,150 47,353 464,031
Engines 3,645 565 -
Plastic parts 10,355 19,142 23,774
Corporate services 210,614 22,932 6,750
--------------- ---------------- --------------
Ps. 333,683 Ps. 113,466 Ps. 534,821
=============== ================ ==============
Identifiable assets-
Trucks Ps. 2,001,703 Ps. 1,831,470 Ps. 1,113,719
Buses 1,107,388 4,228,958 4,679,924
Engines 107,232 109,391 -
Plastic parts 108,142 107,572 148,378
Corporate services 715,126 1,954,055 1,894,150
--------------- ---------------- --------------
Ps. 4,039,591 Ps. 8,231,446 Ps. 7,836,171
=============== ================ ==============
</TABLE>
Operating income (loss) by segments does not include a deduction
for employee profit sharing, which, under U.S. GAAP is considered
compensation expense and under U.S. GAAP, the cost of idle plant is an
operating expense. The amounts of operating income (loss), less employee
profit sharing by segment, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1993 1994 1995
--------------- ---------------- ---------------
<S> <C> <C> <C>
Trucks Ps. 244,585 Ps. (12,110) Ps. (225,780)
Buses 283,859 (234,792) 260,774
Engines (20,218) (7,823) -
Plastic parts (3,325) (28,375) (24,300)
Corporate services 2,482 (22,689) (161,084)
--------------- ----------------- ---------------
Ps. 507,383 Ps. (305,789) Ps. (150,390)
=============== ================= ===============
</TABLE>
During 1993 DINA had sales of buses in excess of 10% of total
consolidated net sales to the following customers, all of which are
affiliated with each other, as follows:
Grupo Estrella Blanca Ps. 1,312,051
Grupo Tres Estrellas de Oro 243,832
During 1994 and 1995, there were no sales in excess of 10%
total consolidated net sales to any one customer.
Geographic Data-
Following the Company's August 1994 purchase of MCII, the
Company operates in three principal geographic regions-Mexico, the United
States and Canada. Net sales and operating income (loss) for the year ended
December 31, 1994 and 1995 and assets at December 31, 1994 and 1995 by
geographic region were as follows:
<TABLE>
<CAPTION>
1994
---------------------------------------------------------------------------------
United
Mexico States Canada Total
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net sales Ps. 3,121,220 Ps. 1,119,999 Ps. 86,247 Ps. 4,327,466
=============== =============== =============== ==============
Operating income (loss) Ps. (347,563) Ps. 46,982 Ps. 8,402 Ps. (292,179)
=============== =============== =============== ===============
Assets Ps. 5,159,636 Ps. 2,265,460 Ps. 806,350 Ps. 8,231,446
=============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------------
United
Mexico States Canada Total
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net sales Ps. 862,998 Ps. 3,349,515 Ps. 530,382 Ps. 4,742,895
=============== =============== =============== ==============
Operating income (loss) Ps. (373,058) Ps. 249,732 Ps. 54,265 Ps. (69,061)
================ =============== =============== ===============
Assets Ps. 4,075,917 Ps. 2,672,666 Ps. 1,087,588 Ps. 7,836,171
=============== =============== =============== ==============
</TABLE>
26. OTHER CHARGES
Other charges for DINA presented in the consolidated statements
of income (loss) are as follows:
<TABLE>
<CAPTION>
1994 1995
--------------- --------------
<S> <C> <C>
Provision for uncollectible accounts receivable primarily due to sale
of Dina's buses with invoices denominated in U.S. dollars Ps. 117,223 Ps. 86,746
Provision for obsolete inventories and inventories outside the sales
program principally for Dina Autobuses 122,112 11,485
Severance expense related to restructuring and lay-offs 84,000 3,072
-------------- --------------
Ps. 323,335 Ps. 101,303
============== ==============
</TABLE>
During 1994 Dina discontinued certain models of coaches and laid-off
approximately 900 workers in response to a reduction in demand. The
severance payments due the workers under Mexican law were expensed at the
time they were made.
27. GAIN ON SALE OF MARKETABLE SECURITIES
In January 1995, MCII purchased 6,004,144 shares of Greyhound Lines,
Inc. (GLI) through a rights offering of GLI's Common Stock. In October
1995, the investment was sold, resulting in a pre-tax gain of $10,522 which
is shown in the accompanying consolidated statements of income (loss) in
"other income, net."
28. SUBSEQUENT EVENTS
(a) Temporary Suspension of Plant Operations of Dina Camiones-
Dina Camiones, due to the decrease in demand for its products, agreed
to a flexible suspension of production of trucks with the labor union
for the period from January 24, 1996 to July 23, 1996. During this
period, the Company will be obligated to pay 60% of nominal salaries,
including benefits, and the union will provide the number of
personnel required based on the production and sales needs.
(b) Restructuring of Dina's Accounts Receivable-
In January 1996, DINA restructured all of its accounts and notes
receivable from Autobuses Estrella Blanca, S.A. de C.V.,
Autotransportes Tres Estrellas de Oro, S.A. de C.V. and both
companies' licensees, giving effect to the restructuring as of
December 31, 1995 and classifying these accounts as long term. See
Note 8 for an explanation of the restructuring and its effects.
(c) Debt Exchange Offer-
On April 22, 1996, the Company initiated an "Exchange Offer" with the
holders of the Eurobonds in the amount of US$150 million (see Note
14), requesting the exchange of the Eurobonds currently outstanding
for new Eurobonds, which would include the offering of new notes with
a face value of 1.417 times the existing face value, an extension of
the maturity date from November 18, 1997 to November 15, 2002 and an
increase in the interest rate from 10.5% to 12%. In the event of
certain changes in the ratings of the notes, the interest rate could
increase to 15% after November 15, 1999. In addition, interest would
not be paid during the first 3 years the new notes are effective and
would be capitalized and due upon maturity using a "zero coupon"
basis.
The new notes will be issued jointly with Consorcio G Grupo Dina,
S.A. de C.V. as primary obligor. In the event of non-payment, MCII
Holdings (USA), Inc., a subsidiary 100% owned by Consorcio G Grupo
Dina, S.A. de C.V., incorporated on April 19, 1996 with the sole
purpose of holding the total number of shares of MCII, will guarantee
the debt.
The Exchange Offer includes certain changes in the existing terms of
the Eurobonds, including guarantees and certain commitments and is
subject to the exchange of a minimum amount of US$120 million. The
Company has obtained verbal consent from the principal Eurobond
holders, who hold approximately US$120 million. Therefore, the
Company's management believes that at least this amount will be
restructured under the conditions above. Whether the other note
holders are interested in exchanging their notes will not be known
until May 17, 1996. The issuance and exchange of the new notes is
subject to the approval of the Mexican National Banking and
Securities Commission. The Company's management believes that the
possibility of completing the Exchange Offer is favorable.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
(UNAUDITED)
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------------------------------
1995 1996 1996
---- ---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents ............................... Ps. 302,588 Ps. 84,729 $ 11,176
Notes and accounts receivable, net ...................... 783,016 851,787 112,352
Inventories, net ........................................ 1,968,581 1,649,841 217,617
Prepaid expenses ........................................ 43,557 41,377 5,458
Investment in and advances to discontinued
operations ............................................ 339,344 224,190 29,571
---------- ---------- ----------
Total current assets ................................ 3,437,086 2,851,924 376,174
LONG TERM NOTES AND ACCOUNTS
RECEIVABLE, net ........................................ 532,325 537,940 70,955
INVESTMENT IN EQUITY SECURITIES ............................... 29,237 32,341 4,266
PROPERTY, PLANT AND EQUIPMENT, net ............................ 1,641,217 1,768,659 233,289
OTHER ASSETS .................................................. 249,611 203,661 26,864
DEFERRED INCOME TAXES ......................................... 260,668 208,140 27,454
GOODWILL ...................................................... 1,686,027 1,536,198 202,627
---------- ---------- ----------
Ps.7,836,171 Ps.7,138,863 $ 941,629
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans and current portion of long-term debt ........ Ps. 15,779 Ps. 62,329 $ 8,222
Notes and accounts payable to suppliers ................. 376,478 425,347 56,104
Other payables and accrued expenses ..................... 491,261 620,085 81,790
Investment in and advances to discontinued
operations ............................................ 130,124 129,438 17,073
Income taxes, asset tax and employee profit sharing
89,529 6,901 910
---------- ---------- ----------
Total current liabilities ........................... 1,103,171 1,244,100 164,099
LONG-TERM DEBT ................................................ 4,621,389 3,920,567 517,130
RESERVE FOR EMPLOYEES' SEVERANCE BENEFITS ..................... 84,586 81,931 10,807
OTHER DEFERRED ITEMS AND INSURANCE
RESERVES ................................................ 124,600 117,216 15,461
STOCKHOLDERS' EQUITY:
Majority interest--
Capital Stock ......................................... 196,545 196,545 25,925
Capital Stock Unsubscribed ............................ (35,754) (35,754) (4,716)
Restatement of capital stock .......................... 204,627 205,745 27,138
Additional paid-in capital ............................ 1,626,020 1,630,861 215,113
Reserve for repurchase of shares ...................... 122,857 97,260 12,829
Accumulated earnings (losses) ......................... (206,038) (128,644) (16,968)
Cumulative effect of restatement ...................... (822,103) (1,022,898) (134,922)
Cumulative translation adjustment ..................... 767,191 789,492 104,135
---------- ---------- ----------
Total majority stockholders' equity ................. 1,853,345 1,732,607 228,534
Minority interest ....................................... 49,080 42,442 5,598
---------- ---------- ----------
Total stockholders' equity .......................... 1,902,425 1,775,049 234,132
---------- ---------- ----------
Ps.7,836,171 Ps.7,138,863 $ 941,629
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<TABLE>
<CAPTION>
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
NET SALES ............................................. Ps.2,695,809 Ps.2,796,686 $ 368,888
COST OF GOODS SOLD .................................... 2,207,740 2,306,345 304,211
------------ ------------ ----------
Gross profit .................................. 488,069 490,341 64,677
OPERATING EXPENSES:
Selling ......................................... 174,897 97,183 12,819
Administrative .................................. 301,500 308,027 40,629
------------ ------------ ----------
476,397 405,210 53,448
------------ ------------ ----------
Operating income .............................. 11,672 85,131 11,229
COMPREHENSIVE FINANCING:
Interest income ................................. 97,618 54,525 7,192
Interest expense ................................ (244,924) (204,042) (26,913)
Exchange gain (loss), net ....................... (417,458) 62,857 8,291
Gain on net monetary position ................... 686,998 183,246 24,170
------------ ------------ ----------
122,234 96,586 12,740
OTHER INCOME (LOSS), net .............................. 101,123 (2,935) (387)
------------ ------------ ----------
Income (loss) before the following
provisions, and results of
affiliated companies.......................... 235,029 178,782 23,582
PROVISIONS FOR:
Income tax ...................................... 109,254 71,243 9,397
Asset tax ....................................... 16,332 13,220 1,744
Employee profit sharing ......................... 6,068 83 11
Tax arising from temporary differences .......... 0 8,798 1,161
------------ ------------ ----------
131,654 93,344 12,313
------------ ------------ ----------
Income before participation in results of
affiliated companies ........................ 103,375 85,438 11,269
EQUITY IN RESULTS OF AFFILIATED COMPANIES ............. (28) 0 0
------------ ------------ ----------
Net Income .................................... Ps. 103,347 Ps. 85,438 $ 11,269
============ ============ ==========
NET INCOME (LOSS) APPLICABLE TO:
Majority interest ............................... Ps. 113,707 Ps. 89,743 $ 11,837
Minority interest ............................... (10,360) (4,305) (568)
------------ ------------ ----------
Net income (loss) ............................. Ps. 103,347 Ps. 85,438 $ 11,269
============ ============ ==========
INCOME (LOSS) PER SHARE:
Majority interest ............................... Ps. 0.44 Ps. 0.35 $ 0.05
Minority interest ............................... (0.04) (0.02) 0.00
------------ ------------ ----------
Net income (loss) per share ................... Ps. 0.40 Ps. 0.33 $ 0.05
============ ============ ==========
Weighted average shares outstanding (000's) ..... 258,026 258,026 258,026
============ ============ ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(UNAUDITED)
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
1995 1996 1996
---- ---- ----
OPERATIONS:
<S> <C> <C> <C>
Net income (loss) ............................................. Ps.103,356 Ps. 85,438 $ 11,269
Add (deduct) Non cash items--
Depreciation ................................................ 67,286 78,897 10,407
Deferred income tax ......................................... 130,388 45,143 5,954
Amortization Goodwill and others ............................ 31,089 58,281 7,687
Provision for doubtful accounts receivable .................. 48,268 11,449 1,510
Provision for slow-moving inventories ....................... 24,759 8,584 1,132
Change in operating assets and liabilities--
Decrease (increase) in--
Notes and accounts receivable ............................. 167,168 (80,220) (10,581)
Inventories ............................................... (156,629) 233,366 30,781
Prepaid expenses .......................................... (7,912) 2,180 288
Income taxes and employee profit sharing .................. (24,424) (82,628) (10,899)
Other assets .............................................. (241,328) 39,133 5,162
Increase (decrease) in--
Notes and accounts payable to suppliers ................... (80,022) 48,869 6,446
Other payables and accrued expenses ....................... (91,131) 128,824 16,992
Investment in and advances to discontinued operations ..... 271,123 114,468 15,099
Pension plan funding and payments of severance benefits
(3,213) (11,228) (1,480)
---------- ---------- ----------
Resources generated by (applied) operations ............... 238,778 680,556 89,767
INVESTMENT:
Notes and accounts receivables (long-term) .................... 114,518 (773) (102)
Additions to property, plant and equipment .................... (196,467) (246,877) (32,563)
Net book value of retirements ................................. 8,656 3,497 461
Long-term portion of receivable from the trust for stock
sales plan ................................................ (1,296) 0 0
---------- ---------- ----------
Net cash applied to investment activities ................. (74,589) (244,153) (32,204)
FINANCING:
(Decrease) increase in short-term bank loans .................. (79,527) 46,550 6,140
Reduction in current and long-term debt due to
restatement in constant pesos ............................... (1,172,596) (511,723) (67,497)
Proceeds from long-term debt .................................. (140,822) (105,086) (13,861)
Increase in peso terms of US Dollar debt due to
exchange rate changes ....................................... 849,357 (84,003) (11,080)
---------- ---------- ----------
Net cash (applied to) generated by financing ................ (543,588) (654,262) (86,298)
Cash and cash equivalents at beginning of period .............. 469,540 302,588 39,911
---------- ---------- ----------
Cash and cash equivalents at end of period .................... Ps. 90,141 Ps. 84,729 $ 11,176
========== ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income and asset taxes paid ................................... Ps.125,596 Ps. 93,261 $ 12,301
========== ========== ==========
Interest paid ................................................. Ps.139,745 Ps.117,156 $ 15,453
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(STATED IN THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
(1) BASIS OF PRESENTATION:
a) The consolidated condensed financial statements of Consorcio G
Grupo Dina, S. A. de C. V. and subsidiaries (the "Company")
included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). In the opinion of management,
these unaudited consolidated condensed financial statements
contain all adjustments, which are of a normal recurring nature,
necessary to present fairly the Company's financial position as
of June 30, 1996, and the results of operations for the six
months ended June 30, 1995 and 1996. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles in Mexico and the U.S. have been condensed or omitted
pursuant to the rules and regulations of the SEC.
b) These unaudited financial statements should be read in
conjunction with the audited financial statements and the notes
thereto included elsewhere in this Prospectus. The Company has
made no significant changes in accounting policies during the six
months ended June 30, 1996, other than those discussed in Note 2
below.
c) U.S. dollar amounts shown in the financial statements have been
included solely for the convenience of the reader and are
translated from Mexican pesos, as a matter of arithmetic
computation only, at the interbank rate for June 30, 1996 of Ps.
7.5814 per U.S. dollar. Such translation should not be construed
as a representation that the peso amounts have been or could have
been converted into U.S. dollars at this or any other rate.
(2) DIFFERENCES BETWEEN U.S. AND MEXICAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:
During 1996, the Company has changed its method of accounting for
deferred income taxes and employee profit-sharing under U.S. GAAP. Beginning
on January 1, 1996, the Company allocates the portion of the change in the
deferred liability (asset) related to restatement of non-monetary assets to
its cumulative effect of restatement account included in equity.
Statement of Accounting Standards No. 121, "Accounting for Impairment
of Long-lived Assets," is effective for all fiscal years beginning after
December 15, 1995. In the opinion of the Company's management, there has been
no impairment in the value of its fixed assets or goodwill during the six
months ended June 30, 1996.
The amount of net income of the majority interest for the six months
ended June 30, 1996, had the Mexican inflation rate been used to restate
income statement accounts of MCII, would have been Ps 6,100 higher. Had the
method for converting the U.S. dollar income statement amounts for MCII using
the exchange rate at June 30, 1996 been used, net income reported would have
been Ps 2,000 higher.
(3) EARNINGS PER SHARE:
There were no changes in the number of shares outstanding for the six
months ended June 30, 1995 and 1996.
(4) NOTES AND ACCOUNTS RECEIVABLE:
Notes and accounts receivable include:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---- ----
<S> <C> <C>
Trade................................................. Ps. 642,259 Ps. 776,992
Current Portion of Long-Term Notes
Receivable.......................................... 67,092 -
Less-Allowance for doubtful accounts.................. (62,303) (63,249)
-------- --------
647,048 713,743
Short-term portion of receivable from trust...........
for stock sales plan................................ 2,886 2,503
Refundable income tax................................. 16,847 7,365
Refundable asset tax.................................. 7,373 -
Refundable value added tax............................ 17,153 2,424
Other................................................. 91,709 125,752
-------- -------
Ps. 783,016 Ps. 851,787
============== ============
</TABLE>
(5) INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---- ----
<S> <C> <C>
Finished goods........................................ Ps. 1,098,543 Ps. 1,017,678
Work in process....................................... 375,162 300,511
Raw materials......................................... 709,394 466,249
Merchandise in transit and advances to
suppliers 24,609 51,287
---------- ----------
2,207,708 1,835,725
Less-Allowance for obsolete and
slow-moving items.................................. (239,127) (185,884)
---------- ----------
Ps. 1,968,581 Ps. 1,649,841
============== =============
</TABLE>
(6) LONG-TERM NOTES AND ACCOUNTS RECEIVABLE:
Long-term notes and accounts receivable include:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---- ----
<S> <C> <C>
Notes receivable...................................... Ps. 690,720 Ps. 584,841
Less allowance for doubtful accounts.................. (163,978) (51,743)
--------- --------
526,742 533,098
Receivable from trust for stock
sales plan......................................... 5,583 4,842
--------- ---------
Ps. 532,325 Ps. 537,940
=== ======= --- -------
</TABLE>
In January 1996, Grupo Dina restructured all of its accounts
receivable from Estrella Blanca, S.A. de C.V., Tres Estrellas de Oro, S.A. de
C.V. and their respective licensees through global restructuring agreements
(the "Restructuring Agreements"). Pursuant to the Restructuring Agreements,
all balances payable to Grupo Dina were renegotiated using as a reference
"Units of Investment" ("UDIS") which value changes based on the Mexican
inflation rate. The principal balances, increased for inflation, will be
payable in equal monthly installments over six years beginning July 1, 1997.
These balances bear interest at a rate of 10% over the monthly reference value
of UDIS payable beginning February 29, 1996.
On July 31, 1996, Grupo Dina sold the accounts receivable under the
Restructuring Agreements, which had a total value of Ps 306.9 million, to
Arrendadora Financiera Dina, S.A de C.V. ("AF Dina"), a leasing company which
provides financing in connection with sales of Grupo Dina products. The debt
resulting from this sale was capitalized in AF Dina, which is currently
negotiating the repayment of its debt with several Mexican banks using these
accounts receivable . Grupo Dina has recorded a reserve in the amount of Ps
43.9 million for any loss that may result from these negotiations. As of July
31, 1996, Grupo Dina owned 92.89% of the equity of AF Dina. Although the
maximum ownership in finance companies by non-financial companies permitted
under Mexican law is 10%, Grupo Dina has obtained authorization from the
corresponding Mexican authorities to maintain equity ownership levels in
excess of the legal limit for six months from July 31, 1996. During such
interim period, Grupo Dina will endeavor to complete a transaction whereby MCI
Acceptance Corporation, an indirect subsidiary of MCII Holdings, will acquire
the shares of AF Dina owned by Grupo Dina. In the event that such transaction
is not completed in such time period, Grupo Dina will be required to reduce
its equity ownership level in AF Dina to no more than 10%.
(7) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment include:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---- ----
<S> <C> <C>
Buildings and improvements............................ Ps. 1,164,827 Ps. 1,000,572
Machinery and equipment............................... 821,604 969,863
Transportation equipment.............................. 315,003 510,176
Furniture and fixtures................................ 100,033 79,071
---------- -----------
2,401,467 2,559,682
Less Accumulated depreciation......................... (868,933) (907,055)
---------- -----------
1,532,534 1,652,627
Land.................................................. 108,683 116,032
---------- ----------
Ps. 1,641,217 Ps. 1,768,659
================ ================
</TABLE>
(8) BANK LOANS AND LONG-TERM DEBT:
An analysis of bank loans and long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---- ----
<S> <C> <C>
Bank loans
Banca Confia.......................................... Ps. - Ps. 12,260
Credit Commercial de France........................... - 50,037
Other................................................. 15,779 32
------ --
Ps 15,779 Ps. 62,329
============= =============
Long-term debt
Eurobonds................................................... Ps 1,338,634 Ps 52,767
Senior Secured Discount Exchange Notes...................... 0 1,146,150
Subordinated Convertible Debentures......................... 1,463,502 1,243,289
Bank Credit Facility........................................ 821,029 530,698
Term Notes Payable.......................................... 1,115,528 947,675
Other ...................................................... 15,779 -
Less -
Discount on Issuance of Subordinated
Convertible Debentures (117,304) -
Current Maturities of Long-term debt (15,779) -
Other - (12)
---------- ---------
Ps. 4,621,389 Ps. 3,920,567
============= =============
</TABLE>
10.5% GUARANTEED NOTES (EUROBONDS)
On November 18, 1992, the Company issued guaranteed notes with an
aggregate principal amount of $150,000 (the "10.5% Guaranteed Notes" or
"Eurobonds"). An aggregate principal amount of $143,040 of the 10.5%
Guaranteed Notes was retired in June 1996 in exchange for the Senior Secured
Discount Exchange Notes described below. The remaining $6,960 aggregate
principal amount of 10.5% Guaranteed Notes is due November 18, 1997 with
interest payable semi-annually in arrears.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(STATED IN THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
SENIOR SECURED DISCOUNT EXCHANGE NOTES
Pursuant to an Exchange Offer completed in June 1996, the Company and
its wholly-owned subsidiary, MCII Holdings (USA), Inc., issued as joint
obligations Senior Secured Discount Exchange Notes due 2002 (the "Senior
Secured Discount Exchange Notes") with an aggregate principal amount of
$206,500, primarily in exchange for $143,040 aggregate principal amount of
10.5% Guaranteed Notes. Each New Note has an initial accreted value of
US$705.65 as of November 18, 1995 for each US$1,000 in aggregate principal
amount. The maturity date of the New Notes is November 15, 2002. The interest
rate for the New Notes is initially 12% and interest will not be paid on the
New Notes for three years after issuance. Such interest will be capitalized
and due upon maturity of the New Notes using a "zero-coupon" basis. In the
event of certain changes in the ratings of the New Notes, the interest rate
could increase to 15% after November 15, 1999.
SUBORDINATED CONVERTIBLE DEBENTURES
On August 8, 1994, the Company issued subordinated convertible
debentures (the "Debentures") with an aggregate principal amount of $163,993,
with a discount of $14,759, due in August 2004, with interest payable
semi-annually at 8%, net of certain taxes. The Company has the option of
redeeming the Debentures after three years and before 5 years with a
prepayment penalty, if the market price of the American Depositary shares
(ADS) of Series "L" stock of the company exceeds $22.86 for a specified period
of time. The Debentures are convertible at the option of the holder at a rate
of 56.88 ADSs per $1000 of principal amount. The discount will be amortized
through August 2004 on a straight-line basis.
(9) DISCONTINUED OPERATIONS:
Charges of $8,130 ($5,000 after tax) were recorded in the accompanying
Statements of Consolidated Income of MCII to reflect the write off of accounts
receivable, increased warranty costs and other charges related to MCII's
discontinued transit manufacturing segment.
(10) SUBSEQUENT EVENTS:
In September 1996, MCII agreed to purchase certain assets of The
Flxible Corporation that were being sold through bankruptcy proceedings.
Flxible is a manufacturer of transit buses and distributor of related
replacement parts. The assets are being purchased for $12.2 million, which
will be funded from MCII's bank credit facility, and will be utilized for the
purpose of becoming the OEM parts distributor for the installed fleet of
Flxible transit buses. The transaction will close within five days of the
bankruptcy court order becoming nonappealable.
In October 1996, MCII refinanced its bank credit facility. The new
credit facility provides up to $125,000 for borrowing purposes, of which up to
$35,000 is available for issuance of standby letters of credit, and contains
other terms which are substantially similar to the refinanced facility.
Borrowings are available under the new facility on a revolving basis until
September 1999. As a result of this refinancing, it is anticipated that MCII's
fourth quarter results will reflect an $850 after-tax expense for the write
off of debt issuance costs.
TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY
ISSUED IN SPANISH
CONSORCIO G GRUPO DINA, S.A. DE C.V.
INDIVIDUAL FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30,1996
TOGETHER WITH
AUDITORS' REPORT
Translation of a report originally issued in Spanish
(See Note 1 to the financial statements)
To the Stockholders of
Consorcio G Grupo Dina, S.A. de C.V.:
We have examined the balance sheets of CONSORCIO G GRUPO DINA, S.A. DE C.V.
(incorporated in Mexico) as of December 31, 1995 and 1994 and the related
statements of income (loss), stockholders' equity and changes in financial
position for the years then ended. 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 did not audit
the financial statements of Motor Coach Industries International, Inc. (MCII),
as of December 31, 1994 and for the five month period then ended, a subsidiary
acquired by the Company on August 8, 1994, which statements represent 25% of
the investment in subsidiaries and 27.9% of the total revenues of the
subsidiaries. Those statements were audited by other auditors whose report has
been furnished to us and our opinion, insofar as it relates to the amounts
included for this subsidiary, is based solely on the report of the other
auditors.
We conducted our examinations in accordance with generally accepted auditing
standards, which require that the audit be planned and performed to obtain
reasonable assurance about whether the financial statements are free of
material misstatement and that they are prepared in accordance with generally
accepted accounting principles. 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 examinations provide a
reasonable basis for our opinion.
These individual financial statements were prepared to be used in the
Company's stockholders meeting, and reflect the investment in subsidiaries
under the equity method of accounting. These statements should be read in
conjunction with the consolidated financial statements, which have been
prepared separately and were examined by us and on which we issued an
unqualified opinion. Note 2 to the accompanying financial statements presents
condensed information from the consolidated financial statements.
As explained in Note 4 to the accompanying financial statements, during 1995
the Company changed its accounting to reflect the goodwill related to the
acquisition of its subsidiary, MCII, under "pushdown" accounting rules. This
change resulted in an increase in goodwill of $1,045,434,014, an increase in
amortization expense of $59,296,147, a decrease in exchange loss charged to
operations of $292,629,510 and a decrease in the gain on monetary position of
$586,443,213.
The devaluation of the Mexican peso in December 1994 and the resulting
financial crisis in Mexico has had an unfavorable impact on the Company's
operations. During 1995 and 1994 the demand for inter-city passenger buses
suffered a severe decline in Mexico and in 1995, there was also a significant
decline in the demand for trucks. Notes 2, 3, 9, 11 and 14 b) and c) to the
accompanying financial statements describe the actions taken by the Company to
expand its operations in the United States and restructure its long-term
financing, as well as other actions taken by management.
In our opinion, based on our audits and the report of other auditors for the
financial statements of MCII as of December 31, 1994 and for the five month
period then ended, the financial statements referred to above present fairly,
in all material respects, the financial position of Consorcio G Grupo Dina,
S.A. de C.V. as of December 31, 1995 and 1994 and the results of its
operations, the changes in stockholders' equity and the changes in its
financial position for the years then ended, in conformity with generally
accepted accounting principles in Mexico.
MEXICO, D.F.
Mexico
February 29, 1996
(except with respect to the matters
discussed in Note 14 b) and c), as
to which the date is April 22, 1996
and the restatement to constant pesos
as of June 30, 1996, as discussed in
Note 4 as to which the date is
September 20, 1996)
<TABLE>
<CAPTION>
Translation of financial statements originally issued in Spanish
CONSORCIO G GRUPO DINA, S.A. DE C.V.
BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(Thousands of Mexican pesos)
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994 1995 1994
---------- ---------- --------- ---------
CURRENT ASSETS: CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 946 $ 163,874 Other accounts payable and accrued expenses 80,779 73,068
Parent and subsidiary companies 267,019 786,686 Dividends payable -- 54,257
--------- ---------
Other accounts receivable 9,027 16,219
Prepaid expenses 1,025 -- Total current liabilities 80,779 127,325
---------- ----------
Total current assets 278,017 966,779
RECEIVABLE FROM TRUST STOCK SALES 5,583 10,213 LONG-TERM DEBT 2,684,831 2,663,215
PLAN
INVESTMENT IN SUBSIDIARY COMPANIES 2,616,382 2,523,116
STOCKHOLDERS' EQUITY:
Capital stock 196,545 196,545
PROPERTY AND EQUIPMENT 8,191 7,617 Capital stock unsubscribed (35,754) (35,754)
Restatement of capital stock 204,627 204,627
Additional paid-in capital 1,626,020 1,626,020
Reserve for repurchase of shares 122,857 122,857
OTHER ASSETS 24,755 91,202 Accumulated earnings (losses) (206,038) 276,492
Cumulative effect of restatement (822,103) (442,604)
Cumulative translation adjustment 767,191 14,387
--------- ---------
GOODWILL 1,686,027 1,154,183 Total stockholders' equity 1,853,345 1,962,570
---------- ---------- --------- ---------
$ 4,618,955 $ 4,753,110 $4,618,955 $4,753,110
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
Translation of financial statements originally issued in Spanish
CONSORCIO G GRUPO DINA, S.A. DE C.V.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(Thousands of Mexican pesos)
1995 1994
------------ -----------
REVENUES:
Dividends declared by subsidiaries $ -- $ 105,461
28,513 83,483
Services and commissions ------------ -----------
28,513 188,944
165,262 116,629
ADMINISTRATIVE EXPENSES ------------ -----------
(136,749) 72,315
COMPREHENSIVE RESULT OF FINANCING:
Interest income 175,558 110,397
Interest expense (305,619) (158,048)
Exchange loss, net (419,420) (590,761)
274,630 35,808
Gain on net monetary position ------------ -----------
(274,851) (602,604)
(22,486) 14,749
OTHER INCOME (EXPENSE), net ------------ -----------
Loss before participation in
results of subsidiary companies (434,086) (515,540)
PARTICIPATION IN RESULTS OF SUBSIDIARY
COMPANIES (net of dividends received) (95,814) (499,686)
------------ -----------
Net loss for the year $ (529,900) $(1,015,266)
------------ -----------
------------ -----------
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
Translation of financial statements originally issued in Spanish
CONSORCIO G GRUPO DINA, S.A. DE C.V.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(Thousands of Mexican pesos)
Capital Stock
---------------------------- Accumu- Cumu- Cumu-
Additional Reserve for lated lative lative
Autho- Unsub- Restate Paid-in Repurchase Earnings Effect of Translation
rized scribed ment Capital of Shares (Losses) Restatement Adjustment Total
------- -------- ------- ---------- ----------- -------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31,
1993 $126,999 $ -- $177,624 $ 714,977 $122,857 $ 1,373,105 $(408,406) $ -- $ 2,107,156
Increase in capital
stock 69,546 (35,754) 27,003 911,043 -- -- -- -- 971,838
Dividends declared -- -- -- -- -- (81,387) -- -- (81,387)
Changes in equity in
real terms -- -- -- -- -- (1,015,226) (34,198) 14,387 (1,035,037)
-------- --------- -------- --------- -------- ----------- ---------- --------- -----------
BALANCE AS OF DECEMBER
31, 1994 196,545 (35,754) 204,627 1,626,020 122,857 276,492 (442,604) 14,387 1,962,570
Integral recognition
of the effects of
restatement goodwill -- -- -- -- -- -- -- 1,045,434 1,045,434
Cancellation of divi-
dends declared -- -- -- -- -- 47,370 -- -- 47,370
Changes in equity in
real terms -- -- -- -- -- (529,900) (379,499) (292,630) (1,202,029)
------- -------- ------- -------- -------- ----------- ---------- --------- -----------
BALANCE AS OF DECEMBER
31, 1996 $196,545 $(35,754) $204,627 $1,626,020 $122,857 (206,038) (822,103) 767,191 1,853,345
-------- -------- -------- ---------- -------- ----------- ----------- --------- -----------
-------- -------- -------- ---------- -------- ----------- ----------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
Translation of financial statements originally issued in Spanish
CONSORCIO G GRUPO DINA, S.A. DE C.V.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(Thousands of Mexican pesos)
1995 1994
------------- --------------
OPERATIONS:
Net loss for the year $ (529,900) $(1,015,226)
Add-Non-cash items-
Depreciation 506 563
Amortization of goodwill 115,616 20,965
Participation in results of
subsidiary companies 95,814 499,686
------------- --------------
(317,964) (494,012)
Net changes in working capital
other than cash and cash
equivalents 516,480 (425,875)
Resources generated by (applied to)
operations 198,516 (919,887)
INVESTMENTS:
Decrease in receivable from trust
stock sales plan 1,324 2,765
Increase in investment in subsidiaries (498,201) (906,322)
Additions to property and equipment -- (42)
(Decrease) increase in other assets 66,447 (77,365)
Goodwill -- (1,167,702)
------------- --------------
(430,430) (2,148,666)
FINANCING:
Increase in long-term debt 21,616 1,788,951
Dividends declared -- (81,387)
Cancellation of dividends declared 47,370 --
Increase in capital stock -- 60,795
-- 911,043
Additional paid-in capital ------------- --------------
68,986 2,679,402
------------- --------------
Decrease in cash and cash
equivalents (162,928) (389,151)
Cash and cash equivalents
at beginning of year 163,874 553,025
------------- --------------
Cash and cash equivalents at
end of year 946 163,874
============= ==============
The accompanying notes are an integral part of these statements.
Translation of financial statements originally issued in Spanish
CONSORCIO G GRUPO DINA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996
(Thousands of Mexican pesos)
1. EXPLANATION ADDED FOR
TRANSLATION TO ENGLISH:
These financial statements are presented on the basis of generally accepted
accounting principles in Mexico. Certain accounting practices applied by
the Company that conform with generally accepted accounting principles in
Mexico have no equivalent with respect to generally accepted accounting
principles in the United States of America (U.S.).
2. ACTIVITIES:
Consorcio G Grupo Dina, S.A. de C.V. (DINA) is a subsidiary of Grupo
Empresarial G, S.A. de C.V. and is the controlling stockholder of a group
of companies engaged in the manufacture and sale of trucks and buses. The
major subsidiaries are Dina Autobuses, S.A. de C.V., Dina Camiones, S.A. de
C.V., Plasticos Automotrices Dina, S.A. de C.V. and Dina Comercializadora,
S.A. de C.V. As discussed in Note 3, during 1994 Motor Coach Industries
International, Inc. (MCII), a U.S. corporation, was acquired. MCII
manufactures and sells coaches and coach parts in the U.S. and Canada.
These financial statements were prepared to be used for the stockholders'
meetings, and reflect the investment in subsidiaries under the equity
method. Consolidated financial statements of Consorcio G Grupo Dina, S.A.
de C.V. and subsidiaries have been prepared separately.
Because of the severe decline in demand for buses during 1995 and 1994, and
the reduction in demand for trucks in 1995, DINA laid off plant workers and
employees. The utilization of plant capacity also decreased and the bus and
truck plants were closed for significant periods of time.
Certain amounts in the financial statements at December 31, 1994 have been
reclassified in order to conform with the presentation of the financial
statements at December 31, 1995.
Following are the significant amounts of the consolidated financial
statements for the years ended December 31, 1995 and 1994:
1995 1994
-------------- -------------
Total assets $ 7,836,171 $ 8,231,446
-------------- --------------
-------------- --------------
Total liabilities $ 5,933,746 $ 6,189,019
-------------- --------------
-------------- --------------
Net loss applicable to $ (529,900) $ (1,015,226)
majority interest -------------- --------------
-------------- --------------
3. ACQUISITION OF MCII:
On August 8, 1994, DINA, acquired all of the outstanding shares of MCII for
an aggregate consideration of U.S.$311,627,000. The transaction was made
through the exchange of 54,225,462 Series "L" shares of DINA for 51% of the
outstanding shares of MCII, with the remaining 49% of the outstanding
shares exchanged for a face amount of U.S.$163,993,000 of 8% convertible
subordinated debentures. To guarantee the convertibility of this debt,
24,624,278 Series "L" shares and 32,749,940 common shares were placed in
treasury.
Application of purchase accounting resulted in a preliminary adjustment of
all outstanding assets and liabilities of MCII to their estimated fair
value on the date of the acquisition. MCII is also in the process of
obtaining additional information to quantify the potential liability
related to certain U.S. and Canadian tax contingencies. The management of
MCII and their legal counsel do not expect a significant liability. Once
those amounts have been quantified, the contingencies may be recorded as an
additional purchase accounting adjustment.
The excess of the consideration exchanged by DINA over the estimated fair
value of the net assets acquired, is being amortized over 20 years using
the straight-line method. The amount amortized from the acquisition date to
December 31, 1994 and for 1995 was $20,965 and $115,616, respectively, and
is included in administrative expenses.
4. SIGNIFICANT ACCOUNTING
POLICIES:
The accompanying financial statements are presented in "Mexican pesos" ($),
which is the name of the "new Mexican peso" (N$) as of January 1, 1996.
The significant accounting policies followed by the Company, which are in
accordance with generally accepted accounting principles in Mexico (Mexican
GAAP), are summarized below:
Change in accounting policy
Beginning in 1995, Bulletin A-8 issued by the Mexican Institute of Public
Accountants became effective. This bulletin requires that if there are no
accounting principles in Mexico which specifically address a transaction,
international accounting standards, or the accounting principles of the
country most closely related to the Company's operations, must be used.
Therefore, as of 1995, the Company began using "pushdown" accounting to
reflect the acquisition of MCII. The goodwill related to the purchase is
now considered an asset of MCII, and is converted to pesos using the method
explained below. This change resulted in an increase in the peso amount of
goodwill of $1,045,434 and a corresponding increase in "cumulative
translation adjustment" in stockholders' equity. In addition, amortization
of goodwill increased by $59,296 for 1995. The increase in goodwill in
pesos in the consolidated financial statements also resulted in an
increase in the amount of exchange loss which can be included in the
"cumulative translation adjustment" rather than results of operations. This
change resulted in a reduction of exchange loss of $292,630 compared to the
amount computed without using "pushdown" accounting. The gain on monetary
position decreased by $586,443 because the debt is now included on
MCII's financial statements and the U.S. inflation index was applied.
Basis of conversion of financial
statements of U.S. subsidiary
The accounts of MCII are prepared in U.S. dollars as the functional
currency and have been converted to new Mexican pesos in conformity with
International Accounting Standards N(degree)21 (now incorporated as a
supplement to Mexican GAAP) "The Effects of Changes in Foreign Exchange
Rates and Translation of Financial Statements in Foreign Currency".
The accounts of MCII were also converted to Mexican GAAP for inclusion in
the individual financial statements of the Company under the equity method.
The effects of inflation on the financial information have been recognized
using the consumer price index for the U.S.
Recognition of the effects of inflation
The Company recognizes the effects of inflation on financial information
following the provisions contained in Bulletin B-10 and its amendments,
issued by the Mexican Institute of Public Accountants and, accordingly, the
financial statements of prior years have been restated to reflect the
purchasing power of the currency as of June 30, 1996. In this manner the
financial statements are comparable with those of previous years as all are
stated in currency of the same purchasing power.
To recognize the effects of inflation on currency with purchasing power as
of the end of the most recent year, the following restatements were
performed:
- - Balance sheet:
The investment in subsidiary companies has been recorded through the equity
method, based on financial statements of the subsidiaries restated on the
same basis as the Company.
Property and equipment are restated to net replacement cost, as determined
by independent appraisers. Depreciation is calculated on restated values
in accordance with the estimated useful lives of the assets as determined
by the appraisers.
Goodwill is restated by applying the National Consumer Price Index (NCPI)
and amortization is computed using the straight-line method over 20
years.
Stockholders' equity and other nonmonetary items are restated by applying
the NCPI from the date the amounts were originally contributed or
generated.
The cumulative effect of restatement represents the gain or loss from
holding nonmonetary assets and is the difference between identified
specific costs and the application of the NCPI in restating non-monetary
assets.
- - Statement of income (loss):
Revenues and expenses which are associated with a monetary item (cash,
trade receivables, liabilities, etc.) are restated from the month in
which they arise through yearend, based on factors derived from the NCPI.
Costs and expenses associated with nonmonetary items are restated through
yearend, as a function of the restatement of the non-monetary asset which
is being consumed or sold.
The comprehensive financing result includes interest income and interest
expense, exchange gains or losses, and the gain or loss from monetary
position, which is the impact of inflation on the purchasing power of
monetary assets and liabilities.
- - The statement of changes in financial position presents the changes in
constant currency, based on the financial position as of the beginning of
the year, restated to currency of the current yearend.
Cash equivalents-
Cash equivalents consist of unsecured short-term investments from banks at
fixed rates, plus accrued interest.
Transactions in foreign currency-
Transactions in foreign currency are recorded at the rate of exchange in
effect at the date of the transaction. Foreign currency assets and
liabilities are adjusted by the exchange rates in effect at the end of the
year, and resulting gains or losses are recorded in the income (loss)
statement.
5. HOLDING COMPANY AND SUBSIDIARIES:
Holding company and subsidiaries balances are as follows:
1995 1994
----------- -----------
Receivables-
Grupo Empresarial G, S.A. de C.V. $ 12,581 $ 17,030
Dina Camiones, S.A. de C.V. 66,218 393,286
Dina Autobuses, S.A. de C.V. -- 147,200
Plasticos Automotrices Dina, S.A. de C.V. 38,102 30,618
Sistemas y Servicios G, S.A. de C.V. 32,999 29,161
Raices del Sur, S.A. de C.V. 8,107 5,602
Promotora de Negocios G, S.A. de C.V. 5,665 4,086
Desarrollo Integral de Nuevas Actividades
y Servicios, S.A. de C.V. 12,317 58,361
Desarrollo en Servicios Administrativos
y Profesionales G.S.A. de C.V. 68,329 53,600
Servicios Inmobiliarios G, S.A. de C.V. 3,494 43,770
Dina Composites, S.A. de C.V. 1,686 11,352
Dina Comercializadora, S.A. de C.V. 14,747 35
10,710 --
Motor Coach Industries International, Inc. ----------- -----------
274,955 794,101
----------- -----------
Payables-
Dina Autobuses, S.A. de C.V. 1,694 --
Autopartes Hidalguenses, S.A. de C.V. 3,059 432
Dinautos, S.A. de C.V. 541 6,983
Servicios Corporativos de Occidente, S.A.
de C.V. 645 --
Promotora Empresarial de Occidente, S.A.
de C.V. 1,997 --
----------- -----------
7,936 7,415
----------- -----------
Net receivable balance $ 267,019 $ 786,686
----------- -----------
----------- -----------
The Company had the following transactions with related parties:
1995 1994
----------- -----------
Revenues-
Services and commissions $ 28,513 $ 83,483
----------- -----------
----------- -----------
Interest $ 171,088 $ 72,574
----------- -----------
----------- -----------
Expenses-
Services $ 9,441 $ 31,445
----------- -----------
----------- -----------
Interest $ 8,089 $ 888
----------- -----------
----------- -----------
6. OTHER ACCOUNTS
RECEIVABLE:
Other accounts receivable include:
1995 1994
----------- -----------
Short-term portion of receivable
from trust for stock sales $ 2,886 $ 4,387
Refundable income tax 5,820 11,782
Refundable value added tax -- 50
321 --
Other -------- -----------
$ 9,027 $ 16,219
----------- -----------
----------- -----------
7. RECEIVABLE FROM TRUST FOR
STOCK SALES PLAN:
In 1992, the Company created a trust to establish a stock sales plan for
the executives of the Consorcio G Grupo Dina companies. The trust is
managed in accordance with instructions set forth by a Technical Committee,
which consists of the principal stockholders and certain executives of the
Company.
The account receivable from the trust is recorded at its present value
which at December 31, 1995 was $8,469 of which $5,583 is long-term.
8. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
1995 1994
----------- ----------
Buildings and improvements $ 15,445 $ 13,819
Transportation equipment 530 455
701 807
Furniture and fixtures ----------- ----------
16,676 15,081
(9,261) ----------
Less- Accumulated depreciation ----------- (8,202)
7,415 6,879
776 738
Land ----------- ----------
$ 8,191 $ 7,617
----------- ----------
----------- ----------
The average annual depreciation rates are as follows:
%
-----------
Buildings and improvements 3
Transportation equipment 10
Furniture and fixtures 8
9. LONG-TERM DEBT:
An analysis of long-term debt is as follows:
1995 1994
-------------- -------------
Eurobonds $ 1,338,634 $ 1,312,915
Subordinated convertible debentures 1,463,502 1,435,384
Less- Discount on issuance of subor-
dinated convertible debentures (117,305) (85,084)
-------------- -------------
$ 2,684,831 $ 2,663,215
-------------- -------------
-------------- -------------
Eurobonds-
On November 18, 1992 Eurobonds with a principal amount of U.S.$150 million
were issued. The 10.5% Guaranteed Notes are due November 18, 1997 with
interest payable semi-annually in arrears on May 18 and November 18. See
Note 14 c) for explanation of Exchange Offer for these Eurobonds.
The Eurobond Notes are guaranteed by each of Dina Camiones, S.A. de C.V.,
Dina Autobuses, S.A. de C.V. and Dina Comercializadora, S.A. de C.V.,
subsidiaries of the Company. The terms of the Eurobonds restrict the
disposition of the stock of subsidiaries and fixed assets unless the proceeds
are subsequently reinvested, and limit the pledging of assets or granting of
guarantees on additional debt.
Subordinated convertible debentures-
On August 8, 1994, DINA issued subordinated convertible debentures for
U.S.$164 million, with a discount of U.S.$14.7 million, due in August 2004,
with interest payable semi-annually at 8%, net of certain taxes. DINA has
the option of redeeming the debentures after three years and before 5 years
with a prepayment penalty, if the market price of the American Depositary
shares (ADS) of Series "L" stock of the Company exceeds U.S.$22.86 for a
specified period of time. The debentures are convertible at the option of
the holder to 56.88 ADSs per one thousand dollars of principal amount. The
discount will be amortized through August 2004 on a straight-line basis.
10. GUARANTEES:
At February 29, 1996, the Company has guaranteed revolving lines of credit
on behalf of a related company in an amount of $22,831.
11. FOREIGN CURRENCY POSITION:
Since the devaluation of the Mexican peso in December 1994, there has been
significant instability in the financial and exchange rate markets.
At December 31, 1995, the assets and liabilities denominated in foreign
currency are represented principally by U.S. dollars and were converted at
the exchange rate of 7.5814 new Mexican pesos per U.S. dollar, as follows:
Thousands of
U.S. Dollars
--------------
Current assets 3,250
Liabilities-
Current (8,993)
Long-term (300,847)
--------------
Net liability position in foreign (306,590)
currency --------------
--------------
Equivalent in thousands of new Mexican pesos $ (2,324,381)
The assets and liabilities of MCII are denominated in U.S. dollars.
Following is a summary of the combined foreign currency position, as shown
in the notes to the consolidated financial statements:
Thousands Equivalent in
of U.S. Mexican
Dollars Pesos
-------------- -------------
Liability position in DINA (279,207) $ (2,116,780)
Asset position in MCII (including goodwill of
U.S. $242,333 thousand) 294,808 2,235,057
-------------- -------------
15,601 $ 118,277
-------------- -------------
-------------- -------------
At February 29, 1996 the unaudited currency position was similar to that at
December 31, 1995, and the exchange rate at that date was 7.6296 Mexican
pesos per U.S. dollar.
During 1995 the Company had interest expense, net, in the amount of U.S.$34
million, equivalent to $257,768.
12. STOCKHOLDERS' EQUITY:
On March 23, 1995 the stockholders voted to cancel the dividends declared in
August 1994, unpaid as of December 31, 1994, which totaled $47,370.
At December 31, 1995, capital stock consisted of the following:
Number of Shares
--------------------------
Common Series "L" Amount
------------- ------------- -----------
Nominative shares without par
value, represented by fixed
capital not subject to with-
drawal and of free subscrip-
tion 203,800,450 -- $ 126,999
Nominative shares with no par
value, sub-series 2/94 and 1/94,
represented by variable capital,
freely subscribable, and which
may not exceed 10 times fixed
capital 32,749,940 78,849,964 69,546
----------- ----------- ---------
236,550,390 78,849,964 196,545
Less- Unissued shares (32,749,940) (24,624,278) (35,754)
----------- ----------- ---------
Capital stock outstanding 203,800,450 54,225,686 $ 160,791
----------- ----------- ---------
----------- ----------- ---------
In accordance with the by-laws of the Company, foreign investors may
purchase up to 49% of the shares of the Company.
Dividends paid are not subject to income taxes, as long as they are paid
from "net taxable income" ("UFIN"). For the minority stockholders,
dividends not paid from UFIN must include a 34% income tax. The majority
stockholders are not subject to income tax withholding because the Company
is a tax controlled entity under the rules of consolidation for tax
purposes. If capital is reduced, the excess of the reduction over
price-level adjusted paid-in capital will be taxable as a dividend in
accordance with the formula prescribed by Mexican tax law.
The legal reserve is not available for distribution to stockholders during
the existence of the Company, except in the form of a stock dividend.
13. TAX ENVIRONMENT:
Income and asset tax-
The Company is subject to income and asset taxes. Income tax is computed by
taking into consideration the taxable and deductible effects of inflation,
such as depreciation calculated on restated asset values, which permit the
deduction of current costs, and taxable income is increased or reduced by
the effects of inflation on certain monetary assets and liabilities through
the inflationary component, which is similar to the gain or loss from
monetary position.
The asset tax is computed at an annual rate of 1.8% (2% through 1994) of
the average of the majority of restated assets less certain liabilities,
and the tax is paid only to the extent that it exceeds the income taxes of
the period. Any required payment of asset tax can be offset against the
excess of income tax over asset tax in the following ten years.
Grupo Empresarial G, S.A. de C.V., parent company of Consorcio G Grupo
Dina, S.A. de C.V., is permitted by the Mexican tax authorities to file a
consolidated tax return. For that reason the income tax has been determined
over the individual tax result of the Company.
Reconciliation of accounting
and taxable income-
The principal items affecting the Company's taxable income were the effects
of inflation, the result of monetary position, the equity in results of
subsidiary companies, and the application of the third amendment of
Bulletin B-10.
Tax loss carryforwards-
At December 31, 1995 the Company has inflation-adjusted tax loss
carryforwards which will be indexed for inflation through the date used to
offset future taxable income:
Year of Tax Loss
Expiration Carryforward
- ----------------------- -----------------
2004 $ 615,435
5,640
2005 -----------------
$ 621,075
-----------------
-----------------
14. SUBSEQUENT EVENTS:
a) Temporary suspension of plant
operations of Dina Camiones-
Dina Camiones, due to the decrease in demand for its products, agreed to a
flexible suspension of production of trucks with the labor union for the
period from January 24, 1996 to July 23, 1996. During this period, the
Company will be obligated to pay 60% of nominal salaries, including
benefits, and the union will provide the number of personnel required based
on the production and sales needs.
b) Restructuring of Dina Comercia-
lizadora's accounts receivable-
In January 1996, Dina Comercializadora restructured all of its accounts
and notes receivable from Autobuses Estrella Blanca, S.A. de C.V.,
Autotransportes Tres Estrellas de Oro, S.A. de C.V. and both companies'
licensees, giving effect to the restructuring as of December 31, 1995.
c) Debt Exchange Offer-
On April 22, 1996, the Company initiated an "Exchange Offer" with the
holders of the Eurobonds in the amount of US$150 million (see Note 9),
requesting the exchange of the Eurobonds currently outstanding for new
Eurobonds, which would include the offering of new notes with a face value
of 1.417 times the existing face value, an extension of the maturity date
from November 18, 1997 to November 15, 2002 and an increase in the interest
rate from 10.5% to 12%. In the event of certain changes in the ratings of
the notes, the interest rate could increase to 15% after November 15, 1999.
In addition, interest would not be paid during the first 3 years the new
notes are effective and would be capitalized and due upon maturity using a
"zero coupon" basis.
The new notes will be issued jointly with Consorcio G Grupo Dina, S.A. de
C.V. as primary obligor. In the event of non-payment, MCII Holdings (USA),
Inc., a subsidiary 100% owned by Consorcio G Grupo Dina, S.A. de C.V.,
incorporated on April 19, 1996 with the sole purpose of holding the total
number of shares of MCII, will guarantee the debt.
The Exchange Offer includes certain changes in the existing terms of the
Eurobonds, including guarantees and certain commitments and is subject to
the exchange of a minimum amount of US$120 million. The Company has
obtained verbal consent from the principal Eurobond holders, who hold
approximately US$120 million. Therefore, the Company's management believes
that at least this amount will be restructured under the conditions above.
Whether the other note holders are interested in exchanging their notes
will not be known until May 17, 1996. The issuance and exchange of the new
notes is subject to the approval of the Mexican National Banking and
Securities Commission. The Company's management believes that the
possibility of completing the Exchange Offer are favorable.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of MCII Holdings (USA), Inc.:
We have audited the accompanying consolidated balance sheet of MCII
HOLDINGS (USA), INC. (a wholly owned subsidiary of Consorcio G Grupo Dina,
S.A. de C.V.) and subsidiaries (the Company) as of December 31, 1995, and
the related consolidated statements of income, changes in stockholder's
equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of MCII Holdings (USA), Inc. and subsidiaries as of December 31,
1995, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Phoenix, Arizona,
February 19, 1996
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Motor Coach Industries International, Inc.
We have audited the accompanying consolidated balance sheet of Motor Coach
Industries International, Inc. and its subsidiaries (a wholly-owned
subsidiary of Consorcio G Grupo Dina, S.A. de C.V.) (the "Company") as of
December 31, 1994, and the related consolidated statements of income,
changes in stockholder's equity and cash flows for the five month period
ended December 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Motor Coach Industries
International, Inc. and its subsidiaries at December 31, 1994, and the
results of their operations and their cash flows for the five month period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Phoenix, Arizona
February 24, 1995
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Motor Coach Industries International, Inc.
We have audited the accompanying consolidated statements of income, changes
in stockholder's equity and cash flows for the seven month period ended
July 31, 1994 and for the year ended December 31, 1993, of Motor Coach
Industries International, Inc. and its subsidiaries (a wholly-owned
subsidiary of Consorcio G Grupo Dina, S.A. de C.V.) (the "Predecessor").
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 audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows for the
seven month period ended July 31, 1994 and the year ended December 31, 1993
of Motor Coach Industries International, Inc. and its subsidiaries in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Phoenix, Arizona
February 24, 1995
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
CONSOLIDATED BALANCE SHEET
December 31, December 31,
(000 omitted, except share data) 1995 1994
- ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 30,607 $ 6,941
Receivables, less allowance of
$1,903 and $1,209 34,936 26,523
Current portion of notes receivable 4,722 4,791
Inventories 146,718 121,381
Deferred income taxes 8,570 5,173
Other current assets 4,073 4,590
---------- ----------
Total current assets 229,626 169,399
Property, plant and equipment 75,021 55,582
Notes receivable 30,909 32,521
Investment in and advances to dis-
continued operations 11,311 42,821
Deferred income taxes 14,350 10,663
Intangibles 242,923 242,333
Other assets 9,902 5,597
------------ ------------
$ 614,042 $ 558,916
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdrafts $ 504 $ 5,734
Accounts payable 24,722 25,314
Accrued compensation and other
benefits 13,101 10,014
Accrued warranties 5,381 4,726
Accrued income taxes 11,924 2,878
Insurance reserves 5,337 5,586
Due to Grupo DINA 367
Other current liabilities 11,605 11,849
--------- -----------
Total current liabilities 72,941 66,101
Long-term debt 217,668 195,000
Pensions and other benefits 8,866 9,863
Other deferred items and insurance
reserves 13,146 8,464
Deferred income taxes 6,613 6,676
Commitments and contingent
liabilities (Notes G, I, L, M, N, O)
Stockholder's equity:
Common stock, $.01 par value,
1,000 shares authorized and issued
Additional capital 317,465 317,465
Deficit (18,856) (37,114)
Cumulative translation adjustments (3,801) (7,539)
Total stockholder's equity 294,808 272,812
---------- ----------
$ 614,042 $ 558,916
========== ==========
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED INCOME
Predecessor
---------------------------
Five Months Seven Months
Year Ended Ended Ended Year Ended
December December 31, July 31, December
(000 omitted) 31, 1995 1994 1994 31, 1993
- ---------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Sales $ 509,925 $ 191,789 $ 271,797 $ 394,112
Finance income 6,412 2,584 1,297 4,908
---------- ----------- ----------- ----------
516,337 194,373 273,094 399,020
---------- ----------- ----------- ----------
Operating costs and expenses:
Cost of sales (exclusive of items shown
separately below) 397,395 151,614 203,538 303,075
Depreciation and amortization 14,618 5,841 3,279 4,547
Interest expense, finance operations 2,658 693 291 775
Research and development expenses 2,915 492 1,238 1,420
Selling, general and administrative
expenses 60,412 26,614 27,825 43,850
Merger related expenses (Note B) 11,294
---------- ---------- ----------- ----------
477,998 185,254 247,465 353,667
---------- ---------- ----------- ----------
Operating income 38,339 9,119 25,629 45,353
---------- ---------- ----------- ----------
Other (income) and expense:
Interest expense 13,435 2,464 1,812 1,508
Other (income) (469) (189) (225) (1,423)
Gain from sale of marketable
securities (Note Q) (10,522)
Minority interests 378 2,021
----------- ---------- ----------- -----------
2,444 2,275 1,965 2,106
---------- ---------- ------------ ------------
Income before income taxes 35,895 6,844 23,664 43,247
Income taxes 17,637 3,958 11,522 16,606
---------- ---------- ------------ ------------
Income from continuing operations 18,258 2,886 12,142 26,641
----------- ---------- ------------ ------------
Discontinued operations:
Loss of transit manufacturing operations,
net of tax benefit of $2,934 (6,793)
Loss on disposal of transit manufacturing,
net of tax benefit of $1,885 and $33,573 (3,500) (53,629)
----------- ---------- ------------ ------------
0 0 (3,500) (60,422)
----------- ---------- ------------ ------------
Net income (loss) $ 18,258 $ 2,886 $ 8,642 $ (33,781)
=========== ========== ========== ============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED CHANGES IN STOCKHOLDER'S EQUITY
Dial
Investment Cumulative
and Common Additional Translation
(000 omitted) Advances Stock Capital Deficit Adjustment Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993
(PREDECESSOR) $ 235,863 $ $ $ $ $ 235,863
Net Income 12,090 12,090
Dial investment and advances,
net (88,730) (88,730)
Unrealized translation loss (957) (957)
Conversion of a portion of
advances from Dial to (42,000) (42,000)
MCII's acquisition of Trans-
portation Operations, Inc. (116,266) 201 118,354 (2,289) 0
Increase in deferred tax
assets as a result of
step-up in income tax
basis of net assets 28,627 28,627
Net loss (45,871) (45,871)
Unrealized translation loss (65) (65)
Dividends on common stock (1,008) (1,008)
Common stock issued in
connection with employee
benefit plan 1 419 420
---------- -------- -------- -------- --------- ---------
BALANCE, DECEMBER 31, 1993
(PREDECESSOR) 0 202 147,400 (46,879) (2,354) (98,369)
Net income 8,642 8,642
Common stock issued in
connection with employee
benefit plan 1,140 1,140
Unrealized translation loss (2,733) (2,733)
Dividends on common stock (2,017) (2,017)
--------- -------- -------- -------- -------- --------
BALANCE, JULY 31, 1994
(PREDECESSOR) 0 202 148,540 40,254 (5,087) 103,401
Effect of push-down purchase
accounting adjustments
due to Dina's acquisition
of MCII (202) 168,925 40,254 (751) 208,226
Net income 2,886 2,886
Unrealized translation loss (1,701) (1,701)
Dividends on common stock (40,000) (40,000)
---------- -------- -------- -------- --------- --------
BALANCE, DECEMBER 31, 1994 0 0 317,465 (37,114) (7,539) 272,812
Net income 18,258 18,258
Unrealized translation gain 3,738 3,738
---------- -------- -------- -------- --------- --------
BALANCE, DECEMBER 31, 1995 $ 0 $ 0 $317,465 $(18,856) $ (3,801) $ 294,508
========== ======== ======== ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED CASH FLOWS
Predecessor
Five Months ----------------------------
Year Ended Ended Seven Months Year Ended
December 31, December 31, Ended July December
(000 omitted) 1995 1994 31, 1994 31, 1993
- -------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net income $ 18,258 $ 2,886 $ 8,642 $ (33,781)
Adjustments to reconcile net income
to net cash used by operations:
Depreciation and amortization 14,618 5,841 3,279 4,547
Deferred income taxes 1,019 (1,760) 1,187 (3,595)
Discontinued operations 3,500 60,422
Loss (gain) on sale of property and
notes receivable (1,945) 180 (69) (1,979)
Gain on sale of marketable securities (10,522)
Other noncash items, net 4,335 (1,524) (1,145) (1,453)
Change in operating assets and liabilities:
Receivables (8,649) (2,536) 3,280 393
Inventories (24,384) (11,662) (16,706) (2,914)
Due to Grupo DINA 367
Accounts payable (770) 4,780 (10,825) 10,261
Accrued income taxes 6,064 (4,788) (3,567) 4,292
Other current liabilities 1,868 1,022 9,031 4,888
Other assets and liabilities, net (534) (3,211) 1,566 (6,343)
--------- ---------- --------- -----------
Net cash provided (used) by operating
activities (275) (10,772) (1,827) 34,738
--------- ---------- ---------- ----------
CASH FLOWS PROVIDED (USED) BY INVESTING
ACTIVITIES:
Capital expenditures (12,559) (4,915) (1,936) (5,472)
Investment in assets held for lease (45,667) (689) (6,846)
Investments in, or purchases of,
businesses or marketable securities (17,742) (34,616) (6,000)
Proceeds from sale of marketable
securities 23,716
Proceeds from sale of property and
notes receivable 40,675 3,559 1,452 77,150
Investment in notes receivable (26,483) (18,090) (19,739) (31,496)
Collections of notes receivable 21,095 2,029 1,050 27,642
Investment in discontinued operations,
net 24,210 23,671 489 (43,933)
---------- --------- --------- -----------
Net cash provided (used) by investing
activities 7,245 5,565 (60,146) 17,891
--------- --------- --------- -----------
CASH FLOWS PROVIDED (USED) BY FINANCING
ACTIVITIES:
Net change in bank overdrafts (5,230) (680) (730) (8,077)
Additional long-term borrowings 125,000
Payments of long-term borrowings (74) (42,000) (766)
Net change in bank credit facilities 22,000 (49,000) 70,533 48,467
Dividends on common stock (34,000) (2,017) (1,008)
Common stock issued 1,140 420
Dial investment and advances, net (88,730)
--------- --------- --------- -----------
Net cash provided (used) by financing
activities 16,696 (680) 68,926 (49,694)
--------- --------- --------- -----------
Net increase (decrease) in cash and
equivalents 23,666 (5,887) 6,953 2,935
Cash and cash equivalents, beginning of
period 6,941 12,828 5,875 2,940
--------- --------- --------- -----------
Cash and cash equivalents, end of period $ 30,607 $ 6,941 $ 12,828 $ 5,875
=========== ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF
CONSORCIO G GRUPO DINA, S.A. DE C.V.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of MCII
Holdings (USA), Inc. and subsidiaries ("Holdings" or the "Company").
Financial statements of the Company as of and for any period prior to the
August 8, 1994 acquisition described below are designated as "Predecessor."
Holdings was formed for the purpose of holding Motor Coach Industries
International, Inc. ("MCII") as its wholly owned subsidiary. On May 28,
1996, Dina transferred to Holdings all 100 shares of MCII $.01 par value
common stock, in exchange for which Holdings issued to Dina all 1,000
shares of its $.01 par value common stock. As a result of this exchange
between entities under common control, the transaction was accounted for at
historical cost in a manner similar to that in a pooling of interests and,
therefore, all prior financial statements presented have been restated as
if the exchange took place at the beginning of such periods.
On August 8, 1994, Consorcio G Grupo Dina, S.A. de C. V. ("Dina")
acquired all of the issued and outstanding common stock of Motor Coach
Industries International, Inc. ("MCII"). As a result of this transaction,
the assets and liabilities of MCII were stated at estimated fair value as
of the acquisition date, and the excess of the consideration paid by Dina
over the estimated fair value of the net assets acquired was recorded as
goodwill. For financial reporting purposes, the Company accounted for the
transaction effective August 1, 1994. See Note B for further discussion.
On August 12, 1993, The Dial Corp ("Dial") sold, through an initial
public offering, 20 million shares of MCII pursuant to an underwriting
agreement dated August 4, 1993 (the "Distribution"). Dial's transportation
manufacturing and service parts subsidiaries, which now comprise MCII's
wholly owned subsidiary, Transportation Manufacturing Operations, Inc.
("TMO"), were transferred to MCII immediately after and in connection with
the public offering of MCII shares. As a result, the financial statements
of the Company reflect the consolidated results of operations and financial
condition of MCII and subsidiaries subsequent to August 12, 1993 and the
combined results of operations and financial condition of the companies
which formerly comprised TMO prior to August 12, 1993.
The Company is a manufacturer of coaches, and a manufacturer and
distributor of coach and transit bus replacement parts, with manufacturing
facilities in the United States and Canada. Sales are made predominately in
the United States and Canada to a diversified customer base, including
independent coach operators, national coach fleet operators, government
agencies and others.
The financial statements have been prepared in accordance with
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses as well as
contingent assets and liabilities disclosed in the financial statements.
Actual results could differ from those amounts reported or disclosed.
However, management does not believe that such differences, if any, would
be material to the Company's financial condition or results of operations.
Intercompany accounts and transactions between Holdings and its
subsidiaries have been eliminated. Certain reclassifications have been made
to the financial statements of prior periods to conform to 1995
classifications. Described below are those accounting policies that are
particularly significant to the Company, including those selected from
acceptable alternatives.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities
of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
generally determined on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
provided principally by use of the straight-line method at annual rates as
follows:
Buildings and leasehold improvements................ 3% to 25%
Assets held for lease................................9% to 20%
Machinery and equipment............................. 8% to 33%
NOTES RECEIVABLE
Notes receivable are collateralized by coaches. Substantially all
contracts carry floating rates of interest based on the creditworthiness of
each individual purchaser. The allowance for uncollectible contracts is
adjusted periodically based on an evaluation of individual contract
collectibility.
INTANGIBLES
Intangibles (primarily goodwill) are carried at cost less applicable
amortization of $6,381,000 at December 31, 1995 and $2,824,000 at December
31, 1994. Intangibles are primarily amortized on the straight-line method
over the periods of expected benefit, but not in excess of 40 years.
WARRANTY
At the time of sale, an accrual for warranty claims, which is based
upon management's estimate of future warranty liabilities, is recorded and
charged to operations. Actual warranty expenditures are charged to the
accrual as incurred, and periodically the accrual is reviewed for adequacy
in light of actual experience and adjustments are recorded if necessary.
RESEARCH AND DEVELOPMENT
Research and development expenses, net of contributions, are charged
to income as incurred.
FOREIGN CURRENCY EXCHANGE
The Company enters into foreign exchange forward contracts to hedge
certain firm and anticipated purchase commitments settled in foreign
currencies as a means of reducing exposure to fluctuations in foreign
exchange rates. The Company does not engage in foreign currency
speculation. The contracts do not subject the Company to risk due to
exchange rate movements as gains and losses on the contracts offset gains
and losses on the transactions being hedged. Foreign currency transactions
which are not hedged are converted at the exchange rate in effect at the
date of the transaction. Any gain or loss resulting from the translation is
included in the income statement.
PENSIONS AND OTHER BENEFITS
Trusteed, noncontributory and contributory pension plans cover
substantially all employees. Benefits for the noncontributory plans are
based primarily on final average salary and years of service. Net periodic
pension cost for the Company is based on the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 87, "Employers' Accounting for
Pensions." Funding policies provide that payments to pension trusts shall
be at least equal to the minimum funding required by applicable
regulations. Contributions and cost for the contributory pension plans are
determined as a percentage of each covered employee's regular wages.
The Company has defined benefit post retirement plans that provide
medical and life insurance for eligible retirees and dependents. The net
periodic postretirement benefit cost for the Company is based upon the
provisions of SFAS No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which the Company is required to adopt in 1996. SFAS No. 121 requires
that long-lived assets be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest charges) from an asset to be held and used in operations
is less than the carrying value of the assets, an impairment loss must be
recognized in the amount of the difference between the carrying value and
the fair value. Assets to be disposed of must be valued at the lower of
carrying value or fair value less cost to sell. In management's opinion,
adoption of SFAS No. 121 will not have a material impact on the Company's
financial position.
B. ACQUISITION BY DINA
PURCHASE ACCOUNTING ADJUSTMENTS
On August 8, 1994, Dina acquired all of the issued and outstanding
common stock of MCII. The acquisition was accounted for as a purchase and
"push down accounting" was applied, with the result that purchase
accounting adjustments were reflected in the accounting of MCII and its
subsidiaries.
Application of push down purchase accounting resulted in a
preliminary adjustment of all outstanding assets and liabilities of the
Company to their estimated fair value on the date of the acquisition. The
Company is also in the process of obtaining additional information to
quantify the potential liability related to certain preacquisition U.S. and
Canadian tax contingencies. Once those amounts have been quantified, the
contingencies may be recorded as an additional purchase accounting
adjustment. See Note I. The excess of the consideration paid by Dina over
the estimated fair value of the net assets acquired, based upon the
preliminary purchase accounting adjustment, was $236,064,000 and is being
amortized over 40 years using the straight line method. The following table
reflects the changes made in the accounts of MCII and its subsidiaries as a
result of applying push down accounting:
(000 OMITTED)
Assets:
Inventories .....................$ (1,200)
Property, plant and equipment.... 7,383
Deferred income taxes............ (34,021)
Intangibles ..................... 236,064
--------
$208,226
========
Liabilities and Equity:
Stockholders' equity...............$208,226
========
The purchase accounting adjustments described above have resulted in
an increase in depreciation expense due to the step-up in the basis of
property, plant and equipment, and an increase in amortization expense due
to the creation of the intangible. As a result of these adjustments, the
increase in depreciation and amortization expense for 1995 and 1994 was
$6,450,000 and $2,655,000, respectively.
MERGER RELATED EXPENSES
In connection with the 1994 acquisition of MCII by Dina, the Company
incurred $11,294,000 of merger-related expenses. These expenses were for
the cash settlement of all outstanding stock options and the acceleration
of vesting on all unvested restricted stock ($6,831,000) and for
professional fees, printing, travel and other costs related to the
transaction ($4,463,000).
C. ACQUISITIONS
In November 1995, the Company purchased a 70% ownership interest in
Nanjing Starley Transportation Company Limited, an intercity coach
operation which provides regularly scheduled passenger service in China,
for $2,021,000. The investment, which is being accounted for under the
equity method, was made by contributing ten refurbished used coaches valued
at $1,071,000 and payment of related fees, duties and shipping costs of
$950,000.
In April 1995, the Company acquired substantially all of the net
assets of Billingsley Parts and Equipment, Inc., a distributor of school
bus parts. The acquisition was accounted for as a purchase in which total
consideration was $2,890,000, of which $2,000,000 was paid in cash and the
remainder in the form of a note payable.
In February 1994, the Company acquired the remaining 31% of the
outstanding stock of its then 69% owned Canadian coach manufacturing
subsidiary, Motor Coach Industries Limited ("MCIL"), for $34,290,000. The
acquisition was accounted for as a purchase and the excess of the purchase
price over the estimated fair value of net assets acquired was $11,933,000.
Such excess is being amortized over 40 years using the straight line
method. As a result of this acquisition, no additional charge to minority
interests will be recorded in the Statement of Consolidated Income
subsequent to the acquisition date.
The following table reflects the changes made in the accounts of MCIL
as a result of applying push down purchase accounting:
(000 OMITTED)
Assets:
Property, plant and equipment..... $15,500
Intangibles....................... 11,933
-------
$27,433
=======
Liabilities and Equity:
Deferred income taxes.............$ 6,425
Pensions and other benefits....... 235
Stockholders' equity.............. 20,773
--------
$ 27,433
========
The purchase accounting adjustments described above have resulted in
an increase in depreciation expense due to the step-up in the basis of
property, plant and equipment, and an increase in amortization expense due
to the creation of the intangible. As a result of these adjustments,
depreciation and amortization expenses for 1995 and 1994 increased by
$1,879,000 and $1,598,000, respectively.
D. DISCONTINUED OPERATIONS
In November 1993, the Board of Directors approved a plan of
disposition of the transit bus manufacturing segment. This decision was
based upon management's review of market activities, business prospects,
competitive bidding, evaluation of backlogs, economic value analysis, and
opportunities for cost reduction, which indicated that the transit bus
manufacturing business may not achieve acceptable profitability in the
foreseeable future. As a result of this decision, a charge to discontinued
operations of $87,202,000 ($53,629,000 after-tax) was recorded in the third
quarter of 1993 to reflect the estimated loss on disposal of the transit
manufacturing segment. During 1994, based upon further analysis of the
estimated loss to be incurred on the disposal, an additional provision of
$5,385,000 ($3,500,000 after-tax) was recorded, resulting in a total charge
to discontinued operations of $92,587,000 ($57,129,000 after-tax).
In November 1994, the Company sold the fixed assets and certain of
the inventory of the transit bus manufacturing business, as well as the
right to manufacture, remanufacture and distribute transit buses previously
made by the Company, for aggregate consideration of $14,947,000, of which
$4,877,000 was in the form of a note receivable and the remainder was in
cash. Additionally, the purchaser, for a period of five years from the sale
date, has agreed not to distribute parts to transit buses previously made
by the Company. The Company retained all other assets and all of the
remaining liabilities of the transit manufacturing business.
The summarized balance sheet of the transit manufacturing segment at
December 31 was as follows:
1995 1994
(000 OMITTED)
Assets:
Accounts receivable............................... $18,247 $32,257
Inventories....................................... 20,878
Other current assets.............................. 2,548 3,997
Deferred taxes and other assets................... 5,097 18,676
--------- ----------
$25,892 $75,808
Liabilities and equity:
Accounts payable.................................. $ 378 $ 1,598
Other current liabilities................ 12,858 28,460
Other liabilities................................. 1,345 2,929
The Company's investment and advances............. 11,311 42,821
-------- --------
$25,892 $75,808
The following is a summary of the operating results of the transit
manufacturing segment for the years ended December 31:
1995 1994 1993
---- ---- ----
(000 OMITTED)
Revenues.................................. $24,278 $166,235 $126,364
Operating costs and expenses.............. 24,881 177,009 $141,683
-------- --------- --------
(603) (10,774) (15,319)
Income tax benefit........................ 232 4,148 5,087
-------- --------- --------
$ (371) $ (6,626) $ (10,232)
Losses charged to discontinued operations
reserve, net of tax benefit of $232,
$4,148 and $2,153...................... 371 6,626 $ 3,439
-------- --------- ---------
Net loss from operations................. $ - $ - $ (6,793)
======= ========= =========
The cumulative loss on disposal of the transit manufacturing segment,
recorded in 1994 and 1993, included the following components:
(000 OMITTED)
Write-down of assets to estimated liquidation value. $53,860
Provision for shut-down costs and other reserves.... 20,327
Provision for operating losses during phase-out period. 18,400
--------
92,587
Tax benefit......................................... (35,458)
--------
$57,129
=======
E. INVENTORIES
Inventories at December 31 consisted of the following:
1995 1994
---- ----
(000 OMITTED)
Raw materials............................. $ 26,219 $ 18,586
Work in process .......................... 36,371 30,196
Finished goods ........................... 98,979 84,315
------ -------
161,569 133,097
Excess quantity and obsolescence
reserve ............................... (14,851) (11,716)
------- -------
$146,718 $121,381
======= =======
F. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consisted of the following:
1995 1994
---- ----
(000 OMITTED)
Land...................................... $ 3,459 $ 3,192
Buildings and leasehold improvements...... 31,947 24,323
Assets held for lease..................... 21,361 8,109
Machinery and equipment................... 27,896 22,974
------ -------
84,663 58,598
Less accumulated depreciation
and amortization........................ (9,642) (3,016)
------ -------
$75,021 $ 55,582
======= =======
Depreciation and amortization expense for property, plant and
equipment was $7,778,000 for the year ended December 31, 1995, $3,263,000
for the five month period ended December 31, 1994, $2,839,000 for the seven
month period ended July 31, 1994, and $3,358,000 for the year ended
December 31, 1993.
G. NOTES RECEIVABLE
Notes receivable at December 31 consisted of the following:
1995 1994
---- ----
(000 OMITTED)
Notes receivable, net of allowance for
uncollectible contracts of $890
and $750................................ $35,631 $37,312
Less current portion....................... (4,722) (4,791)
Long-term notes receivable ................ $30,909 $32,521
During the year ended December 31, 1995, the five month period ended
December 31, 1994, the seven month period ended July 31, 1994 and the year
ended December 31, 1993, the Company sold $42,366,000, $21,486,000,
$23,097,000, and $72,511,000 of its notes receivable for $44,126,000,
$22,386,000, $23,642,000, and $74,490,000, respectively. The Company has
agreed to repurchase, for the unpaid balance, any contract for which there
has been a material breach of any warranty, representation, covenant or
other obligation of the Company as specified in the contract. In the case
of default by a debtor, the purchaser, after taking possession of the
underlying collateral equipment, may permit the Company to remarket the
equipment. The Company is required to reimburse the purchaser for any
losses as a result of defaults up to an aggregate of $8,467,000 at December
31, 1995.
Scheduled annual maturities of notes receivable at December 31, 1995
are $4,722,000, (1996), $4,455,000 (1997), $5,068,000 (1998), $5,127,000
(1999), $3,716,000 (2000), and $13,433,000 (thereafter).
H. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
1995 1994
---- ----
(000 OMITTED)
Borrowings under bank credit facility..... $92,000 $ 70,000
Term notes payable, due to 2002........... 125,000 125,000
Note payable at 7% due to 2001............ 816
------ -------
217,816 195,000
Less current portion...................... 148
------
Long-term debt............................ $217,668 $195,000
======= =======
Long-term bank credits are available to the Company from
participating banks under an agreement (the "Bank Credit Facility") which
provides up to $125,000,000 for borrowing purposes, of which up to
$35,000,000 is available for issuance of standby letters of credit.
Borrowings were available at December 31, 1995 on a revolving basis until
July 31, 1998. At December 31, 1995, there were borrowings of $92,000,000
outstanding under the Bank Credit Facility, and $6,920,000 of standby
letters of credit were issued.
Canadian revolving credit loans are available to a subsidiary of the
Company which provide for loans up to the Canadian equivalent of $7,329,000
of which no amounts were outstanding at December 31, 1995. Borrowings were
available at December 31, 1995 on a revolving basis until January 31, 1996,
with outstanding borrowings then converting into a term loan repayable in
36 equal monthly installments.
The interest rates applicable to borrowings under these agreements
are, at the Company's option, indexed to the bank prime rate or the London
Interbank Offered Rate ("LIBOR"), plus appropriate spreads over such
indices during the period of each borrowing agreement. The agreements also
provide for commitment fees. Such spreads and fees can change based upon
changes in the Company's financial ratios. Annually, with the participating
banks' consent, the term of the agreements may be extended for one year.
The Company has $125,000,000 of term notes payable which are due in
annual installments of $25,000,000 beginning in November 1998 and extending
through November 2002. Interest on the notes is at a fixed rate of 9.02%.
However, the Company entered into an interest rate swap agreement in
November 1994 which effectively changed the interest rate on the notes to
LIBOR plus 1.14%. During 1995, the Company terminated $62,500,000 of the
swap in exchange for $4,950,000 which is being amortized as a reduction of
interest expense over the remaining life of the notes. As a result, the
effective interest rate is at LIBOR plus 1.14% on $62,500,000 of the notes
and at a fixed rate of 7.44% on the remaining $62,500,000.
The Company's long-term debt agreements include various restrictive
covenants and require the maintenance of certain defined financial ratios
with which the Company is in compliance.
Annual maturities of long-term debt due in the next five years will
approximate $148,000 (1996), $148,000 (1997), $117,148,000 (1998),
$25,148,000 (1999), $25,148,000 (2000) and $50,076,000 (thereafter).
Interest paid in the year ended December 31, 1995, the five months
ended December 31, 1994, the seven months ended July 31, 1994 and the year
ended December 31, 1993, was $15,920,000, $3,559,000, $5,007,000, and
$1,937,000, respectively.
At December 31, 1995, no stockholder's equity was available for the
payment of dividends by Holdings.
I. INCOME TAXES
Prior to August 1993, Dial charged or credited the U.S. operations of
the Predecessor an amount equal to the tax payments made or tax reductions
realized by Dial as a result of including the Predecessor's U.S. tax results
and credits in Dial's consolidated federal tax return. Subsequent to August
1993, eligible subsidiaries are included in the consolidated and other
applicable income tax returns of MCII. Taxable income of the Company's
Canadian subsidiaries is included in separate tax returns filed in Canada.
Income tax expense (benefit) was comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED
DECEMBER ENDED DECEMBER ENDED JULY 31, DECEMBER
31, 1995 31, 1994 1994 31, 1993
---------- -------------- -------------- ----------
(000 OMITTED)
Current
<S> <C> <C> <C> <C>
U.S. Federal......... $ 3,864 $ 2,267 $ 3,442 $13,249
State................ 1,108 537 1,699 2,007
Foreign.............. 11,646 2,914 5,194 4,945
------- ------ -------- ---------
16,618 5,718 10,335 20,201
------- ------ -------- --------
Deferred
U.S. Federal......... 373 (246) 1,220 (3,479)
State................ 79 (69) (22) (689)
Foreign.............. 567 (1,445) (11) 573
-------- -------- --------- --------
1,019 (1,760) 1,187 (3,595)
-------- -------- --------- --------
Total income tax expense.. $17,637 $ 3,958 $11,522 $16,606
------- ======= ========= ========
</TABLE>
Deferred income tax assets and liabilities included in the Consolidated
Balance Sheet at December 31 consisted of the following:
1995 1994
---- ----
(000 OMITTED)
Deferred tax assets:
Pensions and other benefits ......................$ 4,979 $ 4,573
Allowances and reserves for losses ............... 8,739 8,414
Net operating loss carryforward................... 12,150 4,833
Deferred state income taxes ...................... 1,222 1,144
Other............................................. 546 683
---------- ---------
Total gross deferred tax assets...................... 27,636 19,647
---------- ---------
Deferred tax liabilities:
Property, plant and equipment ................... (8,186) (9,364)
Intangibles...................................... (2,439) (615)
Installment sales ................................ (606) (413)
Other ........................................... (98) (95)
---------- ---------
Total gross deferred tax liabilities................. (11,329) (10,487)
---------- ---------
Net deferred tax asset.............................. $16,307 $ 9,160
========== =========
Income taxes paid (recovered) in the year ended December 31, 1995, in
the five month period ended December 31, 1994, in the seven month period
ended July 31, 1994, and in the year ended December 31, 1993, amounted to
$4,606,000, $6,783,000, $(1,268,000) and $16,028,000, respectively.
At December 31, 1995, the Company had net operating loss carry forwards
as follows:
EXPIRING IN
NET OPERATING LOSS YEAR ENDING
CARRY FORWARDS DECEMBER 31,
------------------ ------------
(000 OMITTED)
$ 2,690 2007
6,261 2008
22,988 2009
2,774 2010
----------
$ 34,713
United States and Canadian income before income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31, ENDED JULY 31, DECEMBER 31,
1995 1994 1994 1993
---- ---- --- ----
(000 OMITTED)
<S> <C> <C> <C> <C>
United States......... $12,979 $4,649 $12,123 $31,288
Canada................ 22,916 2,195 11,541 11,959
-------- ------- -------- --------
$35,895 $6,844 $23,664 $43,247
======= ====== ======= =======
</TABLE>
A reconciliation of the provision for income taxes and the amount that
would be computed using statutory federal income tax rates on income before
income taxes is set forth below:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31, ENDED JULY 31, DECEMBER 31,
1995 1994 1994 1993
---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C>
Computed income tax
provision at statutory
federal income tax rate
of 35%..................... $12,563 $ 2,395 $ 8,283 $15,136
Minority interests........... 132 707
State income taxes......... 773 304 1,090 857
Canadian tax differences... 637 524 775 608
Foreign dividend received.. 2,039
Intangible amortization.... 1,652 543 53
Merger related expenses.... 1,563
Increase in deferred taxes
due to 1% rate change.... (1,287)
Other, net................. (27) 192 (374) 585
------- ------- ------- -------
Provision for income taxes. $17,637 $3,958 $11,522 $16,606
======= ======= ======= =======
</TABLE>
The Predecessor's U.S. federal income tax returns have been examined
through 1990 and are currently being examined for 1991, 1992 and the seven
months ended July 1993.
The Predecessor's Canadian income tax returns for 1982 through 1992
are currently under review by Revenue Canada. Authorities have proposed
imputing additional income relating to transactions with a U.S. based
subsidiary of the Company. A formal reassessment has been issued by Revenue
Canada on the 1985 return. A notice of objection has been filed by the
Company for 1985. In the event of an adverse judgment, the additional
income taxes for 1982 through 1992 could amount to up to $25,000,000 plus
interest of approximately $25,000,000 and, in addition, the Company may be
subject to potential reassessments for years subsequent to 1992 on the same
basis which could result in additional income taxes and interest, all
before recoveries of U.S. Federal income taxes which may be available to
offset a portion of any additional taxes paid to Canada. Although the
Company is still in the process of obtaining additional information, based
upon its review of current relevant information, including the advice of
outside counsel, the Company is of the opinion that Revenue Canada's
arguments are without merit and that any liability from this matter will
not be material to its financial condition or results of operations.
J. PENSION BENEFITS
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
UNITED STATES
-------------------------------------------------------------
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED
DECEMBER 31, ENDED DEC. 31, ENDED JULY 31, DECEMBER 31,
1995 1994 1994 1993
---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C>
Service cost benefits earned
during the period............ $ 797 $ 389 $ 545 $ 842
Interest cost on projected
benefit o$ligation........... 827 269 377 528
Actual return on plan assets... (1,592) (135) (189) (332)
Net amortization and deferral.. 1,127 (78) (109) 97
Other items, primarily defined
contribution plans and settle-
ment costs.................. 842 162 227 146
Net pension cost.............. ------- ------- ------- ------
$ 2,001 $ 607 $ 851 $ 1,281
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CANADA
----------------------------------------------------------
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED
DECEMBER 31, ENDED DEC. 31, ENDED JULY 31, DECEMBER 31,
1995 1994 1994 1993
---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C>
Service cost benefits earned
during the period........... $ 375 $ 134 $ 188 $ 315
Interest cost on projected
benefit .................... 401 143 200 350
Actual return on plan assets.. (494) (187) (261) (416)
Net amortization and deferral. 1 (3) (4) 1
Other items, primarily defined
contribution plans and
settlement costs........... 610 223 313 437
-------- -------- -------- --------
Net pension cost.............. $ 893 $ 310 $ 436 $ 687
======== ======== ======== ========
</TABLE>
The following tables indicate the plans' funded status and amounts
recognized in the Consolidated Balance Sheet at December 31:
<TABLE>
<CAPTION>
UNITED STATES
---------------------------------------------------------
1995 1994
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(000 OMITTED)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation....... $5,035 $1,450 $4,134 $2,863
===== ===== ===== =====
Accumulated benefit obligation. $6,422 $1,572 $5,424 $2,972
===== ===== ===== =====
Projected benefit obligation... $8,048 $1,809 $6,955 $3,135
Market value of plan assets,
primarily equity and fixed
income securities.............. 8,935 162 6,990 101
----- ----- ----- -----
Plan assets over (under) pro-
jected benefit obligation...... 887 (1,648) 35 (3,034)
Unrecognized transition asset..... (63) (73)
Unrecognized prior service cost
reduction....................... (12) 1,260 (14) 30
Unrecognized net (gain) loss...... (1,531) 190 (356) 47
Additional minimum liability...... (1,233) (37)
----- ------- ---- ------
Accrued pension cost.............. $ (719) $(1,431) $ (408) $(2,994)
===== ====== ===== =======
</TABLE>
CANADA
------------------------------
ACCUMULATED
ASSETS EXCEED BENEFITS
1995 1994
Actuarial present value of benefit
obligations:
Vested benefit obligation................. $3,711 $3,038
===== =====
Accumulated benefit obligation............ $3,713 $3,039
===== =====
Projected benefit obligation.............. $4,794 $4,085
Market value of plan assets, primarily
equity and fixed income securities...... 5,030 4,933
----- -----
Plan assets over projected benefit
obligation.............................. 236 848
Unrecognized transition asset............. (6) (9)
Unrecognized prior service cost reduction. 51 54
Unrecognized net (gain) loss.............. 201 (542)
----- -----
Prepaid pension cost...................... $ 482 $ 351
==== ====
Weighted average assumptions used were:
<TABLE>
<CAPTION>
UNITED STATES CANADA
--------------------------- ---------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate for obligation.... 7.5% 7.5% 7.5% 8.5% 8.5% 7.5%
Rate of increase in compensation 4.5% 4.5% 4.5% 5.0% 5.0% 4.5%
Long-term rate of return on
assets.......................... 9.5% 9.5% 9.5% 9.0% 9.0% 9.0%
</TABLE>
K. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
Year Ended Five Months Seven Months Year Ended
December 31, Ended Dec. 31, Ended July 31, December 31,
1995 1994 1994 1993
---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C>
Service cost benefits
attributed to service during
the period .................. $ 416 $ 188 $ 262 $ 405
Interest cost on the 401 162 227 314
accumulated postretirement
benefit obligation.......... (45) (5) (6) (34)
------- -------- ------- -------
Net amortization and deferral.
Net periodic postretirement
benefit cost................ $ 772 $ 345 $ 483 $ 685
======= ======= ======= =======
</TABLE>
The status of the plans at December 31 was as follows:
1995 1994
---- ----
(000 OMITTED)
Retirees ...................................... $1,173 $1,141
Fully eligible active plan participants............ 1,425 1,320
Other active plan participants..................... 3,686 3,358
------- -------
Accumulated postretirement benefit obligation...... 6,284 5,819
Unrecognized prior service cost.................... 34 42
Unrecognized net gain.............................. 329 121
-------- --------
Accrued postretirement benefit cost................ $6,647 $5,982
======== ========
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation ("APBO") was 12% in 1995,
gradually declining to 5% by the year 2002 and remaining at that level
thereafter for retirees below age 65, and 8.5% in 1995, gradually declining
to 5% by the year 2002 and remaining at that level thereafter for retirees
above age 65. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by approximately 21%, and the
net periodic postretirement benefit cost by approximately 25%.
The assumed discount rate used in determining the APBO was 7.5% in
1995, 1994 and 1993.
L. LEASE OBLIGATIONS
Certain plants, warehouses, offices and equipment are leased under
leases expiring through the year 2007 and some provide for renewal options.
Leases which expire are generally renewed or replaced by similar leases.
At December 31, 1995, future minimum rental payments with respect to
noncancellable operating leases with terms in excess of one year were as
follows: $2,806,000 (1996), $2,142,000 (1997), $1,390,000 (1998),
$1,161,000 (1999), $985,000 (2000) and $1,567,000 (thereafter).
Minimum rental expense for the year ended December 31, 1995, the five
month period ended December 31, 1994, the seven month period ended July 31,
1994 and the year ended December 31, 1993, was $3,106,000, $1,211,000,
$1,829,000 and $2,612,000, respectively.
M. LITIGATION AND CONTINGENCIES
Certain entities of the Company are plaintiffs or defendants to
various actions, proceedings and pending claims. Some of the foregoing
involve or may involve claims for compensatory, punitive or other damages
in material amounts. Litigation is subject to many uncertainties and it is
possible that some of these legal actions, proceedings and pending claims
could be decided against the Company. Although the amount of liability at
December 31, 1995 with respect to these matters is not ascertainable, the
Company believes that any resulting liability would not materially affect
the Company's financial condition or results of operations.
N. GOVERNMENT ASSISTANCE
The Company has undertaken a research and development project with
the cooperation of the Government of Canada and the Province of Manitoba.
Agreements were entered into between the parties for the research and
development project which includes commitments for contributions. During
1995, 1994 and 1993, the Company recorded $3,305,000, $698,000 and
$361,000, respectively, from the contribution programs, which has been
applied against research and development expenses. Contributions may be
repayable should the project not be completed or, for the first five years
following project completion, should the ratio of Canadian employees to
total employees of the Company be less than 40%. As of December 31, 1995,
the amount of such contributions totaled $6,032,503.
O. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FAIR
VALUE OF FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company enters into foreign exchange forward contracts to hedge
certain firm and anticipated purchase commitments which are settled in
Canadian dollars. These contracts are purchased to reduce the impact of
Canadian dollar currency fluctuations on operating results. The Company
does not engage in Canadian dollar currency speculation. The contracts do
not subject the Company to risk due to exchange rate movements as gains and
losses on the contracts offset gains and losses on the materials being
purchased. At December 31, 1995 and 1994, the Company had approximately
$52,902,000 and $68,068,000, respectively, of Canadian dollar exchange
forward contracts outstanding. The Company's theoretical risk in these
transactions is the cost of replacing, at current market rates, these
contracts in the event of default by the other party. Management believes
the risk of incurring such losses is remote as the contracts are entered
into with major financial institutions.
At December 31, 1994, the Company had an interest rate swap
outstanding with a commercial bank which effectively changed the interest
rate on the Company's $125,000,000 of term notes payable to LIBOR plus
1.14%. In June 1995, the Company settled $62,500,000 notional principal
amount of the swap, resulting in proceeds to the Company of $4,950,000
which are being amortized as an adjustment to interest expense over the
remaining life of the notes. Under the terms of the swap agreement, the
Company receives interest of 7.88% and pays interest at LIBOR. At December
31, 1995, the notional amount on which the interest is calculated is
$62,500,000 and matures ratably at the same time the related term notes
mature. The counter party to the agreement has the right to designate a
cash settlement of the swap 10 days prior to the maturity date of the
Company's Bank Credit Facility. The maturity date of the Bank Credit
Facility as of December 31, 1995, is July 31, 1998, but is expected to be
extended annually by mutual agreement. In the event of a cash settlement
designated by the counterparty, the Company intends to defer the proceeds
received, or payments made, as a result of the settlement and immediately
enter into a new swap agreement. The deferred settlement would then be
amortized over the remaining life of the new swap, thus preserving the
effective change in the interest rate on the term notes payable at LIBOR
plus 1.14%. The Company is exposed to credit loss in the event of
non-performance by the other party, however, the Company does not
anticipate non-performance as the counter party is a major financial
institution.
As a necessary adjunct to its new and used coach business, the
Company has entered into repurchase and first loss agreements with certain
companies which provide financing for coaches sold by the Company, pursuant
to which the Company agrees to either repurchase coaches from such
companies or guarantees the payment of certain obligations of coach owners
or operators. The amount of such agreements as of December 31, 1995 and
1994 was approximately $3,462,000 and $4,787,000, respectively.
Additionally, as a result of certain sales of notes receivable and leases
during 1995 and 1994, the Company is obligated to reimburse the purchaser
of such notes and leases for any losses as a result of defaults up to
$9,526,000 as of December 31, 1995 and $5,936,000 as of December 31, 1994.
The Company has experienced no material losses in respect of such
obligation, and losses under existing agreements are not expected to exceed
amounts reserved for such losses.
On December 28, 1994, the Company sold $24,425,000 of accounts
receivables to a major financial institution with recourse. At December 31,
1995 none of the receivables sold remained outstanding. As a result, the
Company had no exposure under the recourse provisions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments have been determined by the Company using available market
information and valuation methodologies described below. However,
considerable judgment is required in interpreting market data to develop
the estimates of fair value. Accordingly, the estimates presented herein
may not be indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions or
valuation methodologies may have a material effect on the estimated fair
value amounts.
The carrying values of cash and cash equivalents, receivables, bank
overdrafts and accounts payable approximate fair values due to the
short-term maturities of these instruments. The carrying amounts and
estimated fair values of the Company's other financial instruments at
December 31 were as follows:
1995 1994
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(000 OMITTED)
Notes receivable............... $ 35,631 $ 35,658 $ 37,312 $ 37,284
Investment in equity security.. 1,200 1,200 - -
Debt ........................ (217,816) (229,678) (195,000) (194,337)
Interest rate swap ............ - 5,891 - (663)
Foreign exchange forward
contracts...................... - 84 - (1,486)
The methods and assumptions used to estimate the fair values of the
financial instruments are summarized as follows:
Notes receivable - Estimated by discounting the future cash flows using
rates currently used for notes of similar terms and maturities.
Investment in equity security - Estimated at its carrying value as the
investment was acquired December 28, 1995. See Note P.
Debt - Estimated by discounting the future cash flows, using rates
currently available for debt of similar terms and maturity.
Interest rate swap - Estimated by discounting future cash flows using rates
currently available. Represents the unrealized gain or (loss) if the
agreement had been settled at year-end. The swap agreement specifically
hedges portions of the Company's term notes payable. As market interest
rates fluctuate, the unrealized gain or loss on the swap moves to offset
the change in fair value of that portion of the term notes payable.
Foreign exchange forward contracts (used for hedging purposes) - Estimated
using quoted exchange rates.
P. RELATED PARTY TRANSACTIONS
In 1993, the Company purchased a 10% ownership interest in Mexicana
de Autobuses, S.A. de C.V. ("MASA"), a coach manufacturing company in
Mexico, for $6,000,000. In December 1994, the Company distributed the MASA
shares to Dina as a dividend. In December 1995, the Company repurchased the
MASA shares from Dina for $1,200,000. Since MASA shares are not publicly
traded and have no readily determinable fair value, the investment is
accounted for at cost and included in other noncurrent assets.
In January 1995, the Company began purchasing coaches from Dina for
resale in the United States. Through December 1995, the Company had
purchased 129 coaches at a total cost of $27,289,000 and had resold or
leased 112 of the coaches.
In addition, during 1995 the Company purchased from Dina production
materials and tooling totaling $1,423,000. Sales to Dina of production
materials, after-market parts and used coaches during the same period
totaled $2,279,000.
Q. GAIN ON SALE OF MARKETABLE SECURITIES
In January 1995, the Company purchased 6,004,144 shares of Greyhound
Lines, Inc. ("GLI") through a rights offering of GLI's Common Stock. In
October 1995, the investment was sold, resulting in a pre-tax gain of
$10,522,000.
R. BUSINESS SEGMENT AND GEOGRAPHIC DATA
BUSINESS SEGMENT DATA
The Company's principal business activities are categorized into two
business segments for financial reporting purposes -- coach manufacturing
and support and distribution of replacement parts.
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED
DECEMBER ENDED DEC. ENDED JULY DECEMBER
31, 1995 31, 1994 31, 1994 31, 1993
--------- ----------- ------------ ----------
(000 OMITTED)
<S> <C> <C> <C> <C>
Revenues:
Coach manufacturing and
support.................. $375,837 $137,942 $194,873 $272,845
Replacement parts........ 140,500 56,431 78,221 126,175
--------- --------- --------- ----------
$516,337 $194,373 $273,094 $399,020
======== ======== ======== ========
Operating income:
Coach manufacturing and
support................ $ 23,326 $ 2,118 $ 24,715 $ 25,143
Replacement parts........ 15,013 7,001 12,208 20,210
Non recurring merger
expenses............... (11,294)
-------- ------- -------- --------
$ 38,339 $ 9,119 $ 25,629 $ 45,353
======== ======= ======== ========
Depreciation and amortization:
Coach manufacturing and
support................. $ 10,710 $ 4,268 $ 2,644 $ 3,617
Replacement parts........ 3,908 1,573 635 930
-------- ------- -------- -------
$ 14,618 $ 5,841 $ 3,279 $ 4,547
======== ======= ======= =======
Capital Expenditures:
Coach manufacturing and
support................ $ 10,595 $ 4,052 $ 1,158 $ 4,712
Replacement parts........ 1,964 863 778 760
-------- ------- ------- -------
$ 12,559 $ 4,915 $ 1,936 $ 5,472
======== ======= ======= =======
</TABLE>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
Assets:
Coach manufacturing and
support.................... $411,493 $348,381
Replacement parts............ 191,238 167,714
Discontinued operations...... 11,311 42,821
-------- --------
$614,042 $558,916
======== ========
Major customers are defined as those which individually accounted for
more than 10% of the Company's revenue. The Company's only major customer
was during the seven months ended July 31, 1994 and the year ended December
31, 1993 when Greyhound Lines, Inc. accounted for 21% and 23%,
respectively, of the Company's consolidated revenues.
<TABLE>
<CAPTION>
GEOGRAPHIC DATA
Year Ended Five Months Seven Months Year Ended
December Ended Dec. Ended July December
31, 1995 31, 1994 31, 1994 31, 1993
---------- ----------- ------------ ---------
(000 OMITTED)
<S> <C> <C> <C> <C>
Revenues: $445,732 $180,478 $247,974 $365,713
United States............ 70,605 13,895 25,120 33,307
---------- ---------- ---------- ----------
Canada................... $516,337 $194,373 $273,094 $399,020
======== ======== ======== ========
Operating Income:
United States............ $ 31,496 $ 7,736 $ 34,060 $ 40,935
Canada................... 6,843 1,383 2,863 4,418
Non recurring merger
expenses................ (11,294)
----------- ---------- --------- --------
$ 38,339 $ 9,119 $ 25,629 $ 45,353
========= ========== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
Assets:
United States................... $430,087 $412,209
Canada.......................... 183,955 146,707
--------- ---------
$614,042 $558,916
S. TRANSACTIONS WITH THE DIAL CORP
Prior to August 1993, Dial's executive, financial, legal, tax and
other corporate staff departments performed certain services for the
Company at charges which were intended to provide no profit to Dial.
Expenses incurred by Dial and allocated to the Company were primarily
determined based on specific identification of the applicable expenses.
Those expenses which were not susceptible to specific identification were
allocated based on formulas which served to allocate expenses on a
proportional basis. Management is of the opinion that such methods of
expense allocation were reasonable and the allocated expenses approximate
or are less than what such expenses would have been on a stand-alone basis.
The Company also had intercompany advances to and from Dial which have been
reflected in the Consolidated Financial Statements on an interest-free
basis. Allocated expenses from Dial were $980,000 in 1993.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
CONSOLIDATED BALANCE SHEET
(unaudited)
June 30, Dec 31,
(000 omitted, except number of shares) 1996 1995
- -----------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $10,189 $30,607
Receivables, less allowance of $1,957
and $1,903 44,954 34,936
Current portion of notes receivable 5,620 4,722
Inventories 140,333 146,718
Deferred income taxes 8,480 8,570
Other current assets 3,807 4,073
------- -------
Total current assets 213,383 229,626
Property, plant and equipment 54,660 54,959
Assets held for lease 48,649 20,062
Notes receivable 36,711 30,909
Investment in and advances to discontinued
operations 649 11,311
Deferred income taxes 11,859 14,350
Intangibles 240,026 242,923
Other assets 8,093 9,902
-------- ----------
$614,030 $ 614,042
======= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdrafts $ 6,446 $ 504
Accounts payable 33,544 24,722
Accrued compensation and other benefits 9,936 13,101
Accrued warranties 5,257 5,381
Accrued income taxes 5,644 11,924
Insurance reserves 5,594 5,337
Due to Grupo DINA 4,982 367
Other current liabilities 13,674 11,605
------ ------
Total current liabilities 85,077 72,941
Long-term debt 195,594 217,668
Pensions and other benefits 9,656 8,866
Other deferred items and insurance reserves 14,867 13,146
Deferred income taxes 6,481 6,613
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares
authorized and issued
Additional capital 317,465 317,465
Deficit (11,366) (18,856)
Cumulative translation adjustments (3,744) (3,801)
------- -------
Total stockholder's equity 302,355 294,808
------- -------
$ 614,030 614,042
======== ========
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED INCOME
(unaudited)
Three Months Ended
June 30, June 30,
(000 omitted) 1996 1995
- --------------------------------------------------------------------------
Revenues:
Sales $ 175,521 $ 143,971
Finance income 2,254 1,643
---------- ---------
177,775 145,614
Operating costs and expenses:
Cost of sales (exclusive of items
shown separately below) 136,827 109,271
Depreciation and amortization 4,433 3,696
Interest expense, finance operations 925 495
Research and development expenses 1,490 1,070
Selling, general and administrative
expenses 13,424 13,319
---------- ----------
157,099 127,851
Operating income 20,676 17,763
---------- ----------
Other (income) and expense:
Interest expense 3,410 3,507
Other (income) (300) (84)
--------- ---------
3,110 3,423
Income before income taxes 17,566 14,340
Income taxes 7,507 6,198
--------- ---------
Income from continuing operations 10,059 8,142
Loss from discontinued operations,
net of tax benefit $3,130 (5,000) 0
--------- ---------
Net income $ 5,059 $ 8,142
========== ==========
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED INCOME
(unaudited)
Six Months Ended
June 30, June 30,
(000 omitted) 1996 1995
- -------------------------------------------------------------------------
Revenues:
Sales $ 316,115 $ 267,348
Finance income 3,729 2,694
--------- ---------
319,844 270,042
Operating costs and expenses:
Cost of sales (exclusive of items
shown separately below) 249,086 203,829
Depreciation and amortization 8,552 7,045
Interest expense, finance operations 1,615 1,067
Research and development expenses 3,424 1,453
Selling, general and administrative
expenses 28,404 28,276
---------- ----------
291,081 241,670
Operating income 28,763 28,372
---------- ----------
Other (income) and expense:
Interest expense 6,748 6,386
Other (income) (511) (318)
--------- ---------
6,237 6,068
--------- ---------
Income before income taxes 22,526 22,304
Income taxes 10,036 9,938
---------- ---------
Income from continuing operations 12,490 12,366
Loss from discontinued operations,
net of tax benefit $3,130 (5,000) 0
--------- ----------
Net income $ 7,490 $ 12,366
========== ===========
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED CHANGES IN STOCKHOLDER'S EQUITY
(unaudited)
Unrealized
Gain on Cumulative
Additional Marketable Translation
(000 omitted) Common Stock Capital Deficit Securities Adjustment Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ $317,465 $(37,114) $ $ (7,539) $272,812
Net income 12,366 12,366
Unrealized gain on marketable securities 10,250 10,250
Unrealized translation gain 3,046 3,046
-------- -------- -------- ---------- -------- --------
BALANCE, JUNE 30, 1995 $ 0 $317,465 $(24,748) $ 10,250 $ (4,493) $298,474
======== ======== ======== ========== ======== ========
BALANCE, JANUARY 1, 1996 $ $317,465 $(18,856) $ $ (3,801) $294,808
Net income 7,490 7,490
Unrealized translation gain 57 57
-------- -------- -------- ---------- -------- --------
BALANCE, JUNE 30, 1996 $ 0 $317,465 $(11,366) $ 0 $ (3,744) $302,355
======== ======== ======== ========== ======== ========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED CASH FLOWS
(unaudited)
Six Months Ended
-------------------------------------
June 30, June 30,
1996 1995
(000 omitted)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 7,490 $ 12,366
Adjustments to reconcile net income to net cash used by operations:
Discontinued operations loss provision 5,000 0
Depreciation and amortization 8,552 7,045
Deferred income taxes 570 61
Gain on sale of property and notes receivable (653) (1,080)
Other noncash items, net 369 3,361
Change in operating assets and liabilities:
Receivables (10,782) (2,651)
Inventories 5,837 (15,888)
Due to Grupo DINA 4,615 427
Accounts payable 9,263 5,051
Accrued income taxes (6,280) 435
Other current liabilities (963) (5,030)
Other assets and liabilities, net 3,603 4,854
-------- --------
Net cash provided by operating activities 26,621 8,951
-------- --------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures (3,934) (7,733)
Investment in assets held for lease (29,496) (13,490)
Investments in, or purchases of, businesses or marketable securities 0 (14,570)
Proceeds from sale of property and notes receivable 7,633 6,301
Proceeds from sale of business 1,304 0
Investment in notes receivable (18,095) (11,586)
Collections of notes receivable 3,214 15,268
Investment in discontinued operations, net 5,662 30,728
-------- --------
Net cash provided (used) by investing activities (33,712) 4,918
-------- --------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net change in bank overdrafts 5,942 (999)
Payments of long-term borrowings (74) 0
Termination of interest rate swap position 2,805 0
Net change in bank credit facilities (22,000) (17,177)
-------- --------
Net cash used by financing activities (13,327) (18,176)
-------- --------
Net decrease in cash and cash equivalents (20,418) (4,307)
Cash and cash equivalents, beginning of period 30,607 6,941
-------- --------
Cash and cash equivalents, end of period $ 10,189 $ 2,634
======== ========
See notes to consolidated financial statements.
</TABLE>
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF
CONSORCIO G GRUPO DINA, S.A. DE C.V.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(A) BASIS OF PREPARATION
These financial statements should be read in connection with the Company's
1995 audited financial statements included elsewhere in this Registration
Statement.
Accounting policies utilized in the preparation of the financial
information herein presented are the same as set forth in the Company's
annual financial statements except as modified for interim accounting
policies which are within the guidelines set forth in Accounting Principles
Board Opinion No. 28. The interim financial information is unaudited. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position
as of June 30, 1996, and the results of operations for the six months ended
June 30, 1996 and 1995, have been included. Interim results of operations
are not necessarily indicative of the results of operations for the full
year.
(B) INVENTORIES
Inventories consisted of the following: June 30, December 31,
1996 1995
------------------------------
(000's omitted)
Raw material $ 16,036 $ 26,219
Work in process 31,801 36,371
Finished goods 104,859 98,979
------- ------
152,696 161,569
Excess quantity and obsolescence reserve (12,363) (14,851)
-------- --------
$ 140,333 $ 146,718
========= =========
(C) SUPPLEMENTARY INFORMATION: REVENUES AND
OPERATING INCOME OF PRINCIPAL BUSINESS SEGMENTS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1996 1995 1996 1995
-------- -------- -------- -------
(000 OMITTED)
Revenues:
<S> <C> <C> <C> <C>
Coach manufacturing and support.............. $137,216 $109,671 $240,400 $200,712
Replacement parts............................ 40,559 35,943 79,444 69,330
-------- ---------- ---------- ---------
$177,775 $145,614 $319,844 $270,042
======== ======== ======== ========
Operating income:
Coach manufacturing and support.............. $ 16,079 $ 13,967 $ 19,928 $ 21,318
Replacement parts............................ 4,597 3,796 8,835 7,054
--------- ------- -------- --------
$ 20,676 $ 17,763 $ 28,763 $ 28,372
======== ======== ======== ========
</TABLE>
(D) RELATED PARTY TRANSACTIONS
Transactions between the Company and Dina were as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
--------- --------- -------- -------
(000 OMITTED)
Purchases from Dina:
<S> <C> <C> <C> <C>
Coaches for resale $15,440 $ 209 $26,825 $ 5,835
Production materials and tooling 275 206 1,073 260
------- ------- ------- -------
$15,715 $ 415 $27,898 $ 6,095
======= ======= ======= =======
Number of coaches purchased for resale 77 1 128 26
Sales to Dina:
Production materials
and after-market parts $ 204 $ 144 $ 782 $ 150
======= ======= ======= =======
</TABLE>
(E) GUARANTEE OF PARENT COMPANY DEBT AND PLEDGE OF ASSETS
On June 3, 1996, the Company became contingently liable for payments of
principal and interest on Senior Secured Discount Notes of Grupo Dina due
2002 with an aggregate principal amount of US $206,499,680 ("Discount
Notes"). It is intended that all payments with respect to the Discount
Notes be paid by Grupo Dina, and that payments be made by the Company only
in the event of a failure to pay by Grupo Dina.
The Company's obligation under the Discount Notes is secured by a pledge of
the common stock of its wholly-owned subsidiary, Motor Coach Industries
International, Inc. The indenture governing the Discount Notes provides for
certain restrictive covenants with which the Company must maintain
compliance and with which it is currently in compliance.
The Discount Notes bear interest at an annual rate of 12% through maturity,
on a zero coupon basis through November 15, 1998 and, thereafter, payable
in cash. If, however, the Discount Notes do not achieve minimum debt
ratings by November 15, 1999, the interest rate increases to 15% from such
date through maturity. As of June 30, 1996, the fair value of the Discount
Notes is approximated by their carrying value of US $151.2 million.
(F) DISCONTINUED OPERATIONS
Charges of $8,130,000 ($5,000,000 after tax) were recorded in the
accompanying Statements of Consolidated Income to reflect the write
off of accounts receivable increased warranty costs and other charges
related to the Company's discontinued transit manufacturing segment.
(G) SUBSEQUENT EVENT
In October 1996, the Company refinanced its bank credit facility. The new
credit facility provides up to $125,000,000 for borrowing purposes, of
which up to $35,000,000 is available for issuance of standby letters of
credit, and contains other terms which are substantially similar to the
refinanced facility. Borrowings are available under the new facility on a
revolving basis until September 1999. As a result of this refinancing, it
is anticipated that the Company's fourth quarter results will reflect an
$850,000 after-tax extraordinary expense for the write off of debt issuance
costs.
In September 1996, the Company agreed to purchase certain assets of The
Flxible Corporation that were being sold through bankruptcy proceedings.
Flxible is a manufacturer of transit buses and distributor of related
replacement parts. The assets are being purchased for $12.2 million,
which will be funded from the Company's bank credit facility, and will be
utilized for the purpose of becoming the OEM parts distributor for the
installed fleet of Flxible transit buses. The transaction will close
within five days of the bankruptcy court order becoming nonappealable.
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS. IF US$206,499,680
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
ISSUER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION CONSORCIO G GRUPO DINA,
THAT THE INFORMATION HEREIN IS S.A. DE C.V.
CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS MCII HOLDINGS (USA), INC.
BEEN NO CHANGE OF THE ISSUERS SINCE
SUCH DATE.
-------------------
TABLE OF CONTENTS
PAGE
Available Information............................ iii
Enforceability of Civil Liabilities
Against Foreign Persons....................... iii
Presentation of Certain Information.............. iv
Summary.......................................... 1
Risk Factors..................................... 9
Use of Proceeds.................................. 18
Exchange Rates................................... 18
Ratio of Earnings to Fixed Charges............... 20
Selected Financial Data of Grupo
Dina.......................................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Grupo Dina................... 23
Selected Financial Data of MCII
Holdings...................................... 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of MCII Holdings................ 38
The Exchange Offer............................... 46
Business of Grupo Dina........................... 53 SENIOR SECURED
Business of MCII Holdings DISCOUNT
Management....................................... 69 EXCHANGE NOTES
Ownership of Common Stock........................ 85 DUE 2002
Certain Transactions............................. 87
Description of the Notes......................... 88
Tax Considerations............................... 107 PROSPECTUS
Plan of Distribution............................. 111
Legal Matters.................................... 111
Experts.......................................... 111
Index to Financial Statements.................... F-1 ________, 1996
UNTIL ___________, 1996 (__ DAYS
AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN
THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER,
MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a table of the registration fee for the
Securities and Exchange Commission, and estimates of all other expenses to
be incurred in connection with the issuance and distribution of the
securities described in this Registration Statement:
SEC Registration fee..................... US$ 71,207
Exchange Agent fees and expenses......... *
Printing and engraving expenses.......... *
Legal fees and expenses.................. *
Accounting fees and expenses............. *
Miscellaneous............................ *
----------
Total.............................. US$ *
==========
- --------------------
*To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Grupo Dina.
Under Mexican law, when an officer or director of a corporation
acts within its scope of his authority, the corporation will indemnify him
or her for any resulting liabilities or expenses.
(b) MCII Holdings
Section 145 of the General Corporation Law of the State of
Delaware (the "Delaware Corporation Law") empowers a Delaware corporation
to indemnify any persons who are, or are threatened to be made, parties to
any threatened, pending or completed legal action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of such corporation), by reason of the fact that
such person is or was an officer, director, employee or agent of such
corporation, or is or was serving as the request of such corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation may indemnify officers and directors against expenses
(including attorneys' fees) in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged
to be liable to the corporation. Where an officer or director is successful
on the merits or otherwise in the defense of any action referred to above,
the corporation must indemnify him against the expenses which such officer
or director actually and reasonably incurred.
Article VII of the By-laws of MCII Holdings, a copy of which is
filed as Exhibit 3.3 to this Registration Statement, allows MCII Holdings
to maintain director and officer liability insurance on behalf of any
person who is or was a director or officer of MCII Holdings or such person
who serves or served as a director, officer, employee or agent, of another
corporation, partnership or other enterprise, at the request of MCII
Holdings. Article VII of the MCII Holdings By-Laws provides for
indemnification of the officers and directors of MCII Holdings to the
fullest extent permitted by applicable law. Article XI(c) of the Restated
Certificate of Incorporation, a copy of which is filed as Exhibit 3.2 to
this Registration Statement, provides that the right of any director or
officer of MCII Holdings, other than any independent director, to be
indemnified by MCII Holdings shall be subordinated in all respects to the
obligations of MCII Holdings under the Indenture with respect to the Notes.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law,
Article Sixth of the Restated Certificate of Incorporation of MCII Holdings
provides that no director of MCII Holdings shall be personally liable to
MCII Holdings or its shareholders for monetary damages for any breach of
his fiduciary duty as a director; provided, however, that such clause shall
not apply to any liability of a director (1) for any breach of his duty of
loyalty to MCII Holdings or its stockholders, (2) for acts or omissions
that are not in good faith or involve intentional misconduct or a knowing
violation of the law, (3) under Section 174 of the Delaware Corporation
Law, or (4) for any transaction from which the director derived an improper
personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On May 28, 1996, MCII Holdings issued 1,000 shares of common
stock to Grupo Dina in exchange for Grupo Dina's contribution to MCII
Holdings of all of the outstanding shares of common stock of MCII. The
transaction was exempt from the registration requirements of the Securities
Act in reliance on Section 4(2) of the Securities Act on the basis that
such transaction did not involve a public offering.
On June 3, 1996, the co-registrants issued US$206,499,680
aggregate principal amount of the Old Notes in exchange for US$143,040,000
aggregate principal amount of Eurobonds. The Old Notes have not been
registered under the Securities Act of 1933, and were offered to "qualified
instituted buyers" in the United States in reliance on Rule 144A under the
Exchange Act and in transactions outside the United States in accordance
with Regulation S under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
3.1 -- Bylaws (Estatutos Sociales) of Grupo Dina, which
includes its Articles of Incorporation, together
with an English translation, filed as Exhibit 1.1
to Grupo Dina's Annual Report on Form 20-F for the
year ended December 31, 1994 and incorporated by
reference herein.
3.2x -- Restated Certificate of Incorporation of MCII Holdings
3.3x -- Bylaws of MCII Holdings
4.1 -- Indenture, dated as of August 8, 1994, between Grupo
Dina and Bankers Trust Company, as Trustee, relating
to the Debentures, including the form of Debenture,
filed as Exhibit 2.3 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994
and incorporated by reference herein.
4.2 -- Indenture, dated as of April 30, 1996, between Grupo
Dina and IBJ Schroder Bank & Trust Company, as
Trustee, relating to the Notes, including the form
of Old Note and New Note, filed as Exhibit 2.4 to
Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1995 and incorporated by
reference herein.
4.3* US$125,000,000 Credit Agreement, dated as of
September 30, 1996, among Transportation
Manufacturing Operations, Inc. as the Borrower, the
Lenders Parties thereto and NBD Bank as
Administrative Agent.
4.4 US$125,000,000 9.02% Senior Notes Due November 15,
2002 Note Agree- ment, as amended by letter
agreement, filed as Exhibit 3.23 to Grupo Dina's
Annual Report on Form 20-F for the year ended
December 31, 1994 and incorporated by reference
herein.
4.5* Form of Amendment to US$125,000,000 9.02% Senior
Notes Due November 15, 2002 Note Agreement as
executed by the requisite holders of the Notes.
4.6* Intercreditor Agreement, dated as of September 30,
1996, by and among the Lenders under the
US$125,000,000 Credit Agreement dated as of
September 30, 1996, NBD Bank, and the holders of the
9.02% Senior Notes due 2002 issued by Transportation
Manufacturing Operations, Inc.
5.1+ -- Opinion of Ritch, Heather y Mueller, S.C., Mexican
counsel to the co-registrants, regarding the
legality of the New Notes.
5.2+ -- Opinion of Skadden, Arps, Slate, Meagher & Flom,
U.S. counsel to the co-registrants, regarding the
legality of the New Notes.
10.1 -- Research, Engineering and Maintenance Contract dated
March 12, 1987 between Navistar and Camiones for the
"S" Series of medium duty trucks, filed as Exhibit
10.1 to Grupo Dina's Registration Statement on Form
F-1 (No. 33-53380) and incorporated by reference
herein.
10.2 -- Supply Contract dated March 12, 1987 between
Navistar and Camiones for the "S" Series of medium
duty trucks, filed as Exhibit 10.2 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380)
and incorporated by reference herein.
10.3 -- Research, Engineering, and Maintenance Contract
dated November 21, 1989 between Navistar and
Camiones for the "9400" Series of heavy duty trucks,
filed as Exhibit 10.3 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.4 -- Supply Contract dated November 21, 1989 between
Navistar and Camiones for the "9400" Series of heavy
duty trucks, filed as Exhibit 10.4 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380)
and incorporated by reference herein.
10.5 -- Research, Engineering and Maintenance Contract dated
November 20, 1990 between Navistar and Camiones for
the "7.3", "DT/DTA-360" and "DT/DTA- 466" Series of
diesel engines, filed as Exhibit 10.5 to Grupo
Dina's Registration Statement on Form F-1 (No.
33-53380) and incorporated by reference herein.
10.6 -- Supply Contract dated November 20, 1990 between
Navistar and Camiones for the "7.3", "DT/DTA-360"
and DT/DTA-466" Series of diesel engines, filed as
Exhibit 10.6 to Grupo Dina's Registration Statement
on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.7 -- Supply Contract for bus bodies dated February 20,
1992 between Marcopolo and Autobuses, filed as
Exhibit 10.7 to Grupo Dina's Registration Statement
on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.8 -- Technology and Supply Contract dated February 21,
1992 between Marcopolo and Autobuses for bus bodies,
filed as Exhibit 10.8 to Grupo Dina's Registration
Statement on Form F-1 (No.33-53380) and incorporated
by reference herein.
10.9 -- Amendment dated April 22, 1993 to Technology and
Supply Contract dated February 21, 1992 between
Marcopolo and Autobuses, filed as Exhibit 3.9 to
Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1995 and incorporated by
reference herein.
10.10 -- Licensing Agreement dated February 23, 1981
between Budd and Plasticos and amendments thereto,
filed as Exhibit 10.10 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.11 -- Shareholders and Subscription Agreement dated
October 12, 1987 among the Company, Navistar and
Chrysler, filed as Exhibit 10.13 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380)
and incorporated by reference herein.
10.12 -- Form of Camiones Distribution Contract, together
with English translation, filed as Exhibit 3.12 to
Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1994 and incorporated by
reference herein.
10.13 -- Form of Commercial Agency Agreement for heavy duty
trucks for Camiones, filed as Exhibit 10.16 to Grupo
Dina's Registration Statement on Form F-1 (No.
33-53380) and incorporated by reference herein.
10.14 -- Commercial Brokers Contract dated January 2, 1991
between Autobuses and Grupo Dina, filed as Exhibit
10.17 to Grupo Dina's Registration Statement on Form
F-1 (No. 33-53380) and incorporated by reference
herein.
10.15 -- Fiscal Agency Agreement dated November 18, 1992
among Grupo Dina, Camiones and Autobuses, as
Guarantors, and Bankers Trust Company, as Fiscal
Agent, filed as Exhibit 10.18 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380)
and incorporated by reference herein.
10.16 -- Supplemental Fiscal Agency Agreement, dated as of
May 28, 1996, among the Company, Camiones and
Autobuses, as Guarantors, and Bankers Trust Company,
as Trustee, filed as Exhibit 3.16 to Grupo Dina's
Annual Report on Form 20-F for the year ended
December 31, 1995 and incorporated by reference
herein.
10.17 -- Agreement dated June 7, 1994 among Navistar,
Navistar International Transportation Corp.,
Camiones and Grupo Dina, filed as Exhibit 4.3 to
Grupo Dina's Registration Statement on Form F-1 and
F-4 (No. 33-79392) and incorporated by reference
herein.
10.18 -- Contract dated October 11, 1994, between Grupo Dina
and Navistar, filed as Exhibit 3.17 to the Company's
Annual Report on Form 20-F for the year ended
December 31, 1994 and incorporated by reference
herein.
10.19 -- Supply Contract entered into on November 28, 1994
between Autobuses and Navistar for the "T-444E",
"T-444NG", "DT 466" and "530" engines, filed as
Exhibit 3.18 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.20 -- Distribution Agreement dated September 2, 1994
between Autobuses and Dina Comercializadora, S.A. de
C.V., together with an English translation, filed as
Exhibit 3.19 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.21 -- Distribution Agreement dated September 2, 1994
between Camiones and Dina Comercializadora, S.A. de
C.V., together with an English translation, filed as
Exhibit 3.20 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.22 -- Bus Purchase Requirements Agreement by and among GLI
Operating Company, Greyhound Lines, Inc.,
Transportation Manufacturing Corporation and Motor
Coach Industries, Inc., as amended by: a letter
agreement dated June 15, 1987 from GLI Holding
Company to The Greyhound Corporation; Amendment to
Bus Purchase Requirements Agreement; entered into as
of June 30, 1988 by and among GLI Operating Company,
Transportation Leasing Co., Transportation
Manufacturing Corporation and Motor Coach Industries
Inc.; Term Sheet/Agreement in Principle dated July
13, 1988 among GLI Holding Company and The Greyhound
Corporation; Claims Treatment Agreement made and
entered into in of August, 1991 among Greyhound
Lines, Inc., the other Debtors signatory thereto and
The Greyhound Corporation; and Amendment Number 2 to
Bus Purchase Requirements Agreement executed as of
December 21, 1994 by Greyhound Lines, Inc.,
Transportation Leasing Co., Motor Coach Industries,
Inc. and Transportation Manufacturing Corporation,
filed as Exhibit 3.21 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994
and incorporated by reference herein.
10.23* -- Employment Agreement, dated as of September 30,
1996, between Universal Coach Parts, Inc. and Jerry
W. Bost.
10.24* -- Employment Agreement, dated as of September 30,
1996, between Transportation Manufacturing
Operations, Inc. and James P. Bernacchi.
10.25+ -- Employment Agreement, dated as of September 30,
1996, between Grupo Dina and Jose Luis Olvera.
10.26 -- Parts Purchase and Supply Agreement entered into as
of May 1, 1994 by and between Greyhound Lines, Inc.
and Universal Coach Parts, Inc., as amended by
Amendment No.1 entered into as of May 1, 1994, filed
as Exhibit 3.24 to Grupo Dina's Annual Report on
Form 20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.27 -- Limited Recourse Chattel Paper Purchase Agreement
dated as of March 31, 1994 between MCI Acceptance
Corp. and The CIT Group/Equipment Financing, Inc.
and related Guaranty dated as of March 31, 1994; and
Amendment No. 1 dated May 15, 1995 and related
Guaranty dated as of May 15, 1995, filed as Exhibit
3.26 to Grupo Dina's Annual Report on Form 20-F for
the year ended December 31, 1994 and incorporated by
reference herein.
10.28 -- Registration Agreement, dated June 3, 1996, among
the Company, MCII Holdings and Salomon Brothers Inc,
Alliance Capital Management Corporation and John
Hancock Mutual Life Insurance Company, filed as
Exhibit 3.28 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1995 and
incorporated by reference herein.
10.29* -- Coach Purchase Agreement, dated August 1, 1995,
between Dina Autobuses, S.A. de C.V. and Hausman Bus
Sales Inc.
12.1 -- Computation of ratio of earnings to fixed charges of
Grupo Dina.
12.2 -- Computation of ratio of earnings to fixed charges of
MCII Holdings.
21.1 -- List of Subsidiaries of Grupo Dina, filed as Exhibit
21.1 to Grupo Dina's Annual Report on Form 20-F for
the year ended December 31, 1995 and incorporated by
reference herein.
21.2x -- List of Subsidiaries of MCII Holdings.
23.1 -- Consent of Ritch, Heather y Meuller, S.C. (included
in Exhibit 5.1).
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom
(included in Exhibit 5.2).
23.3* -- Consent of Arthur Andersen.
23.4* -- Consent of Deloitte & Touche LLP.
24.1x -- Powers of Attorney.
25.1x -- Statement of Eligibility and Qualification on Form
T-1 of IBJ Schroder Bank & Trust Company, as trustee
under the Indenture relating to the Notes (bound
separately).
27x -- Financial Data Schedule of MCII Holdings.
99.1+ -- Form of Letter of Transmittal.
- ---------------------------
* Filed herewith
+ To be filed by amendment
x Previously filed
(b) Financial Statement Schedules
The required Schedules II, V, VII and X are included in the notes to
the audited financial statements of Grupo Dina. No other Schedules are
required.
ITEM 17. UNDERTAKINGS
(a) The undersigned Co-Registrants hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not
exceed that which was registered) and any deviation from
the low or high 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 that 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 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 the 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.
(4) In the case of Grupo Dina, to file a post-effective
amendment to the registration statement to include any financial
statements required by Rule 3-19 at the start of any delayed
offering or throughout a continuous offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Co-Registrants pursuant to the foregoing
provisions, or otherwise, the Co-Registrants have been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by any of the Co-Registrants of expenses incurred or paid by
a director, officer or controlling person of such Co-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 Co-Registrants will, unless in
the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by them is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
co-registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form F-1 and has duly caused
this Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Mexico, D.F., Mexico, on October 8, 1996.
CONSORCIO G GRUPO DINA, S.A. DE C.V.
By: /s/ JOSE LUIS OLVERA CABALLERO
Jose Luis Olvera Caballero
Director of Finance
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement on Form F-1 has been signed
by the following persons in the capacities and on the dates indicated.
Signature Title Date
Chairman, Director and October 8, 1996
* Chief Executive Officer
________________________ (Principal Executive Officer)
Rafael Gomez Flores
/s/ JOSE LUIS OLVERA CABALLERO Director of Finance October 8, 1996
_________________________ (Principal Financial and
Jose Luis Olvera Caballero Accounting Officer)
* Director October 8, 1996
____________________________
Alejandro Cumming Soliveras
* Director October 8, 1996
_____________________________
Luis German Carcova
* Director October 8, 1996
_____________________________
Guillermo Gomez Flores
* Director October 8, 1996
_____________________________
Luis Huante Rodriguez
* Director October 8, 1996
______________________________
Antonio Mijares Ricci
* Director October 8, 1996
______________________________
Juan Gargallo Costa
*By: /s/ JOSE LUIS OLVERA CABALLERO
________________________________
Jose Luis Olvera Caballero
Attorney-in-Fact
By: /s/ JEFF W. SANDERS Authorized Representative October 8, 1996
------------------------ in the United States
Jeff W. Sanders
Controller, MCII Holdings
Pursuant to the requirements of the Securities Act of 1933, the
co-registrant has duly caused this Amendment No. 1 to its Registration
Statement on Form S-1 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mexico, D.F., Mexico, on October
8, 1996.
MCII HOLDINGS (USA), INC.
By: /s/ GUILLERMO KAREH AARUN
Guillermo Kareh Aarun
Director, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement on Form S-1 has been signed
by the following persons in the capacities and on the dates indicated.
Signature Title Date
* President and Director October 8, 1996
_______________________ (Principal Executive Officer)
Rafael Gomez Flores
/s/ JOSE LUIS OLVERA CABALLERO Vice President and Chief October 8, 1996
- -------------------------------- Financial Officer
Jose Luis Olvera Caballero and Director
(Principal Accounting Officer)
/s/ JEFF W. SANDERS Controller October 8, 1996
- ---------------------
Jeff W. Sanders
/s/ GUILLERMO KAREH AARUN Director, General Counsel October 8, 1996
- --------------------------- and Secretary
Guillermo Kareh Aarun
* Director October 8, 1996
____________________________
Stephen P. Glennon
*By: /s/ GUILLERMO KAREH AARUN
______________________________
Guillermo Kareh Aarun
Attorney-in-Fact
Registration No. 333-08843
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
EXHIBITS
TO
FORM F-1/S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------------
CONSORCIO G GRUPO DINA, S.A. DE C.V.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
MCII HOLDINGS (USA), INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
3.1 -- Bylaws (Estatutos Sociales) of Grupo Dina, which
includes its Articles of Incorporation, together
with an English translation, filed as Exhibit 1.1
to Grupo Dina's Annual Report on Form 20-F for the
year ended December 31, 1994 and incorporated by
reference herein.
3.2x -- Restated Certificate of Incorporation of MCII Holdings
3.3x -- Bylaws of MCII Holdings
4.1 -- Indenture, dated as of August 8, 1994, between Grupo
Dina and Bankers Trust Company, as Trustee, relating
to the Debentures, including the form of Debenture,
filed as Exhibit 2.3 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994
and incorporated by reference herein.
4.2 -- Indenture, dated as of April 30, 1996, between Grupo
Dina and IBJ Schroder Bank & Trust Company, as
Trustee, relating to the Notes, including the form
of Old Note and New Note, filed as Exhibit 2.4 to
Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1995 and incorporated by
reference herein.
4.3* US$125,000,000 Credit Agreement, dated as of
September 30, 1996, among Transportation
Manufacturing Operations, Inc. as the Borrower, the
Lenders Parties thereto and NBD Bank as
Administrative Agent.
4.4 US$125,000,000 9.02% Senior Notes Due November 15,
2002 Note Agreement, as amended by letter
agreement, filed as Exhibit 3.23 to Grupo Dina's
Annual Report on Form 20-F for the year ended
December 31, 1994 and incorporated by reference
herein.
4.5* Form of Amendment to US$125,000,000 9.02% Senior
Notes Due November 15, 2002 Note Agreement as
executed by the requisite holders of the Notes.
4.6* Intercreditor Agreement, dated as of September 30,
1996, by and among the Lenders under the
US$125,000,000 Credit Agreement dated as of
September 30, 1996, NBD Bank, and the holders of the
9.02% Senior Notes due 2002 issued by Transportation
Manufacturing Operations, Inc.
5.1+ -- Opinion of Ritch, Heather y Mueller, S.C., Mexican
counsel to the co-registrants, regarding the
legality of the New Notes.
5.2+ -- Opinion of Skadden, Arps, Slate, Meagher & Flom,
U.S. counsel to the co-registrants, regarding the
legality of the New Notes.
10.1 -- Research, Engineering and Maintenance Contract dated
March 12, 1987 between Navistar and Camiones for the
"S" Series of medium duty trucks, filed as Exhibit
10.1 to Grupo Dina's Registration Statement on Form
F-1 (No. 33-53380) and incorporated by reference
herein.
10.2 -- Supply Contract dated March 12, 1987 between
Navistar and Camiones for the "S" Series of medium
duty trucks, filed as Exhibit 10.2 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380)
and incorporated by reference herein.
10.3 -- Research, Engineering, and Maintenance Contract
dated November 21, 1989 between Navistar and
Camiones for the "9400" Series of heavy duty trucks,
filed as Exhibit 10.3 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.4 -- Supply Contract dated November 21, 1989 between
Navistar and Camiones for the "9400" Series of heavy
duty trucks, filed as Exhibit 10.4 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380)
and incorporated by reference herein.
10.5 -- Research, Engineering and Maintenance Contract dated
November 20, 1990 between Navistar and Camiones for
the "7.3", "DT/DTA-360" and "DT/DTA-466" Series of
diesel engines, filed as Exhibit 10.5 to Grupo
Dina's Registration Statement on Form F-1 (No.
33-53380) and incorporated by reference herein.
10.6 -- Supply Contract dated November 20, 1990 between
Navistar and Camiones for the "7.3", "DT/DTA-360"
and DT/DTA-466" Series of diesel engines, filed as
Exhibit 10.6 to Grupo Dina's Registration Statement
on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.7 -- Supply Contract for bus bodies dated February 20,
1992 between Marcopolo and Autobuses, filed as
Exhibit 10.7 to Grupo Dina's Registration Statement
on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.8 -- Technology and Supply Contract dated February 21,
1992 between Marcopolo and Autobuses for bus bodies,
filed as Exhibit 10.8 to Grupo Dina's Registration
Statement on Form F-1 (No.33-53380) and incorporated
by reference herein.
10.9 -- Amendment dated April 22, 1993 to Technology and
Supply Contract dated February 21, 1992 between
Marcopolo and Autobuses, filed as Exhibit 3.9 to
Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1995 and incorporated by
reference herein.
10.10 -- Licensing Agreement dated February 23, 1981
between Budd and Plasticos and amendments thereto,
filed as Exhibit 10.10 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.11 -- Shareholders and Subscription Agreement dated
October 12, 1987 among the Company, Navistar and
Chrysler, filed as Exhibit 10.13 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380)
and incorporated by reference herein.
10.12 -- Form of Camiones Distribution Contract, together
with English translation, filed as Exhibit 3.12 to
Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1994 and incorporated by
reference herein.
10.13 -- Form of Commercial Agency Agreement for heavy duty
trucks for Camiones, filed as Exhibit 10.16 to Grupo
Dina's Registration Statement on Form F-1 (No.
33-53380) and incorporated by reference herein.
10.14 -- Commercial Brokers Contract dated January 2, 1991
between Autobuses and Grupo Dina, filed as Exhibit
10.17 to Grupo Dina's Registration Statement on Form
F-1 (No. 33-53380) and incorporated by reference
herein.
10.15 -- Fiscal Agency Agreement dated November 18, 1992
among Grupo Dina, Camiones and Autobuses, as
Guarantors, and Bankers Trust Company, as Fiscal
Agent, filed as Exhibit 10.18 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380)
and incorporated by reference herein.
10.16 -- Supplemental Fiscal Agency Agreement, dated as of
May 28, 1996, among the Company, Camiones and
Autobuses, as Guarantors, and Bankers Trust Company,
as Trustee, filed as Exhibit 3.16 to Grupo Dina's
Annual Report on Form 20-F for the year ended
December 31, 1995 and incorporated by reference
herein.
10.17 -- Agreement dated June 7, 1994 among Navistar,
Navistar International Transportation Corp.,
Camiones and Grupo Dina, filed as Exhibit 4.3 to
Grupo Dina's Registration Statement on Form F-1 and
F-4 (No. 33-79392) and incorporated by reference
herein.
10.18 -- Contract dated October 11, 1994, between Grupo Dina
and Navistar, filed as Exhibit 3.17 to the Company's
Annual Report on Form 20-F for the year ended
December 31, 1994 and incorporated by reference
herein.
10.19 -- Supply Contract entered into on November 28, 1994
between Autobuses and Navistar for the "T-444E",
"T-444NG", "DT 466" and "530" engines, filed as
Exhibit 3.18 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.20 -- Distribution Agreement dated September 2, 1994
between Autobuses and Dina Comercializadora, S.A. de
C.V., together with an English translation, filed as
Exhibit 3.19 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.21 -- Distribution Agreement dated September 2, 1994
between Camiones and Dina Comercializadora, S.A. de
C.V., together with an English translation, filed as
Exhibit 3.20 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.22 -- Bus Purchase Requirements Agreement by and among GLI
Operating Company, Greyhound Lines, Inc.,
Transportation Manufacturing Corporation and Motor
Coach Industries, Inc., as amended by: a letter
agreement dated June 15, 1987 from GLI Holding
Company to The Greyhound Corporation; Amendment to
Bus Purchase Requirements Agreement; entered into as
of June 30, 1988 by and among GLI Operating Company,
Transportation Leasing Co., Transportation
Manufacturing Corporation and Motor Coach Industries
Inc.; Term Sheet/Agreement in Principle dated July
13, 1988 among GLI Holding Company and The Greyhound
Corporation; Claims Treatment Agreement made and
entered into in of August, 1991 among Greyhound
Lines, Inc., the other Debtors signatory thereto and
The Greyhound Corporation; and Amendment Number 2 to
Bus Purchase Requirements Agreement executed as of
December 21, 1994 by Greyhound Lines, Inc.,
Transportation Leasing Co., Motor Coach Industries,
Inc. and Transportation Manufacturing Corporation,
filed as Exhibit 3.21 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994
and incorporated by reference herein.
10.23* -- Employment Agreement, dated as of September 30,
1996, between Universal Coach Parts, Inc. and Jerry
W. Bost.
10.24* -- Employment Agreement, dated as of September 30,
1996, between Transportation Manufacturing
Operations, Inc. and James P. Bernacchi.
10.25+ -- Employment Agreement, dated as of September 30,
1996, between Grupo Dina and Jose Luis Olvera.
10.26 -- Parts Purchase and Supply Agreement entered into as
of May 1, 1994 by and between Greyhound Lines, Inc.
and Universal Coach Parts, Inc., as amended by
Amendment No.1 entered into as of May 1, 1994, filed
as Exhibit 3.24 to Grupo Dina's Annual Report on
Form 20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.27 -- Limited Recourse Chattel Paper Purchase Agreement
dated as of March 31, 1994 between MCI Acceptance
Corp. and The CIT Group/Equipment Financing, Inc.
and related Guaranty dated as of March 31, 1994; and
Amendment No. 1 dated May 15, 1995 and related
Guaranty dated as of May 15, 1995, filed as Exhibit
3.26 to Grupo Dina's Annual Report on Form 20-F for
the year ended December 31, 1994 and incorporated by
reference herein.
10.28 -- Registration Agreement, dated June 3, 1996, among
the Company, MCII Holdings and Salomon Brothers Inc,
Alliance Capital Management Corporation and John
Hancock Mutual Life Insurance Company, filed as
Exhibit 3.28 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1995 and
incorporated by reference herein.
10.29* -- Coach Purchase Agreement, dated August 1, 1995,
between Dina Autobuses, S.A. de C.V. and Hausman Bus
Sales Inc.
12.1 -- Computation of ratio of earnings to fixed charges of
Grupo Dina.
12.2 -- Computation of ratio of earnings to fixed charges of
MCII Holdings.
21.1 -- List of Subsidiaries of Grupo Dina, filed as Exhibit
21.1 to Grupo Dina's Annual Report on Form 20-F for
the year ended December 31, 1995 and incorporated by
reference herein.
21.2x -- List of Subsidiaries of MCII Holdings.
23.1 -- Consent of Ritch, Heather y Meuller, S.C. (included
in Exhibit 5.1).
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom
(included in Exhibit 5.2).
23.3* -- Consent of Arthur Andersen.
23.4* -- Consent of Deloitte & Touche LLP.
24.1x -- Powers of Attorney.
25.1x -- Statement of Eligibility and Qualification on Form
T-1 of IBJ Schroder Bank & Trust Company, as trustee
under the Indenture relating to the Notes (bound
separately).
27x -- Financial Data Schedule of MCII Holdings.
99.1+ -- Form of Letter of Transmittal.
- ---------------------------
* Filed herewith
+ To be filed by amendment
x Previously filed
EXECUTION COPY
===============================================
U.S. $125,000,000
CREDIT AGREEMENT
AMONG
TRANSPORTATION MANUFACTURING OPERATIONS, INC
AS THE BORROWER,
THE LENDERS PARTIES HERETO,
AND
NBD BANK,
AS ADMINISTRATIVE AGENT
===============================================
Dated as of October 1, 1996
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . 1
SECTION 1.01. Certain Defined Terms . . . . . . . 1
SECTION 1.02. Computation of Time Periods . . . 19
SECTION 1.03. Accounting Terms . . . . . . . . . 20
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES . . . . . . . . 20
SECTION 2.01. The Advances . . . . . . . . . . . 20
SECTION 2.02. Making the Advances . . . . . . . 20
SECTION 2.03. Swing Line Loans . . . . . . . . . 23
SECTION 2.04. Letters of Credit . . . . . . . . 24
SECTION 2.05. Facility Fees; Administrative Agent's
and Arranger's Fees . . . . . . . . . . 31
SECTION 2.06. Termination and Reduction of the
Commitments . . . . . . . . . . . . . . 31
SECTION 2.07. Repayment and Prepayment of Advances 31
SECTION 2.08. Interest on Advances; Default Rate 34
SECTION 2.09. Interest Rate Determination . . . 35
SECTION 2.10. Voluntary Conversion or Continuation
of Advances . . . . . . . . . . . . . . 35
SECTION 2.11. Increased Costs . . . . . . . . . 36
SECTION 2.12. Payments and Computations . . . . 37
SECTION 2.13. Taxes . . . . . . . . . . . . . . 38
SECTION 2.14. Sharing of Payments, Etc . . . . . 40
SECTION 2.15. Evidence of Debt . . . . . . . . . 40
SECTION 2.16. Use of Proceeds . . . . . . . . . 41
SECTION 2.17. Margins, Applicable Facility Fees and
Applicable Letter of Credit Fees . . . 41
ARTICLE III
CONDITIONS OF LENDING . . . . . . . . . . . . . . 42
SECTION 3.01. Condition Precedent to Effectiveness 42
SECTION 3.02. Conditions Precedent to Each
Borrowing . . . . . . . . . . . . . . . 46
SECTION 3.03. Conditions Precedent to Letter of
Credit . . . . . . . . . . . . . . . . 46
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . 47
SECTION 4.01. Representations and Warranties of the
Borrower . . . . . . . . . . . . . . . 47
ARTICLE V
COVENANTS OF THE BORROWER . . . . . . . . . . . . 52
SECTION 5.01. Affirmative Covenants . . . . . . 52
SECTION 5.02. Negative Covenants . . . . . . . . 57
SECTION 5.03. Financial Covenants . . . . . . . 65
ARTICLE VI
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 66
SECTION 6.01. Events of Default . . . . . . . . 66
ARTICLE VII
THE ADMINISTRATIVE AGENT . . . . . . . . . . . . 70
SECTION 7.01 Appointment; Nature of Relationship 70
SECTION 7.02 POWERS . . . . . . . . . . . . . . 71
SECTION 7.03 GENERAL IMMUNITY . . . . . . . . . 71
SECTION 7.04 NO RESPONSIBILITY FOR LOANS,
CREDITWORTHINESS, RECITALS, ETC . . . . . 71
SECTION 7.05 Action on Instructions of Lenders . 72
SECTION 7.06 EMPLOYMENT OF AGENTS AND COUNSEL . 72
SECTION 7.07 RELIANCE ON DOCUMENTS; COUNSEL . . 72
SECTION 7.08 THE ADMINISTRATIVE AGENT'S
REIMBURSEMENT AND INDEMNIFICATION . . . 72
SECTION 7.09 RIGHTS AS A LENDER . . . . . . . . 73
SECTION 7.10 LENDER CREDIT DECISION . . . . . . 73
SECTION 7.11 SUCCESSOR ADMINISTRATIVE AGENT . . 73
SECTION 7.12. Loan Documents . . . . . . . . . . 74
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . 74
SECTION 8.01. Amendments, Etc . . . . . . . . . 75
SECTION 8.02. Notices, Etc . . . . . . . . . . . 75
SECTION 8.03. No Waiver; Remedies . . . . . . . 75
SECTION 8.04. Costs, Expenses and Indemnification 76
SECTION 8.05. Right of Set-off . . . . . . . . . 78
SECTION 8.06. Binding Effect . . . . . . . . . . 79
SECTION 8.07. Assignments and Participations . . 79
SECTION 8.08. Governing Law . . . . . . . . . . 81
SECTION 8.09. Execution in Counterparts . . . . 81
SECTION 8.10. Consent to Jurisdiction; Service of
Process . . . . . . . . . . . . . . . . 81
SECTION 8.11. WAIVER OF TRIAL BY JURY; WAIVER OF
BOND; ADVICE OF COUNSEL . . . . . . . . 82
SECTION 8.12. Confidentiality . . . . . . . . . 83
SECTION 8.13. Agreement Regarding Letters of
Credit . . . . . . . . . . . . . . . . 84
SECTION 8.14. NO STRICT CONSTRUCTION . . . . . 84
SECTION 8.15. RATABLE PAYMENTS . . . . . . . . . 84
SECTION 8.16. APPLICATION OF PAYMENTS . . . . . 84
SECTION 8.17. RELATIONS AMONG LENDERS . . . . . 85
EXHIBITS
Exhibit A Form of Assignment and Acceptance
Exhibit B Form of Guaranty
Exhibit C-1 Form of Note
Exhibit C-2 Form of Swing Line Note
Exhibit D Form of Notice of Borrowing
Exhibit E Form of Notice of Letter of Credit Issuance
Exhibit F-1 Form of Special Counsel's Opinion
Exhibit F-2 Form of Corporate Counsel's Opinion
Exhibit G Form of Compliance Certificate
SCHEDULES
Schedule 1.01 - List of Applicable Lending Offices
and Notice Addresses
Schedule 4.01(b) - List of Subsidiaries and Subsidiary
Guarantors
Schedule 4.01(g) - Litigation
Schedule 4.01(k) - Pension Plans, Foreign
Pension Plans, Etc.
Schedule 5.02(a) - Permitted Existing Debt and Contin-
gent Obligations.
Schedule 5.02(c) - Permitted Existing Investments
Schedule 5.02(d) - List of Certain Bonds
Schedule 5.02(l) - Tax Distribution Calculations
CREDIT AGREEMENT
Dated as of October 1, 1996
TRANSPORTATION MANUFACTURING OPERATIONS, INC., a
Delaware corporation (the "Borrower"), the "Lenders" (as
defined below) parties from time to time hereto and NBD
BANK, as contractual representative (the "Administrative
Agent") for the Lenders hereunder, hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Adjusted Eurodollar Rate" means, for any Interest
Period for each Eurodollar Rate Advance comprising part
of the same Borrowing, an interest rate per annum equal
to the rate per annum obtained by dividing (a) the rate
per annum (rounded upward to the nearest whole multiple
of 1/16 of 1% per annum, if such average is not such a
multiple) at which deposits in U.S. dollars are offered
by the Administrative Agent in London, England to prime
banks in the London interbank market at 11:00 A.M.
(London time) two Business Days before the first day of
such Interest Period in an amount substantially equal
to its Eurodollar Rate Advance comprising part of such
Borrowing and for a period equal to such Interest
Period by (b) a percentage equal to 100% minus the
Eurodollar Rate Reserve Percentage.
"Advance" means (i) with respect to a Lender, an
advance by a Lender to the Borrower as part of a
Borrowing made pursuant to Section 2.01 and refers to a
Base Rate Advance or a Eurodollar Rate Advance, each of
which shall be a "Type" of Advance and (ii) in the case
of the Swing Line Bank, any Swing Line Loan made
pursuant to Section 2.03 hereof, all of which shall be
Base Rate Advances.
"Affiliate" means, as to any Person, any other
Person that, directly or indirectly, controls, is
controlled by or is under common control with such
Person or is a director or officer of such Person. A
Person shall be deemed to control another Person if the
controlling Person is the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of greater than ten percent (10%) or more of
any class of voting securities (or other voting
interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause
the direction of the management or policies of the
controlled Person, whether through ownership of capital
stock, by contract or otherwise.
"Agreement" means this Credit Agreement, as it may
be amended, restated, supplemented or otherwise
modified from time to time.
"Alternate Base Rate" means, for any period, a
fluctuating interest rate per annum as shall be in
effect from time to time which rate per annum shall at
all times be equal to the higher of:
(a) the Prime Rate;
(b) the sum of (A) 0.625% per annum plus (B) the
Federal Funds Rate.
"Applicable Lending Office" means, with respect to
each Lender, such Lender's Domestic Lending Office in
the case of a Base Rate Advance, and such Lender's
Eurodollar Lending Office in the case of a Eurodollar
Rate Advance.
"Arranger" means First Chicago Capital Markets,
Inc.
"Asset Sale" means, with respect to any Person,
the sale, lease, conveyance, disposition or other
transfer by such Person of any of its assets (including
by way of a sale-leaseback transaction and including
the sale or other transfer of any of the Equity
Interests of any Subsidiary of such Person).
"Assignment and Acceptance" means an assignment
and acceptance entered into by a Lender and an Eligible
Assignee, and accepted by the Administrative Agent, in
substantially the form of EXHIBIT A hereto.
"Base Rate Advance" means an Advance which bears
interest as provided in Section 2.08(a).
"Borrowing" means a borrowing consisting of
Advances of the same Type made on the same day pursuant
to the same Notice of Borrowing by each of the Lenders
pursuant to Section 2.01.
"Business Day" means a day of the year on which
banks are not required or authorized to close in
Detroit, Michigan and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which
dealings are carried on in the London interbank market.
"Canadian Debt" has the meaning specified in
Section 5.02(a)(vii).
"Capital Lease" means, with respect to any Person,
any lease of any property by that Person as lessee
which would, in conformity with GAAP, be required to be
accounted for as a capital lease on the balance sheet
of that Person.
"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, partnership 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.
"Capitalization Ratio" means, as of any date of
determination, the ratio of (i) Consolidated Total Debt
to (ii) the sum of Consolidated Total Debt plus
Consolidated Net Worth, in each case determined as of
such date of determination.
"Cash Equivalents" means (i) marketable securities
issued or directly and unconditionally guaranteed by
the United States Government or issued by any agency
thereof and backed by the full faith and credit of the
United States, in each case maturing within one year
from the date of acquisition thereof; (ii) marketable
direct obligations issued by any state of the United
States of America or any political subdivision of any
such state or any public instrumentality thereof
maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having a
rating of at least AA from S&P or at least Aa2 from
Moody's; (iii) commercial paper maturing no more than
one year from the date of creation thereof and, at the
time of acquisition, having a rating of at least A-1
from S&P or at least P-1 from Moody's;
(iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition
thereof issued by any Lender or any commercial bank
organized under the laws of the United States of
America or any state thereof or the District of
Columbia having unimpaired capital and surplus of not
less than $250,000,000 (each Lender and each such
commercial bank herein called a "Cash Equivalent
Bank"); (v) Eurodollar time deposits having a maturity
of less than one year purchased directly from any Cash
Equivalent Bank (whether such deposit is with such Cash
Equivalent Bank or any other Cash Equivalent Bank);
(vi) any demand deposit and cash management accounts
maintained with any Cash Equivalent Bank; and
(vii) bank instruments maturing within one year from
the date of acquisition thereof issued by a bank or
trust company (or a branch or affiliate thereof),
organized under the laws of the United Mexican States,
Canada, any European Economic Community country, Japan
or any other country, that has an A-1 or P-1 commercial
paper rating or is rated AA or better by S&P or Aa2 or
better by Moody's on its long-term debt having capital,
surplus and individual profits aggregating at least
$1,000,000,000.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commitment" has the meaning specified in
Section 2.01.
"Company" means Motor Coach Industries
International, Inc., a Delaware corporation.
"Consolidated Capital Expenditures" means, for any
period, the aggregate of all expenditures (whether paid
in cash or other consideration or accrued as a
liability, but excluding expenditures made in
connection with the replacement, substitution or
restoration of assets (A) to the extent financed from
insurance proceeds paid on account of the loss or
damage to the assets being replaced or restored or
(B) with awards of compensation arising from the taking
by eminent domain or condemnation of the assets being
replaced) by the Borrower and its Subsidiaries during
that period that, in conformity with GAAP, are or
should be included in "additions to property, plant or
equipment" or comparable items reflected in the
consolidated statement of cash flows of the Borrower
and its Subsidiaries.
"Consolidated EBITDA" means, for any period, the
sum (without duplication) of the amounts for such
period of (i) Consolidated Net Income,
(ii) Consolidated Interest Expense, (iii) provisions
for taxes based on income, (iv) total depreciation
expense and (v) total amortization expense plus other
non-cash items deducted in arriving at Consolidated Net
Income, all of the foregoing as determined on a
consolidated basis for the Borrower and its
Subsidiaries in conformity with GAAP.
"Consolidated Interest Expense" means, for any
period, total interest expense (including the interest
component as determined in accordance with GAAP of all
rents paid under Capital Leases and capitalized
interest) of the Borrower and its Subsidiaries on a
consolidated basis with respect to all outstanding Debt
of the Borrower and its Subsidiaries, including,
without limitation, all financial interest expense, the
facility fees payable pursuant to Section 2.05(a)
hereof and all fees, commissions, discounts and other
charges with respect to letters of credit and net costs
under Interest Rate Agreements, but excluding, in any
event, any amortization or payment of Non-Recurring
Financing Fees.
"Consolidated Net Income" means, for any period,
the net income (or loss) of the Borrower and its
Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in
conformity with GAAP; provided that there shall be
excluded (i) the income (or loss) of any Person (other
than a Subsidiary of the Borrower) in which any other
Person (other than the Borrower or any of its
Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other
distributions actually paid to the Borrower or any of
its Subsidiaries by such Person during such period,
(ii) the income (or loss) of any Person accrued prior
to the date it becomes a Subsidiary of the Borrower or
is merged into or consolidated with the Borrower or any
of its Subsidiaries or that Person's assets are
acquired by the Borrower or any of its Subsidiaries,
(iii) the income of any Subsidiary of the Borrower to
the extent that the declaration or payment of dividends
or similar distributions by that Subsidiary of that
income is not at the time permitted by operation of the
terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (iv) any
after-tax gains or losses attributable to returned
surplus assets of any Pension Plan, (v) any after-tax
gains or losses on sales or dispositions of assets
other than sales or dispositions of buses, coaches,
leases or notes receivable in the ordinary course of
business consistent with past practice and (vi) (to the
extent not included in clauses (i) through (v) above)
any net extraordinary gains or net extraordinary losses
including, without limitation, the loss in the amount
of $5,000,000 reflected on the Borrower's financial
statements dated as of June 30, 1996 from discontinued
operations of the Borrower's transit bus business.
"Consolidated Net Worth" means the stockholders
equity of the Borrower, determined in conformity with
GAAP.
"Consolidated Rental Payments" means, for any
period, the aggregate amount of all rents paid under
all operating leases and the principal portion (as
determined in accordance with GAAP) of all rents paid
under all Capital Leases of the Borrower and its
Subsidiaries as lessee.
"Consolidated Total Debt" means, as at any date of
determination, the aggregate amount of all Debt of the
Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Contingent Obligation," as applied to any Person,
means any direct or indirect liability, contingent or
otherwise, of that Person with respect to (i) Financial
Guaranties, (ii) Interest Rate Agreements or Currency
Agreements, (iii) obligations to repurchase coach or
bus leases or chattel paper, (iv) first loss or similar
arrangements entered into in connection with sales of
receivables, and (v) surety bonds issued for the
account of that Person or as to which that Person is
otherwise liable for reimbursement. Contingent
Obligations shall include, without limitation, (a) the
direct or indirect guaranty, endorsement (other than
for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale
with recourse by such Person of the obligation of
another, (b) the obligation to make take-or-pay or
similar payments if required regardless of non-
performance by any other party or parties to an
agreement, and (c) any liability of such Person for the
obligation of another through any agreement (contingent
or otherwise) (X) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise) or
(Y) to maintain the solvency or any balance sheet item,
level of income or financial condition of another if,
in the case of any agreement described under subclauses
(X) or (Y) of this sentence, the primary purpose or
intent thereof is as described in the preceding
sentence (it being agreed and understood that
Contingent Obligations do not include Residual Value
Guaranties, Trade-In Value Guaranties or obligations to
repurchase buses and coaches incurred in connection
with sales of such buses and coaches). The amount of
any Contingent Obligation shall be equal to the amount
of the obligation so guaranteed or otherwise supported
or, if less, the amount to which such Contingent
Obligation is specifically limited.
"Convert," "Conversion" and "Converted" each
refers to a conversion of Advances of one Type into
Advances of another Type pursuant to Section 2.10.
"Credit Level" means, for the purposes of
determining the Margin, the amount of facility fees
payable under Section 2.05(a) or the letter of credit
fees payable under Section 2.04(e)(ii) as of any date
of determination, Level 1, Level 2, Level 3 or Level 4,
as applicable, determined (a) by reference to the
Borrower's debt ratings (as in effect on such date of
determination) if the Borrower's senior unsecured non-
credit-enhanced, long-term debt ("Rated Debt") carries
an investment grade rating by S&P and Moody's or (b) if
the Borrower's Rated Debt does not carry an investment
grade rating by both S&P and Moody's, by reference to
the Borrower's Leverage Ratio (determined, as of any
date of determination, based upon the most recent
financial statements delivered by the Borrower pursuant
to Section 5.01(a) on or prior to such date of
determination), as follows:
Level 1: (a) the Borrower's Rated Debt is rated by at
least two of S&P, Moody's and NAIC and is not
rated below BBB+ by S&P, Baa1 by Moody's or
NAIC 1 by NAIC or (b) if the Borrower's Rated
Debt is not rated by any two such rating
agencies, the Leverage Ratio is less than or
equal to 2.50 to 1.00;
Level 2: (a) the Borrower's Rated Debt is rated by at
least two of S&P, Moody's and NAIC, does not
meet the requirements for Level 1 set forth
above and is not rated below BBB by S&P, Baa2
by Moody's or NAIC 2 by NAIC or (b) if
Borrower's Rated Debt is not rated by any two
such rating agencies, the Leverage Ratio is
greater than 2.50 to 1.00 and less than or
equal to 3.00 to 1.00;
Level 3: the Borrower's credit ratings or, if
applicable, the Leverage Ratio are such that
neither the requirements for Level 1 or 2,
set forth above, nor the requirements for
Level 4, set forth below, are satisfied;
Level 4: (a) the Borrower's Rated Debt is not rated by
at least two of S&P, Moody's and NAIC or is
rated BBB- or less by S&P, Baa3 or less by
Moody's or NAIC 2 or less by NAIC, or (b) the
Leverage Ratio is equal to or greater than
4.00 to 1.00;
provided, however, that if, as of any date of
determination, the Borrower's Rated Debt is not rated
by at least two of S&P, Moody's and NAIC and the
Borrower shall have failed to deliver financial
statements in accordance with Sections 5.01(a)(i) and
5.01(a)(ii), and such failure shall be continuing, the
Borrower's Credit Level shall be Level 4. In the event
that there is a split in Credit Levels between the
credit ratings of S&P and Moody's, the stronger rating
of those two agencies (yielding the lower Margin) shall
be applicable.
The Credit Levels as set forth above (which in all
events shall be controlling) are also set forth in the
table below for the convenience of the parties hereto:
Credit Rated Debt Leverage
Level (by at least Ratio
two agencies)
Level 1 S&P: BBB+ or better > 2.50 to
Moody's: BAA1 or better 1.00
NAIC: NAIC1 or
better
Level 2 S&P: BBB or better > 2.50 to 1.00
Moody's: Baa2 or better and
NAIC: NAIC2 or better < 3.00 to 1.00
(but Level 1 not
satisfied)
Level 3 No other level applicable No other level applicable
Level 4 S&P: BBB- or worse > 4.00 to 1.00
Moody's: Baa3 or worse
NAIC: NAIC2 or worse
or not rated
"Currency Agreement" means (a) any foreign
exchange contract, currency swap agreement, futures
contract, option contract, synthetic cap or (b) any other
similar agreement or arrangement designed to protect the
Borrower or any of its Subsidiaries against currency risks.
"Debt" means, with respect to any Person,
(i) indebtedness of such Person for borrowed money,
(ii) obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
(iii) obligations of such Person to pay the deferred
purchase price of property or services, excluding trade
payables or accrued expenses arising in the ordinary
course of business, (iv) obligations of such Person as
lessee under Capital Leases, (v) obligations of such
Person under any financing lease or so-called
"synthetic" lease transactions (it being expressly
understood that "synthetic" lease does not mean any
operating lease in the ordinary course of the
Borrower's business) and (vi) Financial Guaranties.
"Dina" means Consorcio G Grupo Dina, S.A. de C.V.
"Dina Distribution" means a distribution, in an
amount not exceeding $30,000,000, by the Borrower in
respect of its shares of common stock paid to the
Company.
"Domestic Lending Office" means, with respect to
any Lender, the office of such Lender specified as its
"Domestic Lending Office" opposite its name on
SCHEDULE 1.01 hereto or in the Assignment and
Acceptance pursuant to which it became a Lender, or
such other office of such Lender as such Lender may
from time to time specify to the Borrower and the
Administrative Agent.
"Effective Date" means the first date, if any, on
or before October 1, 1996, upon which each of the
conditions precedent to the effectiveness of this
Agreement set forth in Section 3.01 are satisfied or
waived.
"Eligible Assignee" means any financial
institution or entity engaged in the business of
extending revolving credit which has combined capital
and surplus of not less than $50,000,000 or which is an
Affiliate of the assigning Lender and, in either such
case, which financial institution is acceptable to the
Administrative Agent (the approval of the
Administrative Agent not to be unreasonably withheld).
"Environmental Law" means any and all statutes,
laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental
restrictions of any federal, state or local
governmental authority within the United States or any
State or territory thereof or Canada or any Province
thereof and which relate to the environment or the
release of any materials into the environment.
"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).
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and
the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means any Person who for
purposes of Title IV of ERISA is a member of the
Borrower's controlled group, or under common control
with the Borrower, within the meaning of Section 414 of
the Code and the regulations promulgated and rulings
issued thereunder.
"ERISA Event" means (i) the occurrence of a
reportable event, within the meaning of Section 4043 of
ERISA, unless the 30-day notice requirement with
respect thereto has been waived by the PBGC; (ii) the
imposition of an obligation on the administrator of any
Pension Plan to provide affected parties with a notice
of intent to terminate such Pension Plan pursuant to
Section 4041(a)(2) of ERISA (including any such notice
with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (iii) the cessation of
operations at a facility in the circumstances described
in Section 4062(e) of ERISA; (iv) the withdrawal by the
Borrower or an ERISA Affiliate from a Multiple Employer
Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA;
(v) the failure by the Borrower or any ERISA Affiliate
to make a payment to a Pension Plan required under
Section 302(f)(1) of ERISA, which Section imposes a
lien for failure to make required payments;
(vi) failure by any Subsidiary or ERISA Affiliate to
pay any required contributions or payments to a Foreign
Pension Plan on or before the due date for such
required installment or payment; (vii) the adoption of
an amendment to a Pension Plan requiring the provision
of security to such Pension Plan, pursuant to
Section 307 of ERISA; (viii) the institution by the
PBGC or any similar governmental authority of
proceedings to terminate a Pension Plan, pursuant to
Section 4042 of ERISA, or a Foreign Pension Plan, or
the occurrence of any event or condition which, in the
reasonable judgment of the Borrower, might constitute
grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, a
Pension Plan or (ix) a foreign governmental authority
shall appoint or institute proceedings to appoint a
trustee to administer any Foreign Pension Plan.
"Eurocurrency Liabilities" has the meaning
assigned to that term in Regulation D of the Board of
Governors of the Federal Reserve System, as in effect
from time to time.
"Eurodollar Lending Office" means, with respect to
any Lender, the office of such Lender specified as its
"Eurodollar Lending Office" opposite its name on
SCHEDULE 1.01 hereto or in the Assignment and
Acceptance pursuant to which it became a Lender (or, if
no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such
Lender may from time to time specify to the Borrower
and the Administrative Agent.
"Eurodollar Rate Advance" means an Advance which
bears interest as provided in Section 2.08(b).
"Eurodollar Rate Reserve Percentage" for any
Interest Period for any Eurodollar Rate Advance means
the reserve percentage applicable during such Interest
Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for
those days in such Interest Period during which any
such percentage shall be so applicable) under
regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve
requirements (including, without limitation, any
emergency, supplemental or other marginal reserve
requirement) with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities
having a term equal to such Interest Period.
"Events of Default" has the meaning specified in
Section 6.01.
"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal for each day
during such period to the weighted average of the rates
on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a
Business Day, the average of the quotations for such
day on such transactions received by the Administrative
Agent from three Federal funds brokers of recognized
standing selected by it.
"Financial Guaranties" as applied to any Person,
means any direct or indirect liability, contingent or
otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend or other payment
obligation of another if the primary purpose or intent
thereof by the Person incurring such liability is to
provide assurance to the obligee of such obligation of
another that such obligation of another will be paid or
discharged, or that any agreements relating thereto
will be complied with, or that the holders of such
obligation will be protected (in whole or in part)
against loss in respect thereof, or (ii) any letter of
credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement
of drawings to the extent such letter of credit
supports a financial instrument or any Debt (it being
agreed and understood that Financial Guaranties do not
include (a) Residual Value Guaranties, Trade-In Value
Guaranties or obligations to repurchase buses and
coaches incurred in connection with sales of such buses
and coaches or (b) "first-loss" or similar arrangements
entered into in connection with the sale of receivables
whereby the seller is obligated to pay the purchaser
all or any portion of any such receivables that are not
paid when due).
"Financing" means, with respect to any Person, the
issuance by such Person of any Debt consisting of debt
securities of such Person pursuant to a registered
offering or private placement or the incurrence of
obligations under bank credit facilities other than the
Obligations under this Agreement.
"Foreign Employee Benefit Plan" means any employee
benefit plan as defined in Section 3(3) of ERISA which
is maintained or contributed to for the benefit of the
employees of the Borrower, any of its Subsidiaries or
any of its ERISA Affiliates, but which is not covered
by ERISA pursuant to Section 4(b)(4) of ERISA.
"Foreign Pension Plan" means any Foreign Employee
Benefit Plan which under applicable local law is
required to be funded through a trust or other funding
vehicle.
"Foreign Subsidiary" means MCIL, TMO Holdings,
MCIL Holdings, Limited, and any other Subsidiary of the
Borrower that is incorporated under the laws of a
jurisdiction outside the United States of America.
"GAAP" means generally accepted accounting
principles in effect from time to time, applied in a
manner consistent with that used in preparing the
historical financial statements referred to in Section
4.01(f) hereof; provided, however, that with respect to
the calculation of financial ratios, financial
covenants and other financial tests (and the various
components thereof) required by this Agreement, "GAAP"
means such generally accepted accounting principles as
in effect as of the Effective Date, applied in a manner
consistent with that used in preparing the financial
statements referred to in Section 4.01(f) hereof.
"Gross Negligence" means recklessness, the absence
of the slightest care or the complete disregard of
consequences. Gross Negligence does not mean the
absence of ordinary care or diligence, or an
inadvertent act or inadvertent failure to act. If the
term "gross negligence" is used with respect to the
Administrative Agent or any Lender or any indemnitee in
any of the other Loan Documents, it shall have the
meaning set forth herein.
"Guaranties" means, collectively, the Subsidiary
Guaranty dated as of the date hereof, executed by each
of the Subsidiary Guarantors (other than any Foreign
Subsidiary) in favor of the Administrative Agent, a
copy of which is annexed as EXHIBIT B hereto, and any
other guaranty of the obligations, in form and
substance satisfactory to the Administrative Agent,
executed by any Subsidiary of the Borrower after the
Effective Date in accordance with Section 5.02(e)(ii),
in each case as such Guaranties may be amended,
restated, supplemented or otherwise modified from time
to time.
"Initial Rate Adjustment Date" has the meaning
specified in the definition of "Margin."
"Insufficiency" means, with respect to any Pension
Plan, the amount, if any, of its unfunded benefit
liabilities, as defined in Section 4001(a)(18) of
ERISA.
"Interest Period" means, for each Eurodollar Rate
Advance comprising part of the same Borrowing, the
period commencing on the date of such Eurodollar Rate
Advance, or on the date of continuation of such Advance
as a Eurodollar Rate Advance upon expiration of
successive Interest Periods applicable thereto, or on
the date of Conversion of a Base Rate Advance into a
Eurodollar Rate Advance, and ending on the last day of
the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest
Period shall be one, two, three or six months, as the
Borrower may select in the Notice of Borrowing or the
Notice of Conversion/Continuation for such Advance;
provided, however, that:
(i) the Borrower may not select any Interest
Period which ends after the Termination Date;
(ii) Interest Periods commencing on the same
date for Advances comprising part of the same
Borrowing shall be of the same duration;
(iii) whenever the last day of any Interest
Period would otherwise occur on a day other than a
Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding
Business Day, provided, that if such extension
would cause the last day of such Interest Period
to occur in the next following calendar month, the
last day of such Interest Period shall occur on
the next preceding Business Day;
(iv) there shall be no more than ten Interest
Periods relating to Eurodollar Rate Advances
outstanding at any time; and
(v) notwithstanding the foregoing, for the
90-day period following the Effective Date, at the
option of the Administrative Agent, the
Administrative Agent may require the Borrower to
select only one-month Interest Periods all of
which shall expire on the same day.
"Interest Rate Agreement" means (a) any interest
rate swap agreement, interest rate cap agreement,
interest rate collar agreement or (b) any other similar
agreement or arrangement designed to protect the
Borrower or any of its Subsidiaries against interest
rate risks.
"Investment" means (i) any direct or indirect
purchase or other acquisition by the Borrower or any of
its Subsidiaries of, or of a beneficial interest in,
stock, notes or other securities of any other Person,
or a joint venture or partnership interest or (ii) any
direct or indirect loan, advance (other than advances
to employees for moving, entertainment and travel
expenses, drawing accounts and similar expenditures in
the ordinary course of business) or capital
contribution by the Borrower or any of its Subsidiaries
to any other Person (other than a Subsidiary of the
Borrower) including all indebtedness and accounts
receivable from that other Person that are not current
assets or did not arise from sales to that other Person
in the ordinary course of business (it being agreed and
understood that financing provided by MCI Acceptance
Corp. or BusLease, Inc. for customers of the Borrower
and its Subsidiaries is considered to be in the
ordinary course of business for this purpose). The
amount of any Investment shall be the original cost of
such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Issuing Lender" means, with respect to any Letter
of Credit, the Lender that agrees or is otherwise
obligated to issue such Letter of Credit, which Lender
shall be determined in accordance with the provisions
of Section 2.04.
"Lenders" means (a) the lenders listed on the
signature pages hereof, each Eligible Assignee that
shall become a party hereto pursuant to Section 8.07
and (b) the Swing Line Bank.
"Letter of Credit" means any standby letter of
credit issued by an Issuing Lender for the account of
the Borrower pursuant to Section 2.04.
"Letter of Credit Exposure" means, as to any
Lender, the aggregate amount of such Lender's
participations in Letters of Credit plus, in the case
of any Lender that is an Issuing Lender, the aggregate
amount of Letters of Credit issued by such Lender less
the aggregate amount of the participations of other
Lenders in such Letter of Credit.
"Letter of Credit Usage" means, as at any date of
determination, the sum of (i) the maximum aggregate
amount which is or at any time thereafter may become
available for drawing under all Letters of Credit then
outstanding plus (ii) the aggregate amount of all
drawings under all Letters of Credit honored by any
Issuing Lender and not theretofore reimbursed by the
Borrower.
"Leverage Ratio" means, as of any date of
determination, the ratio of (i) Consolidated Total Debt
to (ii) Consolidated EBITDA, determined as of the last
day of each fiscal quarter for the four fiscal quarter
period then ended.
"Lien" means any lien, mortgage, pledge, security
interest, charge or encumbrance of any kind (including
any conditional sale or other title retention agreement
and any lease in the nature thereof).
"Loan Documents" means this Agreement, the Notes,
the Guaranties and any other documents or instruments
required hereunder in relation thereto, as any of the
same may be amended, restated, supplemented or
otherwise modified from time to time.
"Majority Lenders" means at any time the Lenders
holding at least 66-2/3% of the then aggregate unpaid
principal amount of the Advances held by Lenders, or,
if no such principal amount is then outstanding,
Lenders having at least 66-2/3% of the Commitments
(provided that, for purposes hereof, neither the
Borrower, nor any of its Affiliates, if a Lender, shall
be included in (i) the Lenders holding such amount of
the Advances or having such amount of the Commitments
or (ii) determining the aggregate unpaid principal
amount of the Advances or the total Commitments; and
provided, further, no Lender which shall have failed to
fund its pro rata share of any Advance requested by the
Borrower or any Swing Line Loan as requested by the
Administrative Agent which such Lender is obligated to
fund under the terms of this Agreement shall be
included in (i) the Lenders holding such amount of the
Advances or having such amount of the Commitments or
(ii) determining the aggregate unpaid principal amount
of the Advances or the total Commitments for so long as
such failure has not been cured).
"Management Contracts" has the meaning specified
in Section 3.01(c).
"Margin" means: (1) with respect to Eurodollar
Rate Advances: (A) 0.95% per annum with respect to any
Eurodollar Rate Advance outstanding as of any date of
determination prior to the date (the "Initial Rate
Adjustment Date") occurring six (6) months after the
Effective Date; provided, however, such margin shall be
1.10% per annum for any time during such period that
the Borrower's Leverage Ratio was equal to or greater
than 4.00 to 1.00 or (B) with respect to any Eurodollar
Rate Advance outstanding on or after the Initial Rate
Adjustment Date, the margin percentages for each
Eurodollar Rate Advance determined in accordance with
Section 2.17, and (2) with respect to Base Rate
Advances, the margin percentages for each Base Rate
Advance determined in accordance with Section 2.17.
"Material Adverse Effect" means (i) a material
adverse effect upon the business, condition (financial
or otherwise), operations, performance, properties,
assets or prospects of the Borrower and its
Subsidiaries, taken as a whole, or (ii) a material
adverse effect on the ability of the Borrower or any
Material Subsidiary to perform, or of the
Administrative Agent, Swing-Line Bank or Lenders to
enforce, the Obligations.
"Material Subsidiary" means those Subsidiaries of
the Borrower listed on SCHEDULE 4.01(B) and any
Subsidiary of the Borrower hereafter acquired or
created which accounts for more than five percent (5%)
of either consolidated assets or Consolidated Net
Income of the Borrower and its Subsidiaries, determined
as of the end of the most recent fiscal quarter and for
the four fiscal quarter period then ended, provided
that for purposes of Section 6.01, "Material
Subsidiary" shall include any Subsidiary Guarantor.
"MCIL" means Motor Coach Industries Limited, a
Canada corporation.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA to which the
Borrower or any ERISA Affiliate is making, or is
obligated to make, contributions or has within any of
the preceding six plan years been obligated to make or
accrue contributions.
"Multiple Employer Plan" means a single employer
plan, as defined in Section 4001(a)(15) of ERISA, which
(i) is maintained for employees of the Borrower or an
ERISA Affiliate and at least one Person other than the
Borrower and its ERISA Affiliates or (ii) was so
maintained and in respect of which the Borrower or an
ERISA Affiliate could have liability under Section
4063, 4064 or 4069 of ERISA in the event such plan has
been or were to be terminated.
"NAIC" means the National Association of Insurance
Commissioners.
"Net Cash Proceeds" means, with respect to any
Asset Sale or Financing by any Person, (a) cash
(freely convertible into Dollars) received by such
Person or any Subsidiary of such Person from such Asset
Sale (including cash received as consideration for the
assumption or incurrence of liabilities incurred in
connection with or in anticipation of such Asset Sale)
or Financing, after (i) provision for all income or
other taxes measured by or resulting from such Asset
Sale, (ii) payment of all brokerage commissions and
other fees and expenses related to such Asset Sale or
Financing, and (iii) all amounts used to repay Debt
secured by a Lien on any asset disposed of in such
Asset Sale or which is or may be required (by the
express terms of the instrument governing such Debt) to
be repaid in connection with such Asset Sale (including
payments made to obtain or avoid the need for the
consent of any holder of such Debt); and (b) cash
payments in respect of any Debt, Equity Interest or
other consideration received by such Person or any
Subsidiary of such Person from such Asset Sale upon
receipt of such cash payments by such Person or such
Subsidiary.
"Non-Recurring Financing Fees" means any consent
fees, up-front fees, facility fees, amendment fees or
other fees paid by the Borrower once (as opposed to on
a scheduled, recurring basis) in connection with the
financing provided under this Agreement, the Senior
Notes and other financing arrangements.
"Note" means (i) any Note, substantially in the
form of EXHIBIT C-1, executed and delivered by the
Borrower pursuant to Section 2.15(d) to evidence
Advances other than in respect of Swing Line Loans and
(ii) a promissory note ("Swing Line Note"), in
substantially the form of EXHIBIT C-2 hereto, executed
and delivered by the Borrower pursuant to Section 2.03
to evidence the Swing Line Loans.
"Notice of Borrowing" has the meaning specified in
Section 2.02(a).
"Notice of Conversion/Continuation" has the
meaning specified in Section 2.10.
"Obligations" means all obligations of every
nature of the Borrower from time to time owed to the
Administrative Agent, the Swing Line Bank, the
Arranger, the Lenders, any Indemnitee or any of them
under the Loan Documents, whether for principal,
interest, fees, expenses, indemnification or otherwise.
"PBGC" means the U.S. Pension Benefit Guaranty
Corporation.
"Pension Plan" means a Single Employer Plan or a
Multiple Employer Plan or both.
"Permitted Encumbrances" means the following types
of Liens:
(i) Liens for taxes, assessments or
governmental charges or claims the payment of
which is not, at the time, required by Section
5.01(b), other than any Lien imposed pursuant to
Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by any statutory provisions under
ERISA;
(ii) statutory Liens of landlords and Liens
of carriers, warehousemen, mechanics and
materialmen and other Liens imposed by law
incurred in the ordinary course of business for
sums not yet delinquent or being contested in good
faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP
shall have been made therefor;
(iii) Liens incurred or deposits made in the
ordinary course of business, which do not
adversely affect the use or (in any significant
manner) the value of the property encumbered
thereby, in connection with workers' compensation,
unemployment insurance and other types of social
security, or to secure payment of charged back
amounts under merchant bank card or credit card
arrangements, or to secure the performance of
tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, trade
contracts, performance, bid, warranty and return-
of-money bonds and other similar obligations
(exclusive of obligations for the payment of
borrowed money); provided that no UCC-1 financing
statement, mortgage or similar instrument or
document shall be filed or recorded in connection
with any such Lien, except that lessors of
personal property may file protective UCC-1
financing statements solely covering the property
being leased;
(iv) any attachment or judgment Lien not
constituting an Event of Default under Section
6.01;
(v) leases or subleases granted to others
not interfering in any material respect with the
ordinary conduct of the business of the Borrower
or any of its Subsidiaries;
(vi) easements, rights-of-way, restrictions,
minor defects, encroachments or irregularities in
title and other similar charges or encumbrances
not interfering in any material respect with the
ordinary conduct of the business of the Borrower
or any of its Subsidiaries; and
(vii) any interest or title of a lessor or
sublessor under any lease not prohibited by this
Agreement.
"Person" means an individual, partnership,
corporation, business trust, joint stock company,
trust, unincorporated association, joint venture or
other entity, or a government or any political
subdivision or agency thereof.
"Potential Event of Default" means a condition or
event which, after notice or lapse of time or both,
would constitute an Event of Default if that condition
or event were not cured or removed within any
applicable grace or cure period.
"Prime Rate" means the rate of interest announced
by NBD Bank from time to time as its prime rate,
changing when and as said prime rate changes.
"Residual Value Guaranties" means any agreement
entered into by the Borrower or any of its Subsidiaries
to promote the sales of any bus or coach pursuant to
which the Borrower or any of its Subsidiaries is
guarantying at some future time any minimum value
(which may be determined by a formula) of a bus or
coach as specified in such agreement, the terms and
provisions of which agreement are consistent with the
past practices and policies of the Borrower and its
Subsidiaries prior to the date of this Agreement.
"Restricted Junior Payment" means (i) any dividend
or other distribution, direct or indirect, on account
of any shares of any class of stock of the Borrower or
any Subsidiary of the Borrower that is not, directly or
indirectly, wholly-owned by the Borrower now or
hereafter outstanding, except a dividend payable solely
in shares of that class of stock to the holders of that
class, (ii) any redemption, retirement, sinking fund or
similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class
of stock of the Borrower or any Subsidiary of the
Borrower that is not, directly or indirectly, wholly-
owned by the Borrower now or hereafter outstanding,
(iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock of
the Borrower or any Subsidiary of the Borrower that is
not, directly or indirectly, wholly-owned by the
Borrower now or hereafter outstanding and (iv) any
payment or prepayment of principal of, premium, if any,
or interest on, or redemption, purchase, retirement,
defeasance (including in-substance or legal
defeasance), sinking fund or similar payment with
respect to any debt owed to a Person other than the
Borrower or any of its Subsidiaries that is by its
terms subordinated to the Obligations.
"SEC" means the Securities and Exchange Commission
and any successor agency.
"Senior Notes" means the 9.02% Senior Notes due
November 15, 2002 issued by the Borrower in the
aggregate principal amount of $125,000,000 pursuant to
the Note Agreement dated as of November 15, 1994 among
the Borrower and the purchasers named therein, as such
Note Agreement has been amended as of the Effective
Date and as amended or modified from time to time
thereafter, provided that no such amendment or
modification shall accelerate any amortization of the
outstanding principal amount thereof.
"Single Employer Plan" means a single employer
plan, as defined in Section 4001(a)(15) of ERISA, which
(i) is maintained for employees of the Borrower or any
ERISA Affiliate and no Person other than the Borrower
and its ERISA Affiliates or (ii) was so maintained and
in respect of which the Borrower or an ERISA Affiliate
could have liability under Section 4062 or 4069 of
ERISA in the event such plan has been or were to be
terminated.
"Solvent" means, with respect to any Person, that
as of the date of determination (i) the then fair
saleable value of the property of such Person as a
going concern is (y) greater than the total amount of
liabilities (including anticipated Contingent
Obligations and other contingent liabilities only to
the extent of the probable liability with respect to
such Contingent Obligations and other contingent
liabilities) of such Person and (z) greater than the
amount that will be required to pay the probable
liabilities of such Person's then existing debts as
they become absolute and matured; (ii) such Person's
capital is not unreasonably small in relation to its
business or any contemplated or undertaken transaction;
and (iii) such Person does not intend to incur, or
believe that it will incur, debts beyond its ability to
pay such debts as they become due.
"S&P" means Standard & Poor's Corporation.
"Subsidiary" of any Person means any corporation,
limited liability company, association, partnership or
other business entity of which at least 50% of the
total voting power of shares of stock, membership
interests or other securities entitled 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;
provided that Nanjing Starley Transportation Company
Limited, a limited liability Chinese and foreign joint
venture organized under the laws of China, shall not be
deemed to be a Subsidiary of the Borrower for purposes
of this Agreement.
"Subsidiary Guarantors" means each Subsidiary of
the Borrower that is identified as a Subsidiary
Guarantor on SCHEDULE 4.01(B) together with each Person
becoming a Subsidiary of the Borrower after the date
hereof that is required to guaranty the Obligations
pursuant to Section 5.02(e)(ii).
"Swing Line Bank" means NBD Bank or any other
Lender as a successor Swing Line Bank.
"Swing Line Commitment" means the obligation of
the Swing Line Bank to make Swing Line Loans up to a
maximum principal amount of $5,000,000 at any one time
outstanding.
"Swing Line Loan" means an Advance made available
to the Borrower by the Swing Line Bank pursuant to
Section 2.03 hereof.
"Termination Date" means October 1, 1999 or the
earlier date of termination in whole of the Commitments
pursuant to Section 2.06 or 6.01.
"TMO Holdings" means TMO Holdings of Canada, Ltd.,
a Canada corporation and a wholly-owned Subsidiary of
the Borrower.
"Total Utilization of Commitments" means, as at
any date of determination, the sum of (i) the aggregate
principal amount of all outstanding Advances
(including, without limitation, Swing Line Loans) plus
(ii) the Letter of Credit Usage.
"Trade-In Value Guaranties" means any agreement
entered into by the Borrower or any of its Subsidiaries
to promote the sales of any bus or coach pursuant to
which the Borrower or any of its Subsidiaries is
obligated to accept such bus or coach for trade-in in
connection with the sale of a bus or coach at a value
specified in such agreement (which may be determined by
a formula) regardless of the actual fair market value
of such bus or coach at the time of such trade-in, the
terms and provisions of which agreement are consistent
with the past practices and policies of the Borrower
and its Subsidiaries prior to the date of this
Agreement.
"Type" means, with reference to an Advance under
Section 2.01, a Base Rate Advance or a Eurodollar Rate
Advance.
"Withdrawal Liability" has the meaning given such
term under Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2. COMPUTATION OF TIME PERIODS. In this
Agreement in the computation of periods of time from a
specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until"
each means "to but excluding."
SECTION 1.3. ACCOUNTING TERMS. All accounting terms
not specifically defined herein shall be construed in
accordance with GAAP. If at any time the computations for
determining compliance with financial ratios, financial
covenants or provisions relating thereto utilize generally
accepted accounting principles different than those then
being utilized in the financial statements being delivered
to the Lenders, such financial statements shall be
accompanied by a reconciliation statement.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.1. THE ADVANCES. Subject to the terms and
conditions of this Agreement and in reliance upon the
representations and warranties of the Borrower herein set
forth, each Lender severally agrees to lend to the Borrower
from time to time during the period on and after the
Effective Date to but excluding the Termination Date,
Advances in an aggregate outstanding principal amount not at
any time exceeding the amount set opposite such Lender's
name on the signature pages hereof or, if such Lender has
entered into any Assignment and Acceptance, set forth for
such Lender in the Register maintained by the Administrative
Agent pursuant to Section 8.07(c), as such amount may be
reduced pursuant to Section 2.06 (such Lender's
"Commitment"). Each Borrowing shall be in an aggregate
amount not less than $5,000,000 (except that a Borrowing
comprised of Base Rate Advances shall be in an aggregate
amount not less than $1,000,000) or an integral multiple of
$1,000,000 in excess thereof and shall consist of Advances
of the same Type made on the same day by the Lenders ratably
according to their respective Commitments. Within the
limits of each Lender's Commitment, the Borrower may from
time to time borrow, prepay pursuant to Section 2.07(c) and
reborrow under this Section 2.01.
Anything contained in this Agreement to the
contrary notwithstanding, the Borrower shall not request any
Advance that would, upon giving effect thereto, cause the
Total Utilization of Commitments to exceed the aggregate
Commitments of the Lenders.
SECTION 2.2. MAKING THE ADVANCES.
(a) Each Borrowing shall be made on notice, given
not later than (x) 12:00 noon (Detroit time) on the Business
Day that is the date of a proposed Borrowing consisting of
Base Rate Advances and (y) 12:00 noon (Detroit time) on the
third Business Day prior to the date of a proposed Borrowing
consisting of Eurodollar Rate Advances, by the Borrower to
the Administrative Agent, which shall give to each Lender
prompt notice thereof by telecopier, telex or cable. Each
such notice of borrowing (a "Notice of Borrowing") shall be
by telephone (confirmed in writing) or by telecopier, telex
or cable, confirmed immediately in writing, in substantially
the form of EXHIBIT D hereto, specifying therein the
requested (i) date of such Borrowing, (ii) Type of Advances
comprising such Borrowing, (iii) aggregate amount of such
Borrowing, and (iv) in the case of a Borrowing comprised of
Eurodollar Rate Advances, the initial Interest Period for
each such Advance. The Borrower may, subject to the
conditions herein provided, borrow more than one Borrowing
on any Business Day. Each Lender shall, before 12:00 noon
(Detroit time) or, in the case of a Base Rate Advance as to
which the Borrower delivers Notice of Borrowing on the date
of such Borrowing, 2:00 P.M. (Detroit time) on the date of
such Borrowing, make available for the account of its
Applicable Lending Office to the Administrative Agent at its
address referred to in Section 8.02, in same day funds, such
Lender's ratable portion of such Borrowing. After the
Administrative Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in
Article III, the Administrative Agent will make such funds
available to the Borrower at the Administrative Agent's
aforesaid address.
(b) Anything in clause (a) above to the contrary
notwithstanding,
(i) the Borrower may not select Eurodollar
Rate Advances for (y) any Borrowing or with respect to
the Conversion or continuance of any Borrowing if the
aggregate amount of such Borrowing or such Conversion
or continuance is less than $5,000,000 or (z) any
Borrowing on the Effective Date;
(ii) if any Lender shall, at least one
Business Day before the date of any requested
Borrowing, notify the Administrative Agent that the
introduction of or any change in or in the
interpretation of any law or regulation makes it
unlawful, or that any central bank or other
governmental authority asserts that it is unlawful, for
such Lender or its Eurodollar Lending Office to perform
its obligations hereunder to make Eurodollar Rate
Advances or to fund or maintain Eurodollar Rate
Advances hereunder, the Commitment of such Lender to
make Eurodollar Rate Advances or to Convert all or any
portion of Base Rate Advances shall forthwith be
suspended until the Administrative Agent shall notify
the Borrower that such Lender has determined that the
circumstances causing such suspension no longer exist
and such Lender's then outstanding Eurodollar Rate
Advances, if any, shall be Base Rate Advances; to the
extent that such affected Eurodollar Rate Advances
become Base Rate Advances, all payments of principal
that would have been otherwise applied to such
Eurodollar Rate Advances shall be applied instead to
such Lender's Base Rate Advances; provided that if
Majority Lenders are subject to the same illegality or
assertion of illegality, then the right of the Borrower
to select Eurodollar Rate Advances for such Borrowing
or any subsequent Borrowing or to Convert all or any
portion of Base Rate Advances shall forthwith be
suspended until the Administrative Agent shall notify
the Borrower that the circumstances causing such
suspension no longer exist, and each Advance comprising
such Borrowing shall be a Base Rate Advance;
(iii) if the Majority Lenders shall, at
least one Business Day before the date of any requested
Borrowing, notify the Administrative Agent that the
Adjusted Eurodollar Rate for Eurodollar Rate Advances
comprising such Borrowing will not adequately reflect
the cost to such Majority Lenders of making, funding or
maintaining their respective Eurodollar Rate Advances
for such Borrowing, the right of the Borrower to select
Eurodollar Rate Advances for such Borrowing or any
subsequent Borrowing shall be suspended until the
Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension
no longer exist, and each Advance comprising such
Borrowing shall be a Base Rate Advance.
(c) Each Notice of Borrowing shall be irrevocable
and binding on the Borrower. In the case of any Borrowing
which the related Notice of Borrowing specifies is to be
comprised of Eurodollar Rate Advances, the Borrower shall
indemnify each Lender against any loss, cost or expense
incurred by such Lender as a result of any failure to
fulfill on or before the date specified in such Notice of
Borrowing for such Borrowing the applicable conditions set
forth in Article III, including, without limitation, any
loss, costs or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such
Lender to fund the Advance to be made by such Lender as part
of such Borrowing when such Advance, as a result of such
failure, is not made on such date.
(d) Unless the Administrative Agent shall have
received notice from a Lender prior to the date of any
Borrowing that such Lender will not make available to the
Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such
Lender has made such portion available to the Administrative
Agent on the date of such Borrowing in accordance with
clause (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the
extent that such Lender shall not have so made such ratable
portion available to the Administrative Agent, such Lender
and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the
date such amount is made available to the Borrower until the
date such amount is repaid to the Administrative Agent, at
(i) in the case of the Borrower, the interest rate
applicable at the time to Advances comprising such Borrowing
and (ii) in the case of such Lender, the Federal Funds Rate.
If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute
such Lender's Advance as part of such Borrowing for purposes
of this Agreement.
(e) The failure of any Lender to make any Advance
to be made by it as part of any Borrowing shall not relieve
any other Lender of its obligation, if any, hereunder to
make its Advance on the date of such Borrowing, but no
Lender shall be responsible for the failure of any other
Lender to make the Advance to be made by such other Lender
on the date of any Borrowing.
SECTION 2.3. SWING LINE LOANS. (a) Amount of Swing
Line Loans. Upon the satisfaction of the conditions
precedent set forth in Section 3.01 and 3.02, from and
including the Effective Date and prior to the Termination
Date, the Swing Line Bank agrees, on the terms and
conditions set forth in this Agreement, to make loans to the
Borrower from time to time, in Dollars, in an amount not to
exceed the Swing Line Commitment (each, individually, a
"SWING LINE LOAN" and collectively, the "SWING LINE LOANS");
provided, however, at no time shall the Total Utilization of
Commitments exceed the aggregate Commitment of the Lenders
and provided, further, that at no time shall the sum of (a)
the outstanding amount of the Swing Line Loans, plus (b) the
outstanding amount of Advances made by the Swing Line Bank
pursuant to Section 2.01 (after giving effect to any
concurrent repayment of Advances), exceed the Swing Line
Bank's Commitment at such time. Subject to the terms of
this Agreement, the Borrower may borrow, repay and reborrow
Swing Line Loans at any time prior to the Termination Date.
(b) Borrowing Notice. The Borrower shall deliver to
the Administrative Agent and the Swing Line Bank a Notice of
Borrowing, signed by it, not later than 12:00 noon (Detroit
time) on the Business Day that is the date of the proposed
Swing Line Loan (which shall be a Business Day) specifying
the aggregate amount of the requested Swing Line Loan. The
Swing Line Loans shall at all times be Base Rate Advances,
which shall be an amount not less than $500,000. The
Administrative Agent shall promptly notify each Lender of
such request.
(c) Making of Swing Line Loans. Promptly after receipt
of the Notice of Borrowing under Section 2.03(b) in respect
of Swing Line Loans, the Administrative Agent shall notify
each Lender by telex or telecopy, or other similar form of
transmission, of the requested Swing Line Loan. Not later
than 3:00 p.m. (Detroit time) on the applicable borrowing
date, the Swing Line Bank shall make available its Swing
Line Loan, in funds immediately available to the
Administrative Agent at its address referred to in
Section 8.02. The Administrative Agent will promptly make
the funds so received from the Swing Line Bank available to
the Borrower at the Administrative Agent's aforesaid
address.
(d) Repayment of Swing Line Loans. The Swing Line
Loans shall be evidenced by the Swing Line Note, and each
Swing Line Loan shall be paid in full by the Borrower on or
before the fifth Business Day after the borrowing date for
such Swing Line Loan. The Borrower may at any time pay,
without penalty or premium, all outstanding Swing Line Loans
or, in a minimum amount of $500,000, any portion of the
outstanding Swing Line Loans, upon notice to the
Administrative Agent and the Swing Line Bank. In addition,
the Administrative Agent (i) may at any time in its sole
discretion with respect to any outstanding Swing Line Loan,
or (ii) shall on the fifth Business Day after the Borrowing
Date of any Swing Line Loan, require each Lender (including
the Swing Line Bank) to make an Advance in the amount of
such Lender's ratable share of such Swing Line Loan, for the
purpose of repaying such Swing Line Loan. Not later than
2:00 p.m. (Detroit time) on the date of any notice received
pursuant to this Section 2.03(d), each Lender shall make
available its required Advance or Advances, in funds
immediately available to the Administrative Agent at its
address. Advances made pursuant to this Section 2.03(d)
shall initially be Base Rate Advances and thereafter may be
continued as Base Rate Advances or converted into Eurodollar
Rate Advances in the manner provided in Section 2.10 and
subject to the other conditions and limitations therein set
forth and set forth in this Article II. Unless a Lender
shall have notified the Swing Line Bank, prior to its making
any Swing Line Loan, that any applicable condition precedent
set forth in Sections 3.01 and 3.02 had not then been
satisfied, such Lender's obligation to make Advances
pursuant to this Section 2.03(d) to repay Swing Line Loans
shall be unconditional, continuing, irrevocable and absolute
and shall not be affected by any circumstances, including,
without limitation, (A) any set-off, counterclaim,
recoupment, defense or other right which such Lender may
have against the Administrative Agent, the Swing Line Bank
or any other Person, (B) the occurrence or continuance of an
Event of Default or Potential Event of Default, (C) any
adverse change in the condition (financial or otherwise) of
the Borrower, or (D) any other circumstances, happening or
event whatsoever. In the event that any Lender fails to
make payment to the Administrative Agent of any amount due
under this Section 2.03(d), the Administrative Agent shall
be entitled to receive, retain and apply against such
obligation the principal and interest otherwise payable to
such Lender hereunder until the Administrative Agent
receives such payment from such Lender or such obligation is
otherwise fully satisfied. In addition to the foregoing, if
for any reason any Lender fails to make payment to the
Administrative Agent of any amount due under this Section
2.03(d), such Lender shall be deemed, at the option of the
Agent, to have unconditionally and irrevocably purchased
from the Swing Line Bank, without recourse or warranty, an
undivided interest and participation in the applicable Swing
Line Loan in the amount of such Advance, and such interest
and participation may be recovered from such Lender together
with interest thereon at the Federal Funds Rate for each day
during the period commencing on the date of demand and
ending on the date such amount is received. On the
Termination Date, the Borrower shall repay in full the
outstanding principal balance of the Swing Line Loans.
SECTION 2.4. LETTERS OF CREDIT.
(a) Letters of Credit. Subject to the terms and
conditions of this Agreement and in reliance upon the
representations and warranties of the Borrower set forth
herein, the Borrower may, in accordance with the provisions
of this Section 2.04(a), from time to time on and after the
Effective Date, request the issuance of Letters of Credit
for the account of the Borrower. The Borrower may select
any Lender to be the Issuing Lender in relation to such
Letter of Credit; provided that such Lender is reasonably
satisfactory to the Administrative Agent; and provided
further that each Lender may in its discretion decline to
issue any Letter of Credit and NBD Bank shall be the Issuing
Lender if other Lenders selected by the Borrower decline to
issue such Letter of Credit or if no other Lender selected
by the Borrower is reasonably satisfactory to the
Administrative Agent. Such Letters of Credit shall be
issued solely for the purpose of supporting the obligations
of the Borrower and its Subsidiaries. Issuances of Letters
of Credit shall be subject to the following limitations:
(i) The Borrower shall not request any
Letter of Credit if, after giving effect to such
issuance, (a) the Total Utilization of Commitments
would exceed the aggregate amount of Commitments as
then in effect or (b) the Letter of Credit Usage would
exceed $35,000,000; and
(ii) In no event shall any Lender take any
action to issue, reissue, amend or permit the extension
of any Letter of Credit if such action would result in:
(x) any Letter of Credit having an expiration date
later than the Termination Date in effect at the time
of issuance, reissuance, amendment or extension
(automatic or otherwise) thereof; (y) subject to the
foregoing clause (x), any Letter of Credit having an
expiration date more than one year after its date of
issuance; provided that subject to the foregoing clause
(x), this clause (y) shall not prevent any Issuing
Lender from agreeing that its Letter of Credit will
automatically be extended annually for a period not to
exceed one year if such Issuing Lender does not cancel
such extension.
It shall be a condition precedent to the issuance
of any Letter of Credit in accordance with the provisions of
this Section 2.04 that each condition set forth in
Section 3.03 shall have been satisfied.
Immediately upon the issuance of each Letter of
Credit, each Lender shall be deemed to, and hereby agrees
to, have irrevocably purchased from the Issuing Lender a
participation in such Letter of Credit and drawings
thereunder in an amount equal to such Lender's ratable share
(based on the respective Commitments of the Lenders) of the
maximum amount which is or at any time may become available
to be drawn thereunder.
(b) Notice of Issuance. Whenever the Borrower
desires the issuance of a Letter of Credit, it shall deliver
to the Issuing Lender and the Administrative Agent a Notice
of Issuance of Letter of Credit in the form of EXHIBIT E
hereto no later than 1:00 P.M. (Detroit time) at least five
Business Days or such shorter period as may be agreed to by
the Issuing Lender in any particular instance, in advance of
the proposed date of issuance. Each Notice of Issuance of
Letter of Credit shall specify (i) the proposed Issuing
Lender for the requested Letter of Credit, (ii) the proposed
date of issuance (which shall be a Business Day), (iii) the
face amount of the Letter of Credit, (iv) the expiration
date of the Letter of Credit, (v) the name and address of
the beneficiary, (vi) a summary of the purpose and the
verbatim text of such Letter of Credit, and (vii) a precise
description of the documents and the proposed text of any
certificate to be presented by the beneficiary which, if
presented by the beneficiary prior to the expiration date of
the Letter of Credit, would require the Issuing Lender to
make payment under the Letter of Credit; provided that the
Issuing Lender, in its sole reasonable judgment, may require
changes in any such documents and certificates; and provided
further that no Letter of Credit shall require payment
against a conforming draft to be made thereunder on the same
Business Day that such draft is presented if such
presentation is made after 11:00 A.M. (Detroit time) on such
Business Day. In determining whether to pay under any
Letter of Credit, the Issuing Lender shall be responsible
only to determine that the documents and certificates
required to be delivered under that Letter of Credit have
been delivered and that they comply on their face with the
requirements of that Letter of Credit.
(c) Payment of Amounts Drawn Under Letters of
Credit. In the event of any drawing under any Letter of
Credit, the Issuing Lender shall promptly notify the
Borrower and the Administrative Agent, and the Borrower
shall reimburse the Issuing Lender on the date on which such
drawing is honored in an amount in same day funds equal to
the amount of such drawing; provided that, anything
contained in this Agreement to the contrary notwithstanding,
(i) unless the Borrower shall have notified the
Administrative Agent prior to 11:00 A.M. (Detroit time) on
the Business Day immediately prior to the date of such
drawing that the Borrower intends to reimburse the Issuing
Lender for the amount of such drawing with funds other than
the proceeds of an Advance, the Borrower shall be deemed to
have given a Notice of Borrowing to the Administrative Agent
requesting Lenders to make Base Rate Advances on the date
such drawing is honored in an amount equal to the amount of
such drawing, and (ii) subject to satisfaction or waiver of
the conditions specified in Section 3.02, the Lenders shall,
on the date of such drawing, make such Base Rate Advances in
the aggregate amount of such drawing, the proceeds of which
shall be applied directly by the Administrative Agent to
reimburse the Issuing Lender for the amount of such drawing;
and provided further that, if any Base Rate Advances are
required to be made and for any reason proceeds of such
Advances are not received by the Issuing Lender on such date
in an amount equal to the amount of such drawing, the
Borrower shall reimburse the Issuing Lender, on the Business
Day immediately following the date of such drawing, in an
amount in same day funds (and in the same currency as the
unreimbursed drawing) equal to the excess of the amount of
such drawing over the amount of such Advances which are so
received, plus accrued interest on such amount at the rate
set forth in Section 2.04(e).
(d) Payment by Lenders with Respect to Letters of
Credit. If the Borrower shall fail to reimburse the Issuing
Lender as provided in Section 2.04(c) in an amount equal to
the amount of any drawing honored by the Issuing Lender
under a Letter of Credit, the Issuing Lender shall promptly
notify the Administrative Agent which shall promptly notify
each Lender of the unreimbursed amount of such drawing and
of such Lender's respective participation therein, which
participation shall be equal to such Lender's ratable share
(determined based on the respective Commitments of the
Lenders) of the unreimbursed amount of such drawing. Each
Lender shall make available to the Issuing Lender an amount
equal to its respective participation in same day funds and
in the same currency as the drawing, at the office of the
Issuing Lender specified in such notice, not later than 1:00
P.M. (Detroit time) on the Business Day after the date
notified by the Administrative Agent. If any Lender fails
to make available to the Issuing Lender the amount of such
Lender's participation in such Letter of Credit as provided
in this Section 2.04(d), the Issuing Lender shall be
entitled to recover such amount on demand from such Lender
together with interest at the customary rate set by the
Issuing Lender for the correction of errors among banks for
three Business Days and thereafter at the Alternate Base
Rate. Nothing in this Section 2.04 shall be deemed to
prejudice the right of any Lender to recover from the
Issuing Lender any amounts made available by such Lender to
the Issuing Lender pursuant to this Section 2.04 if it is
determined by a court of competent jurisdiction that the
payment with respect to a Letter of Credit by such Issuing
Lender in respect of which payment was made by such Issuing
Lender constituted Gross Negligence or willful misconduct on
the part of such Issuing Lender. The Issuing Lender shall
deliver to the Administrative Agent, for distribution to
each other Lender which has paid all amounts payable by it
under this Section 2.04(d) with respect to any Letter of
Credit issued by the Issuing Lender, such other Lender's
ratable share (based on the respective Commitments of the
Lenders) of all payments received by the Issuing Lender from
the Borrower in reimbursement of drawings honored by the
Issuing Lender under such Letter of Credit when such
payments are received. Notwithstanding anything to the
contrary herein, each Lender which has paid all amounts
payable by it under this Section 2.04(d) shall have a direct
right to reimbursement of such amounts from the Borrower,
subject to the procedures for reimbursing Lenders set forth
in this Section 2.04.
(e) Compensation. The Borrower agrees to pay,
without duplication, the following amounts to the Issuing
Lender or the Administrative Agent, as the case may be, with
respect to each Letter of Credit issued hereunder:
(i) with respect to each Letter of Credit,
an issuance fee payable on the date of issuance to the
Issuing Lender for the account of the Issuing Lender
equal to the greater of (x) 0.125% of the face amount
of such Letter of Credit and (y) $500, in immediately
available funds;
(ii) with respect to each Letter of Credit,
a letter of credit fee payable to the Administrative
Agent for the ratable distribution to the Lenders equal
to the applicable per annum rate set forth below
calculated on the basis of a 360-day year and the
actual number of days elapsed on the maximum aggregate
daily amount available for drawing under the
outstanding Letters of Credit, such letter of credit
fee to be paid to the Administrative Agent quarterly in
arrears on the last day of each March, June, September
and December of each year and on the Termination Date.
The applicable letter of credit fee shall be determined
in accordance with Section 2.17; provided however for
the period from the Effective Date until the Initial
Rate Adjustment Date such letter of credit fee shall be
0.95% per annum; provided further that the Level 4 rate
shall be applicable at any time during such period that
the Leverage Ratio is equal to or greater than 4.0 to
1.0;
(iii) with respect to drawings made under
any Letter of Credit, interest, payable to the Issuing
Lender on demand in immediately available funds, on the
amount paid by the Issuing Lender in respect of each
such drawing from the date of the drawing through the
date such amount is reimbursed by the Borrower (but
only if not reimbursed when due) at a rate which is 2%
per annum in excess of the rate of interest otherwise
payable under this Agreement for Base Rate Advances;
and
(iv) with respect to the issuance, amendment
or transfer of each Letter of Credit and each drawing
made thereunder, documentary and processing charges in
accordance with the Issuing Lender's standard schedule
for such charges in effect at the time of such
issuance, amendment, transfer or drawing, as the case
may be.
Promptly upon receipt by the Administrative Agent
of any amount described in clause (ii) of this Section
2.04(e), the Administrative Agent shall distribute to each
Lender its ratable share of such amount based on the
respective Commitments of the Lenders.
(f) Obligations Absolute. The obligation of the
Borrower to reimburse the Issuing Lender for drawings made
under the Letters of Credit shall be unconditional and
irrevocable and shall be paid strictly in accordance with
the terms of this Agreement under all circumstances
including, without limitation, the following circumstances:
(i) any lack of validity or enforceability
of any Letter of Credit;
(ii) the existence of any claim, set-off,
defense or other right the Borrower may have at any
time against a beneficiary or any transferee of any
Letter of Credit (or any persons or entities for whom
any such transferee may be acting), the Issuing Lender
or any other Person, whether in connection with this
Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying
transaction between the Borrower or any of its
Subsidiaries and the beneficiary for which the Letter
of Credit was procured);
(iii) any draft, demand, certificate or any
other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(iv) payment by the Issuing Lender under any
Letter of Credit against presentation of a demand,
draft or certificate or other document which does not
comply with the terms of such Letter of Credit;
(v) any other circumstance or happening
whatsoever, which is similar to any of the foregoing;
or
(vi) the fact that an Event of Default or a
Potential Event of Default shall have occurred and be
continuing.
(g) Additional Payments. If by reason of (a) any
change in applicable law, regulation, rule, decree or
regulatory requirement or any change in the interpretation
or application by any judicial or regulatory authority of
any law, regulation, rule, decree or regulatory requirement
made after the date hereof or (b) compliance by the Issuing
Lender or any other Lender with any direction, request or
requirement (whether or not having the force of law) of any
governmental or monetary authority made after the date
hereof including, without limitation, Regulation D:
(i) any reserve, deposit or similar
requirement is or shall be applicable, imposed or
modified in respect of any Letters of Credit issued by
the Issuing Lender or participations therein purchased
by any Lender; or
(ii) there shall be imposed on any Issuing
Lender or any other Lender any other condition
regarding this Section 2.04, any Letter of Credit or
any participation therein;
and the result of the foregoing is to directly or indirectly
increase the cost to the Issuing Lender or any other Lender
of issuing, making or maintaining any Letter of Credit or of
purchasing or maintaining any participation therein, or to
reduce the amount receivable in respect thereof by the
Issuing Lender or any other Lender, then and in any such
case the Issuing Lender or such other Lender may, notify the
Borrower, and the Borrower shall pay within ten days of
receipt of notice such amounts as the Issuing Lender or such
other Lender may specify pursuant to the certificate
described below to be necessary to compensate it for such
additional cost or reduced receipt, together with interest
on such amount from the date of such demand until payment in
full thereof at a rate equal at all times to the Alternate
Base Rate per annum plus the applicable Margin in effect
from time to time with respect to Base Rate Advances. The
determination by the Issuing Lender or any other Lender, as
the case may be, of any amount due pursuant to this Section
2.04(g) as set forth in a certificate setting forth the
calculation thereof in reasonable detail, shall, in the
absence of manifest error, be final and conclusive and
binding on all of the parties hereto. An Issuing Lender
which incurs such an increased cost shall give the Borrower
reasonably prompt notice thereof; provided that failure to
give such notice shall not affect the Borrower's obligations
hereunder.
(h) Indemnification; Nature of Issuing Lender's
Duties. In addition to amounts payable as elsewhere
provided in this Section 2.04, the Borrower hereby agrees to
protect, indemnify, pay and save each Issuing Lender
harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' and paralegals' fees) which
such Issuing Lender may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of any
Letter of Credit, or (ii) the failure of such Issuing Lender
to honor a drawing under any such Letter of Credit as a
result of any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein
called "Government Acts").
As between an Issuing Lender and the Borrower, the
Borrower assumes all risks of the acts and omissions of, or
misuse of any such Letter of Credit by the beneficiary of
any such Letter of Credit. In furtherance and not in
limitation of the foregoing, the Issuing Lender shall not be
responsible: (i) for the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application
for and issuance of such Letters of Credit, even if it
should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any such
Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of
the beneficiary of any such Letter of Credit to comply fully
with conditions required in order to draw upon such Letter
of Credit; (iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be
in cipher; (v) for errors in interpretation of technical
terms; (vi) for any loss or delay in the transmission or
otherwise of any document required in order to make a
drawing under any such Letter of Credit or of the proceeds
thereof; (vii) for the misapplication by the beneficiary of
any such Letter of Credit of the proceeds of any drawing
under such Letter of Credit; and (viii) for any consequences
arising from causes beyond the control of the Issuing
Lender, including, without limitation, any Government Acts.
None of the above shall affect, impair, or prevent the
vesting of any of an Issuing Lenders's rights or powers
hereunder.
In furtherance and extension and not in limitation
of the specific provisions hereinabove set forth, any action
taken or omitted by any Issuing Lender under or in
connection with Letters of Credit issued by it or the
related certificates, if taken or omitted in good faith and
without Gross Negligence or willful misconduct as determined
by a court of competent jurisdiction, shall not put the
Issuing Lender under any resulting liability to the
Borrower.
Notwithstanding anything to the contrary contained
in this Section 2.04, the Borrower shall not have any
obligation to indemnify any Issuing Lender in respect of any
liability incurred by such Issuing Lender or to reimburse
such Issuing Lender (to the extent reimbursement would
result in a loss to the Borrower) for drawings improperly
honored under a Letter of Credit as the result of the Gross
Negligence or willful misconduct of such Issuing Lender, as
determined in a final judgment by a court of competent
jurisdiction, or out of the wrongful dishonor by the Issuing
Lender of proper demand for payment made under the Letters
of Credit issued by it.
(i) Computation of Fees and Interest. Fees and
interest payable pursuant to this Section 2.04 shall be
computed on the basis of a 360-day year and the actual
number of days elapsed in the period during which it
accrues.
SECTION 2.5. FACILITY FEES; ADMINISTRATIVE AGENT'S AND
ARRANGER'S FEES.
(a) Facility Fee. The Borrower agrees to pay to
the Administrative Agent for the account of each Lender a
facility fee on the daily amount by which such Lender's
Commitment (determined without regard to the amount of
Advances outstanding thereunder and after giving effect to
any reduction thereof pursuant to Section 2.06) exceeds such
Lender's Letter of Credit Exposure from the Effective Date
(in the case of each Lender party hereto as of the Effective
Date) or from the effective date specified in the applicable
Assignment and Acceptance (in the case of any Lender
becoming a Lender after the Effective Date), until the
Termination Date, payable in arrears on the last day of each
March, June, September and December during the term of such
Lender's Commitment, commencing December 31, 1996, and on
the Termination Date, at the rate determined in accordance
with Section 2.17; provided, however, for the period from
the Effective Date until the Initial Rate Adjustment Date
such facility fee will be 0.40% per annum; provided further
that the Level 4 rate shall be applicable at any time during
such period that the Leverage Ratio is equal to or greater
than 4.0 to 1.00.
(b) Administrative Agent's and Arranger's Fees.
The Borrower agrees to pay to the Administrative Agent, for
its own account and for the account of the Arranger, such
fees as may be mutually agreed upon from time to time among
the Borrower, the Administrative Agent and the Arranger.
SECTION 2.6. TERMINATION AND REDUCTION OF THE
COMMITMENTS.
(a) Mandatory Termination. The Commitments of
the Lenders shall immediately terminate if the Advances are
at any time required to be prepaid pursuant to Section
2.07(b)(i).
(b) Optional Reductions. The Borrower shall have
the right, upon at least four Business Days' notice to the
Administrative Agent, to terminate in whole or reduce
ratably in part the unused portions of the respective
Commitments of the Lenders, provided that the aggregate
amount of the Commitments of the Lenders shall not be
reduced to an amount which is less than the aggregate
principal amount of the Total Utilization of Commitments and
provided, further, that each partial reduction shall be in
the aggregate amount of $5,000,000 or an integral multiple
of $1,000,000 in excess thereof.
SECTION 2.7. REPAYMENT AND PREPAYMENT OF ADVANCES.
(a) Mandatory Repayment on Termination Date. The
Borrower shall repay on the Termination Date the outstanding
principal amount of each Advance made by each Lender.
(b) Mandatory Prepayment Upon Occurrence of
Certain Events.
(i) Mandatory Prepayments in Connection with
a Change of Control. If any one of the following
events shall occur:
(A) Dina shall fail to own, directly or
indirectly, all of the issued and outstanding
capital stock of the Borrower;
(B) notice shall have been given under
Section 11.05 of the Indenture dated as of April
30, 1996 among Dina, MCII Holdings (USA), Inc. and
IBJ Schroder Bank & Trust Company, as Trustee,
vesting in the Trustee voting rights relating to
the Capital Stock of the Company, or the Trustee
shall have commenced any action to foreclose on or
otherwise enforce the pledge of the Company's
Capital Stock pursuant to such Indenture; or
(C) during any period of up to 24
consecutive months, commencing after the date of
this Agreement, individuals who at the beginning
of such 24-month (or shorter) period were
directors of the Company or the Borrower shall
cease for any reason to constitute a majority of
the board of directors of the Company or the
Borrower, respectively;
then, and in any such event, the Borrower shall
immediately prepay in full the Advances together with
interest accrued to the date of prepayment, shall cash
collateralize the Letters of Credit in the manner
provided for in Section 6.01 as if an Event of Default
had occurred and the Obligations had been declared
immediately due and payable, and shall reimburse the
Lenders in respect of all amounts that may then be due
pursuant to Section 8.04(b).
(ii) Mandatory Prepayments in Connection with
Over Utilization. The Borrower shall immediately
prepay the Advances at any time that the Total
Utilization of Commitments exceeds the Commitments
(after giving effect to any reduction of the
Commitments pursuant to Section 2.06) in an amount
equal to such excess.
(iii) Other Mandatory Prepayments.
(A) Upon the consummation of any Asset
Sale by the Borrower or any Subsidiary of the
Borrower (other than (1) sales of receivables of
MCI Acceptance Corp. permitted pursuant to Section
5.02(e)(iv) or (2) the sale of inventory, notes
receivable and leases supporting coach financings,
in each case in the ordinary course of business),
except to the extent that the Net Cash Proceeds of
such Asset Sale, when combined with the Net Cash
Proceeds of all such Asset Sales during the
immediately preceding twelve-month period, do not
exceed five percent (5.0%) of the Borrower s net
tangible assets as of the beginning of such
twelve-month period, within three (3) Business
Days after the Borrower's or any of its
Subsidiaries' (i) receipt of any Net Cash Proceeds
from any such Asset Sale, or (ii) conversion to
cash or Cash Equivalents of non-cash proceeds
(whether principal or interest and including
securities, release of escrow arrangements or
lease payments) received from any Asset Sale, the
Borrower shall make a mandatory prepayment of the
Obligations in an amount equal to one hundred
percent (100%) of such Net Cash Proceeds or such
proceeds converted from non-cash to cash or Cash
Equivalents.
(B) Upon the consummation of any
Financing by the Borrower or any Subsidiary of the
Borrower the Net Cash Proceeds of which exceed an
aggregate amount for all such Financings after the
date hereof of $5,000,000, within three (3)
Business Days after the Borrower's or any of its
Subsidiaries' receipt of any Net Cash Proceeds
from such Financing, the Borrower shall make a
mandatory prepayment of the Obligations in an
amount equal to one hundred percent (100%) of such
Net Cash Proceeds and the Commitments shall be
automatically and permanently reduced as of such
date by an amount equal to the amount of such
mandatory prepayment; provided, however, (1) no
such prepayment shall be required in connection
with a refinancing of all or any portion of the
Senior Notes consummated in accordance with the
terms of this Agreement, and (2) if at the time of
receipt of such Net Cash Proceeds the Senior Notes
shall not have been refinanced or all principal
payments on the Senior Notes deferred until at
least ninety-one (91) days after the Termination
Date, the Commitments shall not be permanently
reduced except to the extent that such mandatory
prepayment exceeds $25,000,000 and the Borrower's
availability under the Commitments shall be
suspended in an amount equal to the lesser of the
amount of such mandatory prepayment and
$25,000,000 to provide for availability under the
Commitments when principal payments become due
under the Senior Notes.
(C) Nothing in this
Section 2.07(b)(iii) shall be construed to
constitute the Lenders' consent to any transaction
referred to in clauses (A) and (B) above which is
not expressly permitted by the terms of this
Agreement.
(D) Each mandatory prepayment required
by clauses (A) and (B) of this
Section 2.07(b)(iii) shall be referred to herein
as a "Designated Prepayment." Designated
Prepayments shall be allocated and applied to the
Obligations as follows:
(I) the amount of each Designated
Prepayment shall be applied to repay the
Swing Line Loans; and
(II) following the payment in full
of the Swing Line Loans, the amount of
each Designated Prepayment shall be
applied to repay the other Advances.
(E) On the date any Designated
Prepayment is received by the Agent, such
prepayment shall be applied first to Base Rate
Advances and to any Eurodollar Rate Advances
maturing on such date and then to subsequently
maturing Eurodollar Rate Advances in order of
maturity.
(c) Voluntary Prepayments of Borrowings. The
Borrower may upon prior notice stating the proposed date and
aggregate principal amount of a proposed prepayment of the
Advances, which notice shall given to the Administrative
Agent not later than 1:00 P.M. (Detroit time) on the day of
such prepayment, in the case of a prepayment of Base Rate
Advances, or and at least three Business Days' prior to
proposed date of such prepayment, in the case of Eurodollar
Rate Advances, prepay (and if such notice is given the
Borrower shall prepay) the outstanding principal amounts of
the Advances comprising part of the same Borrowing in whole
or ratably in part in such amount as is set forth in such
notice; provided, however, that (x) each partial prepayment
shall be in an aggregate principal amount not less than
$5,000,000 (or $1,000,000 in the case of Base Rate Advances)
and integral multiples of $1,000,000 in excess thereof and
(y) in the case of any such prepayment of any Eurodollar
Rate Advance, the Borrower shall pay all accrued interest to
the date of such prepayment on the portion of such
Eurodollar Rate Advance being prepaid and shall be obligated
to reimburse the Lenders in respect of all amounts that may
then be owing pursuant to Section 8.04(b).
SECTION 2.8. INTEREST ON ADVANCES; DEFAULT RATE.
The Borrower shall pay interest accrued on the
principal amount of each Advance outstanding from time to
time from the date of such Advance until such principal
amount shall be paid in full, at the following rates per
annum:
(a) Base Rate Advances. If such Advance is
a Base Rate Advance (including, without limitation, all
Swing Line Loans), a rate per annum equal at all times
to the Alternate Base Rate in effect from time to time
plus the applicable Margin, payable monthly in arrears
on the last day of each month during the term of this
Agreement, commencing December 31, 1996, and on the
Termination Date.
(b) Eurodollar Rate Advances. If such
Advance is a Eurodollar Rate Advance, a rate per annum
equal at all times during the Interest Period for such
Advance to the sum of the Adjusted Eurodollar Rate for
such Interest Period plus the applicable Margin,
payable in arrears on the last day of such Interest
Period and, if such Interest Period has a duration of
more than three months, on the day which occurs during
such Interest Period three months from the first day of
such Interest Period.
(c) Default Rate. After the occurrence and
during the continuance of an Event of Default, the
interest rate(s) applicable to the Obligations and the
fees payable under Section 2.04(e)(ii) with respect to
Letters of Credit shall be increased by two percent
(2.0%) per annum above the interest rate(s) and fees
otherwise in effect from time to time hereunder.
SECTION 2.9. INTEREST RATE DETERMINATION. The
Administrative Agent shall give prompt notice to the
Borrower and the Lenders of the applicable interest rate
determined by the Administrative Agent for purposes of
Section 2.08.
SECTION 2.10. VOLUNTARY CONVERSION OR CONTINUATION OF
ADVANCES.
(a) The Borrower may on any Business Day, upon
notice given to the Administrative Agent not later than
12:00 noon (Detroit time) on the third Business Day prior
to the date of the proposed Conversion or continuance (a
"Notice of Conversion/Continuation") and subject to the
provisions of Section 2.02(b), (1) Convert all Advances
(other than Swing Line Loans) of one Type comprising the
same Borrowing into Advances of another Type and (2) upon
the expiration of any Interest Period applicable to Advances
which are Eurodollar Rate Advances, continue all (or,
subject to Section 2.02(b), any portion of) such Advances as
Eurodollar Rate Advances and the succeeding Interest
Period(s) of such continued Advances shall commence on the
last day of the Interest Period of the Advances to be
continued; provided, however, that any Conversion of any
Eurodollar Rate Advances into Advances of another Type shall
be made on, and only on, the last day of an Interest Period
for such Eurodollar Rate Advances. Each such Notice of
Conversion/Continuation shall, within the restrictions
specified above, specify (i) the date of such continuation
or Conversion, (ii) the Advances (or, subject to Section
2.02(b), any portion thereof) to be continued or Converted,
(iii) if such continuation is of, or such Conversion is
into, Eurodollar Rate Advances, the duration of the Interest
Period for each such Advance and (iv) that no Potential
Event of Default or Event of Default has occurred and is
continuing.
(b) If upon the expiration of the then existing
Interest Period applicable to any Advance which is a
Eurodollar Rate Advance, the Borrower shall not have
delivered a Notice of Conversion/Continuation in accordance
with this Section 2.10, then such Advance shall upon such
expiration automatically be Converted to a Base Rate
Advance.
(c) After the occurrence of and during the
continuance of a Potential Event of Default or an Event of
Default, at the option of the Majority Lenders, the Borrower
may not elect to have an Advance be made or continued as, or
Converted into, a Eurodollar Rate Advance after the
expiration of any Interest Period then in effect for that
Advance.
SECTION 2.11. INCREASED COSTS. (a) If, due to either
(i) the introduction of or any change (other than any change
by way of imposition or increase of reserve requirements in
the case of Eurodollar Rate Advances included in the
Eurodollar Rate Reserve Percentage) in or in the
interpretation of any law or regulation made after the date
hereof or (ii) the compliance with any guideline or request
from any central bank or other governmental authority
(whether or not having the force of law) made after the date
hereof, there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining
Eurodollar Rate Advances, then the Borrower shall from time
to time, upon demand by such Lender (with a copy of such
demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender
additional amounts sufficient to compensate such Lender for
such increased cost. A reasonably detailed certificate as
to the amount and manner of calculation of such increased
cost, submitted to the Borrower and the Administrative Agent
by such Lender, shall be conclusive and binding for all
purposes, absent manifest error. A Lender which incurs such
an increased cost shall give the Borrower reasonably prompt
notice thereof; provided that failure to give such notice
shall not affect the Borrower's obligations hereunder.
(b) If any Lender determines that compliance with
any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not
having the force of law) taking effect after the date hereof
affects or would affect the amount of capital required or
expected to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such capital
is increased by or based upon the existence of such Lender's
commitment to lend hereunder and other commitments of this
type or Letters of Credit issued hereunder and other letters
of credit, then, upon demand by such Lender (with a copy of
such demand to the Administrative Agent), the Borrower shall
immediately pay to the Administrative Agent for the account
of such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such
Lender or such corporation in the light of such
circumstances, to the extent that such Lender reasonably
determines such increase in capital to be allocable to the
existence of such Lender's commitment to lend hereunder. A
reasonably detailed certificate as to such amounts and the
manner of calculation thereof submitted to the Borrower and
the Administrative Agent by such Lender shall be conclusive
and binding for all purposes, absent manifest error. A
Lender which becomes subject to the circumstances set forth
in this Section 2.11(b) shall give the Borrower reasonably
prompt notice thereof; provided that failure to give such
notice shall not affect the Borrower's obligations
hereunder.
(c) If any Lender requests compensation from the
Borrower under Section 2.11(a) or (b), the Borrower shall
have the right, with the assistance of the Administrative
Agent, to seek one or more substitute banks or financial
institutions (which may be one or more of the Lenders)
reasonably satisfactory to the Administrative Agent and the
Borrower to purchase the Advances and assume the Commitments
of such Lender, and the Borrower, the Administrative Agent,
such Lender, and such substitute banks or financial
institutions shall execute and deliver an appropriately
completed Assignment and Acceptance pursuant to Section
8.07(a) hereof to effect the assignment of rights to and the
assumption of obligations by such substitute banks or
financial institutions; provided that such requesting
Lender, shall be entitled to compensation under this Section
2.11 for any costs incurred by it prior to its replacement
and provided further that if such requesting Lender is an
Issuing Bank, all Letters of Credit issued by it shall be
returned to it (or subject to other arrangements
satisfactory to it) prior to its replacement.
(d) If a Lender shall change its Applicable
Lending Office, such Lender shall not be entitled to receive
any greater payment under Sections 2.11 and 2.13 than the
amount such Lender would have been entitled to receive if it
had not changed its Applicable Lending Office, unless such
change was made at the request of the Borrower or at a time
when the circumstances giving rise to such greater payment
did not exist.
SECTION 2.12. PAYMENTS AND COMPUTATIONS. (a) The
Borrower shall make each payment hereunder not later than
1:00 P.M. (Detroit time) on the day when due in U.S. dollars
to the Administrative Agent at its address referred to in
Section 8.02 in same day funds. The Administrative Agent
will promptly thereafter cause to be distributed like funds
relating to the payment of principal or interest or
commitment or facility fees ratably to the Lenders in
accordance with their respective Commitments (other than
amounts payable pursuant to Section 2.11 or 2.13) for the
account of their respective Applicable Lending Offices, and
like funds relating to the payment of any other amount
payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of
the information contained therein in the Register pursuant
to Section 8.07(d), from and after the effective date
specified in such Assignment and Acceptance, the
Administrative Agent shall make all payments hereunder in
respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Assignment and
Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly
between themselves.
(b) All computations of interest and fees shall
be made by the Administrative Agent on the basis of a year
of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the
period for which such interest or such fees are payable.
Each determination by the Administrative Agent of an
interest rate hereunder shall be conclusive and binding for
all purposes, absent manifest error.
(c) Whenever any payment hereunder shall be
stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in
the computation of payment of interest or commitment fee, as
the case may be; provided, however, if such extension would
cause payment of interest on or principal of Eurodollar Rate
Advances to be made in the next following calendar month,
such payment shall be made on the next preceding Business
Day.
(d) Unless the Administrative Agent shall have
received notice from the Borrower prior to the date on which
any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made
such payment in full to the Administrative Agent on such
date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender.
If and to the extent that the Borrower shall not have so
made such payment in full to the Administrative Agent, each
Lender shall repay to the Administrative Agent forthwith on
demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays
such amount to the Administrative Agent, at the Federal
Funds Rate.
SECTION 2.13. TAXES. (a) Any and all payments by the
Borrower hereunder shall be made, in accordance with Section
2.12, free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the
Administrative Agent, (i) taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction under the
laws of which such Lender or the Administrative Agent (as
the case may be) is organized or any political subdivision
thereof or in which its principal office is located,
(ii) taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction of such Lender's
Applicable Lending Office or any political subdivision
thereof, (iii) taxes imposed upon or measured by the overall
net income of such Lender by the United States of America,
any State, or any political subdivision or taxing authority
thereof or therein, and (iv) United States income taxes
(including withholding taxes with respect thereto) payable
with respect to payments hereunder under laws (including
without limitation any statute, treaty, ruling,
determination or regulation) in effect on the date hereof in
the case of each Lender and on the effective date of the
Assignment and Acceptance pursuant to which it became a
Lender in the case of each other Lender (all such non-
excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrative Agent, (i) the
sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions
applicable to additional sums payable under this Section
2.13) such Lender or the Administrative Agent (as the case
may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law. In no
event shall the Borrower be required to pay any tax that
would violate any applicable law.
(b) In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which
arise from the execution, delivery or registration of, or
otherwise with respect to, this Agreement (hereinafter
referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and
the Administrative Agent for the full amount of Taxes or
Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable
under this Section 2.13) paid by such Lender or the
Administrative Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date
such Lender or the Administrative Agent (as the case may be)
makes written demand therefor.
(d) Within 30 days after the date of any payment
of Taxes, the Borrower will furnish to the Administrative
Agent, at its address referred to in Section 8.02, the
original or a certified copy of a receipt evidencing payment
thereof.
(e) Each Lender organized under the laws of a
jurisdiction outside the United States, on or prior to the
date of its execution and delivery of this Agreement in the
case of each Lender and on the date of the Assignment and
Acceptance pursuant to which it becomes a Lender in the case
of each other Lender, and from time to time thereafter if
requested in writing by the Borrower (but only so long as
such Lender remains lawfully able to do so), shall provide
the Borrower with Internal Revenue Service form 1001 or
4224, as appropriate, or any successor form prescribed by
the Internal Revenue Service, certifying that such Lender is
entitled to benefits under an income tax treaty to which the
United States is a party which reduces the rate of
withholding tax on payments of interest or certifying that
the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or
business in the United States. If the form provided by a
Lender at the time such Lender first becomes a party to this
Agreement indicates a United States interest withholding tax
rate in excess of zero, withholding tax at such rate shall
be considered excluded from "Taxes" as defined in Section
2.13(a).
(f) For any period with respect to which a Lender
has failed to provide the Borrower with the appropriate form
described in Section 2.13(e) (other than if such failure is
due to a change in law occurring subsequent to the date on
which a form originally was required to be provided, or if
such form otherwise is not required under the first sentence
of Section (e) above), such Lender shall not be entitled to
indemnification under Section 2.13(a) with respect to Taxes
imposed by the United States; provided, however, that should
a Lender become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall, at
the expense of such Lender, take such steps as the Lender
shall reasonably request to assist the Lender to recover
such Taxes.
(g) Without prejudice to the survival of any
other agreement of the Borrower hereunder, the agreements
and obligations of the Borrower contained in this Section
2.13 shall survive the payment in full of principal and
interest hereunder and the termination of this Agreement.
SECTION 2.14. SHARING OF PAYMENTS, ETC. If any Lender
shall obtain any payment (whether voluntary, involuntary,
through the exercise of any right of set-off, or otherwise)
on account of the Advances made by it (other than nonratable
payments made on the Effective Date pursuant to the proviso
set forth in the second sentence of Section 2.12 or payments
made pursuant to Section 2.11 or 2.13) in excess of its
ratable share of payments on account of the Advances
obtained by all the Lenders, such Lender shall forthwith
purchase from the other Lenders such participations in the
Advances made by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with
each of them, provided, however, that if all or any portion
of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be
rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such
Lender's required repayment to (ii) the total amount so
recovered from the purchasing Lender) of any interest or
other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from
another Lender pursuant to this Section 2.14 may, to the
fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to
such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such
participation.
SECTION 2.15. EVIDENCE OF DEBT.
(a) Each Lender shall maintain in accordance with
its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender resulting from
each Advance or participation in any Letter of Credit made
or purchased by such Lender from time to time, including the
amounts of principal and interest payable and paid to such
Lender from time to time hereunder.
(b) The Register maintained by the Administrative
Agent pursuant to Section 8.07(c) shall include a control
account, and a subsidiary account for each Lender, in which
accounts (taken together) shall be recorded (i) the date,
amount and tenor, as applicable, of each Borrowing, the Type
of Advances comprising such Borrowing and the Interest
Period applicable thereto, (ii) the date of issuance of each
Letter of Credit, the face amount thereof, the expiration
date thereof, each Lender's participation therein, and any
drawings and reimbursements made thereunder, (iii) the terms
of each Assignment and Acceptance delivered to and accepted
by it, (iv) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to
each Lender hereunder, and (v) the amount of any sum
received by the Administrative Agent from the Borrower
hereunder and each Lender's share thereof.
(c) The entries made in the Register shall be
conclusive and binding for all purposes, absent manifest
error.
(d) Any Lender may at any time request that the
Borrower execute and deliver to such Lender a Note,
substantially in the form of EXHIBIT C-1 annexed hereto, to
evidence such Lender's Advances (other than Swing Line
Loans) hereunder. The Borrower agrees promptly upon its
receipt of any such request from a Lender to execute and
deliver a Note to such Lender.
SECTION 2.16. USE OF PROCEEDS.
(a) Advances shall be used by the Borrower for
(i) the Dina Distribution, (ii) other general corporate
purposes and (iii) for seasonal working capital
requirements.
(b) No portion of the proceeds of any Advances
under this Agreement shall be used by the Borrower or any of
its Subsidiaries (i) in any manner which might cause the
Advances or the application of such proceeds to violate, or
require any Lender to make any filing or take any other
action under, Regulation G, Regulation U, Regulation T, or
Regulation X of the Board of Governors of the Federal
Reserve System or any other regulation of such Board or to
violate the Securities Exchange Act of 1934, in each case as
in effect on the date or dates of such Advances and such use
of proceeds or (ii) to purchase any securities registered
pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, other than purchases of the Company's
common stock permitted under Section 5.02(j).
SECTION 2.17. MARGINS, APPLICABLE FACILITY FEES AND
APPLICABLE LETTER OF CREDIT FEES. Each of the applicable
Margin, the applicable facility fee payable by the Borrower
pursuant to Section 2.05, and the applicable letter credit
fee payable by the Borrower pursuant to Section 2.04(e)(ii)
shall be subject to adjustment (upwards or downwards, as
appropriate) based on the existence of the applicable Credit
Level described in the table below.
APPLICABLE MARGIN, FACILITY FEE AND LETTER OF CREDIT FEE TABLE
APPLICABLE APPLICABLE
MARGIN FOR MARGIN FOR APPLICABLE
CREDIT EURODOLLAR BASE RATE APPLICABLE LETTER OF
LEVEL RATE ADVANCES ADVANCES FACILITY FEE CREDIT FEE
Level 1 .475% 0.00% .25% .475%
Level 2 .550% 0.00% .30% .550%
Level 3 .875% .125% .35% .875%
Level 4 1.10% .60% .50% 1.10%
Notwithstanding the foregoing, (i) for any Eurodollar Rate
Advances or Letters of Credit outstanding prior to the
Initial Rate Adjustment Date, the Margin for Eurodollar Rate
Advances and the letter of credit fee shall equal 0.95% per
annum until the Initial Rate Adjustment Date; provided,
however, such Margin and letter of credit fee shall be 1.10%
per annum for any time prior to the Initial Rate Adjustment
Date that the Borrower's Leverage Ratio is equal to or
greater than 4.00 to 1.00; (ii) the applicable facility fee
from the Effective Date to the Initial Rate Adjustment Date
shall be 0.40% per annum; provided, however, that the
facility fee shall be 0.50% per annum for any time during
such period that the Borrower's Leverage Ratio is equal to
or greater than 4.00 to 1.00; and (iii) the Margin for Base
Rate Advances shall be 0.0% per annum until the earlier of
(a) the first date on which a financial institution other
than NBD Bank shall become a Lender pursuant to an
Assignment and Acceptance and (b) the date which occurs
ninety (90) days after the Effective Date, provided,
however, that the Margin for Base Rate Advances shall be
0.60% per annum for any time during such period that the
Borrower's Leverage Ratio is equal to or greater than 4.00
to 1.00.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.1. CONDITION PRECEDENT TO EFFECTIVENESS.
This Agreement shall become effective only upon, and the
obligations of each Lender to make Advances and to issue, or
to participate in, Letters of Credit are, in addition to the
conditions precedent specified in Section 3.02 or Section
3.03, subject to prior or concurrent satisfaction of the
following conditions:
(a) Borrower Documents. On or before the
Effective Date, the Borrower shall deliver or cause to be
delivered to Lenders (or to the Administrative Agent for the
Lenders with sufficient originally executed copies, where
appropriate, for each Lender and its counsel) the following,
each, unless otherwise noted, dated the Effective Date:
(i) Certified copies of its Certificate of
Incorporation, together with a good standing
certificate from the Secretary of State of the State of
Delaware and each other state in which it is qualified
as a foreign corporation to do business, each dated a
recent date prior to the Effective Date and certified
as of the Effective Date by its corporate secretary or
assistant secretary;
(ii) Copies of its Bylaws, certified as of
the Effective Date by its corporate secretary or an
assistant secretary;
(iii) Resolutions of its Board of Directors
approving and authorizing the execution, delivery and
performance of this Agreement, any Notes, and the other
Loan Documents to which the Borrower is a party,
certified as of the Effective Date by its corporate
secretary or an assistant secretary as being in full
force and effect without modification or amendment;
(iv) Signature and incumbency certificates of
its officers authorized to request Advances or
executing this Agreement, any Notes and the other Loan
Documents to which the Borrower is a party;
(v) Executed originals of this Agreement,
the Swing Line Note, the other Notes and each other
Loan Document to which the Borrower is a party; and
(vi) Such other documents as the
Administrative Agent may reasonably request.
(b) Subsidiary Guarantor Documents. On or
before the Effective Date, each Subsidiary Guarantor shall
deliver or cause to be delivered to the Lenders (or to the
Administrative Agent for the Lenders with sufficient
originally executed copies, where appropriate, for each
Lender and its counsel) the following, each, unless
otherwise noted, dated the Effective Date:
(i) Certified copies of its Certificate of
Incorporation, together with a good standing
certificate from the Secretary of State of its state of
incorporation and each other state in which it is
qualified as a foreign corporation to do business, each
dated a recent date prior to the Effective Date and
certified as of the Effective Date by its corporate
secretary or assistant secretary;
(ii) Copies of its Bylaws, certified as of
the Effective Date by its corporate secretary or an
assistant secretary;
(iii) Resolutions of its Board of Directors
approving and authorizing the execution, delivery and
performance of the Guaranty and the other Loan
Documents to which such Subsidiary Guarantor is a
party, certified as of the Effective Date by its
corporate secretary or an assistant secretary as being
in full force and effect without modification or
amendment;
(iv) Signature and incumbency certificates of
its officers executing the Guaranty and the other Loan
Documents to which such Subsidiary Guarantor is a
party;
(v) Executed originals of the Guaranty and
the other Loan Documents to which such Subsidiary
Guarantor is a party; and
(vi) Such other documents as the
Administrative Agent may reasonably request.
(c) Management Contracts. On or before the
Effective Date, the Administrative Agent and the Lenders
shall have received copies of the current management
contracts for the Borrower's chief operating officer, chief
financial officer, treasurer and controller and for the
president of the Borrower's Universal Coach Parts subsidiary
(the "Management Contracts") and such contracts shall be in
form and substance satisfactory to the Administrative Agent
and each of the Lenders.
(d) Opinions of Counsel. The Lenders and
their respective counsel shall have received:
(i) originally executed copies of one or
more favorable written opinions of Latham & Watkins,
counsel for the Borrower and the Subsidiary Guarantors,
dated as of the Effective Date and setting forth
substantially the matters in the opinions designated in
EXHIBIT F-1 hereto and as to such other matters as the
Administrative Agent acting on behalf of the Lenders
may reasonably request;
(ii) originally executed copies of one or
more favorable written opinions of Kristin Schloemer,
Corporate Counsel of the Borrower and the Subsidiary
Guarantors, in form and substance reasonably
satisfactory to the Administrative Agent and its
counsel and setting forth substantially the matters in
the opinions designated by EXHIBIT F-2 hereto and as to
such other matters as the Administrative Agent acting
on behalf of the Lenders may reasonably request; and
(iii) evidence satisfactory to the
Administrative Agent (which may be recitals in such
opinions) that the Borrower has requested such counsel
to deliver such opinions to the Lenders.
(e) Noteholders' Consent and Intercreditor
Agreement. The Borrower shall have caused the required
holders of the Senior Notes to have delivered a consent to
the Dina Distribution and the transactions evidenced by this
Agreement and to have entered into an intercreditor
agreement with the Administrative Agent and the Lenders,
which consent and intercreditor agreement shall be in form
and substance acceptable to the Administrative Agent and the
Lenders.
(f) Fees. The Borrower shall have paid to
the Administrative Agent, for distribution (as appropriate)
to the Administrative Agent, and the Arranger, the fees and
expenses payable on the Effective Date.
(g) Representations and Warranties;
Performance of Agreements. The Borrower shall have
delivered to the Administrative Agent an Officer's
Certificate, in form and substance satisfactory to the
Administrative Agent, to the effect that the representations
and warranties in Section 4.01 hereof are true, correct and
complete in all material respects on and as of the Effective
Date to the same extent as though made on and as of that
date and that the Borrower shall have performed in all
material respects all agreements and satisfied all
conditions that this Agreement provides shall be performed
or satisfied by it on or before the Effective Date, except
as otherwise disclosed to and agreed to in writing by the
Administrative Agent and Majority Lenders.
(h) Repayment of Amounts Outstanding Under
Existing Credit Agreement. Concurrently with the
effectiveness of this Agreement and the making of the
initial Advances hereunder, the Borrower shall pay all
principal and all accrued and unpaid fees and interest
outstanding under the Amended and Restated Credit Agreement
dated as of August 8, 1994, as amended, among the Company,
the Borrower, various financial institutions parties thereto
as lenders and co-agents and Citibank, N.A., as Agent (the
"Citibank Agreement");
(i) Payoff and Release Documents. The
Administrative Agent shall have received a payoff, estoppel
and release letter with respect to the Citibank Agreement,
which letter shall be in form and substance acceptable to
the Administrative Agent and its counsel.
(j) No Material Adverse Effect. Since
December 31, 1995, there shall not have occurred any change,
or development or event involving a prospective change,
which in either case, has had or could have a Material
Adverse Effect.
(k) No Event of Default. Immediately prior
to the Effective Date, no "Event of Default" or "Potential
Event of Default" hereunder or under the Citibank Agreement
shall have occurred and be continuing.
(l) Completion of Proceedings. All
corporate and other proceedings taken or to be taken in
connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable
by the Administrative Agent, acting on behalf of the
Lenders, and its counsel shall be satisfactory in form and
substance to the Administrative Agent and such counsel, and
the Administrative Agent and such counsel shall have
received all such counterpart originals or certified copies
of such documents as Administrative Agent may reasonably
request.
(m) Other Conditions. The Agent shall, to
its satisfaction, have confirmed that the Borrower shall
have satisfied all conditions precedent as set forth in the
Term Sheet dated as of August 13, 1996.
SECTION 3.2. CONDITIONS PRECEDENT TO EACH BORROWING.
The obligation of the Swing Line Bank to make a Swing Line
Loan and the obligation of each Lender to make an Advance on
the occasion of each Borrowing (including, without
limitation, the Advances to be made on the Effective Date)
shall be subject to the further conditions precedent that
(x) the Administrative Agent shall have received a Notice of
Borrowing with respect thereto in accordance with Section
2.02 or 2.03, as applicable, and (y) on the date of such
Borrowing (a) the following statements shall be true (and
each of the giving of the applicable Notice of Borrowing and
the acceptance by the Borrower of the proceeds of such
Borrowing shall constitute a representation and warranty by
the Borrower that on the date of such Borrowing such
statements are true):
(i) The representations and warranties of
the Borrower contained in Section 4.01 (excluding
Section 4.01(f)) are correct in all material respects
on and as of the date of such Swing Line Loan or
Borrowing, before and after giving effect to such Swing
Line Loan or Borrowing and to the application of the
proceeds therefrom, as though made on and as of such
date, except to the extent that any such representation
or warranty expressly relates only to an earlier date,
in which case they were correct as of such earlier
date;
(ii) Since December 31, 1995, there has not
occurred any change, or development or event involving
a prospective change, which, in either case, has had or
could have a Material Adverse Effect; and
(iii) No event has occurred and is continuing,
or would result from such Swing Line Loan or Borrowing
or from the application of the proceeds therefrom,
which constitutes an Event of Default or a Potential
Event of Default; and
(b) the Administrative Agent shall have received
such other approvals, opinions or documents as the Majority
Lenders through the Administrative Agent may reasonably
request.
SECTION 3.3. CONDITIONS PRECEDENT TO LETTER OF
CREDIT. The obligation of any Issuing Lender to issue any
Letter of Credit hereunder is subject to prior or concurrent
satisfaction of all of the following conditions:
(a) On or before the date of issuance of any
Letter of Credit hereunder, the Administrative Agent shall
have received, in accordance with the provisions of
Section 2.04(b), a Notice of Issuance of Letter of Credit
relating to the proposed Letter of Credit, all other
information specified in Section 2.04(b) and such other
documents as the Administrative Agent and the Issuing Lender
may reasonably require in connection with the issuance of
such Letter of Credit.
(b) On or before the date of issuance of
such Letter of Credit, each of the conditions set forth in
Section 3.01 shall have been satisfied as of the Effective
Date, and, on such date of issuance, all conditions
precedent described in Section 3.02 shall be satisfied to
the same extent as though the issuance of such Letter of
Credit were the making of an Advance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE
BORROWER. The Borrower represents and warrants as follows:
(a) Due Organization, etc. The Borrower is
a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation. The Borrower has the corporate power,
authority and legal right to own and operate the assets and
properties and conduct the business now, or proposed to be,
owned, operated and conducted by it. All necessary
consents, licenses, permits, approvals or authorizations of,
exemptions by, notices and reports to, registrations,
filings and declarations with, and any other act by or in
respect of, any Person requisite for such ownership,
operation and conduct have been obtained or performed except
such of the foregoing the failure to obtain or perform which
would not, in the aggregate, have a Material Adverse Effect.
The Borrower is duly qualified as a foreign corporation and
in good standing under the laws of each jurisdiction where
its ownership or leasing of property or conduct of business
requires such qualification and where the failure to be so
qualified or in good standing would have a Material Adverse
Effect.
(b) Subsidiaries. All of the Subsidiaries
of the Borrower as of both the date hereof and the Effective
Date are identified in SCHEDULE 4.01(B) annexed hereto. The
capital stock of each of the Subsidiaries of the Borrower
identified in SCHEDULE 4.01(B) annexed hereto is duly
authorized, validly issued, fully paid and nonassessable.
Each of the Subsidiaries of the Borrower identified in
SCHEDULE 4.01(B) annexed hereto is validly existing and in
good standing under the laws of its respective jurisdiction
of incorporation set forth therein, has full corporate power
and authority to own its assets and properties and to
operate its business as presently owned and conducted, and
is qualified to do business and in good standing in every
jurisdiction where its assets are located and wherever
necessary to carry out its business and operations, in each
case except where failure to be so qualified or in good
standing or a lack of such corporate power and authority has
not had and will not have a Material Adverse Effect.
SCHEDULE 4.01(B) annexed hereto correctly sets forth the
ownership interest of the Borrower in each of its
Subsidiaries identified therein.
(c) Due Authorization, etc. The Borrower
has full power, authority and legal right to execute,
deliver and perform this Agreement and the Notes, and each
of the Subsidiary Guarantors has full power, authority and
legal right to execute, deliver and perform the Guaranties.
The execution, delivery and performance of this Agreement
and the Notes by the Borrower have been duly authorized by
all necessary corporate action on the part of the Borrower
and the execution, delivery and performance of the
Guaranties by each Subsidiary Guarantor have been duly
authorized by all necessary corporate action on the part of
each such Subsidiary Guarantor.
(d) Governmental Consent, No Conflicts.
Neither (i) the execution and delivery of (y) this Agreement
and the Notes by the Borrower or (z) the Guaranties by each
such Subsidiary Guarantor, nor (ii) the declaration or
payment of the Dina Distribution requires any governmental
registrations or filings or approvals or violates or
contravenes any law or any order of any court or
governmental agency or any indenture, agreement or other
instrument, including, without limitation, with respect to
the Senior Notes, to which any of the Company, the Borrower
or the Subsidiary Guarantors is party or by which it or any
of its properties may be bound.
(e) Validity. (i) This Agreement and the
Notes are the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with
its terms, and (ii) the Guaranties are the legal, valid and
binding obligations of each of the Subsidiary Guarantors
parties thereto enforceable against each such Subsidiary
Guarantor in accordance with their respective terms, in each
case as enforceability may be subject to the effect of
applicable bankruptcy, insolvency, arrangement, moratorium
and other similar laws affecting creditors' rights generally
and to the application of general principles of equity.
(f) Condition of the Borrower. The
consolidated balance sheet of the Borrower and its
consolidated Subsidiaries at December 31, 1995 and the
related statements of income and cash flows for the year
then ended, fairly present the financial condition of the
Borrower and its consolidated Subsidiaries at such date and
the results of the operations of the Borrower and its
consolidated Subsidiaries for the year then ended, all in
accordance with GAAP consistently applied. Since
December 31, 1995, there has not occurred any change, or
development or event involving a prospective change, which
has had or could have a Material Adverse Effect.
(g) Litigation. Except as set forth in
SCHEDULE 4.01(G), (i) there is no pending action or
proceeding against the Borrower or any of its Subsidiaries
before any court, governmental agency or arbitrator, and
(ii) there is no pending or threatened action or proceeding
affecting the Borrower or any of its Subsidiaries before any
court, governmental agency or arbitrator, which in either
case would reasonably be expected to result in liability for
the payment of amounts individually or in the aggregate in
excess of $5,000,000, would reasonably be expected to have a
Material Adverse Effect or which purports to affect the
legality, validity or enforceability of this Agreement or
any other Loan Document.
(h) Margin Regulations. Neither the
Borrower nor any of its Subsidiaries is engaged in the
business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation U
issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin
stock in any manner that violates, or would cause a
violation of or require any Lender to make any filing or
take any other action under Regulation G, Regulation T,
Regulation U or Regulation X of the Board of Governors of
the Federal Reserve System. None of the issued and
outstanding capital stock of any of the Company's
Subsidiaries constitutes margin stock under Regulation U.
(i) Payment of Taxes. The Borrower and each
of its Subsidiaries have filed or caused to be filed all
material tax returns (federal, state, local and foreign)
required to be filed and paid all material amounts of taxes
shown thereon to be due, including interest and penalties,
except for such taxes as are being contested in good faith
and by proper proceedings and with respect to which
appropriate reserves are being maintained by the Borrower or
any such Subsidiary, as the case may be.
(j) Governmental Regulation. The Borrower
is not subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of
1940, each as amended, or to any Federal or state statute or
regulation limiting its ability to incur indebtedness for
money borrowed. No Subsidiary of the Borrower is subject to
any regulation that would limit the ability of the Borrower
or such Subsidiary to enter into or perform its obligations
under this Agreement, the Guaranties or the other Loan
Documents.
(k) ERISA.
(i) No ERISA Event which might result in
liability individually or in the aggregate in excess of
$5,000,000 (other than for premiums payable under Title
IV of ERISA) has occurred or is reasonably expected to
occur with respect to any Pension Plan.
(ii) Schedule B (Actuarial Information) to
the most recently completed annual report (Form 5500
Series) for each Pension Plan, copies of which have
been filed with the Internal Revenue Service and
furnished to the Administrative Agent, is complete and,
to the best knowledge of the Borrower, accurate, and
since the date of such Schedule B there has been no
material adverse change in the funding status of any
such Pension Plan.
(iii) Neither the Borrower nor any ERISA
Affiliate has incurred, or, to the best knowledge of
the Borrower, is reasonably expected to incur, any
Withdrawal Liability to any Multiemployer Plan.
(iv) Neither the Borrower nor any ERISA
Affiliate has been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the
meaning of Title IV of ERISA, and, to the best
knowledge of the Borrower, no Multiemployer Plan is
reasonably expected to be in reorganization or to be
terminated within the meaning of Title IV of ERISA.
(v) The Borrower and each of its ERISA
Affiliates is in compliance in all material respects
with ERISA, the Code, to the extent applicable to any
employee benefit plan as defined in Section 3(3) of
ERISA, and all applicable regulations promulgated under
ERISA and the Code the noncompliance with which could
reasonably be expected to have a Material Adverse
Effect or result in liability individually or in the
aggregate in excess of $5,000,000.
(vi) No Single Employer Plan has incurred any
accumulated funding deficiency (as defined in Sections
302(a)(2) of ERISA and 412(a) of the Code), whether or
not waived.
(vii) Neither Borrower nor any ERISA Affiliate
has failed to make a required contribution or any other
required payment to a Multiemployer Plan.
(viii) Listed on SCHEDULE 4.01(K) hereto are all
Pension Plans, Foreign Pension Plans and employee
welfare benefit plans that provide retiree welfare
benefits maintained or contributed to by Borrower or
any ERISA Affiliate.
(ix) Neither Borrower nor any ERISA Affiliate has
engaged in a nonexempt prohibited transaction described
in Sections 406 of ERISA or 4975 of the Code which is
reasonably expected to result in liability of the
Borrower or any ERISA Affiliate individually or in the
aggregate in excess of $5,000,000.
(l) Disclosure. As of the date hereof and
the Effective Date, no representation or warranty of the
Borrower or any of its Subsidiaries contained in this
Agreement or any other Loan Document, or in any other
document, certificate or written statement furnished to
Lenders by or on behalf of the Borrower or any of its
Subsidiaries for use in connection with the transactions
contemplated by this Agreement contains any untrue statement
of a material fact or omits to state a material fact (known
to the Borrower, in the case of any document not furnished
by it) necessary in order to make the statements contained
in such agreements, documents, certificates and statements,
taken as a whole, not misleading in light of the
circumstances in which the same were made. Any projections
and pro forma financial information contained in such
materials are based upon good faith estimates and
assumptions believed by the Borrower to be reasonable at the
time made, it being recognized by Lenders that such
projections as to future events are not to be viewed as
facts and that actual results during the period or periods
covered by any such projections may differ from the
projected results as of the date hereof or the Effective
Date.
(m) Insurance. The Borrower and its
Subsidiaries have in full force insurance coverage of their
respective properties, assets and business (including
casualty, general liability, products liability and business
interruption insurance) that is (i) no less protective in
any material respect than the insurance the Borrower and its
Subsidiaries have carried in accordance with their past
practices or (ii) prudent given the nature of the business
of the Borrower and its Subsidiaries and the prevailing
practice among companies similarly situated.
(n) Environmental Matters. (i) The Borrower
and each of its Subsidiaries is in compliance in all
material respects with all Environmental Laws the non-
compliance with which could reasonably be expected to have a
Material Adverse Effect or result in liability for the
payment of amounts individually or in the aggregate in
excess of $5,000,000, and (ii) there has been no "release or
threatened release of a hazardous substance" (as defined by
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. SECTION 9601 et seq.)
or any other release, emission or discharge into the
environment of any hazardous or toxic substance, petroleum,
pollutant or other materials from the Company's or its
Subsidiaries' property other than as permitted under
applicable Environmental Law and other than those which
would not have a Material Adverse Effect or result in
liability for the payment of amounts individually or in the
aggregate in excess of $5,000,000. Other than disposals for
which the Borrower has been indemnified in full, all
"hazardous waste" (as defined by the Resource Conservation
and Recovery Act, 42 U.S.C. SECTION6901 et seq., as amended, and
the regulations thereunder, 40 CFR Part 261 ("RCRA"))
generated at the Borrower's or any Subsidiaries' properties
or through their operations has in the past been and shall
continue to be disposed of at sites which maintain valid
permits under RCRA and any applicable state or local
Environmental Law.
(o) Solvency. As of the Effective Date, the
Borrower and each Subsidiary Guarantor is Solvent and will,
immediately after giving effect to the transactions
contemplated to occur in connection with this Agreement and
the Dina Distribution, be Solvent.
(p) Employee Matters. There is no strike or
work stoppage in existence or threatened involving the
Borrower or any of its Subsidiaries that may have a Material
Adverse Effect.
(q) Foreign Employee Benefit Matters.
(i) Each Foreign Employee Benefit Plan is in
compliance in all material respects with all laws,
regulations and rules applicable thereto and the
respective requirements of the governing documents for
such Plan the noncompliance with which could reasonably
be expected to have a Material Adverse Effect or result
in liability individually or in the aggregate in excess
of $5,000,000.
(ii) The aggregate of the liabilities to
provide all of the accrued benefits under any Foreign
Pension Plan does not exceed the current fair market
value of the assets held in the trust or other funding
vehicle for such Plan.
(iii) With respect to any Foreign Employee
Benefit Plan maintained by the Borrower, any of its
Subsidiaries or any ERISA Affiliate (other than a
Foreign Pension Plan), reasonable reserves have been
established in accordance with prudent business
practice or where required by ordinary accounting
practices in the jurisdiction in which such Plan is
maintained.
(iv) The aggregate unfunded liabilities,
after giving effect to any reserves for such
liabilities, with respect to any Foreign Employee
Benefit Plan will not result in a liability to
Borrower, any of its Subsidiaries or any ERISA
Affiliate individually or in the aggregate in excess of
$5,000,000.
(v) There are no actions, suits or claims
(other than routine claims for benefits) pending or
threatened against the Borrower, any of its
Subsidiaries or any ERISA Affiliates with respect to
any Foreign Employee Benefit Plan.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.1. AFFIRMATIVE COVENANTS. So long as any
Advance shall remain unpaid, any Letter of Credit shall
remain outstanding or any Lender shall have any Commitment
hereunder, the Borrower will, unless the Majority Lenders
shall otherwise consent in writing:
(a) Reporting Requirements. Furnish to the
Lenders:
(i) as soon as available and in any event
within 60 days after the end of each fiscal quarter
(beginning with the fiscal quarter ending September 30,
1996), (A) the consolidated balance sheet for Dina and
its consolidated Subsidiaries as at the end of such
fiscal quarter and the related consolidated statements
of income and cash flows of Dina and its consolidated
Subsidiaries for such fiscal quarter and for the period
from the beginning of the then current fiscal year to
the end of such fiscal quarter, provided that so long
as Dina is a foreign private issuer complying with
reporting requirements under the Securities Exchange
Act of 1934, the foregoing requirement shall be
satisfied by the delivery of Dina's quarterly report
for such fiscal quarter on Form 6K thereunder, and (B)
the consolidated and consolidating balance sheets of
the Borrower and its Subsidiaries as at the end of such
fiscal quarter and the related consolidated and
consolidating statements of income and cash flows of
the Borrower and its Subsidiaries for such fiscal
quarter and for the period from the beginning of the
then current fiscal year to the end of such fiscal
quarter, setting forth in each case in comparative form
the corresponding figures for the corresponding periods
of the previous fiscal year, all in reasonable detail
and certified, in the case of any such financial
statements of the Borrower, by the chief financial
officer of the Borrower that they fairly present the
financial condition of the Borrower and its
Subsidiaries as at the dates indicated and the results
of their operations and their cash flows for the
periods indicated, subject to changes resulting from
audit and normal year-end adjustments;
(ii) as soon as available and in any event
within 120 days after the end of each fiscal year, (A)
the consolidated balance sheet of Dina and its
consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated statements of income,
stockholders' equity and cash flows of Dina and its
consolidated Subsidiaries for such fiscal year, setting
forth in comparative form the corresponding figures for
the previous fiscal year, all in reasonable detail,
provided that so long as Dina is a foreign private
issuer complying with reporting requirements under the
Securities Exchange Act of 1934, the foregoing
requirement shall be satisfied by the delivery of
Dina's annual report for such fiscal year on Form 20F
thereunder, (B) the consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as
at the end of such fiscal year and the related
consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Borrower and
its Subsidiaries for such fiscal year, setting forth in
comparative form the corresponding figures for the
previous fiscal year, all in reasonable detail and
certified by the chief financial officer of the
Borrower that they present fairly in all material
respects the financial condition of the Borrower and
its Subsidiaries as at the dates indicated and the
results of their operations and their cash flows for
the periods indicated, and (C) in the case of such
consolidated financial statements of the Borrower and
Dina, reports thereon of Arthur Andersen LLP or other
independent auditors of recognized national standing
selected by the Borrower or Dina, as the case may be,
and (in the case of any such auditor selected by the
Borrower) satisfactory to the Administrative Agent,
which reports shall be unqualified, shall not include
any reference to doubts about the ability of the
Borrower and its Subsidiaries or Dina and its
Subsidiaries, as the case may be, to continue as a
going concern and, in the case of any such report
concerning the financial statements of the Borrower,
shall state that such consolidated financial statements
present fairly the financial position of the Borrower
and its Subsidiaries as at the dates indicated and the
results of their operations and cash flow for the
periods indicated in conformity with GAAP applied on a
basis consistent with prior years (except as stated
therein);
(iii) together with each delivery of financial
statements of the Borrower and its Subsidiaries
pursuant to subdivisions (i) and (ii) above, a
Compliance Certificate substantially in the form of
EXHIBIT G annexed hereto certifying as to the absence
of any Event of Default and demonstrating in reasonable
detail compliance during and at the end of the
applicable accounting periods with the restrictions
contained in Sections (a)(ii), (a)(vii), (c)(iv), and
(d)(vi) of Section 5.02 and in Section 5.03;
(iv) together with each delivery of
consolidated financial statements of the Borrower and
its Subsidiaries pursuant to subdivision (ii) above, a
written statement by the independent certified public
accountants giving the report thereon (a) stating that
their audit examination has included a review of the
terms of this Agreement and the other Loan Documents as
they relate to accounting matters, (b) stating whether,
in connection with their audit examination, any
condition or event that constitutes an Event of Default
or Potential Event of Default has come to their
attention and, if such a condition or event has come to
their attention, specifying the nature and period of
existence thereof; provided that such accountants shall
not be liable by reason of any failure to obtain
knowledge of any such Event of Default or Potential
Event of Default that would not be disclosed in the
course of their audit examination, and (c) stating that
based on their audit examination nothing has come to
their attention that causes them to believe that the
matters set forth in the Compliance Certificate
delivered pursuant to clause (iii) above for the
applicable fiscal year are not stated in accordance
with the terms of this Agreement;
(v) as soon as possible and in any event
within five days after the occurrence of each Event of
Default and each Potential Event of Default, continuing
on the date of such statement, a statement of an
authorized financial officer of the Borrower setting
forth details of such Event of Default or event and the
action which the Borrower has taken and proposes to
take with respect thereto;
(vi) promptly after any significant change in
accounting policies or reporting practices, notice and
a description in reasonable detail of such change;
(vii) promptly and in any event within 30 days
after the Borrower or any ERISA Affiliate knows or has
reason to know that any ERISA Event referred to in
clause (i) of the definition of ERISA Event with
respect to any Pension Plan has occurred which might
result in liability to the PBGC, a statement of the
chief accounting officer of the Borrower describing
such ERISA Event and the action, if any, that the
Borrower or such ERISA Affiliate has taken or proposes
to take with respect thereto;
(viii) promptly and in any event within 10 days
after the Borrower or any ERISA Affiliate knows or has
reason to know that any ERISA Event (other than an
ERISA Event referred to in (vii) above) with respect to
any Pension Plan has occurred which might result in
liability to the PBGC, a statement of the chief
accounting officer of the Borrower describing such
ERISA Event and the action, if any, that the Borrower
or such ERISA Affiliate has taken or proposes to take
with respect thereto;
(ix) promptly and in any event within five
Business Days after receipt thereof by the Borrower or
any ERISA Affiliate from the PBGC, copies of each
notice from the PBGC of its intention to terminate any
Pension Plan or to have a trustee appointed to
administer any Pension Plan;
(x) promptly and in any event within seven
Business Days after receipt thereof by the Borrower or
any ERISA Affiliate from the sponsor of a Multiemployer
Plan, a copy of each notice received by the Borrower or
any ERISA Affiliate concerning (w) the imposition of
Withdrawal Liability by a Multiemployer Plan, (x) the
determination that a Multiemployer Plan is, or is
expected to be, in reorganization within the meaning of
Title IV of ERISA, (y) the termination of a
Multiemployer Plan within the meaning of Title IV of
ERISA or (z) the amount of liability incurred, or
expected to be incurred, by the Borrower or any ERISA
Affiliate in connection with any event described in
clause (w), (x) or (y) above;
(xi) promptly and in any event within five
Business Days after the filing thereof with the
Internal Revenue Service, a copy of each funding waiver
request filed with respect to any Single Employer Plan;
(xii) promptly after the commencement thereof,
notice of all material actions, suits and proceedings
before any court or government department, commission,
board, bureau, agency or instrumentality, domestic or
foreign, affecting the Borrower or any of its
Subsidiaries, of the type described in Section 4.01(g);
(xiii) promptly after the occurrence thereof,
notice of (A) any event which makes any of the
representations contained in Section 4.01(n) inaccurate
in any material respect or (B) the receipt by the
Borrower of any notice, order, directive or written
demand from a governmental authority or third party
alleging violations of, noncompliance with or liability
under any Environmental Law which could reasonably be
expected to have a Material Adverse Effect or result in
liability for the payment of amounts individually or in
the aggregate in excess of $5,000,000;
(xiv) promptly upon their becoming available,
copies of (a) all financial statements, reports,
notices and proxy statements sent or made available
generally by the Company to its security holders or by
any Subsidiary of the Company to its security holders
other than the Company or another Subsidiary of the
Company, (b) all regular and periodic reports and all
registration statements (other than on Form S-8 or a
similar form) and prospectuses, if any, filed by the
Company or any of its Subsidiaries with any securities
exchange or with the Securities and Exchange Commission
or any governmental or other regulatory authority, and
(c) all press releases and other statements made
available generally by the Company or any of its
Subsidiaries to the public concerning material
developments in the business of the Company or any of
its Subsidiaries; and
(xv) such other information respecting the
condition or operations, financial or otherwise, of the
Company, the Borrower or any of their respective
Subsidiaries as any Lender through the Administrative
Agent may from time to time reasonably request.
(b) Compliance with Laws, Etc. Comply, and
cause each of its Subsidiaries to comply, with all
applicable laws, rules, regulations and orders, such
compliance to include, without limitation, (i) complying
with all Environmental Laws, ERISA, the Code and all laws
applicable to Foreign Employee Benefit Plans and (ii) paying
before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its property
except to the extent contested in good faith, except where
failure to so comply would not reasonably be expected to
result in liability for the payment of amounts individually
or in the aggregate in excess of $5,000,000 or to have a
Material Adverse Effect.
(c) Corporate Existence, Etc. The Borrower
will, and will cause each of its Material Subsidiaries to,
at all times maintain its fundamental business and preserve
and keep in full force and effect its corporate existence
(except as permitted under Section 5.02(e) hereof) and all
rights, franchises and licenses necessary or desirable in
the normal conduct of its business; provided, however, that
the corporate existence of any Subsidiary of the Borrower
which is not a Material Subsidiary may be terminated if (i)
after giving effect thereto, no Event of Default or
Potential Event of Default shall have occurred and be
continuing, (ii) such termination is determined in good
faith by the board of directors of the Borrower to be in the
best interests of the Borrower and (iii) such termination is
not disadvantageous to the Lenders.
(d) Maintenance of Insurance. The Borrower
will and will cause each of its Subsidiaries to maintain
insurance with responsible and reputable insurance companies
or associations in such amounts and covering such risks as
are usually insured by companies engaged in similar
businesses.
(e) Inspection of Property; Books and
Records; Discussions. The Borrower shall permit, and cause
the Company and each of the Borrower's Subsidiaries to
permit, any authorized representative(s) designated by
either the Administrative Agent or any Lender to visit and
inspect any of the properties of the Company, the Borrower
or any of its Subsidiaries, to examine, audit, check and
make copies of their respective financial and accounting
records, books, journals, orders, receipts and any
correspondence and other data relating to their respective
businesses or the transactions contemplated hereby and to
discuss their affairs, finances and accounts with their
officers and independent certified public accountants
(provided that representative(s) of the Borrower shall be
entitled to be included in or present at any such
discussions with such accountants), all upon reasonable
notice and at such reasonable times during normal business
hours, as often as may be reasonably requested. The
Borrower shall keep and maintain, and cause the Company and
each of the Borrower's Subsidiaries to keep and maintain, in
all material respects, proper books of record and account in
which entries in conformity with GAAP shall be made of all
dealings and transactions in relation to their respective
businesses and activities.
SECTION 5.2. NEGATIVE COVENANTS. So long as any
Advance shall remain unpaid, any Letter of Credit shall
remain outstanding or any Lender shall have any Commitment
hereunder, without the written consent of the Majority
Lenders:
(a) Debt. The Borrower shall not, and shall
not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume or guaranty, or otherwise
become or remain directly or indirectly liable with respect
to, any Debt, except:
(i) the Borrower and the Subsidiary
Guarantors may become and remain liable with respect to
the Obligations;
(ii) the Borrower and its Subsidiaries may
become and remain liable with respect to unsecured Debt
(in addition to Debt otherwise permitted by this
Section 5.02(a)) in an aggregate outstanding principal
amount which, when added to the aggregate liability of
the Borrower and its Subsidiaries with respect to
Contingent Obligations incurred pursuant to Section
5.02(d)(vi), does not exceed $25,000,000;
(iii) any wholly-owned Subsidiary of the
Borrower other than any Foreign Subsidiary may become
and remain liable with respect to Debt to the Borrower;
provided that any payment by any Subsidiary Guarantor
of the Obligations shall result in a pro tanto
reduction of the amount of any intercompany Debt owed
by such Subsidiary to the Borrower or to any of its
Subsidiaries for whose benefit such payment is made;
(iv) the Borrower and its Subsidiaries, as
applicable, may remain liable with respect to the Debt
described in SCHEDULE 5.02(A) annexed hereto and with
respect to any renewals, refundings or refinancings
thereof to the extent that any such renewal, refunding
or refinancing does not increase the original principal
amount thereof or grant collateral security not
provided for under terms of the original Debt as of the
Effective Date;
(v) the Borrower and the Subsidiary
Guarantors may become and remain liable with respect to
the Senior Notes and any renewals, refundings or
refinancings of all or any part of the Senior Notes
consummated on terms and conditions acceptable to each
of the Lenders (which terms shall include, without
limitation, no amortization, mandatory prepayments or
other required payments shall be required prior to
ninety-one (91) days after the Termination Date);
(vi) Universal Coach Parts, Inc. may become
and remain liable under that certain promissory note
dated April 17, 1995, in the principal amount of
$890,000 payable to Billingsley Parts and Equipment,
Inc.; provided the principal amount outstanding
thereunder at no time exceeds $890,000;
(vii) one or more of the Borrower's Foreign
Subsidiaries organized under the laws of Canada or any
Canadian Province may become and remain liable with
respect to Debt in an aggregate principal amount not
exceeding U.S. $25,000,000 (or the Canadian equivalent
thereof) (the "Canadian Debt"), which aggregate amount
shall include any such Debt outstanding on the date
hereof or any renewal, refunding or refinancing thereof
and any such Debt advanced by the Borrower, and the
Borrower may become and remain liable with respect to
any guaranty of the Canadian Debt; and
(viii) subject to Section 2.07(b)(iii)(B), the
Borrower may become and remain liable with respect to
unsecured Debt incurred pursuant to a Financing
consummated on terms and conditions acceptable to each
of the Lenders (including, without limitation, amount,
maturity, amortization, interest rate, premiums, fees,
covenants, events of default, remedies and, if
applicable, subordination terms).
(b) Liens, Etc. The Borrower will not
create or suffer to exist, or permit any of its Subsidiaries
to create or suffer to exist, any Lien upon or with respect
to any of their properties, whether now owned or hereafter
acquired, or assign, or permit any of such Persons to
assign, any right to receive income, in each case to secure
or provide for the payment of any Debt or Contingent
Obligations of any Person; provided however that the
foregoing restriction shall not apply to the following Liens
which are permitted:
(i) Permitted Encumbrances; and
(ii) Liens, if any, created and existing in
favor of the Administrative Agent, for the ratable
benefit of the Lenders.
(c) Investments. The Borrower shall not,
and shall not permit any of its Subsidiaries to, directly or
indirectly, make or own any Investment in any Person,
except:
(i) the Borrower and its Subsidiaries may
make and own Investments in Cash Equivalents;
(ii) the Borrower may make intercompany loans
to its wholly-owned Subsidiary Guarantors and to its
Foreign Subsidiaries organized under the laws of Canada
or any Canadian Province (subject to the limitation set
forth in Section 5.02(a)(vii));
(iii) the Borrower and its Subsidiaries may
continue to own the Investments owned by them as of the
date hereof, including Investments in the Subsidiaries
of the Company listed on SCHEDULE 4.01(B) annexed
hereto and those Investments described in
SCHEDULE 5.02(C) annexed hereto;
(iv) the Borrower and its Subsidiaries may in
the ordinary course of business consistent with past
practice (including, without limitation, practices
relating to international joint ventures) make and
maintain other Investments; provided that (A) except as
permitted in accordance with Section 5.02(l), such
Investments shall not include investments in Dina or
any of its Subsidiaries (other than the Borrower and
its Subsidiaries) and (B) the aggregate outstanding
amount of such Investments shall not at any time exceed
$15,000,000;
(v) MCIL may make Investments in its
Subsidiaries; and
(vi) the Borrower or any of its
Subsidiaries may hold the promissory note dated
November 29, 1994 in the original principal amount of
$3,152,150 from NovaBus of America, Inc. as partial
consideration of the Borrower's sale of its transit bus
business as conducted by Transit Bus International,
Inc. (formerly known as Transportation Manufacturing
Corporation); provided that payment of all principal
and interest owing under such promissory note is at all
times supported by an irrevocable standby letter of
credit issued to the Borrower or any Subsidiary holding
such promissory note by a commercial bank having, as of
the Effective Date and as of the date of issuance of
any replacement letter of credit, a rating of A and A2,
as applicable, or better from S&P and Moody's.
(d) Contingent Obligations. The Borrower
shall not, and shall not permit any of its Subsidiaries to,
become or remain, directly or indirectly, liable with
respect to any Contingent Obligations, except:
(i) the Borrower and its Subsidiaries may
become and remain liable with respect to Contingent
Obligations in favor of bonding companies, incurred in
the ordinary course of business consistent with past
practice, with respect to performance and warranty
bonds in an aggregate outstanding amount not exceeding
$25,000,000 plus the aggregate principal amount of
additional performance or warranty bonds, up to an
amount not exceeding $180,000,000, required in relation
to orders for coaches received from the New Jersey
Transit Authority or similar requests for coaches by
other municipal agencies after the date hereof;
provided that, in the case of any such Contingent
Obligations, any credit support therefor shall be in
such forms and amounts as are reasonably consistent
with past practice;
(ii) the Borrower and its Subsidiaries may
become and remain liable with respect to Contingent
Obligations in favor of bonding companies, incurred in
the ordinary course of business consistent with past
practice, with respect to bid bonds and other types of
bonds listed on SCHEDULE 5.02(D);
(iii) the Borrower may become and remain
liable with respect to Currency Agreements and Interest
Rate Agreements in the ordinary course of business
pursuant to which Borrower has hedged actual interest
rate or foreign currency exposure and which are non-
speculative;
(iv) the Borrower may become and remain
liable under guaranties of the Debt of any of the
Borrower's Foreign Subsidiaries organized under
Canadian law, provided that the aggregate outstanding
amount of such guarantied Debt shall be treated as an
Investment and permitted only to the extent permitted
under Section 5.02(c);
(v) the Borrower and its Subsidiaries may
remain liable with respect to Contingent Obligations
existing as of the date hereof and listed on SCHEDULE
5.02(A);
(vi) the Borrower and its Subsidiaries may
become and remain liable with respect to Contingent
Obligations (in addition to Contingent Obligations
otherwise permitted by this Section 5.02(d)) incurred
in the ordinary course of business consistent with past
practice (excluding any guaranties of the obligations
of any Foreign Subsidiary), provided that the
Borrower's and its Subsidiaries' aggregate liability
with respect to such Contingent Obligations, when added
to the aggregate outstanding principal amount of Debt
of the Borrower and its Subsidiaries incurred pursuant
to Section 5.02(a)(ii), does not exceed $25,000,000;
(vii) the Subsidiary Guarantors may become and
remain liable under the Guaranties and under guaranties
of the Senior Notes; and
(viii) the Borrower and its Subsidiaries may
become and remain liable under Financial Guaranties to
the extent such Financial Guaranties are otherwise
permitted under Section 5.03(a).
(e) Restrictions on Fundamental Changes.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, alter its corporate, capital or legal
structure, or enter into any transaction of merger or
consolidation, or liquidate, wind-up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell,
lease, sublease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or any
substantial part of its business, property or fixed assets,
whether now owned or hereafter acquired, or acquire by
purchase or otherwise all or substantially all the business,
property or fixed assets of, or stock or other evidence of
beneficial ownership of, any Person, except:
(i) any Subsidiary of the Borrower may be
merged or consolidated with or into the Borrower or any
wholly-owned Subsidiary of the Borrower (provided that
such wholly-owned Subsidiary is a Subsidiary
Guarantor), or be liquidated, wound up or dissolved, or
all or any substantial part of its business, property
or assets may be conveyed, sold, leased, transferred or
otherwise disposed of, in one transaction or a series
of transactions, to the Borrower or any wholly-owned
Subsidiary of the Borrower that is a Subsidiary
Guarantor; provided that, in the case of such a merger
or consolidation, the Borrower or such wholly-owned
Subsidiary shall be the continuing or surviving
corporation; and provided further that any wholly-owned
Subsidiary that is not a Subsidiary Guarantor may be
merged or consolidated with or into any other wholly-
owned Subsidiary that is not a Subsidiary Guarantor;
(ii) any Subsidiary of the Borrower may merge
or consolidate with any other Person, or the Borrower
or any Subsidiary of the Borrower may acquire the
business, property, assets or outstanding capital stock
of such other Person, provided (A) that the entity
surviving any such merger or consolidation or, in the
case of any acquisition of stock, the issuer of such
stock will, upon giving effect to such merger,
consolidation or acquisition, be (1) a wholly-owned
Subsidiary of the Borrower and (2) a guarantor of the
Obligations pursuant to the terms of a Guaranty, and
(B) that, after giving effect to such merger,
consolidation or acquisition, the Company, the Borrower
and their respective Subsidiaries are in compliance
with all of their respective covenants and agreements
set forth in this Agreement;
(iii) the Borrower and its Subsidiaries may in
each calendar year sell, lease, transfer or otherwise
dispose of assets and properties (other than stock of
their Subsidiaries) having an aggregate fair market
value not in excess of 5.0% of the Borrower's
consolidated total assets calculated as of the
beginning of such calendar year; provided that the
consideration received for such assets or properties
shall be in an amount at least equal to the fair market
value thereof; provided further that (A) dispositions
of inventory (including, without limitation, sales or
leases of buses or coaches which may or may not be
included in inventory) in the ordinary course of
business, (B) any disposition of assets expressly
permitted under clause (iv) below, (C) any dispositions
of plant, equipment and inventory used in the transit
bus manufacturing and remanufacturing businesses of the
Borrower and its Subsidiaries in connection with the
discontinuation and liquidation of such businesses and
(D) the Borrower's or any of its Subsidiary's sale of
its interests (as lessor) under any leases of buses
and/or coaches to customers in the ordinary course of
business and/or sales of any assets underlying such
leases, shall be excluded in determining compliance
with the foregoing 5.0% limitation; and
(iv) note, lease and other receivables (but
not trade receivables) of the Borrower's Subsidiaries
may be sold in arms-length transactions that are
customary for receivables financings, including, among
others, securitization transactions, which sales may be
on a non-recourse basis or on a limited recourse basis;
provided that any Contingent Obligations arising from
any such recourse or limited recourse must be permitted
under Section 5.02(d) and that the terms of any limited
recourse sale shall be consistent with past practice.
(f) Disposal of Subsidiary Stock. The
Borrower shall not:
(i) directly or indirectly sell, assign,
pledge or otherwise encumber or dispose of any shares
of capital stock or other equity securities of any of
its Subsidiaries, except to qualify directors if
required by applicable law; or
(ii) permit any of its Subsidiaries directly
or indirectly to sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or
other equity securities of any of its Subsidiaries
(including such Subsidiary), except to the Borrower,
Subsidiary Guarantor, or to qualify directors if
required by applicable law.
(g) Plan Terminations. The Borrower will
not, and will not permit any ERISA Affiliate to, terminate
any Pension Plan so as to result in liability of the
Borrower or any ERISA Affiliate to the PBGC individually or
in the aggregate in excess of $5,000,000, or permit to exist
any occurrence of an event or condition which reasonably
presents a material risk of a termination by the PBGC of any
Pension Plan with respect to which the Borrower or any ERISA
Affiliate would, in the event of such termination, incur
liability to the PBGC individually or in the aggregate in
excess of $5,000,000.
(h) Employee Benefit Costs and Liabilities.
The Borrower will not, and will not permit any ERISA
Affiliate to, create or suffer to exist, (i) any
Insufficiency with respect to a Pension Plan, any Withdrawal
Liability with respect to a Multiemployer Plan or any
unfunded liabilities with respect to a Foreign Pension Plan
if, immediately after giving effect thereto, such
Insufficiencies, Withdrawal Liabilities and unfunded
liabilities of all Pension Plans, Multiemployer Plans and
Foreign Pension Plan, respectively, of the Borrower and its
ERISA Affiliates exceeds $5,000,000, (ii) except as provided
in Section 4980B of the Code and except as provided under
the terms of any employee welfare benefit plans (A) in
effect as of the date hereof or (B) provided from time to
time pursuant to the terms of collective bargaining
agreements, any employee benefit plan to provide health or
welfare benefits (through the purchase of insurance or
otherwise) for any retired or former employee of the
Borrower or any of its ERISA Affiliate unless the Borrower
and/or any of its ERISA Affiliates are permitted to
terminate such benefits pursuant to the terms of such
employee benefit plan, (iii) any accumulated funding
deficiency (as defined in Sections 302 of ERISA and 412 of
the Code), whether or not waived, (iv) any failure to pay
any required installment or any other payment required under
Section 412 of the Code that is reasonably likely to result
in the imposition of a lien under Section 412(n) of the Code
or (v) any failure to make any contribution or payment to
any Multiemployer Plan which Borrower or any ERISA Affiliate
may be required to make under any agreement relating to such
Multiemployer Plan, or any law pertaining thereto.
(i) No Restrictions on Subsidiary
Distributions to Borrower or Other Subsidiaries. Except for
encumbrances and restrictions that are identical to, or less
restrictive than, those provided in this Agreement and
except pursuant to the Canadian Debt, the Borrower will not,
and will not permit the Company or any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any
kind on the ability of any such Subsidiary to (i) pay
dividends or make any other distributions on any of such
Subsidiary's capital stock owned by the Borrower or any
other Subsidiary of the Borrower, (ii) repay or prepay any
Indebtedness owed by such Subsidiary to the Borrower or any
other Subsidiary of the Borrower, (iii) make loans or
advances to the Borrower or any other Subsidiary of the
Borrower, or (iv) transfer any of its property or assets to
the Borrower or any other Subsidiary of the Borrower.
(j) Restricted Junior Payments. The
Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare, order,
pay, make or set apart any sum for any Restricted Junior
Payment, except that:
(i) the Borrower may make the Dina
Distribution, provided that (a) any portion of the
Dina Distribution not paid on the Effective Date
shall be paid in a single payment on or before
March 31, 1997, (b) on the date of such payment,
no Event of Default or Potential Event of Default
shall have occurred or be continuing, or would
result therefrom, and (c) prior to the date of any
such payment after the Effective Date, the
Borrower shall deliver to the Administrative Agent
a financial condition certificate signed by the
chief financial officer or treasurer of the
Borrower certifying that the Borrower is Solvent
after giving effect to such payment and attaching
thereto financial projections and a pro forma
"fair value" balance sheet of the Borrower and its
Subsidiaries supporting such certification, which
certificate and attachments shall be in form and
substance satisfactory to each of the Lenders; and
(ii) as long as (a) no Event of Default or
Potential Event of Default shall have occurred or
be continuing, or would result therefrom, and (b)
one of the following (a "Dividend Release Event")
shall have occurred:
(1) the Senior Notes shall have been refinanced on
terms and conditions acceptable to the
Administrative Agent and the Lenders and principal
payments with respect to such refinancing
indebtedness shall commence not earlier than
ninety-one (91) days after the Termination Date;
(2) all principal payments on the Senior Notes shall
have been deferred until at least ninety-one (91)
days after the Termination Date; or
(3) the Borrower shall have received Net Cash Proceeds
of at least $25,000,000 from a Financing, which
Net Cash Proceeds shall have been applied either
to the prepayment of the Obligations pursuant to
Section 2.07(b)(iii)(B) or to the prepayment of
principal payments on the Senior Notes which are
payable prior to ninety-one (91) days after the
Termination Date, and the principal payments with
respect to such Financing shall commence not
earlier than ninety-one (91) days after the
Termination Date;
then the Borrower may (A) declare and pay ordinary dividends
on its outstanding common stock in such amounts as may be
determined by its Board of Directors and (B) make other
distributions (including, without limitations, dividends on
preferred stock and payments for the redemption or
repurchase of common or preferred stock) provided that the
aggregate amount of all such distributions from and after
the date hereof does not exceed 50% of cumulative
Consolidated Net Income determined for all fiscal quarters
ending after the occurrence of a Dividend Release Event but
prior to the date of such distribution.
(k) Conduct of Business; Transfer of Assets.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, (i) engage in any business other than lines
of business in which the Borrower and its Subsidiaries,
taken as a whole, are engaged in on the date hereof or (ii)
transfer or convey any of its or their assets to the
Company, other than cash in respect of Restricted Junior
Payments permitted by Section 5.02(j) or tax-related
payments permitted by Section 5.02(l).
(l) Transactions with Affiliates. The
Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to enter into or permit
to exist any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any
service) with the Company or any Affiliate of the Company,
the Borrower or with any director, officer or employee of
any such Person, except (a) ordinary course compensation
arrangements pursuant to the reasonable requirements of the
business of the Borrower or any of its Subsidiaries and
consistent with past practice in effect at such time as the
common stock of the Company was publicly traded; (b)
transactions in the ordinary course of and pursuant to the
reasonable requirements of the business of the Borrower or
any of its Subsidiaries and upon fair and reasonable terms
which are no less favorable to the Borrower or such
Subsidiary than would be obtained in a comparable arm's
length transaction with a Person that is not such an
Affiliate, director, officer or employee; (c) transactions
arising from tax sharing arrangements among the Company, the
Borrower and the Borrower's Subsidiaries, provided that
pursuant to such arrangements the Borrower and its
Subsidiaries shall not be obligated to make distributions to
the Company in an amount in excess of the amount calculated
pursuant to SCHEDULE 5.02(L) minus any amounts in respect of
tax liabilities of the Company and its Subsidiaries paid
directly by the Borrower or any of its Subsidiaries to any
governmental entity; (d) transactions arising from the
Borrower's cash management system, so long as title and
dominion of the Borrower's and its Subsidiaries' accounts
remain in the name of the Borrower and its Subsidiaries, all
amounts held in such accounts are accessible by the Borrower
and its Subsidiaries and not more than $5,000,000 is at any
time held in such accounts; (e) transactions relating to
licenses of trade names, technology and other intellectual
property; (f) the payment of management fees at a time when
no Event of Default or Potential Event of Default has
occurred and is continuing to Dina of not more than $500,000
in the aggregate in any calendar year plus reasonable out-
of-pocket expenses incurred by Dina in an amount not
exceeding $500,000 in any calendar year; (g) joint ventures
and other operating arrangements with Dina and its
Subsidiaries the terms of which have been determined by the
Borrower's board of directors in good faith to be fair and
reasonable from the perspective of the Borrower and/or its
Subsidiaries. Notwithstanding any provision of this Section
5.02(l) to the contrary, the Borrower and its Subsidiaries
shall not (i) purchase, from Dina or any of its Subsidiaries
(excluding the Borrower and its Subsidiaries) or Affiliates,
any buses, coaches or other goods to be held in inventory
if, upon giving effect to such purchase, the aggregate
amount (valued at cost) of such inventory (excluding any
buses or coaches sold and financed by the Borrower and any
buses or coaches leased by the Borrower as lessor in the
ordinary course of business) held by the Borrower and its
Subsidiaries would exceed $20,000,000 at any time, or (ii)
in connection with purchases permitted by clause (i) above,
make payments therefor in advance of receipt of the
inventory or provide commercial letters of credit for the
account of the Borrower or any of its Subsidiaries and for
the benefit of Dina or any of its Subsidiaries (excluding
the Borrower and its Subsidiaries) in an aggregate amount
that would exceed $7,500,000 at any time.
(m) Management Contracts. The Borrower
shall not, and shall not permit any of its Subsidiaries to,
amend or modify the Management Contracts.
SECTION 5.3. FINANCIAL COVENANTS.
(a) Leverage Ratio. The Borrower will not
permit the Leverage Ratio to be greater than the ratios set
forth below at any time during the periods set forth below:
Applicable Period Maximum Ratio
Effective Date - March 30, 1997 4.25 to 1.00
March 31, 1997 - December 30, 1997 3.75 to 1.00
December 31, 1997 - December 30, 1998 3.25 to 1.00
At all times thereafter 3.00 to 1.00
(b) Fixed Charge Coverage Ratio. The
Borrower will not permit the ratio ("Fixed Charge Coverage
Ratio) of (i) the sum of Consolidated EBITDA minus
Consolidated Capital Expenditures plus Consolidated Rental
Payments to (ii) the sum of Consolidated Interest Expense
plus Consolidated Rental Payments plus payments (but not
prepayments) made with respect to scheduled amortization of
all Debt of the Borrower and its Subsidiaries during such
period plus consolidated cash tax expense with respect to
income taxes of the Borrower and its consolidated
Subsidiaries (whether paid directly or indirectly) plus the
aggregate amount of cash dividends (or similar Restricted
Junior Payments) other than the Dina Distribution paid
during such period with respect to the Borrower's Capital
Stock, determined as of the last day of each fiscal quarter
for the four fiscal quarter period then ended, to be less
than 1.40 to 1.00 as of the last day of any fiscal quarter;
provided, if the Borrower does not refinance the Senior
Notes and/or defer all principal payments thereon until at
least ninety-one days after the Termination Date, in either
case by March 30, 1998, then the Borrower will not permit
the Fixed Charge Coverage Ratio, determined as of the last
day of each fiscal quarter for the four fiscal quarter
period then ended to be less than:
(i) 1.05 to 1.00 for the fiscal quarters ending
March 31, 1998 through December 31, 1998; and
(ii) 1.25 to 1.00 for the fiscal quarter ending
March 31, 1999 and each fiscal quarter thereafter.
(c) Capitalization Ratio. The Borrower
shall not permit the Capitalization Ratio to exceed 0.50 to
1.00 at any time.
(d) Net Worth. The Borrower shall not at
any time permit Consolidated Net Worth to be less than
$250,000,000, plus 40% of cumulative Consolidated Net Income
(including, for purposes of this Section, any after-tax
gains or losses attributable to asset sales or returned
surplus assets of any Pension Plan and any net extraordinary
gains or net extraordinary losses) for each quarter ending
after the date hereof plus 100% of the aggregate proceeds
received by the Company, the Borrower or any of its
Subsidiaries through the issuance and sale of any shares of
its Capital Stock after the date hereof; provided that no
effect shall be given to Consolidated Net Income for any
quarter to the extent it is negative.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. EVENTS OF DEFAULT. If any of the
following events ("Events of Default") shall occur and be
continuing:
(a) The Borrower shall fail to pay any
principal of any Advance when the same becomes due and
payable or the Borrower shall fail to pay any interest on
any Advance or any fees or other amounts payable hereunder
within five days of the date due; or
(b) Any representation or warranty made
by the Borrower herein or in connection with this
Agreement shall prove to have been incorrect in any
material respect when made; or
(c) The Borrower shall fail to perform
or observe (i) any term, covenant or agreement contained
in Section 5.01(c), Section 5.01(e), Section 5.02
(other than subsection (b) and (d) thereof) or Section
5.03 or (ii) any other term, covenant or agreement
contained in this Agreement on its part to be performed
or observed if the failure to perform or observe such
other term, covenant or agreement shall remain
unremedied for 30 days after the Borrower obtains, or
should have obtained, knowledge of such breach; or
(d) The Borrower or any of its
Subsidiaries shall fail to pay any principal of or
premium or interest on any Debt which is outstanding in
a principal amount of at least $5,000,000 in the
aggregate (but excluding Debt arising under this
Agreement) of the Borrower or any such Subsidiary (as
the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure
shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating
to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the
applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the
acceleration of, the maturity of such Debt; or any such
Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly
scheduled required prepayment or by a required
prepayment of insurance proceeds or by a required
prepayment as a result of formulas based on asset sales
or excess cash flow), redeemed, purchased or defeased,
or an offer to prepay, redeem, purchase or defease such
Debt shall be required to be made, in each case prior to
the stated maturity thereof; or
(e) The Borrower or any of its
Subsidiaries shall generally not pay its debts as such
debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the
Borrower or any of its Subsidiaries seeking to
adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or
its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other
similar official for it or for substantial part of its
property and, in the case of any such proceeding
instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for
a period of 60 days, or any of the actions sought in
such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment
of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its
property) shall occur; or the Borrower or any of its
Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this
clause (e); or
(f) Any judgment or order for the
payment of money in excess of $5,000,000 shall be
rendered against the Borrower or any of its Subsidiaries
and such judgment or order shall not be satisfied,
bonded or stayed for any period of 10 consecutive days;
or
(g) Any Subsidiary Guarantor shall seek
to revoke its guaranty of the Obligations; or any
provisions of any Guaranty shall at any time for any
reason cease to be valid and binding on any Subsidiary
Guarantor (to the extent such Subsidiary Guarantor is a
party to such Guaranty); or any Subsidiary Guarantor
shall so state in writing; or
(h) (i) Any ERISA Event with
respect to a Pension Plan shall have occurred and,
30 days after notice thereof shall have been given
to the Borrower by the Administrative Agent,
(x) such ERISA Event shall still exist and (y) the
sum (determined as of the date of occurrence of
such ERISA Event) of the Insufficiency of such
Pension Plan and the Insufficiency of any and all
other Pension Plans with respect to which an ERISA
Event shall have occurred and then exist (or in the
case of a Pension Plan with respect to which an
ERISA Event described in clause (iii) through (vi)
of the definition of ERISA Event shall have
occurred and then exist, the liability related
thereto) is equal to or greater than $5,000,000; or
(ii) The Borrower or any ERISA Affiliate
shall have been notified by the sponsor of a
Multiemployer Plan that it has incurred an
aggregate Withdrawal Liability for all years to
such Multiemployer Plan in an amount that, when
aggregated with all other amounts required to be
paid to Multiemployer Plans by the Borrower and its
ERISA Affiliates as Withdrawal Liability
(determined as of the date of such notification),
exceeds $5,000,000 and such Withdrawal Liability
shall remain unpaid, or payment thereof shall not
be stayed pending any judicial review or challenge
relating to such Withdrawal Liability, for a period
of 10 consecutive days; or
(iii) The Borrower or any ERISA Affiliate
shall have been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is
in reorganization or is being terminated, within
the meaning of Title IV or ERISA, if as a result of
such reorganization or termination the aggregate
annual contributions of the Borrower and its ERISA
Affiliates to all Multiemployer Plans that are then
in reorganization or being terminated have been or
will be increased over the amounts contributed to
such Multiemployer Plans for the plan year of such
Multiemployer Plan immediately preceding the plan
year in which the reorganization or termination
occurs by an amount exceeding $5,000,000; or
(iv) The plan administrator of any Single
Employer Plan applies under Section 412(d) of the
Code for a waiver of the minimum funding standards
of Section 412(a) of the Code and the
Administrative Agent reasonably believes that the
substantial business hardship upon which the
application for the waiver is based could subject
Borrower of any ERISA Affiliate to a liability in
excess of $5,000,000; or
(i) The Borrower shall fail to pay such fees as
have been mutually agreed upon between the Borrower and
the Arranger or the Administrative Agent in relation to
this Agreement within five days of the date due;
(j) The following officers of the Borrower and its
Subsidiaries and Affiliates shall be terminated from
employment, or shall no longer be performing their
current functions, in the respective positions set forth
below at any time during the term of this Agreement for
any reason whatsoever other than at any such officer's
own election: (a) both of the Borrower Financial
Officers; (b) either of the Borrower Financial Officers
and any two of the Other Executive Officers; or (c) any
three of the Other Executive Officers;
Borrower Financial Officers:
Treasurer Albert J. Abram
Controller Jeffrey Sanders
Other Executive Officers:
Borrower Chief Operating Officer James P. Bernacchi
Borrower Chief Financial Officer Jose L. O. Caballero
Universal Coach
Parts, Inc. President Jerry W. Bost
Dina Chairman Rafael Gomez Flores
Dina Director of Legal Affairs Guillermo Kareh Aarun
Dina Commercial Director Gamaliel Garcia Cortes
Hausman Bus Vice President - Sales and Francois Bouffard
Sales, Inc. Marketing - U.S. and Canada
then (i) upon the occurrence and during the continuance
of any Event of Default described in the foregoing
Section 6.01(e) each of (x) the unpaid principal amount
of and accrued interest on the Advances, (y) an amount
equal to the maximum amount which may at any time be
drawn under all Letters of Credit then outstanding
(whether or not any beneficiary under any Letter of
Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents
required to draw under such Letter of Credit) and
(z) all other Obligations shall automatically become
immediately due and payable, without presentment,
demand, protest or other requirements of any kind, all
of which are hereby expressly waived by the Borrower and
the obligation of each Lender to make any Advance, the
obligation of the Swing Line Bank to make any Swing Line
Loan and the obligation of any Lender or NBD Bank to
issue any Letter of Credit hereunder shall thereupon
terminate, and (ii) upon the occurrence and during the
continuation of any other Event of Default, the
Administrative Agent may, or upon the written request of
Majority Lenders shall, by written notice to the
Borrower (1) declare all of the Advances to be, and an
amount equal to the amounts described in clauses (x)
through (z) above to be, and the same shall forthwith
become, due and payable, together with accrued interest
thereon, and/or (2) terminate the obligation of each
Lender to make any Advance, the obligation of the Swing
Line Bank to make any Swing Line Loan and the obligation
of any Lender or NBD Bank to issue any Letter of Credit
hereunder shall thereupon terminate; provided that the
foregoing shall not affect in any way the obligations of
Lenders to purchase from the Swing Line Bank
participations in the Swing Line Loans as provided in
Section 2.03 or the obligations of Lenders to purchase
from any Issuing Lender participations in the
unreimbursed amount of any drawings under any Letters of
Credit as provided in Section 2.04(d). So long as any
Letter of Credit shall remain outstanding, any amounts
described in clause (y) above with respect to such
Letter of Credit, when received by the Administrative
Agent, shall be held by the Administrative Agent
pursuant to such documentation as the Administrative
Agent shall request, as cash collateral for the
obligation of the Borrower to reimburse the applicable
Issuing Lender in the event of any drawing under such
Letter of Credit, and so much of such funds shall at all
times remain on deposit as cash collateral as aforesaid
as shall equal the maximum amount available at any time
for drawing under all Letters of Credit (the "Maximum
Available Amount"); provided that, in the event of
cancellation or expiration of any Letter of Credit or
any reduction in the Maximum Available Amount, the
Administrative Agent shall apply the difference between
the Maximum Available Amount immediately prior to such
cancellation, expiration or reduction and the Maximum
Available Amount immediately after such cancellation or
reduction, first, to the payment in full of the
outstanding Obligations, and second, to the Borrower or
to such other Person who may be lawfully entitled to
receive such funds or as a court of competent
jurisdiction may direct.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.1. APPOINTMENT; NATURE OF RELATIONSHIP.
NBD Bank is appointed by the Lenders as the
Administrative Agent hereunder and under each other Loan
Document, and each of the Lenders irrevocably authorizes
the Administrative Agent to act as the contractual
representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan
Documents. The Administrative Agent agrees to act as
such contractual representative upon the express
conditions contained in this Article VII.
Notwithstanding the use of the defined term "Agent," it
is expressly understood and agreed that the
Administrative Agent shall not have any fiduciary
responsibilities to any Lender by reason of this
Agreement and that the Administrative Agent is merely
acting as the representative of the Lenders with only
those duties as are expressly set forth in this
Agreement and the other Loan Documents. In its capacity
as the Lenders' contractual representative, the
Administrative Agent (i) does not assume any fiduciary
duties to any of the Lenders, (ii) is a "representative"
of the Lenders within the meaning of Section 9-105 of
the Uniform Commercial Code and (iii) is acting as an
independent contractor, the rights and duties of which
are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the
Lenders agrees to assert no claim against the
Administrative Agent on any agency theory or any other
theory of liability for breach of fiduciary duty, all of
which claims each Lender waives.
SECTION 7.2. POWERS. The Administrative Agent
shall have and may exercise such powers under the Loan
Documents as are specifically delegated to the
Administrative Agent by the terms of each thereof,
together with such powers as are reasonably incidental
thereto. The Administrative Agent shall have no implied
duties or fiduciary duties to the Lenders, or any
obligation to the Lenders to take any action hereunder
or under any of the other Loan Documents except any
action specifically provided by the Loan Documents
required to be taken by the Administrative Agent.
SECTION 7.3. GENERAL IMMUNITY. Neither the
Administrative Agent nor any of its directors, officers,
agents or employees shall be liable to the Borrower, the
Lenders or any Lender for any action taken or omitted to
be taken by it or them hereunder or under any other Loan
Document or in connection herewith or therewith except
to the extent such action or inaction is found in a
final judgment by a court of competent jurisdiction to
have arisen solely from (i) the Gross Negligence or
willful misconduct of such Person or (ii) breach of
contract by such Person with respect to the Loan
Documents.
SECTION 7.4. NO RESPONSIBILITY FOR LOANS,
CREDITWORTHINESS, RECITALS, ETC. Neither the
Administrative Agent nor any of its directors, officers,
affiliates, agents or employees shall be responsible for
or have any duty to ascertain, inquire into, or verify
(i) any statement, warranty or representation made in
connection with any Loan Document or any borrowing
hereunder; (ii) the performance or observance of any of
the covenants or agreements of any obligor under any
Loan Document; (iii) the satisfaction of any condition
specified in Article III, except receipt of items
required to be delivered solely to the Administrative
Agent; (iv) the existence or possible existence of any
Event of Default or Potential Event of Default or (v)
the validity, effectiveness or genuineness of any Loan
Document or any other instrument or writing furnished in
connection therewith. The Administrative Agent shall
not be responsible to any Lender for any recitals,
statements, representations or warranties herein or in
any of the other Loan Documents or for the execution,
effectiveness, genuineness, validity, legality,
enforceability, collectibility, or sufficiency of this
Agreement or any of the other Loan Documents or the
transactions contemplated thereby, or for the financial
condition of any guarantor of any or all of the
Obligations, the Company, the Borrower or any of their
respective Subsidiaries.
SECTION 7.5. ACTION ON INSTRUCTIONS OF LENDERS.
The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting,
hereunder and under any other Loan Document in
accordance with written instructions signed by the
Majority Lenders (unless all of the Lenders are
expressly required pursuant to the terms of this
Agreement), and such instructions and any action taken
or failure to act pursuant thereto shall be binding on
all of the Lenders and on all holders of Notes. The
Administrative Agent shall be fully justified in failing
or refusing to take any action hereunder and under any
other Loan Document unless it shall first be indemnified
to its satisfaction by the Lenders pro rata against any
and all liability, cost and expense that it may incur by
reason of taking or continuing to take any such action.
SECTION 7.6. EMPLOYMENT OF AGENTS AND COUNSEL.
The Administrative Agent may execute any of its duties
as the Administrative Agent hereunder and under any
other Loan Document by or through employees, agents, and
attorney-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it
or its authorized agents, for the default or misconduct
of any such agents or attorneys-in-fact selected by it
with reasonable care. The Administrative Agent shall be
entitled to advice of counsel concerning the contractual
arrangement between the Administrative Agent and the
Lenders and all matters pertaining to the Administrative
Agent's duties hereunder and under any other Loan
Document.
SECTION 7.7. RELIANCE ON DOCUMENTS; COUNSEL. The
Administrative Agent shall be entitled to rely upon any
Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to
be genuine and correct and to have been signed or sent
by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by
the Administrative Agent, which counsel may be employees
of the Administrative Agent.
SECTION 7.8. THE ADMINISTRATIVE AGENT'S
REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to
reimburse and indemnify the Administrative Agent ratably
in proportion to their respective Commitment (i) for any
amounts not reimbursed by the Borrower for which the
Administrative Agent is entitled to reimbursement by the
Borrower under the Loan Documents, (ii) for any other
expenses incurred by the Administrative Agent on behalf
of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of
the Loan Documents and (iii) for any liabilities,
obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of
any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Administrative Agent
in any way relating to or arising out of the Loan
Documents or any other document delivered in connection
therewith or the transactions contemplated thereby, or
the enforcement of any of the terms thereof or of any
such other documents, provided that no Lender shall be
liable for any of the foregoing to the extent any of the
foregoing is found in a final non-appealable judgment by
a court of competent jurisdiction to have arisen solely
from the Gross Negligence or willful misconduct of the
Administrative Agent.
SECTION 7.9. RIGHTS AS A LENDER. With respect to
its Commitment, Advances made by it and the Notes issued
to it, the Administrative Agent shall have the same
rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as
though it were not the Administrative Agent, and the
term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Administrative Agent in
its individual capacity. The Administrative Agent may
accept deposits from, lend money to, and generally
engage in any kind of trust, debt, equity or other
transaction, in addition to those contemplated by this
Agreement or any other Loan Document, with the Borrower
or any of its Subsidiaries or Affiliates in which such
Person is not prohibited hereby from engaging with any
other Person.
SECTION 7.10. LENDER CREDIT DECISION. Each Lender
acknowledges that it has, independently and without
reliance upon the Administrative Agent, the Arranger or
any other Lender and based on the financial statements
prepared by the Borrower and such other documents and
information as it has deemed appropriate, made its own
credit analysis and decision to enter into this
Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and
without reliance upon the Administrative Agent, the
Arranger or any other Lender and based on such documents
and information as it shall deem appropriate at the
time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the
other Loan Documents.
SECTION 7.11. SUCCESSOR ADMINISTRATIVE AGENT. The
Administrative Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower,
and the Administrative Agent may be removed at any time
with or without cause by written notice received by the
Administrative Agent from the Majority Lenders. Upon
any such resignation or removal, the Majority Lenders
shall have the right to appoint, on behalf of the
Borrower and the Lenders, a successor Administrative
Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Lenders and shall have
accepted such appointment within thirty days after the
retiring Administrative Agent's giving notice of
resignation, then the retiring Administrative Agent may
appoint, on behalf of the Borrower and the Lenders, a
successor Administrative Agent. Notwithstanding
anything herein to the contrary, so long as no Event of
Default has occurred and is continuing, each such
successor Administrative Agent shall be subject to
approval by the Borrower, which approval shall not be
unreasonably withheld. Such successor Administrative
Agent shall be an Eligible Assignee. Upon the
acceptance of any appointment as the Administrative
Agent hereunder by a successor Administrative Agent,
such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights,
powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and
obligations hereunder and under the other Loan
Documents. After any retiring Administrative Agent's
resignation hereunder as Administrative Agent, the
provisions of this Article VII shall continue in effect
for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the
Administrative Agent hereunder and under the other Loan
Documents.
SECTION 7.12. LOAN DOCUMENTS. Each of the
Lenders, by its execution hereof or acceptance of the
benefits hereof, hereby appoints the Administrative
Agent hereunder (including any successor Administrative
Agent) as its Administrative Agent for the purpose of
executing and delivering, and accepting the delivery of,
any Guaranty and hereby authorizes the Administrative
Agent, as such Lender's Administrative Agent, to enter
into such Loan Documents on behalf of and for the
benefit of the Lenders with the understanding that each
Lender and the Administrative Agent shall be bound
thereby. The Administrative Agent shall not enter into
any amendment or modification of any such Loan Document
without the prior written consent of Majority Lenders.
Each of the Lenders and the Administrative Agent agree
that no Lender shall have any right individually to
enforce any Guaranty, it being agreed and understood
that all rights and remedies available to the Lenders
and the Administrative Agent thereunder shall be
exercised by the Administrative Agent, for the benefit
of itself and the Lenders in accordance with the terms
of such Loan Documents and this Agreement. Each of the
Lenders and the Administrative Agent agree that all
rights and remedies available to the Lenders and the
Administrative Agent shall be exercised by the
Administrative Agent, for the benefit of the Lenders in
accordance with the terms of this Agreement and the
other Loan Documents.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. AMENDMENTS, ETC. No amendment or
waiver of any provision of this Agreement, nor consent
to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing
and signed by the Majority Lenders, and then such waiver
or consent shall be effective only in the specific
instance and for the specific purpose for which given;
provided, however, that no amendment, waiver or consent
shall, unless in writing and signed by all the Lenders,
do any of the following: (a) waive any of the
conditions specified in Section 3.01, (b) increase the
Commitments of the Lenders or subject the Lenders to any
additional obligations, (c) reduce the principal of, or
interest on, the Advances or any fees or other amounts
payable hereunder, (d) postpone any date fixed for any
mandatory reduction in the Commitments or payment of
principal of, or interest on, the Advances or any fees
or other amounts payable hereunder, (e) change the
percentage of the Commitments or of the aggregate unpaid
principal amount of the Advances, or the number of
Lenders, which shall be required for the Lenders or any
of them to take any action hereunder or (f) amend this
Section 8.01; and provided, further, that no amendment,
waiver or consent shall, unless in writing and signed by
the Administrative Agent in addition to the Lenders
required above to take such action, affect the rights or
duties of the Administrative Agent under this Agreement;
and provided still further that no amendment, waiver or
consent shall, unless in writing signed by the Swing
Line Bank, affect the rights and duties of the Swing
Line Bank; and provided still further that no amendment,
waiver or consent shall, unless in writing signed by
each Issuing Bank having issued an outstanding Letter of
Credit, affect the rights and duties of such Issuing
Bank with respect to any such Letter of Credit.
SECTION 8.2. NOTICES, ETC. All notices and other
communications provided for hereunder shall be in
writing (including telecopier, telegraphic, telex or
cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered, if to the
Company or the Borrower, at their address at 1850 North
Central Avenue, 9th Floor, Phoenix, Arizona 85004,
Attention: Treasurer; if to any Lender named on SCHEDULE
1.01 hereto, at its Domestic Lending Office specified
opposite its name on SCHEDULE 1.01 hereto; if to any
other Lender, at its Domestic Lending Office specified
in the Assignment and Acceptance pursuant to which it
became a Lender; and if to the Administrative Agent,
(A) for all notices and communications relating to
assignments, borrowings or repayments, including,
without limitation, any Notice of Borrowing, Notice of
Conversion/Continuation or notice of repayment or
prepayment, at its address at NBD Bank, 611 Woodward
Avenue, Detroit, Michigan 48226, Attention: Kathy Boles
with a copy of any such Notice of Borrowing or notice of
repayment or prepayment being sent by telecopy to NBD
Bank, telecopier number 313-225-2747, Attention: Kathy
Boles, and (B) for legal notices at Sidley & Austin, One
First National Plaza, Chicago, Illinois 60603
Attention: Douglas H. Williams, telecopier number 312-
853-7036; or, as to the Borrower or the Administrative
Agent, at such other address as shall be designated by
such party in a written notice to the other parties and,
as to each other party, at such other address as shall
be designated by such party in a written notice to the
Borrower and the Administrative Agent. All such notices
and communications shall, when personally delivered,
mailed, telecopied, telegraphed, telexed or cabled, be
effective when personally delivered, after five (5) days
after being deposited in the mails, when delivered to
the telegraph company, when confirmed by telex
answerback or when delivered to the cable company,
respectively, except that notices and communications to
the Administrative Agent pursuant to Article II or VII
shall not be effective until received by the
Administrative Agent.
SECTION 8.3. NO WAIVER; REMEDIES. No failure on
the part of any Lender or the Administrative Agent to
exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right
preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 8.4. COSTS, EXPENSES AND INDEMNIFICATION.
(a) Expenses. The Borrower shall reimburse the
Administrative Agent and the Arranger for any reasonable
costs and out-of-pocket expenses (including attorneys'
and paralegals' fees and time charges of attorneys and
paralegals for the Administrative Agent and the
Arranger, which attorneys and paralegals may be
employees of the Administrative Agent or the Arranger)
paid or incurred by the Administrative Agent or the
Arranger in connection with the preparation,
negotiation, execution, delivery, syndication, review,
amendment, modification, and administration of the Loan
Documents. The Borrower also agrees to reimburse the
Administrative Agent, the Arranger and the Lenders for
any costs, and out-of-pocket expenses (including
attorneys' and paralegals' fees and time charges of
attorneys and paralegals for the Administrative Agent,
the Arranger and the Lenders, which attorneys and
paralegals may be employees of the Administrative Agent,
the Arranger or the Lenders) paid or incurred by the
Administrative Agent, the Arranger or any Lender in
connection with the collection of the Obligations and
enforcement of the Loan Documents. In addition to
expenses set forth above, the Borrower agrees to
reimburse the Administrative Agent, promptly after the
Administrative Agent's request therefor, for each audit
or other business analysis performed by or for the
benefit of the Lenders in connection with this Agreement
or the other Loan Documents in an amount equal to the
Administrative Agent's then customary charges for each
person employed to perform such audit or analysis, plus
all costs and expenses (including without limitation,
travel expenses) incurred by the Administrative Agent in
the performance of such audit or analysis.
Administrative Agent shall provide the Borrower with a
detailed statement of all reimbursements requested under
this Section 8.04(A).
(b) Indemnity. The Borrower further agrees to
defend, protect, indemnify, and hold harmless the
Administrative Agent, the Arranger and each and all of
the Lenders and each of their respective Affiliates, and
each of such Administrative Agent's, Arranger's,
Lender's, or Affiliate's respective officers, directors,
employees, attorneys and agents (including, without
limitation, those retained in connection with the
satisfaction or attempted satisfaction of any of the
conditions set forth in Article III) (collectively, the
"Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses of any kind or
nature whatsoever (including, without limitation, the
fees and disbursements of counsel for such Indemnitees
in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees
shall be designated a party thereto), imposed on,
incurred by, or asserted against such Indemnitees in any
manner relating to or arising out of:
(i) this Agreement, the other Loan Documents,
or any act, event or transaction related or
attendant thereto, the making of the Advances, the
making of the Dina Distribution and the issuance of
and participation in Letters of Credit hereunder,
the management of such Advances or Letters of
Credit, the use or intended use of the proceeds of
the Advances or Letters of Credit hereunder, or any
of the other transactions contemplated by the Loan
Documents; or
(ii) any liabilities, obligations,
responsibilities, losses, damages, personal injury,
death, punitive damages, economic damages,
consequential damages, treble damages, intentional,
willful or wanton injury, damage or threat to the
environment, natural resources or public health or
welfare, costs and expenses (including, without
limitation, attorney, expert and consulting fees
and costs of investigation, feasibility or remedial
action studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or
unknown, absolute or contingent, past, present or
future relating to violation of any environmental,
health or safety requirements of law arising from
or in connection with the past, present or future
operations of the Company, the Borrower, its
Subsidiaries or any of their respective
predecessors in interest, or, the past, present or
future environmental, health or safety condition of
any respective property of the Borrower or its
Subsidiaries, the presence of asbestos-containing
materials at any respective property of the
Borrower or its Subsidiaries or the release or
threatened release of any contaminant or hazardous
substance into the environment (collectively, the
"Indemnified Matters");
provided, however, the Borrower shall have no obligation to an
Indemnitee hereunder with respect to Indemnified Matters caused
solely by or resulting solely from the willful misconduct or
Gross Negligence of such Indemnitee or breach of contract by
such Indemnitee with respect to the Loan Documents, in each
case, as determined by the final non-appealed judgment of a
court of competent jurisdiction. If the undertaking to
indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any
law or public policy, the Borrower shall contribute the maximum
portion which it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnitees.
(c) Waiver of Certain Claims; Settlement of Claims.
The Borrower further agrees to assert no claim against any
of the Indemnitees on any theory of liability for
consequential, special, indirect, exemplary or punitive
damages. No settlement shall be entered into by the
Company, the Borrower or any if its Subsidiaries with
respect to any claim, litigation, arbitration or other
proceeding relating to or arising out of the transaction
evidenced by this Agreement or the other Loan Documents or
in connection with the Dina Distribution (whether or not
the Administrative Agent or any Lender or any Indemnitee
is a party thereto) unless such settlement releases all
Indemnitees from any and all liability with respect
thereto.
(d) Survival of Agreements. The obligations and
agreements of the Borrower under this Section 8.04 shall
survive the termination of this Agreement.
SECTION 8.5. RIGHT OF SET-OFF. Upon (i) the
occurrence and during the continuance of any Event of
Default and (ii) the making of the request or the granting
of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Advances due and
payable pursuant to the provisions of Section 6.01, each
Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off
and apply any and all deposits (time or demand,
provisional or final, or general, but not special) at any
time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now
or hereafter existing under this Agreement that are then
due and payable, whether or not such Lender shall have
made any demand under this Agreement. Each Lender agrees
promptly to notify the Borrower after any such set-off and
application made by such Lender, provided that the failure
to give such notice shall not affect the validity of such
set-off and application. The rights of each Lender under
this Section 8.05 are in addition to other rights and
remedies (including, without limitation, other rights of
set-off) which such Lender may have.
Notwithstanding any other provision of this
Agreement, if (i) any Event of Default is then occurring
or (ii) the Administrative Agent has declared the Advances
due and payable pursuant to the provisions of
Section 6.01, any Lender that sets off any such deposits
or other indebtedness held or owing to such Lender, shall
share the amount recovered by such Lender through such
set-off with the other Lenders and the holders of the
Senior Notes by purchasing participations in amounts
outstanding under this Agreement (including, without
limitation, Letters of Credit) and the Senior Notes, so
that the amounts owing to each such Person under this
Agreement (including, without limitation, the maximum
amount that may be drawn under all outstanding Letters of
Credit) and the Senior Notes are ratably reduced based on
the aggregate of such amounts owing to all such Persons;
provided, however, that if all or any portion of the
amount recovered by any such set-off is thereafter
recovered from such purchasing Lender, such purchase from
each Lender and each holder of the Senior Notes shall be
rescinded to the extent of such recovery and each Lender
and Senior Noteholder shall repay to the purchasing Lender
the purchase price to the extent of such recovery together
with an amount equal to such Lender's or Senior
Noteholder's ratable share (according to the proportion of
(i) the amount of such Lender's or Senior Noteholder's
required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees
that any Lender so purchasing a participation from another
Lender pursuant to this Section 8.05 may, to the fullest
extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to
such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such
participation. The Borrower and the Lenders acknowledge
that the provisions of this paragraph are for the benefit
of the holders of the Senior Notes and that this paragraph
may not be amended without the consent of the holders of a
majority of the principal amount outstanding under the
Senior Notes.
SECTION 8.6. BINDING EFFECT. This Agreement shall
become effective when it shall have been executed by the
Borrower and the Administrative Agent and the
Administrative Agent shall have been notified by each
Lender that such Lender has executed it and thereafter
shall be binding upon and inure to the benefit of the
Company, the Borrower, the Administrative Agent and each
Lender, and their respective successors and permitted
assigns, except that the Borrower shall not have the right
to assign its rights hereunder or any interest herein
without the prior written consent of all Lenders.
SECTION 8.7. ASSIGNMENTS AND PARTICIPATIONS.
(a) Each Lender may assign to another Lender or, with the
consent of the Borrower (which consent shall not be
unreasonably withheld), to one or more Eligible Assignees
all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion
of its Commitment, its participations in Letters of
Credit, its participations in Swing Line Loans and the
Advances owing to it); provided, however, that (i) each
such assignment shall be of a constant, and not a varying,
percentage of all rights and obligations under this
Agreement, (ii) after giving effect to any such
assignment, (1) the assigning Lender shall no longer
have any Commitment or (2) the amount of the assignment
shall not be less than $5,000,000 (or after the occurrence
of and during the continuance of an Event of Default such
lesser amount to which the Administrative Agent has
agreed), (iii) each such assignment shall be to an
Eligible Assignee consented to by the Agent (which consent
will not be unreasonably withheld), and (iv) the parties
to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in
the Register, an Assignment and Acceptance, and a
processing and recordation fee of $3,500. Notwithstanding
the foregoing, no consent of the Borrower shall be
required for any assignment made (i) as part of the
primary syndication of the Commitments and Obligations or
(ii)after the occurrence and during the continuance of an
Event of Default. Upon such execution, delivery,
acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder and
(y) the Lender assignor thereunder shall, to the extent
that rights and obligations hereunder have been assigned
by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations
under this Agreement (and, in the case of an Assignment
and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto).
Any Lender may at any time pledge or assign all or any
portion of its rights hereunder to a Federal Reserve Bank
without satisfying the requirements of clauses (i) through
(iv) above; provided, that no such pledge or assignment
shall release such Lender from any of its obligations
hereunder.
(b) By executing and delivering an
Assignment and Acceptance, the Lender assignor thereunder
and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other
than as provided in such Assignment and Acceptance, such
assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements,
warranties or representations made in or in connection
with any of the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or
value of any of the Loan Documents or any other instrument
or document furnished pursuant hereto or thereto;
(ii) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any Subsidiary
Guarantor or the performance or observance by the Borrower
or any Subsidiary Guarantor of any of its obligations
under any of the Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; (iii) such
assignee confirms that it has received a copy of the Loan
Documents, together with copies of the financial
statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative
Agent, the Arranger, such assigning Lender or any other
Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under
the Loan Documents; (v) such assignee confirms that it is
an Eligible Assignee; (vi) such assignee appoints and
authorizes the Administrative Agent to take such action as
Administrative Agent on its behalf and to exercise such
powers under the Loan Documents as are delegated to the
Administrative Agent by the terms hereof, together with
such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which
by the terms of the Loan Documents are required to be
performed by it as a Lender.
(c) The Administrative Agent shall
maintain at its address referred to in Section 8.02 a copy
of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the
names and addresses of the Lenders and the Commitment of,
and principal amount of the Advances owing to, each
Lender from time to time (the "Register"). The entries in
the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender
hereunder for all purposes of the Loan Documents. The
Register shall be available for inspection by the Borrower
or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(d) Upon its receipt of the required
recordation fee, an Assignment and Acceptance executed by
an assigning Lender and an assignee representing that it
is an Eligible Assignee, and upon any necessary consent of
the Borrower thereto, which consent shall not be
unreasonably withheld, the Administrative Agent shall, if
such Assignment and Acceptance has been completed and is
in substantially the form of EXHIBIT A hereto, (i) accept
such Assignment and Acceptance and (ii) record the
information contained therein in the Register.
(e) Each Lender may sell participations to
one or more banks or other financial institutions in or to
all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion
of its Commitment, its participations in Letters of
Credit, its participation in Swing Line Loans and the
Advances owing to it; provided, however, that (i) such
Lender's obligations under this Agreement (including,
without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such Lender
shall remain the holder of any such Advance for all
purposes of this Agreement, (iv) the Borrower, the
Administrative Agent and the other Lenders shall continue
to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under the Loan
Documents, and (v) no Lender shall grant any
participation under which the participant shall have
rights to require such Lender to take or omit to take any
action hereunder or under the other Loan Documents or
approve any amendment to or waiver of this Agreement or
the other Loan Documents, except to the extent such
amendment or waiver would: (A) extend the Termination
Date; or (B) reduce the interest rate or the amount of
principal or fees applicable to Advances or the Commitment
in which such participant is participating.
(f) Any Lender may, in connection with any
assignment or participation or proposed assignment or
participation pursuant to this Section 8.07, disclose to
the assignee or participant or proposed assignee or
participant, any information relating to the Borrower, the
Company or any Guarantor furnished to such Lender by or on
behalf of the Borrower, the Company or any Guarantor;
provided that, prior to any such disclosure, the assignee
or participant or proposed assignee or participant shall
agree to preserve the confidentiality of any confidential
information relating to the Borrower, the Company or any
Guarantor received by it from such Lender.
SECTION 8.8. GOVERNING LAW. THE ADMINISTRATIVE AGENT
ACCEPTS THIS AGREEMENT, ON BEHALF OF ITSELF AND THE
LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND
AGREEING TO IT THERE. ANY DISPUTE BETWEEN THE BORROWER
AND THE AGENT OR ANY LENDER, ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT
REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE
OF ILLINOIS.
SECTION 8.9. EXECUTION IN COUNTERPARTS. This
Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute
one and the same agreement.
SECTION 8.10. CONSENT TO JURISDICTION; SERVICE OF
PROCESS.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN
SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL
DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY
BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS,
BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF CHICAGO, ILLINOIS. EACH OF THE PARTIES HERETO
WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION
(A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT
THE ADMINISTRATIVE AGENT OR ANY LENDER SHALL HAVE THE
RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A
COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN
PERSONAL JURISDICTION OVER THE BORROWER OR (2) TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH
PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH
PERSON TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR
OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT IT
MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON
HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION
(B).
(C) SERVICE OF PROCESS. THE BORROWER WAIVES
PERSONAL SERVICE OF ANY PROCESS UPON IT AND IRREVOCABLY
APPOINTS CT CORPORATION SYSTEM, INC., THE BORROWER'S
REGISTERED AGENT, WHOSE ADDRESS IS 208 SOUTH LASALLE
STREET, SUITE 1925, CHICAGO, ILLINOIS 60604, AS THE
BORROWER'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF
PROCESS ISSUED BY ANY COURT. THE BORROWER IRREVOCABLY
WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.
SECTION 8.11. WAIVER OF TRIAL BY JURY; WAIVER OF
BOND; ADVICE OF COUNSEL. (A) WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH.
EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY
HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY. The scope of this waiver is intended to
be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter
of this transaction, including without limitation contract
claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each party to this
Agreement acknowledges that this waiver is a material
inducement for each such party to enter into a business
relationship, that such parties have already relied on
this waiver in entering into this Agreement and that each
such party will continue to rely on this waiver in its
future dealings with the other parties hereunder. THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, RESTATEMENTS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
(B) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING
OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN
CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO
ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR
OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE,
TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT
INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(C) ADVICE OF COUNSEL. EACH OF THE PARTIES
REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS
DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS
OF SECTIONS 8.10 AND 8.11, WITH ITS COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY IS ENTERING INTO THIS AGREEMENT,
INCLUDING, WITHOUT LIMITATION THE WAIVERS IN SUCH
PROVISIONS.
SECTION 8.12. CONFIDENTIALITY. Each of the Lenders
and Administrative Agent shall hold all non-public
information obtained pursuant to the requirements of this
Agreement which has been identified as such by the
Borrower or any of its Subsidiaries in accordance with
their customary procedures for handling confidential
information but shall be permitted to make disclosures
reasonably requested by any bona fide assignee or
participant (which disclosures shall be subject to Section
8.07(f)) or by any governmental agency or any disclosures
required by law.
SECTION 8.13. AGREEMENT REGARDING LETTERS OF CREDIT.
Each Lender hereby agrees for the benefit of each other
Lender that it will not issue standby letters of credit
for the account of the Borrower, or letters of credit for
the account of any Subsidiary of the Borrower that are
guaranteed by the Borrower, other than Letters of Credit
issued by such Lender as an Issuing Lender hereunder.
SECTION 8.14. NO STRICT CONSTRUCTION. The parties
hereto have participated jointly in the negotiation and
drafting of this Agreement and the other Loan Documents.
In the event an ambiguity or question of intent or
interpretation arises, this Agreement and the other Loan
Documents shall be construed as if drafted jointly by the
parties hereto and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or the
other Loan Documents.
SECTION 8.15. RATABLE PAYMENTS. If any Lender,
whether by setoff or otherwise, has payment made to it
upon its Advances (other than payments expressly stated to
be payable to a specific Lender or on a non-pro-rata
basis) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to
purchase a portion of the Advances held by the other
Lenders so that after such purchase each Lender will hold
its ratable proportion of Advances. If any Lender,
whether in connection with setoff or amounts which might
be subject to setoff or otherwise, receives collateral or
other protection for its Obligations or such amounts which
may be subject to setoff, such Lender agrees, promptly
upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably
in proportion to the Obligations owing to them. In case
any such payment is disturbed by legal process, or
otherwise, appropriate further adjustments shall be made.
SECTION 8.16. APPLICATION OF PAYMENTS. The
Administrative Agent shall, unless otherwise specified at
the direction of the Majority Lenders which direction
shall be consistent with the last sentence of this Section
8.16, apply all payments and prepayments in respect of any
Obligations and all proceeds of Collateral in the
following order:
(A) first, to pay interest on and then
principal of any portion of the Advances which the
Administrative Agent may have advanced on behalf of
any Lender for which the Administrative Agent has not
then been reimbursed by such Lender or the Borrower;
(B) second, to pay Obligations in respect of
any fees, expense reimbursements or indemnities then
due to the Administrative Agent;
(C) third, to pay Obligations in respect of any
fees, expenses, reimbursements or indemnities then
due to the Swing Line Bank, the Lenders and the
Issuing Lenders;
(D) fourth, to pay interest due in respect of
Swing Line Loans;
(E) fifth, to pay interest due in respect of
Advances (other than Swing Line Loans) and
Obligations with respect to Letters of Credit;
(F) sixth, to the ratable payment or prepayment
of principal outstanding on Swing Line Loans;
(G) seventh, to the ratable payment or
prepayment of principal outstanding on Advances
(other than Swing Line Loans) and Obligations in
respect of Letters of Credit in such order as the
Administrative Agent may determine in its sole
discretion;
(H) eighth, to provide cash collateral, if any,
required with respect to any of the Obligations under
this Agreement; and
(I) ninth, to the ratable payment of all other
Obligations.
Unless otherwise designated (which designation shall only
be applicable prior to the occurrence of an Event of
Default) by the Borrower, all principal payments in
respect of Advances (other than Swing Line Loans) shall be
applied first, to repay outstanding Base Rate Advances,
and then to repay outstanding Eurodollar Rate Advances
with those Eurodollar Rate Advances which have earlier
expiring Interest Periods being repaid prior to those
which have later expiring Interest Periods. The order of
priority set forth in this Section 8.16 and the related
provisions of this Agreement are set forth solely to
determine the rights and priorities of the Administrative
Agent, the Lenders, the Swing Line Bank and the Issuing as
among themselves. The order of priority set forth in
clauses (C) through (I) of this Section 8.16 may at any
time and from time to time be changed by the Majority
Lenders without necessity of notice to or consent of or
approval by the Borrower, or any other Person; provided,
that the order of priority of payments in respect of Swing
Line Loans may be changed only with the prior written
consent of the Swing Line Bank. The order of priority set
forth in clauses (A) and (B) of this Section 8.16 may be
changed only with the prior written consent of the
Administrative Agent.
SECTION 8.17. RELATIONS AMONG LENDERS. Except with
respect to the exercise of set-off rights of any Lender in
accordance with Section 8.05, the proceeds of which are
applied in accordance with this Agreement, and except as
set forth in the following sentence, each Lender agrees
that it will not take any action, nor institute any
actions or proceedings, against the Borrower or any other
obligor hereunder or with respect to any Loan Document,
without the prior written consent of the Majority Lenders
or, as may be provided in this Agreement or the other Loan
Documents, at the direction of the Administrative Agent.
The Lenders are not partners or co-venturers, and no
Lender shall be liable for the acts or omissions of, or
(except as otherwise set forth herein in case of the
Administrative Agent) authorized to act for, any other
Lender. Notwithstanding the foregoing, and subject to
Section 8.15, any Lender shall have the right to enforce
on an unsecured basis the payment of the principal of and
interest on any Advance made by it after the date such
principal or interest has become due and payable pursuant
to the terms of this Agreement.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above
written.
Borrower:
TRANSPORTATION MANUFACTURING
OPERATIONS, INC.
By_____________________
Name:
Title:
Commitment Administrative Agent,
Swing Line Bank,
Issuing Lenders and
Lenders:
$125,000,000 NBD BANK, as
Administrative Agent,
Swing Line Bank,
Issuing Lender and a
Lender
By__________________________
Authorized Agent
Signature page to Credit Agreement
SCHEDULE 5.02(l)
Computation of Permissible Tax Payments
For purposes of Section 5.02(l) and this Schedule 5.02(l)
in respect of taxes, the following provisions shall be
applicable:
As used herein the term "Affiliated Group" means the
affiliated group as defined in Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code").
1. Determination of Federal Income Tax Liability.
For each fiscal year or part thereof (each, a
"Determination Period") with respect to which the
Company files a consolidated federal or state income
tax return and the Borrower is a member of the
Affiliated Group of which the Company is the common
parent corporation (the "Company Group") the Company
shall determine (i) the federal income tax liability
of the hypothetical Affiliated Group of which the
Borrower would be the common parent corporation (the
"Borrower Group") and (ii) the state liabilities of
each member of the Borrower Group on a separate
company or combined basis, as appropriate for such
Determination Period, on a stand-alone basis taking
only the income of the members of the Borrower Group
into account, such determination to (i) include any
benefit resulting from ordinary losses, capital
losses and tax credits of the members of the Borrower
Group from the current year or the carryforward of
ordinary losses, capital losses and tax credits of
the Borrower group from preceding years which would
be utilizable under the Code or relevant state law
and (ii) take into account the deductibility of state
income tax for federal income tax purposes. The
aggregate federal and state income tax liability for
all members of the Borrower Group determined in
accordance with this paragraph 1 with respect to any
Determination Period is referred to as the "Borrower
Group Tax Liability".
2. Payment of the Borrower's Tax Liability to
Holdings.
The Borrower shall be permitted to pay to the
Company the lesser of (i) the Borrower Group Tax
Liability for the relevant Determination Period (or
reasonable estimates thereof) and (ii) the sum of (x)
the amount determined by multiplying (A) the federal
income tax liability of the Company Group for such
Determination Period, by (B) a fraction, the
numerator of which is the federal income tax
liability of the Borrower Group for such
Determination Period and the denominator of which is
the aggregate federal income tax liabilities of each
member of the Company Group having positive liability
(determined in the manner described in paragraph 1
hereof) for such Determination Period, (y) with
respect to each state in which members of the
Borrower Group file a combined state income tax
return with members of the Company Group which are
not also members of the Borrower Group, the amount
determined by multiplying (C) the relevant combined
state tax liability of the Company Group for such
Determination Period by (D) a fraction, the numerator
of which is the combined hypothetical state income
tax liability of the members of the Borrower Group
(computed in a manner substantially similar to that
set forth in paragraph 1 for such Determination
Period) and the denominator of which is the combined
state income tax liability of all members of the
Company Group having positive liability for such
Determination Period and (z) with respect to each
state in which members of the Borrower Group do not
file such a combined return, the aggregate separate
state income tax liabilities of all of the members of
the Borrower Group for such Determination Period.
Such payments shall be made at such times as shall be
requested by the Company, but not more frequently
than quarterly. Except as provided in paragraph 3
below, the Borrower shall not have any obligation to
the Company or to any other member of the Affiliated
Group to pay any further amounts on account of the
Company Group's tax liability, any such further
amounts being the sole responsibility of the Company
and the other members of the Company Group. If as a
result of estimated payments or otherwise, the
Borrower pays to the Company for any fiscal year an
amount in excess of the amount determined under
paragraph 1, the Borrower shall cause the Company to
refund to the Borrower the amount of such excess no
later than the date upon which the Company files the
applicable consolidated federal income tax return for
the Company Group. If such amount is not so refunded
it shall be deducted from amounts which could
otherwise be paid to the Company pursuant to Section
5.02(l) (whether in the nature of management fees (or
other fees of a similar nature) or tax payments).
3. Adjustments to the Borrower's Federal Income Tax
Liability.
In the event that there is an increase or
decrease in the amount determined under paragraph 2
for any fiscal year (whether by amended return,
examination by the Internal Revenue Service,
carryback or net operating loss or unused credits, or
otherwise), the Borrower shall or shall cause the
Company, as the case may be, to promptly make a
payment to the other in the amount of such increase
or decrease.
Form of Amendment to Note Agreement
September __, 1996
Transportation Manufacturing Operations, Inc.
Dial Tower
1850 North Central Avenue
Phoenix, Arizona 85004
Re: 9.02% Senior Notes due 2002
Gentlemen:
Reference is made to the Note Agreement (the "Agreement"),
dated as of November 15, 1994, among Transportation Manufacturing
Operations, Inc. (the "Company"), the undersigned and the other
persons named on Schedule A thereto (together with the
undersigned, the "Purchasers"), pursuant to which the Company
issued and sold, and the Purchasers purchased, the Company's
9.02% Senior Notes due November 15, 2002 in the original
principal amount of $125,000,000. Unless otherwise defined
herein, capitalized terms used herein which are defined in the
Agreement shall have the meanings as given in the Agreement.
Pursuant to paragraph 11C of the Agreement and the request
of the Company, and subject to the satisfaction of the conditions
set forth in Section 4 below, the undersigned and the Company
agree as follows:
1. CONSENT. Notwithstanding paragraph 6C(9)(ii) of the
Agreement, the undersigned consent to the payment by the Company
of a dividend in cash of up to $30,000,000 to MCII, provided,
that (a) the payment of such dividend is permitted by clauses (i)
and (iii) of paragraph 6C(9) of the Agreement, (b) such dividend
is paid on or before March 31, 1997 and (c) immediately upon
receipt of such payment, MCII pays a dividend to Grupo Dina in
the same amount as the dividend payment made by the Company to
MCII.
2. AMENDMENTS TO AGREEMENT.
2.1. Paragraph 5A is amended by adding the following as new
clauses (iii) and (iv) and by renumbering the existing clauses
(iii), (iv), (v) and (vi) as (v), (vi), (vii) and (viii),
respectively:
(iii) as soon as available and in any event within 60
days after the end of each fiscal quarter (beginning with
the fiscal quarter ending September 30, 1996), the
consolidated balance sheet for Grupo Dina and its
consolidated Subsidiaries as at the end of such fiscal
quarter and the related consolidated statements of income
and cash flows of Grupo Dina and its consolidated
Subsidiaries for such fiscal quarter and for the period from
the beginning of the then current fiscal year to the end of
such fiscal quarter, setting forth in comparative form the
corresponding figures for the corresponding periods of the
previous fiscal year, all in reasonable detail, provided,
that so long as Grupo Dina is a foreign private issuer
complying with reporting requirements under the Exchange
Act, the foregoing requirement shall be satisfied by
delivery of Grupo Dina's quarterly report for such fiscal
quarter on Form 6K thereunder;
(iv) as soon as available and in any event within 120
days after the end of each fiscal year, the consolidated
balance sheet of Grupo Dina and its consolidated
Subsidiaries as at the end of such fiscal year and the
related consolidated statements of income, stockholders'
equity and cash flows of Grupo Dina and its consolidated
Subsidiaries for such fiscal year, setting forth in
comparative form the corresponding figures for the previous
fiscal year, all in reasonable detail, provided, that so
long as Grupo Dina is a foreign private issuer complying
with reporting requirements under the Exchange Act, the
foregoing requirement shall be satisfied by delivery of
Grupo Dina's annual report for such fiscal year on Form 20F
thereunder, and in the case of such consolidated financial
statements of Grupo Dina, reports thereon of Arthur Anderson
LLP or other independent auditors of recognized national
standing selected by Grupo Dina, which reports shall be
unqualified and shall not include any reference to doubts
about the ability of Grupo Dina and its Subsidiaries to
continue as a going concern;
2.2. Clause (ii) of paragraph 6C(4) of the Agreement is
amended and restated in its entirety as follows:
(ii) the aggregate amount of all Contingent Liabilities
(excluding performance bonds not to exceed $180,000,000
relating to an order which may be made by The New Jersey
Transit Authority but including the aggregate amount of
coach repurchase contracts described in clause (i)) to
exceed 100% of Consolidated Net Worth, provided, that the
aggregate amount of Contingent Liabilities consisting of (a)
Surety Bonds and outstanding undrawn letters of credit for
the account of the Company or any Restricted Subsidiary
shall not exceed 50% of Consolidated Net Worth and (b)
Residual Value Guarantees and the aggregate amount of coach
repurchase contracts described in clause (i) hereof shall
not exceed 50% of Consolidated Net Worth, in each case
determined as of the end of the most recently completed
fiscal quarter.
2.3. Clause (iii) of paragraph 6C(5) of the Agreement is
amended and restated in its entirety as follows:
(iii) Investments in addition to those set forth in clauses
(i) and (ii) (other than Investments in any Person
controlling, controlled by or under common control with the
Company (other than Restricted Subsidiaries and Investments
in Grupo Dina by the Company to the extent such Investments
consist of purchases of motor coaches from Grupo Dina for
resale in the United States or Canada ("Permitted Grupo Dina
Investments"))), so long as (a) the aggregate original cost
of such Investments, including, without limitation,
Permitted Grupo Dina Investments, does not, at any time,
exceed 5% of Consolidated Net Worth and (b) the aggregate
original cost of such Permitted Grupo Dina Investments does
not, at any time, exceed 2.5% of Consolidated Net Worth and
all such Permitted Grupo Dina Investments are otherwise
permitted by paragraph 6C(7) and
2.4. Clause (iv) of paragraph 6C(5) of the Agreement is
amended by adding immediately after the phrase "Restricted
Subsidiary" and before the parenthetical the phrase "and
Permitted Grupo Dina Investments."
2.5. The following is added as a new paragraph 6D:
6D. ADDITIONAL GUARANTORS. The Company covenants not
to permit any Subsidiary to become a guarantor of any of the
obligations of the Company under the Bank Credit Facility or
any other agreement, document or instrument now or hereafter
executed or delivered in connection therewith unless
concurrently therewith such Subsidiary provides to the
holders of the Notes a guarantee of the obligations of the
Company under this Agreement and the Notes pursuant to a
written agreement in form and substance satisfactory to the
Required Holders.
2.6. Paragraph 7A of the Agreement is amended by adding the
following immediately after clause (13) as a new clause (14):
(14) any Guarantor shall fail to perform or observe
any agreement, term or condition contained in, or otherwise
be in default (beyond any applicable grace period) under,
any guarantee agreement in favor of the holders of the
Notes; or any representation or warranty made by any
Guarantor in any such guarantee shall be false in any
material respect as of the date when made; or any such
guarantee shall fail to be in full force and effect or
otherwise shall not be enforceable in accordance with its
terms; or any Guarantor shall contest or deny the validity
or enforceability of, or deny that it has any liability or
obligations under, any such guarantee to which it is a
party;
The last sentence of paragraph 7A is also amended by
deleting the phrase "(12) to (13)" and inserting in lieu thereof
the phrase "(12) to (14)."
2.7. Paragraph 10B of the Agreement is amended as follows:
(a) The following definition is added immediately after the
definition of "Guarantee":
"GUARANTOR" shall mean any Subsidiary that is a party
to any guarantee agreement in favor of the holders of the
Notes with respect to the Company's obligations under this
Agreement and the Notes, including, without limitation, any
Subsidiary that becomes a guarantor pursuant to paragraph
6D.
(b) The definition of "Priority Debt" in paragraph 10B of
the Agreement is amended by adding immediately after
"Intercompany Indebtedness" the phrase "and Guarantees of
Indebtedness under this Agreement and the Notes and Guarantees of
Indebtedness under the Bank Credit Facility."
(c) The following definition is added immediately after the
definition of "Required Holders":
"RESIDUAL VALUE GUARANTIES" means any agreement entered
into by the Company or any of its Subsidiaries to promote
the sales of any bus or coach pursuant to which the Company
or any of its Subsidiaries is guaranteeing at some future
time any minimum value (which may be determined by a
formula) of a bus or coach as specified in such agreement,
the terms and provisions of which agreement are consistent
with the past practices and policies of the Company and its
Subsidiaries prior to September __, 1996.
(c) The definition of "Significant Subsidiary" in paragraph
10B of the Agreement is amended by adding immediately after the
phrase "fiscal year" the phrase ", provided, that for clauses (7)
through (12), inclusive, of paragraph 7A the term "Significant
Subsidiary" shall also mean any Guarantor."
3. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants as follows: (a) it has all necessary power and
authority to execute and deliver this letter; (b) the execution,
delivery and performance of this letter have been duly authorized
by it; (c) this letter and the Agreement, as amended hereby,
constitute the legal, valid and binding obligations of the
Company and are enforceable against it in accordance with their
terms; (d) the approval, execution, delivery and performance of
the terms hereof do not violate any contractual provision to
which it is a party or by which it is or its properties are bound
or any law applicable to it; (e) all consents, notices, waivers
and other actions by or of the Company or any other Person that
are necessary in connection with the subject matter of the
foregoing consents and amendments have been obtained or taken;
and (f) no Default or Event of Default has occurred and is
continuing.
4. CONDITIONS TO EFFECTIVENESS. The effectiveness of the
consents and amendments herein is subject to satisfaction of the
following conditions (the date upon which such conditions are
satisfied being called the "Effective Date"):
4.1. The undersigned shall have received counterparts to
this letter executed by the Company;
4.2. The undersigned shall have received a Guarantee
Agreement (the "Guarantee") in favor of the holders of the Notes,
in form and substance satisfactory to the undersigned, duly
executed by each Subsidiary that is executing a guarantee
pursuant to the Credit Agreement referred to below (collectively,
the "Guarantors"), and the Guarantee shall be in full force and
effect;
4.3. The undersigned shall have received a favorable
opinion of Latham & Watkins, special counsel to the Guarantors,
in form and substance satisfactory to the undersigned, as to the
Guarantee;
4.4. The undersigned shall have received a copy of the
Credit Agreement among the Company, the First National Bank of
Chicago, NBD Bank, N.A. and the other parties thereto (the
"Credit Agreement"), in form and substance satisfactory to the
undersigned, duly executed by each party thereto, and the Credit
Agreement shall be in full force and effect;
4.5. The holders of the Notes and the lenders that are
parties to the Credit Agreement shall have entered into an
Intercreditor Agreement, in form and substance satisfactory to
the undersigned, and such Intercreditor Agreement shall be in
full force and effect;
4.6. The undersigned shall have received copies of duly
executed agreements, in substance identical to this letter
agreement, from holders of the Notes that together with the
undersigned would constitute the Required Holders, and all
conditions to the effectiveness of such agreements shall have
been satisfied.
4.7. The representations and warranties of the Company
contained in Section 3 hereof and of the Guarantors in the
Guarantee shall be true on and as of the Effective Date, after
giving effect to the amendments and other transactions
contemplated by this Agreement; and after giving effect to such
amendments and other transactions there shall exist no Default or
Event of Default.
4.8. The Company shall have paid to the undersigned a
$100,000 amendment fee.
4.9. The Company shall have paid such fees and expenses of
special counsel to the holders of the Notes in connection with
the transactions contemplated hereby as holders of the Notes
shall have requested be paid on or prior to the Effective Date.
4.10. The transactions contemplated by this letter shall not
violate any applicable law or governmental regulation and shall
not subject the undersigned to any tax, penalty, liability or
other onerous condition under or pursuant to any applicable law
or governmental regulation, and the undersigned shall have
received such certificates or other evidence as may be requested
to establish compliance with this condition.
4.11. All corporate and legal proceedings and all
instruments and agreements in connection with the transactions
contemplated by this letter shall be reasonably satisfactory in
form and substance to the undersigned and its counsel, and the
undersigned shall have received all information and copies of all
documents and papers, including records of corporate and
governmental proceedings, which the undersigned may reasonably
have requested in connection therewith, such documents and papers
when appropriate to be certified by proper corporate or
governmental authorities.
5. MISCELLANEOUS.
5.1. Upon the Effective Date, each reference in the
Agreement to "this Agreement," "hereunder," "hereof," "herein" or
words of like import shall mean and be a reference to the
Agreement as amended hereby and each reference to the Agreement
in the Notes shall mean and be a reference to the Agreement, as
amended hereby.
5.2. This letter shall be construed and enforced in
accordance with, and the rights of the parties shall be governed
by, the internal law of the State of New York.
5.3. Except as specifically amended above, the Agreement and
the Notes shall remain in full force and effect and are hereby
ratified and confirmed. The execution, delivery and
effectiveness of this letter shall not, except as expressly
provided herein, operate as an amendment to any provision of the
Agreement nor a waiver of any right, power or remedy of any
holder of a Note, nor constitute a waiver of, or consent to any
departure from, any provision of the Agreement or any Note.
5.4. This letter may be executed by one or more of the
parties to this letter on any number of separate counterparts and
all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
Please acknowledge the foregoing and your agreement thereto
by signing this letter agreement where indicated below.
Very truly yours,
By: ________________________
Title:______________________
By: ________________________
Title:______________________
Accepted and Agreed to
as of the date written above:
TRANSPORTATION MANUFACTURING OPERATIONS, INC.
By:____________________
Title:_________________
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT, dated as of September 30,
1996 (as amended from time to time, the " AGREEMENT"), is entered
into by and among those "Lenders" under the Bank Credit Agreement
(as defined below) listed on Annex I attached hereto (the
"BANKS"), NBD Bank, as contractual representative for the Banks
(the "AGENT"), and the holders of the Company s 9.02% Senior
Notes due 2002 (the "NOTES") listed on Annex II attached hereto
(the "NOTEHOLDERS"; the Banks and the Noteholders are herein
sometimes collectively called the LENDERS and individually
called a "LENDER").
W I T N E S S E T H:
WHEREAS, Transportation Manufacturing Operations, Inc.,
a Delaware corporation (herein called the" COMPANY"), the Banks
and the Agent have entered into or are about to enter into that
certain Credit Agreement dated as of the date hereof (herein, as
amended from time to time, called the "BANK CREDIT AGREEMENT"),
pursuant to which, among other things, the Banks have agreed or
will agree to make certain advances to the Company (the "LOANS")
and to issue Letters of Credit for the account of the Company
(the "LETTERS OF CREDIT");
WHEREAS, the Company has executed and delivered to the
Noteholders $125,000,000 principal amount of the Notes pursuant
to the Note Agreement, dated as of November 15, 1994, by and
among the Company and the Noteholders (herein, as amended from
time to time, called the "NOTE AGREEMENT");
WHEREAS, in connection with the Bank Credit Agreement
the Noteholders have entered into or are about to enter into an
amendment to the Note Agreement (the "AMENDMENT") to, among other
things, permit the transactions contemplated by the Bank Credit
Agreement;
WHEREAS, in connection with the Bank Credit Agreement
and the Amendment Motor Coach Industries, Inc., a Delaware
corporation, Universal Coach Parts, Inc., a Delaware corporation,
Bus Lease, Inc., a Delaware corporation, Hausman Bus Sales, Inc.,
a Delaware corporation, MCI Acceptance Corp., a Delaware
corporation, Motor Coach Industries - China, a Delaware
corporation, Transit Bus International, Inc., a Delaware
corporation, Custom Assets Corp., a California corporation and
Transport Technology Corporation, an Arizona corporation
(collectively, along with any Subsidiaries (as hereinafter
defined) that may become parties to the Bank Guaranty or the Note
Guaranty referred to below the "GUARANTORS") are entering into
that certain Subsidiary Guaranty, dated as of the date hereof
(herein, as amended from time to time, the "BANK GUARANTY"),
under which the Guarantors are guarantying the obligations of the
Company to the Banks under the Bank Credit Agreement, and that
certain Guarantee Agreement, dated as of the date hereof (herein,
as amended from time to time, the "NOTE GUARANTY") under which
the Guarantors are guarantying the obligations of the Company
under the Note Agreement and the Notes; and
WHEREAS, it is an express condition precedent to the
Bank s obligations to make the Loans under the Bank Credit
Agreement and to the effectiveness of the Amendment that this
Agreement be executed, delivered and become effective.
NOW, THEREFORE, in consideration of the premises and
the mutual agreements herein contained, the Agent and the Lenders
hereby agree as follows:
1. (a) If any Sharing Event has occurred, any amounts
received by the Bank Agent or any Bank from any setoff of any
deposits of the Company or any of its Subsidiaries (as defined in
the Bank Credit Agreement and herein the "SUBSIDIARIES")or other
indebtedness of the Bank Agent or any Bank held by or owing to
the Company or any of its Subsidiaries and any amounts received
by the Bank Agent or any Bank under the Bank Guaranty shall be
distributed as provided in subsection (c) of this Section 1.
(b) If any Sharing Event has occurred, any amounts
received by any Noteholder under the Note Guaranty shall be
distributed as provided in subsection (c) of this Section 1.
"SHARING EVENT" shall mean (i) for the Loans to become
immediately due and payable pursuant to Section 6.01 of the Bank
Credit Agreement, (ii) for the Notes to become immediately due
and payable pursuant to paragraph 7A of the Note Agreement, (iii)
for the Company to default in the payment of the principal of or
interest on the Loans or the Notes when such payment is due which
payment default continues for at least 20 days, in which event
the "Sharing Event" shall be deemed to have occurred on the date
such payment default first occurred, (iv) for the Bank Agent or
any Bank to setoff any deposits of the Company or any of its
Subsidiaries or other indebtedness of the Bank Agent or any Bank
held by or owing to the Company or any Subsidiary, or (v) the
commencement by, against or with respect to the Company or any
Subsidiary of any proceeding under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment
of debt, dissolution or liquidation or similar law or for the
appointment of a receiver for the Company or any Subsidiary or
any of its assets.
(c) The amounts referred to in subsection (a) and (b)
of this Section 1 (the "SHARED AMOUNTS") shall be distributed to
the Lenders pro rata in proportion to the respective amounts owed
by the Company to the Lenders under the Bank Credit Agreement,
the Note Agreement and the Notes or the Guarantors under the Bank
Guaranty and the Note Guaranty (the "OBLIGATIONS"), including (1)
the outstanding principal amount of, accrued and unpaid interest
on, any unpaid Yield-Maintenance Amount (as defined in the Note
Agreement) due with respect to, the Loans and the Notes, (2) any
unpaid reimbursement obligations with respect to any Letters of
Credit, (3) any undrawn amounts of any outstanding Letters of
Credit, (4) any unpaid obligations of the Company arising under
any Currency Agreement or Interest Rate Agreement (both as
defined in the Bank Credit Agreement) with any Lender or any
affiliate of any Lender, and (5) any other unpaid amounts due
from the Company under the Note Agreement, the Notes or the Bank
Credit Agreement (and, for this purpose, the undrawn amounts of
any outstanding Letters of Credit shall be considered to have
been reduced to the extent of any amount then on deposit with the
Agent as provided in subsection (d) of this Section 1).
(d) Any distribution pursuant to subsection (c) above
with respect to the undrawn amount of any outstanding Letter of
Credit shall be paid to the Agent to be held as collateral for
the Lenders and disposed of as provided in this subsection (d).
On each date on which a payment is made to a beneficiary pursuant
to a draw on a Letter of Credit, the Agent shall distribute to
the Banks from the amounts held pursuant to this subsection (d)
for application to the payment of the reimbursement obligation
due to the Banks with respect to such draw an amount equal to the
product of (1) the total amount then held pursuant to this
subsection (d), and (2) a fraction, the numerator of which is the
amount of such draw and the denominator of which is the aggregate
undrawn amount of all outstanding Letters of Credit immediately
prior to such draw. On each date on which a reduction in the
undrawn amount of any outstanding Letter of Credit occurs other
than on account of a payment made to a beneficiary pursuant to a
draw on such Letter of Credit, then the Agent shall distribute
from the amounts held pursuant to this subsection (d) an amount
equal to the product of (1) the total amount then held pursuant
to this subsection (d) and (2) a fraction the numerator of which
is the amount of such reduction and the denominator of which is
the aggregate undrawn amount of all outstanding Letters of Credit
immediately prior to such reduction, which amount shall be
distributed as provided in subsection (c) above. At such time as
no Letters of Credit are outstanding, any remaining amount held
pursuant to this subsection (d), after the distribution therefrom
as provided above, shall be distributed as provided in subsection
(c) above.
(e) The distribution provisions of this Section 1 are
for the purpose of determining the relative amounts of any Shared
Amounts to be distributed to the Lenders and not for the purpose
of creating an agreement among the parties as to the manner in
which any Shared Amounts are actually to be applied to pay the
Obligations which are owed to each Lender. Each Lender shall be
free, each in its own discretion, to apply any amounts
distributed to it pursuant to subsection (c) hereof to the
Obligations owed to it in such order as it may determine.
Notwithstanding the foregoing, (1) for all purposes of this
Agreement the Obligations shall be deemed paid to the same extent
that payments are distributed with respect thereto pursuant to
subsection (c) hereof notwithstanding the actual application
thereof, and (2) as between the Company and the Guarantors, on
one hand, and the Lenders, on the other hand, no portion of any
Shared Amount distributed to the Lenders pursuant to subsection
(c) hereof shall discharge the Obligations as to which such
Shared Amount was distributed or applied.
(f) Any Lender distributing any Shared Amount to the
other Lenders pursuant to subsection (c) of this Section 1 shall
be subrogated to the rights of such other Lenders with respect to
the Obligations with respect to which such Shared Amount was
distributed, including the rights with respect to the Bank
Guaranty or the Note Guaranty, as the case may be, relating to
such Obligations.
2. Each Lender agrees to use its best efforts to give
to the others (a) copies of any notice of the occurrence or
existence of an Event of Default (as defined in the Bank Credit
Agreement or the Note Agreement) sent to the Company or any
Guarantor, simultaneously with the sending of such notice to the
Company or any Guarantor, and (b) notice of any acceleration of
the Loans or the Notes, promptly upon such acceleration, but the
failure to give any of the foregoing notices shall not affect the
validity of such notice of an Event of Default or such
acceleration or create a cause of action against or cause a
forfeiture of any rights of the party failing to give such notice
or create any claim or right on behalf of any third party.
3. Neither the Agent nor any Lender shall take or
receive a security interest in or lien upon any of the property
or assets of the Company or any Guarantor as security for the
Obligations, nor shall the Agent or any Lender retain or obtain
the primary or secondary obligation of any other obligor or
obligors with respect to any of the Obligations other than
pursuant to the Bank Guaranty or the Note Guaranty. The
existence of a common law lien on deposit accounts shall not be
prohibited by the provisions of this section provided that any
realization on such lien and the application of the proceeds
thereof shall be subject to the provisions of this Agreement.
4. Neither the Agent nor any Lender shall contest the
validity or enforceability of or seek to avoid, have declared
fraudulent or have set aside any of the Obligations.
5. (a) The Agent and each Lender agrees to render an
accounting to any of the others of the outstanding amounts of the
Obligations, receipts of payments from the Company and the
Guarantors and of other items relevant to the provisions of this
Agreement upon the reasonable request from one of the others as
soon as reasonably practicable after such request.
(b) To the extent any Shared Amount received by
any Lender which was distributed to the other Lenders pursuant to
Section 1(c) hereof is subsequently invalidated, declared
fraudulent or preferential, set aside or required to be paid to a
trustee, receiver, or any other party under any bankruptcy act,
state or federal law, common law or equitable cause, then each
such other Lender shall repay to the distributing Lender, at such
time as the distributing Lender is required to return or repay
such Shared Amount, the portion of the Shared Amount so
distributed to it.
6. This Agreement shall in all respects be a
continuing, absolute, unconditional and irrevocable agreement,
and shall remain in full force and effect until all Obligations
shall have been satisfied in full and all obligations of all
Lenders to the other Lenders hereunder shall have been satisfied
in full. Without limiting the generality of the foregoing, this
Agreement shall survive the commencement of any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment
of debt, dissolution or liquidation or similar proceeding
involving the Company or any Guarantor. Each Lender agrees that
this Agreement shall continue to be effective or be reinstated,
as the case may be, if at any time any payment (in whole or in
part) of any of the obligations of the Company or any Guarantor
is rescinded or must otherwise be restored by any Lender, upon
the insolvency, bankruptcy or reorganization of the Company or
any Guarantor or otherwise, as though such payment had not been
made.
7. (a) In order to induce the Banks and the Agent to
enter into this Agreement, each of the Noteholders severally
represents and warrants to the Banks and the Agent that it has
full corporate power, and has taken all action necessary, to
execute and deliver this Agreement and to fulfill its obligations
hereunder, and that no governmental or other authorizations are
required in connection herewith, and that this Agreement
constitutes its legal, valid and binding obligation, enforceable
in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium, regulatory and similar
laws of general application and by general principles of equity.
(b) In order to induce the Noteholders to enter
into this Agreement, each of the Banks and the Agent severally
represents and warrants to the Noteholders that it has full
corporate power, and has taken all action necessary, to execute
and deliver this Agreement and to fulfill its respective
obligations hereunder, and that no governmental or other
authorizations are required in connection herewith, and that this
Agreement constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium, regulatory
and similar laws of general application and by general principles
of equity.
8. This Agreement shall be binding upon, and inure to
the benefit of and be enforceable by, the Lenders and each of
their respective successors, transferees and assigns. Without
limiting the generality of the foregoing sentence, if any Lender
assigns or otherwise transfers (in whole or in part) to any other
person or entity the Obligations to such Lender under the Bank
Credit Agreement or the Note Agreement, such other person or
entity shall thereupon become vested with all rights and
benefits, and become subject to all the obligations, in respect
thereof granted to or imposed upon such Lender under this
Agreement.
9. None of the provisions of this Agreement shall
inure to the benefit of the Company, any Guarantor or any other
person than the Lenders; consequently, the Company and any and
all other persons shall not be entitled to rely upon, or to raise
as a defense, in any manner whatsoever, the provisions of this
Agreement or the failure of any Lender to comply with such
provisions.
10. Nothing contained herein shall limit or restrict
the independent right of any Lender to initiate an action or
actions in any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar proceeding in its individual capacity and
to appear or to be heard on any matter before the bankruptcy or
other applicable court in any such proceeding, including, without
limitation, with respect to any question concerning the post-
petition usage of collateral and post-petition financing
arrangement.
11. No amendment to or waiver of any provision of this
Agreement, nor consent to any departure by any Lender herefrom,
shall in any event be effective unless the same shall be in
writing and signed by all the Lenders, and then such waiver or
consent shall be effective only in the specific instance and for
the specific purpose for which given.
12. All notices and other communications provided to
any Lender under this Agreement shall be in writing or by
facsimile and addressed, delivered or transmitted to such Lender
at its address or facsimile number set forth (a) in the case of
each of the Noteholders, on Annex II hereto and (b) in the case
of the Agent and each of the Banks on Annex I hereto, or (c) in
any case, at such other address or facsimile number as may be
designated by such Lender in a notice to the other Lenders. Any
notice, if mailed and properly addressed with postage prepaid or
if properly addressed and sent by prepaid courier service, shall
be deemed given when received; any notice, if transmitted by
facsimile, shall be deemed given when transmitted if actually
received, and the burden or proving receipt shall be on the
transmitting Lender.
13. No failure or delay on the part of any Lender in
exercising any power or right under this Agreement shall operate
as a waiver thereof, nor shall any single or partial exercise of
any such power or right preclude any other or further exercise
thereof of the exercise of any other power or right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
14. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THIS
AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
SUPERSEDES ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT
THERETO.
16. This Agreement may be separately executed in
counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers.
NBD BANK, as Agent and as a Bank
By: /s/
Title:
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/
Title:
PRUCO LIFE INSURANCE COMPANY
By: /s/
Title:
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: /s/
Title:
THE TRAVELERS INSURANCE COMPANY
By: /s/
Title:
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
By: /s/
Title:
THE FRANKLIN LIFE INSURANCE COMPANY
By: /s/
Title:
PAN-AMERICAN LIFE INSURANCE COMPANY
By: /s/
Title:
GENERAL AMERICAN LIFE INSURANCE COMPANY
By: /s/
Title:
The Company and the Guarantors
hereby agree to be bound by the
terms of this Agreement to the
extent relating to it:
TRANSPORTATION MANUFACTURING
OPERATIONS, INC.
By: /s/
Title:
MOTOR COACH INDUSTRIES, INC.
By: /s/
Title:
UNIVERSAL COACH PARTS, INC.
By: /s/
Title:
BUS LEASE, INC.
By: /s/
Title:
HAUSMAN BUS SALES, INC.
By: /s/
Title:
MCI ACCEPTANCE CORP.
By: /s/
Title:
MOTOR COACH INDUSTRIES - CHINA
By: /s/
Title:
TRANSIT BUS INTERNATIONAL, INC.
By: /s/
Title:
CUSTOM ASSETS CORP.
By: /s/
Title:
TRANSPORT TECHNOLOGY CORPORATION
By: /s/
Title:
ANNEX I
NBD Bank
611 Woodward Avenue
Detroit, MI 48226
Attention: James B. Junker
Fax: 313/225-2649
ANNEX II
The Prudential Insurance Company of America
Pruco Life Insurance Company
c/o Prudential Capital Group
Four Embarcadero Center - Suite 2700
San Francisco, CA 94111
Attention: Managing Director
The Equitable Life Assurance Society of the United States
c/o Alliance Capital Management Corp.
Fixed Income Research/Private Placements
1345 Avenue of the Americas, 37th Floor
New York, New York 10105
Attention: Beatrice M. Cuervo
Vice President
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183-2030
Attention: Securities Department Private Placement
Division - 9P.B.
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Attention: U.S. Private Placements
The Franklin Life Insurance Company
Franklin Square
Springfield, Illinois 62713
Attention: Investment Division
Pan-American Life Insurance Company
Pan American Life Center
601 Poydras Street
New Orleans, Louisiana 70130
Attention: Investment Department - 28th Floor
Fixed Income Securities
General American Life Insurance Company
Attention: Securities Division
P.O. Box 396
St. Louis, Missouri 63166
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered
into as of September 30, 1996 by and between Universal Coach Parts,
Inc., a Delaware corporation ("Employer"), and Jerry Bost ("Executive").
WHEREAS, Executive is willing to serve as the President of Employer
pursuant to the terms and conditions hereof.
NOW, THEREFORE, Executive and Employer hereby agree as follows:
1. Terms of Employment.
(a) Position and Duties. Commencing on the date of hire (the
"Effective Date" and the "Employment Period"), unless terminated as
provided herein, Employer agrees to employ Executive, and Executive agrees
to serve Employer as its President and to perform the general functions and
duties as described in Exhibit A attached hereto, as such functions and
duties may be modified by mutual agreement by Employer and Executive.
During the Employment Period, Executive shall be accountable, and report to
the Management Committee of Employer.
(b) Compensation.
(i) Base Salary. During the Employment Period,
Executive shall receive a base cash salary (the "Base Salary") at an annual
rate (pro-rated for partial years during the Employment Period), of at
least TWO HUNDRED THIRTY SIX THOUSAND AND 00/100 DOLLARS ($236,000.00),
payable pursuant to Employer's standard payroll practices for executives.
During the Employment Period, the Base Salary shall be reviewed at least
annually and shall be increased from time to time in accordance with
Employer's performance evaluation criteria applied to Executive reasonably
and in good faith consistent with application to other executives of
Employer. For purposes of this Agreement, the term "executive" shall mean
all executives at the same corporate level of the Executive of Employer.
Executive Base Salary will be increased
("Adjusted Base Salary") in the event of a relocation to a Relocation City
by a factor determined by the Company.
In the event Employer changes its employment
grade levels at any time during the Employment Period, Executive will be
classified under the new levels so as to remain in all substantial respects
within the same organizational, compensation and benefit levels as under
the current structure. Any increase in Base Salary shall not limit or
reduce any other obligation to Executive under this Agreement. Executive's
Base Salary shall not be reduced after the effective date of this Agreement
and after any such increase.
(ii) Incentive Bonuses. In addition to Base Salary
payable as hereinabove provided, Executive shall be entitled to participate
in Employer's Management Incentive Program (the "Incentive Program") for
each fiscal year or portion thereof during the Employment Period. For
purposes of this Paragraph, Employment Period shall be considered to
include the full year 1996. Executive shall be eligible for awards
("Incentive Bonuses") under the Incentive Program during the Employment
Period, pursuant to the terms and conditions of such Program as in effect
on the Effective Date.
(iii) Incentive, Savings and Retirement Plans. In
addition to amounts payable as provided in 1(b)(i) and (ii) above,
Executive shall be entitled to participate in all other incentive plans,
practices, policies and programs applicable to other senior executives of
Employer, including, without limitation, all plans qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the "Code"), all
medical insurance and health plans, and all additional, supplemental and
incentive compensation plans, in each instance providing benefits
reasonably equivalent or in excess of those provided other executives of
Employer.
(iv) Welfare Benefit Plans. During the Employment
Period, Executive and Executive's family shall be eligible for
participation in and shall receive all benefits under the terms of welfare
benefit plans, practices, policies and programs provided to senior
executives of Employer (including, without limitation, medical
prescription, dental, vision, disability, basic life, supplemental life,
accidental death and travel accident insurance plans and programs) and all
additional, supplemental and replacement plans, practices, policies and
programs provided to executives of Employer, in each instance, providing
benefits reasonably equivalent or in excess of those provided other
executives of Employer.
(v) Expenses. During the Employment Period, Executive
shall be entitled to reimbursement for all reasonable expenses incurred by
Executive in the performance of duties hereunder, in accordance with the
terms of the policies, practices and procedures of Employer as generally
applicable to its executives.
(vi) Fringe and Other Benefits. During the Employment
Period, Executive shall be entitled to fringe benefits, including, without
limitation: (A) exclusive and full time use of an automobile, consistent
with Employer's policies as applied to its other executives, selected by
Executive comparable to automobiles provided other executives of Employer,
(B) payment of reasonable business related expenses including, without
limitation, professional association dues and (C ) all other benefits,
prerequisites, vacation, insurance, severance, disability, and incentives
provided to other executives of Employer.
2. Termination of Employment.
(a) Disability. If Executive becomes disabled, which, for
purposes of this Agreement, shall mean that (i) Executive fails to perform
his essential duties on an active full-time basis by reason of disability
or impairment of health for a period of at least three hundred sixty five
(365) consecutive calendar days or (ii) Employer shall have received a
certificate from a physician reasonably acceptable to Employer and
Executive, or any duly appointed legal representative of Executive, to the
effect that Executive cannot reasonably be expected to be capable of
performing his essential duties under this Agreement for a period of at
least one (1) year in accordance with past practices, Executive's
employment may be terminated for "Disability" pursuant to a Notice of
Termination (as hereinafter defined) delivered by Employer or by Executive
or his duly appointed legal representative. Payment to Executive will be
made in accordance with the terms of the Employer's Short Term Disability
Plan and Employer's Long Term Disability Plan (if elected by Executive).
(b) Cause. Pursuant to a Notice of Termination, Employer may
terminate Executive's employment hereunder "for Cause." For the purposes of
this Agreement, "for cause" means termination upon Executive's continual
failure to perform in a satisfactory manner, his essential duties and
obligations hereunder in any material respect after written notice and
reasonable opportunity to cure performance.
(c) Termination by Executive. Notwithstanding anything
contained herein to the contrary, Executive may terminate this Agreement
pursuant to a Notice of Termination at any time.
(d) Notice and Date of Termination, Etc. For purposes of
this Agreement, "Notice of Termination" means a written notice which
indicates the specific termination provision of this Agreement relied upon
and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment. For purposes of
this Agreement, "Date of Termination" means (i) if Executive's employment
is terminated for Disability pursuant to Subsection (a) of this Section 2,
the date that Notice of Termination is given, (ii) if Executive's
employment is terminated by reason of his death, the date of death, and
(iii) if Executive's employment is terminated by Employer "for Cause" or by
either party for any other reason (other than Disability or death), the
date specified in the Notice of Termination, which date shall not be less
than thirty (30) days after the date of such Notice.
3. Compensation Upon Termination of Employment or During
Disability. Upon termination of Executive's employment, Executive shall be
entitled to the following benefits:
(a) If Executive's employment is terminated for Disability,
Employer shall pay and provide Executive his full Base Salary through the
Date of Termination, plus all other disability and related benefits in
accordance with existing Company benefit plans, and Employer shall have no
further obligations to Executive under this Agreement.
(b) If Executive's employment shall be terminated other than
pursuant to Executive's death or Disability or by Employer (for Cause),
Employer shall pay and provide Executive his full Base Salary through the
Date of Termination, at the rate in effect at the time Notice of
Termination is given, plus all other benefits to which Executive is
entitled as of the Date of Termination under any compensation or benefit
plans in accordance with existing Company benefit plans, and Employer shall
have no further obligation to Executive under this Agreement.
(c) If Executive's employment shall be terminated by reason
of his death, Employer shall pay and provide his estate or designated
beneficiaries his full Base Salary through the end of the month in which
death occurs, plus any Incentive Bonuses and other bonus earned under any
bonus program as prorated for the portion of the applicable bonus
measurement period occurring prior to the date of death, plus all other
amounts and benefits to which Executive is entitled under any compensation
or benefit plans or policies provided any executive officer of Employer at
the date of death, and Employer shall have no further obligation to
Executive or his estate under this Agreement.
(d) If Executive's employment shall be terminated other than
pursuant to Executive's death or Disability by Employer other than "for
Cause" then Executive shall be entitled to the following:
(i) Through Date of Termination. Employer shall pay
Executive his full Base Salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given, plus all other
amounts and benefits to which Executive is entitled under any compensation
or benefit plans of Employer, including, without limitation, Incentive
Bonuses, accrued or prorated through the Date of Termination, at the time
such payments are due.
(ii) Severance. Severance will be in accordance with
the Company's existing Severance Policy which is actually based on
Executive's current base salary from 6-12 months..
(e) If Executive terminates his employment pursuant to
Section 2(c), Executive shall be entitled only to his current Base Salary
and benefits through the Date of Termination.
5. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement that cannot be mutually resolved by the
parties and their respective advisors and representatives, shall be settled
exclusively by arbitration in the city of residence of the Executive in
accordance with the procedures of the American Arbitration Association.
6. Confidentiality. Executive shall not, at any time following his
termination, use the name, marks, records, plans, or proprietary methods
nor the list of customers of Employer or disclose them or any part thereof
to any person, firm, corporation, association, or other entity (other than
a subsidiary, parent or affiliate of MCII/TMO) for any purpose or reason
whatsoever, or remove or retain, without Employer's consent, any figures,
calculations, letters, documents, papers, drawings, or copies thereof, or
other confidential information of any type or description or breach the
Covenants contained in the Employee Patent and Trade Secret Agreement
signed by Executive on _______________.
7. Non-Competition. Upon termination of Executive's employment,
Executive agrees not to enter into the employ of or consultancy for any bus
or coach manufacturer, or bus or coach parts manufacturer or distributor,
or bus or coach sales or service business, or bus or coach operator, in
competition with Employer, for a period of three (3 ) years from the date
of Executive's termination.
8. Transfers. The Employer shall, at any time, transfer the
Executive to any other different location as the Employer sees fit for
business reasons, locally or internationally.
9. Full Settlement. Employer's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder, shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which Employer may have against
Executive, or otherwise.
10. Successors.
(a) This Agreement is personal to Executive and without the
prior written consent of Employer, shall not be assignable by Executive
other than as provided herein. This Agreement shall inure to the benefit of
and be enforceable by Executive and Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon and enforceable by Employer and its permitted successors and
assigns.
(c) Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all, or
substantially all, of the business and/or assets of Employer to assume
expressly and agree to perform this Agreement in the same manner, and to
the same extent, that Employer is bound hereunder.
11. Miscellaneous.
(a) Acceleration of Payments. In the event Employer fails to
pay Executive any payment when due and payable and such failure continues
for five (5) business days after written notice of such failure, then all
payments under this Agreement shall be accelerated and the entire amount of
such payments shall then be due and payable immediately.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(c) Notices. All notices and other communication hereunder
shall be in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to Executive:
Executive's home address is on file with
Employer's payroll department.
If to Employer:
Universal Coach Parts, Inc.
10 E. Golf Road
Des Plaines, Illinois 60016
Attention: Chief Operating Officer
or if by the Chief Operating Officer,
Attention: Chief Financial Officer
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when moved.
(d) Entire Agreement; Amendments; Waivers. This Agreement
contains the entire agreement between the parties concerning the subject
matter hereof. It may not be changed orally, but only by agreement, in
writing, signed by each of the parties. The terms or covenants of this
Agreement may be waived only by a written instrument specifically referring
to this Agreement, executed by the party waiving compliance. The failure of
Employer at any time, or from time to time, to require performance of any
of the Executive's obligations under this Agreement shall, in no manner,
affect Employer's right to enforce any provisions of this Agreement at a
subsequent time; and the waiver by Employer of any right arising out of any
subsequent breach.
IN WITNESS WHEREOF, Executive has hereunder set his hand and,
pursuant to authorization from its Board of Directors, Employer has caused
these presents to be executed in its name on its behalf, all as of the date
and year first above written.
"Executive"
------------------------
Jerry Bost
UNIVERSAL COACH PARTS, INC.
By _/s/__________________
Chairman of the Board
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of September 30, 1996 by and between Transportation Manufacturing
Operations, Inc., a Delaware corporation ("Employer"), and James P.
Bernacchi ("Executive").
WHEREAS, Executive is willing to serve as the Chief Operating Officer
of Employer pursuant to the terms and conditions hereof.
NOW, THEREFORE, Executive and Employer hereby agree as follows:
1. Terms of Employment.
(a) Position and Duties. Commencing on the date of hire (the
"Effective Date" and the "Employment Period"), unless terminated as
provided herein, Employer agrees to employ Executive, and Executive agrees
to serve Employer as its Chief Operating Officer and to perform the general
functions and duties as described in Exhibit A attached hereto, as such
functions and duties may be modified by mutual agreement by Employer and
Executive. During the Employment Period, Executive shall be accountable,
and report to the Management Committee of Employer.
(b) Compensation.
(i) Base Salary. During the Employment Period, Executive
shall receive a base cash salary (the "Base Salary") at an annual rate
(pro-rated for partial years during the Employment Period), of at least TWO
HUNDRED FOURTEEN THOUSAND TWO HUNDRED AND 00/100 DOLLARS ($214,200.00),
payable pursuant to Employer's standard payroll practices for executives.
During the Employment Period, the Base Salary shall be reviewed at least
annually and shall be increased from time to time in accordance with
Employer's performance evaluation criteria applied to Executive reasonably
and in good faith consistent with application to other executives of
Employer. For purposes of this Agreement, the term "executive" shall mean
all executives at the same corporate level of the Executive of Employer.
Executive Base Salary will be increased ("Adjusted
Base Salary") in the event of a relocation to a Relocation City by a factor
determined by the Company.
In the event Employer changes its employment grade
levels at any time during the Employment Period, Executive will be
classified under the new levels so as to remain in all substantial respects
within the same organizational, compensation and benefit levels as under
the current structure. Any increase in Base Salary shall not limit or
reduce any other obligation to Executive under this Agreement. Executive's
Base Salary shall not be reduced after the effective date of this Agreement
and after any such increase.
(ii) Incentive Bonuses. In addition to Base Salary
payable as hereinabove provided, Executive shall be entitled to participate
in Employer's Management Incentive Program (the "Incentive Program") for
each fiscal year or portion thereof during the Employment Period. For
purposes of this Paragraph, Employment Period shall be considered to
include the full year 1996. Executive shall be eligible for awards
("Incentive Bonuses") under the Incentive Program during the Employment
Period, pursuant to the terms and conditions of such Program as in effect
on the Effective Date.
(iii) Incentive, Savings and Retirement Plans. In
addition to amounts payable as provided in 1(b)(i) and (ii) above,
Executive shall be entitled to participate in all other incentive plans,
practices, policies and programs applicable to other senior executives of
Employer, including, without limitation, all plans qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the "Code"), all
medical insurance and health plans, and all additional, supplemental and
incentive compensation plans, in each instance providing benefits
reasonably equivalent or in excess of those provided other executives of
Employer.
(iv) Welfare Benefit Plans. During the Employment Period,
Executive and Executive's family shall be eligible for participation in and
shall receive all benefits under the terms of welfare benefit plans,
practices, policies and programs provided to senior executives of Employer
(including, without limitation, medical prescription, dental, vision,
disability, basic life, supplemental life, accidental death and travel
accident insurance plans and programs) and all additional, supplemental and
replacement plans, practices, policies and programs provided to executives
of Employer, in each instance, providing benefits reasonably equivalent or
in excess of those provided other executives of Employer.
(v) Expenses. During the Employment Period, Executive
shall be entitled to reimbursement for all reasonable expenses incurred by
Executive in the performance of duties hereunder, in accordance with the
terms of the policies, practices and procedures of Employer as generally
applicable to its executives.
(vi) Fringe and Other Benefits. During the Employment
Period, Executive shall be entitled to fringe benefits, including, without
limitation: (A) exclusive and full time use of an automobile, consistent
with Employer's policies as applied to its other executives, selected by
Executive comparable to automobiles provided other executives of Employer,
(B) payment of reasonable business related expenses including, without
limitation, professional association dues and (C ) all other benefits,
prerequisites, vacation, insurance, severance, disability, and incentives
provided to other executives of Employer.
2. Termination of Employment.
(a) Disability. If Executive becomes disabled, which, for
purposes of this Agreement, shall mean that (i) Executive fails to perform
his essential duties on an active full-time basis by reason of disability
or impairment of health for a period of at least three hundred sixty five
(365) consecutive calendar days or (ii) Employer shall have received a
certificate from a physician reasonably acceptable to Employer and
Executive, or any duly appointed legal representative of Executive, to the
effect that Executive cannot reasonably be expected to be capable of
performing his essential duties under this Agreement for a period of at
least one (1) year in accordance with past practices, Executive's
employment may be terminated for "Disability" pursuant to a Notice of
Termination (as hereinafter defined) delivered by Employer or by Executive
or his duly appointed legal representative. Payment to Executive will be
made in accordance with the terms of the Employer's Short Term Disability
Plan and Employer's Long Term Disability Plan (if elected by Executive).
(b) Cause. Pursuant to a Notice of Termination, Employer may
terminate Executive's employment hereunder "for Cause." For the purposes of
this Agreement, "for cause" means termination upon Executive's continual
failure to perform in a satisfactory manner, his essential duties and
obligations hereunder in any material respect after written notice and
reasonable opportunity to cure performance.
(c) Termination by Executive. Notwithstanding anything
contained herein to the contrary, Executive may terminate this Agreement
pursuant to a Notice of Termination at any time.
(d) Notice and Date of Termination, Etc. For purposes of this
Agreement, "Notice of Termination" means a written notice which indicates
the specific termination provision of this Agreement relied upon and which
sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment. For purposes of this
Agreement, "Date of Termination" means (i) if Executive's employment is
terminated for Disability pursuant to Subsection (a) of this Section 2, the
date that Notice of Termination is given, (ii) if Executive's employment is
terminated by reason of his death, the date of death, and (iii) if
Executive's employment is terminated by Employer "for Cause" or by either
party for any other reason (other than Disability or death), the date
specified in the Notice of Termination, which date shall not be less than
thirty (30) days after the date of such Notice.
3. Compensation Upon Termination of Employment or During Disability.
Upon termination of Executive's employment, Executive shall be entitled to
the following benefits:
(a) If Executive's employment is terminated for Disability,
Employer shall pay and provide Executive his full Base Salary through the
Date of Termination, plus all other disability and related benefits in
accordance with existing Company benefit plans, and Employer shall have no
further obligations to Executive under this Agreement.
(b) If Executive's employment shall be terminated other than
pursuant to Executive's death or Disability or by Employer (for Cause),
Employer shall pay and provide Executive his full Base Salary through the
Date of Termination, at the rate in effect at the time Notice of
Termination is given, plus all other benefits to which Executive is
entitled as of the Date of Termination under any compensation or benefit
plans in accordance with existing Company benefit plans, and Employer shall
have no further obligation to Executive under this Agreement.
(c) If Executive's employment shall be terminated by reason of
his death, Employer shall pay and provide his estate or designated
beneficiaries his full Base Salary through the end of the month in which
death occurs, plus any Incentive Bonuses and other bonus earned under any
bonus program as prorated for the portion of the applicable bonus
measurement period occurring prior to the date of death, plus all other
amounts and benefits to which Executive is entitled under any compensation
or benefit plans or policies provided any executive officer of Employer at
the date of death, and Employer shall have no further obligation to
Executive or his estate under this Agreement.
(d) If Executive's employment shall be terminated other than
pursuant to Executive's death or Disability by Employer other than "for
Cause" then Executive shall be entitled to the following:
(i) Through Date of Termination. Employer shall pay
Executive his full Base Salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given, plus all other
amounts and benefits to which Executive is entitled under any compensation
or benefit plans of Employer, including, without limitation, Incentive
Bonuses, accrued or prorated through the Date of Termination, at the time
such payments are due.
(ii) Severance. Severance will be in accordance with the
Company's existing Severance Policy which is actually based on Executive's
current base salary from 6-12 months..
(e) If Executive terminates his employment pursuant to Section
2(c), Executive shall be entitled only to his current Base Salary and
benefits through the Date of Termination.
5. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement that cannot be mutually resolved by the
parties and their respective advisors and representatives, shall be settled
exclusively by arbitration in the city of residence of the Executive in
accordance with the procedures of the American Arbitration Association.
6. Confidentiality. Executive shall not, at any time following his
termination, use the name, marks, records, plans, or proprietary methods
nor the list of customers of Employer or disclose them or any part thereof
to any person, firm, corporation, association, or other entity (other than
a subsidiary, parent or affiliate of MCII/TMO) for any purpose or reason
whatsoever, or remove or retain, without Employer's consent, any figures,
calculations, letters, documents, papers, drawings, or copies thereof, or
other confidential information of any type or description or breach the
Covenants contained in the Employee Patent and Trade Secret Agreement
signed by Executive on _______________.
7. Non-Competition. Upon termination of Executive's employment,
Executive agrees not to enter into the employ of or consultancy for any bus
or coach manufacturer, or bus or coach parts manufacturer or distributor,
or bus or coach sales or service business, or bus or coach operator, in
competition with Employer, for a period of three (3 ) years from the date
of Executive's termination.
8. Transfers. The Employer shall, at any time, transfer the Executive
to any other different location as the Employer sees fit for business
reasons, locally or internationally.
9. Full Settlement. Employer's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder, shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which Employer may have against
Executive, or otherwise.
10. Successors.
(a) This Agreement is personal to Executive and without the
prior written consent of Employer, shall not be assignable by Executive
other than as provided herein. This Agreement shall inure to the benefit of
and be enforceable by Executive and Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon and enforceable by Employer and its permitted successors and
assigns.
(c) Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all, or
substantially all, of the business and/or assets of Employer to assume
expressly and agree to perform this Agreement in the same manner, and to
the same extent, that Employer is bound hereunder.
11. Miscellaneous.
(a) Acceleration of Payments. In the event Employer fails to
pay Executive any payment when due and payable and such failure continues
for five (5) business days after written notice of such failure, then all
payments under this Agreement shall be accelerated and the entire amount of
such payments shall then be due and payable immediately.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(c) Notices. All notices and other communication hereunder
shall be in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to Executive:
Executive's home address is on file with Employer's
payroll department.
If to Employer:
Transportation Manufacturing Operations, Inc.
10 E. Golf Road
Des Plaines, Illinois 60016
Attention: Chief Operating Officer
or if by the Chief Operating Officer,
Attention: Chief Financial Officer
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when moved.
(d) Entire Agreement; Amendments; Waivers. This Agreement
contains the entire agreement between the parties concerning the subject
matter hereof. It may not be changed orally, but only by agreement, in
writing, signed by each of the parties. The terms or covenants of this
Agreement may be waived only by a written instrument specifically referring
to this Agreement, executed by the party waiving compliance. The failure of
Employer at any time, or from time to time, to require performance of any
of the Executive's obligations under this Agreement shall, in no manner,
affect Employer's right to enforce any provisions of this Agreement at a
subsequent time; and the waiver by Employer of any right arising out of any
subsequent breach.
IN WITNESS WHEREOF, Executive has hereunder set his hand and,
pursuant to authorization from its Board of Directors, Employer has caused
these presents to be executed in its name on its behalf, all as of the date
and year first above written.
"Executive"
-------------------------------
James P. Bernacchi
TRANSPORTATION MANUFACTURING OPERATIONS, INC.
By /s/
--------------------------------
Chairman of the Board
COACH PURCHASE AGREEMENT
(DASA - 1995)
Hausman Bus Sales, Inc., a corporation
organized under the laws of the State of Delaware, U.S.A.
("Hausman"), and Dina Autobuses, S.A. de C.V., a
corporation organized under the laws of the United
Mexican States ("DASA"), agree as follows:
1. Purchase and Sale of Coaches. Hausman
intends to purchase certain motor coaches assembled by
DASA (including the Viaggio 1000) from DASA for resale in
the United States, and DASA intends to sell such coaches
to Hausman, each such purchase and sale being referred to
in this Coach Purchase Agreement ("Agreement") as a
"Coach Sale". Each Coach Sale will be accomplished in
accordance with the terms and conditions of this
Agreement.
2. Purchase Order and Delivery Schedules.
(a) Hausman will, from time to time, order coaches from
DASA using Hausman's standard purchase order or other
appropriate order form ("Purchase Order"). Unless an
individual Purchase Order specifically states that this
Agreement does not apply, all of the terms and conditions
of this Agreement will be incorporated into and become a
part of the Purchase Order. In the event there is a
conflict between the terms of the Purchase Order, DASA's
acceptance of the Purchase Order and this Agreement, the
terms of this Agreement will prevail.
(b) The Purchase Order will describe the coach
or coaches being ordered by Hausman -- including detailed
specifications and options.
(c) The purchase prices of the coaches and
options will be negotiated and agreed to by DASA and
Hausman from time to time.
3. Delivery and Pre-Delivery Inspection.
(a) The delivery dates for the coaches will be
negotiated and agreed to by DASA and Hausman from time to
time.
(b) Hausman may inspect incomplete and
completed coaches at DASA's plant prior to delivery to
assure compliance with the Purchase Order. Hausman's
inspection may include determining that the coach has
been assembled as specified, that all parts and
components are functioning properly and that the coach is
cosmetically acceptable condition for resale.
(c) Coaches will be delivered by DASA (or its
agent), at DASA's expense, to United States Customs in
Laredo, Texas, or such other location in the United
States as DASA and Hausman may agree on from time to
time.
(d) DASA will issue an invoice for each coach
when it is released from DASA's plant for delivery to
United States Customs.
4. Acceptance and Final Preparation for Sale.
(a) Notwithstanding Section 3(b) of this Agreement,
Hausman may inspect each coach at its delivery point or
may remove the coach to another inspection point.
Hausman's inspection will include determining that the
coach has been assembled as specified (if not already
determined by Hausman at DASA's plant), that all parts
and components are functioning properly and that the
coach is in cosmetically acceptable condition for resale.
Hausman will repair any defects it discovers if it can
reasonably do so without returning the coach to DASA or
incurring unnecessarily excessive expenses. Hausman will
not do any unnecessarily expensive repairs or engineering
work in connection with repairing the coaches unless DASA
and Hausman have agreed in writing in advance that
Hausman will do such work and how Hausman will be
reimbursed.
(b) Upon Hausman's determination in its sole
discretion that a coach has cleared United States
Customers and is acceptable for resale (and the coach has
been redelivered to Hausman, if it had been returned to
DASA or its agent for repair), Hausman will promptly
notify DASA in writing (identifying the coach by its VIN
number) that the coach has been accepted ("Acceptance").
(c) After Acceptance, Hausman will at its
expense make any final preparations (such as washing the
coach, assuring that it contains proper fluids, and
installing options such as paint schemes and destination
signs requested by Hausman's customers) necessary to
prepare the coach for resale. Hausman will obtain and
deliver all parts, service and other manuals to be
included with the coach when it is resold.
5. Payment. (a) Hausman will pay all
undisputed portions of the invoice on the earlier of 90
days after Acceptance or within three days after the date
Hausman closes the sale of the coach to its customer.
(b) Hausman will retain all amounts it
receives upon resale in excess of the invoice price.
6. Warranty. (a) Each coach will be resold
by Hausman with a 2 year or unlimited mile warranty,
whichever comes first.
(b) Hausman will administer and pay for all
warranty claims. Hausman will promote itself to its
customers as being responsible for and administering all
warranty claims.
(c) DASA and Hausman agree that this Section 6
also applies to all Viaggio 1000 coaches sold by DASA to
Hausman prior to execution of this Agreement.
7. Termination. Either party may terminate
this Agreement effective anytime on or after July 31,
1996 by giving the other party at least 120 days advance
written notice stating the effective date of termination.
All coaches ordered prior to the giving of the notice of
termination will be assembled, sold and purchased in
accordance with this Agreement.
8. Dollars. Whenever used in this Agreement,
any attachment hereto, any Purchase Order or in the
invoice for any Coach Sale, the term "dollar", "dollars"
or "$" means U.S. dollars.
9. Choice-of-Law. This Agreement will be
governed by and construed in accordance with the laws
(except those respecting choice-of-law and the United
Nations Convention on Contracts for the International
Sale of Goods) of the State of Arizona, U.S.A. Hausman
and DASA each agree to submit to the personal
jurisdiction of the state and federal courts of the State
of Arizona, U.S.A. If any provision of this Agreement is
found by a court of competent jurisdiction to be void or
unenforceable, Hausman and DASA agree that such provision
should be modified by the court so that it becomes
enforceable and, as modified, will be enforced as any
other provision of this Agreement, all other provisions
of the Agreement continuing in full force and effect.
Such a modification, however, will be effective only in
the legal proceeding of which it is a part and only on
the facts to which it is applied; all provisions herein
will be applied as written, to the extent enforceable, in
any other legal proceeding or on any other facts.
10. Specification Changes. DASA will endeavor
to give Hausman at least 180 days advance notice of
material changes in the coach specifications.
11. Arm's-Length Agreement. Although Hausman
and DASA are affiliates through their common parent,
Consorcio G Grupo Dina, S.A. de C.V., Hausman and DASA
each acknowledge that this Agreement has been fairly
negotiated and is an arm's-length transaction.
Acknowledged and agreed this 1st day of August,
1995.
DINA AUTOBUSES, S.A. DE C.V. HAUSMAN BUS SALES, INC.
/s/ Jose Luis Olvera
Name: Jose Luis Olvera Name: John R. Nasi
Title: Finance Director Title: President, Chief
Operating Officer
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the use in this Registration Statement of our reports on
the consolidated financial statements of Consorcio G
Grupo Dina, S.A. de C.V. and Subsidiaries and MCII Hold-
ings (USA), Inc., and all references to our firm, includ-
ed in or made a part of this Registration Statement.
/s/Arthur Andersen
Mexico, D.F.
October 4, 1996
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-08843 of MCII Holdings (USA) Inc. of our reports dated February 24,
1995 appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/Deloitte & Touche LLP
Phoenix, Arizona
September 20, 1996
