<PAGE>
As filed with the Securities and Exchange Commission on May 30, 1997.
Registration No. 333-25189
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PETRO STOPPING CENTERS, L.P.
AND
PETRO FINANCIAL CORPORATION
(Exact name of registrants as specified in their charter)
Delaware 5500 74-2628339
Delaware 9999 74-2698614
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification
organization) Code Number)
6080 Surety Drive
El Paso, Texas 79905
(915) 779-4711
(Address, including zip code, and telephone number,
including area code, of registrants' principal executive offices)
JAMES A. CARDWELL, SR.
President
PETRO STOPPING CENTERS, L.P.
PETRO FINANCIAL CORPORATION
6080 Surety Drive
El Paso, Texas 79905
(915) 779-4711
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
Russell W. Parks, Jr., P.C.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
----------------------
Approximate date of commencement of proposed sale of securities to the public:
As soon as practicable after this Registration Statement becomes effective.
----------------------
If any of the securities being registered on this Form are to be
offered in connection with the formation of a holding Company and there is
compliance with General Instruction G, check the following box. [_]
----------------------
The Registrants hereby amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED MAY 30, 1997
Offer to Exchange
all outstanding
10 1/2% Senior Notes due 2007
($135,000,000 principal amount outstanding)
for
10 1/2% Senior Notes due 2007
which have been registered under the Securities Act of 1933
of
PETRO STOPPING CENTERS, L.P.
AND
PETRO FINANCIAL CORPORATION
---------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON __________, 1997, unless extended
Petro Stopping Centers, L.P., a Delaware limited partnership ("PSC"), and
Petro Financial Corporation, a Delaware corporation and wholly-owned subsidiary
of PSC ("PFC," and together with PSC, the "Issuers"), hereby offer, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal," and together
with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount
of its 10 1/2% Senior Notes due 2007 (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined) of which this Prospectus is a
part, for each $1,000 principal amount of the outstanding 10 1/2% Senior Notes
due 2007 (the "Old Notes") of the Issuers of which $135,000,000 principal amount
is outstanding. The New Notes and the Old Notes are together referred to herein
as the "Notes."
The Issuers will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m. New York City time, on the date the Exchange
Offer expires, which will be ________, 1997, unless the Exchange Offer is
extended (the "Expiration Date"). The exchange of New Notes for Old Notes will
be made (i) with respect to all Old Notes validly tendered and not withdrawn on
or prior to 5:00 p.m. New York City time, on ________, 1997 (the "Early Exchange
Date"), within two business days following the Early Exchange Date, and (ii)
with respect to all Old Notes validly tendered and not withdrawn after the Early
Exchange Date and on or prior to the Expiration Date, within two business days
following the Expiration Date. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date, unless
previously accepted for exchange. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions which may be waived by the
Issuers. See "The Exchange Offer." Old Notes may be tendered only in
denominations of $1,000 and integral multiples of $1,000 in excess thereof. The
Issuers have agreed to pay the expenses of the Exchange Offer.
For a discussion of certain risks associated with an investment in the New
Notes, see "Risk Factors," beginning on page 16 of this Prospectus.
-------------------------
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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ________, 1997
<PAGE>
The New Notes will be the joint and several obligations of the Issuers
issued pursuant to the Indenture under which the Old Notes were issued (the
"Indenture"). The form and terms of the New Notes are identical in all material
respects to the form and terms of the Old Notes except (i) that the New Notes
have been registered under the Securities Act, (ii) that the New Notes are not
entitled to certain registration rights which are applicable to the Old Notes
under a registration rights agreement (the "Registration Rights Agreement")
between the Issuers and CIBC Wood Gundy Securities Corp. and Morgan Stanley &
Co. Incorporated, the initial purchasers of the Old Notes (the "Initial
Purchasers") and (iii) for certain contingent interest rate provisions. See "The
Exchange Offer."
The New Notes will bear interest from January 30, 1997, the date of
issuance of the Old Notes. Holders of Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from January 30, 1997 to the date
of the issuance of the New Notes. Interest on the New Notes is payable semi-
annually on February 1 and August 1 of each year, commencing August 1, 1997,
accruing from January 30, 1997 at a rate of 10 1/2% per annum. The New Notes
will be issued only in registered form in minimum denominations of $1,000 and
integral multiples thereof.
The New Notes will be redeemable at the option of the Issuers, in whole or
in part, at any time on or after February 1, 2002 at the redemption prices set
forth herein, plus accrued and unpaid interest to the date of redemption. In
addition, the Issuers, at their option, may redeem in the aggregate up to 35% of
the original principal amount of the Notes at any time and from time to time
prior to February 1, 2000 at 110.500% of the aggregate principal amount so
redeemed, plus accrued and unpaid interest thereon to the redemption date, with
net proceeds of one or more public offerings of Qualified Capital Interests (as
defined herein) of PSC or any successor corporation, provided that at least
$87.8 million of the principal amount of Notes originally issued remains
outstanding immediately after the occurrence of any such redemption and that any
such redemption occurs within 90 days following the closing of any such
offering. See "Description of the New Notes -- Optional Redemption."
Upon a Change of Control (as defined herein), each holder of the New Notes
will be entitled to require the Issuers to purchase such holder's New Notes at
101% of the principal amount thereof, plus accrued and unpaid interest to the
purchase date. See "Description of the New Notes -- Change of Control." However,
there can be no assurance that the Issuers will have, or will have access to,
sufficient funds or will be contractually permitted by outstanding Senior
Indebtedness (as defined herein) to pay the required purchase price for all
Notes tendered by holders upon a Change of Control. In addition, the Issuers
are obligated in certain instances to make an offer to repurchase the New Notes
at a price in cash equal to 100% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of repurchase with the net cash
proceeds of certain asset sales. See "Description of the New Notes -- Certain
Covenants -- Limitation on Asset Sales."
The New Notes will be senior unsecured obligations of the Issuers and will
rank pari passu in right of payment to all existing and future Senior
Indebtedness of the Issuers and senior in right of payment to any subordinated
indebtedness of the Issuers. As of March 31, 1997, the Issuers had $185.2
million of Senior Indebtedness outstanding, including the Old Notes, the Old 12
1/2% Notes (as defined herein) and $44.0 million of loans outstanding under its
New Credit Agreement (as defined herein). Loans under the New Credit Agreement
are secured by substantially all of PSC's assets and guaranteed by PSC's
subsidiaries, which guarantees in turn are secured by substantially all of such
subsidiaries' assets. Accordingly, while the New Notes will rank pari passu in
right of payment with the loans under the New Credit Agreement, the New Notes
will be effectively subordinated to the loans outstanding under the New Credit
Agreement to the extent of the value of the assets securing such loans. The
Indenture for the Notes restricts the incurrence of additional debt by the
Issuers. See "Description of New Credit Agreement" and "Description of the New
Notes."
Old Notes initially purchased by qualified institutional buyers were
initially represented by a single, global Note in registered form, registered in
the name of a nominee of The Depository Trust Company ("DTC"), as depository.
The New Notes exchanged for Old Notes represented by the global Note will be
represented by one or more global New Notes in registered form, registered in
the name of a nominee of DTC. New Notes in global
i
<PAGE>
form will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity in such New Notes will therefore settle in immediately
available funds. See "Description of the New Notes -- Book-Entry; Delivery and
Form." New Notes issued to non-qualified institutional buyers in exchange for
Old Notes held by such investors will be issued only in certificated, fully
registered, definitive form.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to unrelated
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 and
otherwise transferred by a holder thereof (other than a "Restricted Holder,"
being (i) a broker-dealer who purchases such Old Notes directly from the Issuers
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that 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 the holder is acquiring the New Notes in the ordinary course of its
business and is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate, in a distribution
of the New Notes. Eligible holders wishing to accept the Exchange Offer must
represent to the Issuers that such conditions have been met. 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 only 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 they will make this Prospectus available to any broker-dealer for use in
connection with any such resale for a period from the date of this Prospectus
until 180 days after the consummation of the Exchange Offer, or such shorter
period as will terminate when all Old Notes acquired by broker-dealers for their
own accounts as a result of market-making activities or other trading activities
have been exchanged for New Notes and resold by such broker-dealers. See "The
Exchange Offer" and "Plan of Distribution."
The Issuers will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer. See "Use of
Proceeds."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
Prior to the Exchange Offer, there has previously been only a limited
secondary market and no public market for the Old Notes. If a market for the
New Notes should develop, the New Notes could trade at a discount from their
principal amount. The Issuers do not intend to list the New Notes on a national
securities exchange or to apply for quotation of the New Notes through the
National Association of Securities Dealers Automated Quotation System. There can
be no assurance that an active public market for the New Notes will develop.
ii
<PAGE>
AVAILABLE INFORMATION
PSC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and in accordance therewith files
reports and other information with the Commission. The reports and other
information filed by PSC with the Commission can be inspected and copied at the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and
Chicago Regional office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such information can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
that contains reports, proxy and other information statements and other
materials that are filed through the Commission's Electronic Data Gathering,
Analysis and Retrieval System. The Web site can be accessed at
http://www.sec.gov. Whether or not the Issuers are subject to the informational
requirements of the Exchange Act, the Issuers have agreed, to the extent
accepted by the Commission and not prohibited under the Exchange Act, to file
with the Commission the annual reports, quarterly reports and other documents
the Issuers would be required to file with the Commission pursuant to the
informational requirements of the Exchange Act. In addition, PSC intends to
furnish registered holders of the Notes with annual reports containing
consolidated financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three fiscal quarters of PSC's fiscal year.
The Issuers have jointly filed with the Commission a Registration Statement
(which term shall include any amendment, exhibit, schedule and supplement
thereto) on Form S-4 under the Securities Act for the registration of the New
Notes offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Issuers and such securities, reference is hereby made to the Registration
Statement, including the exhibits and schedules thereto. Statements made in this
Prospectus concerning the contents of any contract, agreement or other document
referred to herein are complete in all respects material to the Issuers taken as
a whole. With respect to each such contract, agreement or other document filed
with the Commission as an exhibit to the Registration Statement, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits and schedules
thereto filed by the Issuers with the Commission may be inspected as noted
above.
The Issuers have agreed that, if they are not subject to the informational
requirements of Sections 13 or 15(d) of the Exchange Act at any time while the
Notes constitute "restricted securities" within the meaning of the Securities
Act, they will furnish to holders and beneficial owners of the Notes and to
prospective purchasers designated by such holders the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act to permit
compliance with Rule 144A in connection with resales of the Notes.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information...................................................... iii
Prospectus Summary......................................................... 1
Risk Factors............................................................... 16
Disclosure Regarding Forward-Looking Statements............................ 21
The Exchange Offer......................................................... 22
The Transactions........................................................... 29
Use of Proceeds............................................................ 31
Capitalization............................................................. 32
Pro Forma Financial Information............................................ 33
Selected Historical and Pro Forma Financial Data........................... 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 41
Business................................................................... 51
Management................................................................. 68
Security Ownership of Certain Beneficial Owners and Management............. 73
Certain Relationships and Related Transactions............................. 75
Description of Old 12 1/2% Notes and Debt Warrants......................... 81
Description of New Credit Agreement........................................ 82
Description of the New Notes............................................... 84
Description of Restated Partnership Agreement.............................. 117
Certain U.S. Tax Considerations............................................ 117
ERISA Considerations....................................................... 119
Plan of Distribution....................................................... 119
Experts.................................................................... 120
Legal Matters.............................................................. 120
Index to Financial Statements.............................................. F-1
</TABLE>
Until ____________, 1997, all dealers effecting transactions in New Notes,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including notes thereto,
appearing elsewhere in this Prospectus. The "Transactions," which closed on
January 30, 1997, consist of the Equity Investment (as defined herein), the
Tender Offer (as defined herein), the Kirschner Investment (as defined herein),
the New Credit Agreement (as defined herein) and the Offering (as defined
herein). For purposes of this Prospectus, references to the "Company" include
Petro Stopping Centers, L.P. and its consolidated subsidiaries, including its
wholly-owned subsidiary, Petro Financial Corporation. Petro Financial
Corporation is a shell corporation that has never been engaged in any business
and that has no employees, assets, liabilities or activities other than its
activities as a co-issuer of the Notes and the Company's 12 1/2% Senior Notes
due 2002 (the "Old 12 1/2% Notes"). Substantially all of the Company's
operations are conducted through Petro Stopping Centers, L.P. EBITDA, as
defined, represents operating income before deducting depreciation, amortization
and interest expense. EBITDA, as defined, results for fiscal 1996 exclude
certain one-time charges related to the Transactions and changes in management
and operations. Included in the one-time charges were $2.5 million related to
severance and hiring costs; $1.4 million in obsolete inventory reserves,
included in cost of sales; and $0.5 million in insurance related costs. EBITDA,
as defined, which is not a measure of financial performance under generally
accepted accounting principles, is presented because it is used by certain
investors to determine a company's ability to meet debt service requirements.
EBITDA, as defined, should not be considered as an alternative to net income, as
an indicator of the Company's operating performance or as an alternative to cash
flows as a measure of liquidity.
General
The Company is a leading operator of large, full-service truck stops with a
nationwide network of 43 facilities known as "Petro Stopping Centers" (the
"Stopping Centers"). The Stopping Centers, located in 28 states, are recognized
as premier facilities in the industry and, according to recent surveys, the
Company's network is the preferred truck stop chain of professional drivers. The
Company has built this reputation by providing a high level of customer service
in a consistently clean and friendly environment. Each Stopping Center offers a
broad range of products, services and amenities, including diesel fuel,
gasoline, home-style restaurants, truck preventive maintenance centers
("Petro:Lubes") and travel and convenience stores to commercial truck drivers,
other highway motorists and local residents. Of the 43 Stopping Centers, 17 are
operated by franchisees who are required to meet the Company's high standards of
quality and service. For the year ended December 31, 1996, the Company generated
net revenues of approximately $637.1 million, EBITDA, as defined, of
approximately $32.1 million and net loss of approximately $8.8 million. For the
three months ended March 31, 1997, the Company generated net revenues of
approximately $162.6 million, EBITDA, as defined, of approximately $6.7 million
and net loss of approximately $14.1 million, which included an extraordinary
loss of $12.7 million.
Petro Stopping Centers
Of the 26 Company-operated Stopping Centers, 23 are full-size locations and
three are "Petro:2" units, which are smaller facilities with fewer amenities
than the full-size locations. Of the 17 franchised facilities, 14 are full-size
locations and three are "Petro:2" units. A typical full-size Stopping Center is
built on 15 to 30 acres with separate entrances and parking areas for trucks and
automobiles. Parking areas typically accommodate 200 to 300 trucks and 100 to
175 cars or recreational vehicles and are well-lit and fenced to maximize
customer safety. Petro Stopping Centers are all open 24 hours a day and
typically consist of the following:
Diesel Fuel Island. The diesel fuel island typically consists of 8 to 16
self-service lanes that feature computer driven, high-speed dispensers. During
the year ended December 31, 1996, approximately 358 million
1
<PAGE>
gallons of diesel fuel were sold at Company-operated locations. Under its new
supply agreement entered into with Mobil Oil Corporation ("Mobil Oil") in
connection with the Transactions, the Company-operated Stopping Centers will
offer Mobil branded diesel fuel. To accommodate drivers seeking a brief
refueling stop, each diesel fuel island has a central services building
containing a computerized billing and payment system and a "mini-mart" offering
an array of deli take-out food, snack foods, beverages, toiletries and a basic
selection of trucker accessories and supplies.
Petro:Lube Express Truck Service Center. All but one of the Company-
operated Stopping Centers have Petro:Lube facilities that offer preventive
maintenance service exclusively for trucks on a "while-you-wait" basis 24 hours
a day. Petro:Lube facilities offer oil and filter changes, lubrication and new,
used and retread tires, as well as tire repair. During the year ended December
31, 1996, Company-operated Petro:Lubes performed approximately 170,000 oil
changes and serviced approximately 500,000 trucks. The Company believes that
Petro:Lube's focus on preventive maintenance and express service provides it
with a competitive advantage which would be difficult to replicate in the near-
term. The Company is currently expanding the maintenance services offered at its
Petro:Lube locations to include minor mechanical repairs, which were recently
introduced at 11 Petro:Lube facilities. During 1996, the Company opened its
first stand-alone Petro:Lube and expects to continue to open additional
strategically located stand-alone Petro:Lubes, including at least one in 1997.
Iron Skillet Restaurant. Each full-size Stopping Center includes the
Company's trademarked "Iron Skillet" restaurant. The Iron Skillet is a full-
service, sit-down restaurant that typically seats approximately 180 customers
and offers a full menu of "home-cooked" style meals that are freshly prepared 24
hours a day. In a recent survey, the Iron Skillet was the truck stop restaurant
chain most preferred by professional truck drivers. For the year ended December
31, 1996, the Company's Iron Skillet restaurants generated an average of
approximately $2.0 million in revenue per location.
Travel and Convenience Stores. Each full-size Stopping Center has a travel
store (averaging approximately 2,400 square feet) which typically carries
approximately 4,500 stock keeping units ("SKUs") merchandised to meet the needs
of both commercial truck drivers and other customers. Aside from typical
convenience store categories such as snack foods, beverages, tobacco products
and toiletries, the travel stores' broad product assortment includes clothing,
consumer electronics, highway safety products, truck accessories and gift items.
All but one of the Company-operated Stopping Centers contain separate
automobile fuel islands offering gasoline and, in most cases, small vehicle
diesel fuel, that are accessed by a separate "auto-only" entrance to the
Stopping Center. During the year ended December 31, 1996, approximately 25.0
million gallons of fuel were sold at the Company-operated automobile fuel
islands. Eight of the Company-operated Stopping Centers also contain free-
standing convenience stores located adjacent to the automobile fuel islands.
Through its alliance with Mobil Oil, the Company plans to convert the automobile
fuel islands at 11 Stopping Centers to the Mobil brand and image.
Additional Products and Services. In order to meet the personal and
business needs of professional drivers, the Company offers numerous additional
amenities and services, including private showers, video games, television
rooms, laundry facilities, pay telephones, fax and copy machines and ATMs. The
Company also leases retail space at its Stopping Centers to independent
merchants who operate barber shops, shoe shine stands, jewelry stores and
similar activities. The Company also offers ancillary services at most Stopping
Centers including load and permit services, certified weight scales for trucks
and third-party operated truck washes. The Company introduced nationally branded
fast food concepts at several of its locations in 1995. See "Business."
2
<PAGE>
Transaction Overview
On January 30, 1997 Chartwell and Mobil Long Haul (each as defined herein)
invested $20.7 million and $15.0 million, respectively (the "Equity
Investment"), to acquire the partnership interests of the Company owned by the
Fremont Partners (as defined herein) for $25.6 million and to invest
approximately $10.1 million in the Company. The Cardwell Group (as defined
herein) has maintained its capital investment in the Company. Kirschner
Investments ("Kirschner"), an affiliate of a Company franchisee, invested $1.0
million in the Company in connection with the Transactions (the "Kirschner
Investment"). Prior to consummation of the Transactions, no mandatorily
redeemable preferred partnership interests were outstanding. In connection with
the Transactions, the mandatorily redeemable preferred partnership interests
were issued (i) to the Cardwell Group for certain limited common partnership
interests of the Company previously owned by them and (ii) to Mobil Long Haul
for certain limited common partnership interests previously owned by the Fremont
Partners and acquired by Mobil Long Haul and cash. The common partnership
interests of the Company are owned by Chartwell (approximately 50.8%), the
Cardwell Group (approximately 39.9%), Mobil Long Haul (approximately 7.4%) and
Kirschner (2.0%), and the mandatorily redeemable preferred partnership interests
are owned by Mobil Long Haul ($12.0 million) and the Cardwell Group ($7.6
million). Chartwell and the Cardwell Group own both general and limited
partnership interests and Mobil Long Haul and Kirschner own only limited
partnership interests. The mandatorily redeemable preferred partnership
interests are entitled to cumulative preferred returns at a rate of 9.5% in the
case of the mandatorily redeemable preferred partnership interests owned by
Mobil Long Haul and 8.0% in the case of the mandatorily redeemable preferred
partnership interests owned by the Cardwell Group, and are redeemable by the
Company 270 days after the tenth anniversary of the date of the Closing, which
is subsequent to the maturity date of the Notes. In addition, the Indenture and
the New Credit Agreement restrict the payment of dividends on mandatorily
redeemable preferred partnership interests. See "Description of the New Notes--
Certain Covenants--Limitations on Dividends and Other Payments Affecting
Restricted Subsidiaries." Mobil and the Company have also entered into certain
supply and marketing agreements as described herein. See "The Transactions" and
"Certain Relationships and Related Transactions."
In order to effect the Equity Investment and issue the Notes, the Company
commenced an offer to purchase all of its existing 12 1/2% Senior Notes due 2002
(the "Old 12 1/2% Notes") and related debt warrants (the "Debt Warrants") and a
solicitation of consents from holders of the Old 12 1/2% Notes to eliminate
certain of the covenants governing the Old 12 1/2% Notes (the "Tender Offer").
Approximately 94% of the Old 12 1/2% Notes and approximately 99% of the Debt
Warrants were tendered and, as a result, the required vote was obtained to
approve the Amendments (as defined) and to meet the minimum condition contained
in the Tender Offer.
The Company has also amended its senior secured credit facility (the "Old
Credit Agreement," and as amended, the "New Credit Agreement"). The New Credit
Agreement consists of a $25.0 million revolving credit facility (the "Revolving
Credit Facility"), up to $44.0 million in term loans and a $40.0 million
expansion facility (the "Expansion Facility"). See "Description of New Credit
Agreement."
In addition, on January 30, 1997, the Issuers sold to the Initial
Purchasers $135,000,000 principal amount of the Old Notes (the "Offering"). See
"The Transactions."
In connection with the Transactions, the Company installed a new management
team. The Company's new management team includes James A. Cardwell, Sr. ("Jack
Cardwell"), the Company's founder, who has resumed active management
responsibility for the Company's operations as Chairman, Chief Executive Officer
and President. The Company also recently hired Larry Zine, who has over 15 years
of experience in the retail gasoline marketing and convenience store industries,
as Chief Financial Officer. Mr. Zine, the former Chief Financial Officer of The
Circle K Corporation, was integrally involved in that Company's turnaround,
initial public offering and subsequent sale. In addition, Evan Brudahl, Manager
of U.S. Diesel Retail Marketing and Travel Center Business at Mobil Oil
3
<PAGE>
with 19 years of experience in the retail petroleum business, has assumed the
duties of Senior Vice President of Strategic Planning and Development. Mr.
Brudahl was integrally involved in the development and implementation of a
successful turnaround of certain of Mobil Oil's U.S. Company-operated gasoline
stations and convenience stores. James A. Cardwell, Jr. ("Jim Cardwell"), who
joined the Company in 1982, has assumed the position of Senior Vice President of
Operations. See "Management." In addition, the entire management organization
has been structured to give profit center and divisional managers clearer
responsibility for, and compensation based upon, the profitability of their
respective operations.
--------------------------------
The Company's principal executive offices are located at 6080 Surety Drive,
El Paso, Texas 79905, telephone number (915) 779-4711.
4
<PAGE>
Summary Of Terms Of The Exchange Offer
The Exchange Offer relates to the exchange of up to $135,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be the joint and several obligations of the
Issuers issued pursuant to the Indenture. The form and terms of the New Notes
are identical in all material respects to the form and terms of the Old Notes
except (i) that the New Notes have been registered under the Securities Act,
(ii) that the New Notes are not entitled to certain registration rights which
are applicable to the Old Notes under the Registration Rights Agreement and
(iii) for certain contingent interest rate provisions. See "Description of the
New Notes."
The Exchange Offer........... $1,000 principal amount of New Notes will be
issued in exchange for each $1,000 principal
amount of Old Notes validly tendered pursuant to
the Exchange Offer. As of the date hereof,
$135,000,000 in aggregate principal amount of Old
Notes are outstanding. The exchange of New Notes
for Old Notes will be made (i) with respect to all
Old Notes validly tendered and not withdrawn on or
prior to the Early Exchange Date, within two
business days following the Early Exchange Date,
and (ii) with respect to all Old Notes validly
tendered and not withdrawn on or prior to the
Expiration Date, within two business days
following the Expiration Date. The Old Notes were
originally issued in a private placement. As a
condition to the purchase of the Old Notes, the
Initial Purchasers required that the Issuers make
a registered offer to exchange the Old Notes for
other securities substantially similar to the Old
Notes. The Exchange Offer is being made to satisfy
this contractual obligation of the Issuers.
Resale....................... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to unrelated third parties, the Company believes
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for
resale and resold or otherwise transferred by
holders thereof (other than any Restricted Holder)
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 are not participating, do not intend
to participate and have no arrangement or
understanding with any person to participate, in
the distribution of such New Notes. See "Mary Kay
Cosmetics, Inc.," SEC No-Action Letter (available
June 5, 1991); "Morgan Stanley & Co.,
Incorporated," SEC No-Action Letter (available
June 5, 1991); and "Exxon Capital Holdings
Corporation," SEC No-Action Letter (available May
13, 1988). 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."
5
<PAGE>
If any person were to participate in the Exchange
Offer for the purpose of distributing securities
in a manner not permitted by the preceding
paragraph, such person (i) could not rely on the
position of the staff of the Commission enunciated
in the "Exxon Capital Holdings Corporation" no-
action letter and (ii) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with a
secondary resale transaction. Therefore, each
holder of Old Notes who accepts the Exchange Offer
must represent in the Letter of Transmittal that
it meets the conditions described above. See "The
Exchange Offer --Terms of the Exchange Offer."
Early Exchange Date.......... All Old Notes validly tendered and not withdrawn
on or prior to 5:00 p.m., New York City time, on
_________, 1997 (the "Early Exchange Date") will
be exchanged for New Notes within two business
days following the Early Exchange Date.
Expiration Date.............. 5:00 p.m., New York City time, on __________, 1997
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer --Terms of the
Exchange Offer -- Expiration Date; Extensions;
Amendments."
Accrued Interest
on the New Notes
and the Old Notes............ The New Notes will bear interest from January 30,
1997, the date of issuance of the Old Notes.
Holders of Old Notes whose Old Notes are accepted
for exchange will be deemed to have waived the
right to receive any payment in respect of
interest on such Old Notes accrued from January
30, 1997 to the date of the issuance of the New
Notes. See "The Exchange Offer -- Interest on the
New Notes."
Conditions
to the Exchange
Offer........................ The Company will not be obligated to consummate
the Exchange Offer if the New Notes to be received
will not be tradeable by the holder, other than in
the case of Restricted Holders, without
restriction under the Securities Act and the
Exchange Act and without material restrictions
under the blue sky or securities laws of
substantially all of the states of the United
States. This condition may be waived by the
Company. See "The Exchange Offer --Conditions."
No federal or state regulatory requirements must
be complied with or approvals obtained in
connection with the Exchange Offer, other than the
registration provisions of the Securities Act and
any applicable registration or qualification
provisions of state securities laws.
6
<PAGE>
Procedure for Tendering Old
Notes........................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes (unless
such tender is being effected pursuant to the
procedures for book-entry transfer described
below) to be exchanged and any other required
documentation to the Exchange Agent (as defined
herein) at the address set forth herein and
therein. See "The Exchange Offer -- Procedure
for Tendering."
Special Procedures for
Beneficial Holders........... Any beneficial holder whose Old Notes are
registered in the name of his broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender in the Exchange Offer
should contact such registered holder promptly
and instruct such registered holder to tender on
his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder
must, prior to completing and executing the
Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
holder's name or obtain a properly completed
bond power from the registered holder. The
transfer of record ownership may take
considerable time. See "The Exchange Offer --
Procedure for Tendering."
Guaranteed Delivery
Procedures................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes (or who cannot complete the
procedures for book-entry transfer on a timely
basis) and a properly completed Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Early Termination Date or the
Expiration Date, as the case may be, may tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights............. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the Expiration Date, unless previously accepted
for exchange. See "The Exchange Offer --
Withdrawal of Tenders."
7
<PAGE>
Acceptance of Old Notes and
Delivery of New Notes........ Subject to certain conditions (as summarized
above in "Conditions to the Exchange Offer" and
described more fully in "The Exchange Offer --
Conditions"), the Company will accept for
exchange any and all Old Notes which are validly
tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on each of the Early
Exchange Date and the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will
be delivered promptly following each of the
Early Exchange Date and the Expiration Date. See
"The Exchange Offer --Terms of the Exchange
Offer."
Certain Tax Considerations.... The exchange pursuant to the Exchange Offer will
not be a taxable event for federal income tax
purposes. See "Certain U.S. Tax Considerations."
Exchange Agent................ State Street Bank and Trust Company, the Trustee
under the Indenture, is serving as exchange
agent (the "Exchange Agent") in connection with
the Exchange Offer. The address of the Exchange
Agent is: State Street Bank and Trust Company,
Corporate Trust Department, Two International
Place, Boston, MA 02110 Attention: Sandra
Szczsponik. For information with respect to the
Exchange Offer, call 1-800-531-0368.
Use of Proceeds............... The Company will not receive any proceeds from
the exchange of the New Notes for the Old Notes
pursuant to the Exchange Offer. The net proceeds
from the Offering of approximately $130.2
million (after deducting underwriting discounts
and expenses of the Offering), together with
borrowing under the New Credit Agreement, a
portion of the proceeds from the Equity
Investment and the proceeds from the Kirschner
Investment, were used to repay borrowings under
the Old Credit Agreement, to repurchase Old
12 1/2% Notes and Debt Warrants, for general
corporate purposes and to pay fees and expenses
associated with the Transactions. See "Use of
Proceeds."
8
<PAGE>
Summary Description Of The New Notes
Issuers . . . . . . . . . . . . Petro Stopping Centers, L.P., a Delaware limited
partnership, and its wholly owned subsidiary
Petro Financial Corporation, a Delaware
corporation, as joint and several obligors.
Securities Offered. . . . . . . $135,000,000 principal amount of 10 1/2% Senior
Notes due 2007.
Maturity Date . . . . . . . . . February 1, 2007.
Interest Rate . . . . . . . . . The New Notes will bear interest at a rate of 10
1/2% per annum.
Interest Payment Dates. . . . . Interest will accrue on the New Notes from
January 30, 1997, the date of issuance of the
Old Notes, and will be payable semiannually on
each February 1 and August 1, commencing August
1, 1997.
Ranking . . . . . . . . . . . . The New Notes will be senior unsecured
obligations of the Issuers and will rank pari
passu in right of payment to all existing and
future Senior Indebtedness of the Issuers and
senior in right of payment to any subordinated
indebtedness of the Issuers. As of March 31,
1997, the Company had $185.2 million of senior
indebtedness for borrowed money ("Senior
Indebtedness") outstanding, including the Old
Notes, the Old 12 1/2% Notes and $44.0 million
of loans outstanding under its New Credit
Agreement. Loans under the New Credit Agreement
are secured by substantially all of the
Company's assets and guaranteed by the Company's
subsidiaries, which guarantees in turn are
secured by substantially all of such
subsidiaries' assets. Accordingly, while the New
Notes will rank pari passu in right of payment
with the loans under the New Credit Agreement,
the New Notes will be effectively subordinated
to the loans outstanding under the New Credit
Agreement to the extent of the value of the
assets securing such loans. The Indenture
restricts the incurrence of additional debt by
the Issuers. See "Description of New Credit
Agreement" and "Description of the New Notes."
Future Guarantees by Certain
Subsidiaries . . . . . . . . . The New Notes will be unconditionally
guaranteed, on an unsecured senior basis, as to
the payment of principal, premium, if any, and
interest, jointly and severally (the
"Guarantees"), by all future direct and indirect
Significant Subsidiaries (as defined) of the
Issuers and other Restricted Subsidiaries (as
defined) of the Issuers under certain
circumstances (the "Guarantors"). Any such
Guarantees will rank senior to all subordinated
indebtedness of the respective Guarantors and
will rank pari passu to all other indebtedness
of the respective Guarantors. No Guarantees will
be effective on the date of the issuance of the
New Notes. See "Description of the New Notes --
Future Guarantees by Certain Subsidiaries."
9
<PAGE>
Mandatory Redemption. . . . . . There will be no mandatory redemption
requirements with respect to the New Notes.
Optional Redemption . . . . . . The New Notes will be redeemable at the option
of the Issuers, in whole or in part, on or after
February 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest
to the date of redemption. In addition, the
Issuers, at their option, may redeem in the
aggregate up to 35% of the original principal
amount of the Notes at any time and from time to
time prior to February 1, 2000 at 110.500% of
the aggregate principal amount so redeemed plus
accrued and unpaid interest thereon to the
redemption date, with the net proceeds from one
or more public offerings of Qualified Capital
Interests of the Company or a successor
corporation, provided that at least $87.8
million of the principal amount of Notes
originally issued remain outstanding immediately
after the occurrence of any such redemption and
that any such redemption occurs within 90 days
following the closing of any such offering. See
"Description of the New Notes -- Optional
Redemption."
Change of Control . . . . . . . In the event of a Change of Control, the Issuers
will be required to make an offer to purchase
all outstanding New Notes at a price equal to
101% of the principal amount thereof plus
accrued and unpaid interest to the date of
repurchase. See "Description of the New Notes --
Change of Control." There can be no assurance
that the Issuers will have, or will have access
to, sufficient funds or will be contractually
permitted by outstanding Senior Indebtedness to
pay the required purchase price for all Notes
tendered by holders upon a Change of Control.
Certain Covenants . . . . . . . The Indenture contains covenants for the benefit
of the holders of the New Notes that, among
other things, restrict the ability of the
Company and any Restricted Subsidiaries to: (i)
incur additional Debt; (ii) pay dividends, make
distributions, repurchase capital interests or
make restricted payments; (iii) issue or sell
capital interests of subsidiaries; (iv) make
certain investments; (v) create liens; (vi)
enter into transactions with affiliates; (vii)
merge or consolidate; (viii) enter into sale and
leaseback transactions; and (ix) transfer and
sell assets. See "Description of the New
Notes -- Certain Covenants."
Risk Factors
For a discussion of the risks and uncertainties associated with an
investment in the New Notes, see "Risk Factors" beginning on page 16 of this
Prospectus.
10
<PAGE>
Summary Historical And Pro Forma Consolidated Financial Data
The summary consolidated financial data for the years ended December 31,
1996, December 29, 1995, December 30, 1994 and December 31, 1993 have been
derived from the audited financial statements of the Company. The summary
consolidated statement of operations data for the twelve months ended December
31, 1992 have been prepared by combining the unaudited results for the four
month period ended April 30, 1992 with the audited results for the eight month
period ended December 31, 1992. The selected consolidated data for the three
months ended March 31, 1997 are derived from unaudited financial statements.
The unaudited financial data presented include, in the opinion of management,
all necessary adjustments required for fair presentation of such data.
Beginning in 1994, the Company adopted a 52/53 week fiscal year, which ends on
the Friday closest to December 31. In 1996, the Company adopted the calendar
year as the fiscal year, effective at December 31, 1996.
The summary pro forma consolidated financial data as of the year ended
December 31, 1996 have been prepared to reflect: (i) the sale of the Old Notes
and application of the net proceeds therefrom; and (ii) the consummation of the
Transactions. The unaudited pro forma consolidated balance sheet data have been
prepared as if such transactions occurred on December 31, 1996 and the unaudited
consolidated income statement data have been prepared as if such transactions
occurred as of December 30, 1995. The summary pro forma consolidated financial
data are not necessarily indicative of the results of operations of the Company
had the transactions reflected therein actually been consummated on the dates
assumed and are not necessarily indicative of the results of operations for any
future period. The summary consolidated financial data should be read in
conjunction with "Unaudited Pro Forma Consolidated Financial Statements,"
"Selected Historical and Pro Forma Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto of the Company contained
elsewhere herein.
11
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
Twelve Pro Forma Three
Months Ended Year Ended Months Ended
December 31, December 31, December 30, December 29, December 31, December 31, March 31,
1992(a) 1993 1994 1995 1996 1996(b) 1997
------------ ------------ ------------ ------------ ------------ --------------- ---------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
- ----------------------
Total net revenues.............. $432,743 $462,603 $487,893 $533,015 $637,057 $637,057 $162,565
Costs and expenses:
Cost of sales................. 333,673 353,761 373,436 411,893 511,431 511,431 131,646
Operating expenses............ 64,007 66,706 64,968 73,052 81,522 81,522 20,256
General and administrative.... 11,241 12,933 11,448 12,053 13,925 13,925 3,988
Employee severance, benefit
and placement expenses..... - - - - 2,534 2,534 -
Depreciation and
amortization................. 6,848 7,819 8,851 11,144 12,204 12,204 2,995
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses.... 415,769 441,219 458,703 508,142 621,616 621,616 158,885
-------- -------- -------- -------- -------- -------- --------
Operating income................ 16,974 21,384 29,190 24,873 15,441 15,441 3,680
Recapitalization Costs...... - - - - 2,938 2,938 -
Interest expense, net(c).... 18,845 15,515 18,711 21,098 21,263 20,099 5,070
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item and minority
interest.................... (1,871) 5,869 10,479 3,775 (8,760) (7,596) (1,390)
Extraordinary item (d)........ - - 5,250 - - - 12,745
Minority interest............. - 52 191 - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(e)............ $ (1,871) $ 5,817 $ 5,038 $ 3,775 $ (8,760) $ (7,596) $(14,135)
======== ======== ======== ======== ======== ======== ========
Other Data:
- ----------
EBITDA, as defined(f)........... $23,822 $29,203 $38,041 $36,017 $32,108 $ 32,108 $ 6,675
Capital expenditures(g)......... 6,750 10,665 8,428 19,508 5,523 5,523 746
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, 1996 March
Actual Pro Forma(h) 31, 1997
--------------------------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
- ------------------
Total assets................... $209,100 $230,065 $229,584
Total debt..................... 166,727 191,039 185,215
Total mandatorily redeemable
preferred partnership
interests(i).................. - 19,600 19,891
Total partners' capital
(deficit)(i)................... 3,165 (18,776) (19,814)
Working capital................ (13,863) 7,663 1,163
Cash Flow Presentation:
- ----------------------
Cash provided by operating
activities..................... n/a $ 14,792 $ 13,084 $ 12,766 $ 14,668 - $ 6,403
Cash used in investing
activities.................... n/a (11,045) (18,995) (21,130) (5,337) - (1,106)
Cash provided by financing
activities..................... n/a 938 2,441 10,229 (11,837) 9,825
</TABLE>
12
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------------------------
Twelve Pro Forma Three
Months Ended Year Ended Months Ended
December 31, December 31, December 30, December 29, December 31, December 31, March 31,
1992(a) 1993 1994 1995 1996 1996(b) 1997
--------------- ------------- ------------- ------------ ------------ ------------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
- ----------------------
Net revenues:
Diesel fuel island......... $282,781 $304,266 $318,761 $351,136 $435,071 $435,071 $113,706
Petro:Lube................. 29,696 30,754 34,160 36,198 47,335 47,335 10,568
Restaurant................. 40,711 41,819 43,877 47,387 44,082 44,082 11,728
Travel and convenience
store..................... 48,529 50,556 54,733 61,590 67,104 67,104 15,583
Petro:2.................... 23,145 26,304 26,798 27,734 33,584 33,584 8,937
Other(j)................... 7,881 8,904 9,564 8,970 9,881 9,881 2,043
-------- -------- -------- -------- -------- -------- --------
Total net revenues....... $432,743 $462,603 $487,893 $533,015 $637,057 $637,057 $162,565
======== ======== ======== ======== ======== ======== ========
Operating contribution(k):
Diesel fuel island......... $ 16,172 $ 20,042 $ 16,836 $ 16,357 $ 16,461 $ 16,461 $ 4,172
Petro:Lube................. 6,371 7,118 7,636 7,278 7,863 7,863 1,972
Restaurant................. 7,812 7,482 7,655 8,074 7,534 7,534 1,529
Travel and convenience
store..................... 3,817 4,145 4,357 5,988 4,569 4,569 1,023
Petro:2.................... 606 1,282 1,385 1,150 853 853 254
Other(j)................... 285 2,067 11,620 9,223 6,824 6,824 1,712
-------- -------- -------- -------- -------- -------- --------
Total operating contribution. $ 35,063 $ 42,136 $ 49,489 $ 48,070 $ 44,104 $ 44,104 $ 10,663
======== ======== ======== ======== ======== ======== ========
Other Data:
- -----------
Company-operated locations
Full-sized................. 20 21 21 23 23 23 23
Petro:2.................... 3 3 3 3 3 3 3
Franchise locations.......... 12 12 13 15 16 16 16
Independently operated....... 1 1 1 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Stopping Centers....... 36 37 38 41 42 42 42
Petro:Lube locations......... 20 21 22 24 24 24 24
Per Location Data(l):
- ---------------------
Diesel gallons sold(m)..... 12,756 13,315 13,658 14,374 15,573 15,573 3,869
"Iron Skillet" restaurant
revenues.................. $ 1,955 $ 1,974 $ 1,994 $ 2,035 $ 1,985 $ 1,985 488
Petro:Lube revenues........ 1,525 1,523 1,578 1,595 1,794 1,794 440
Selected Ratios:
- ----------------
EBITDA, as defined, to
interest expense (f)........ 1.60x 1.32x
EBITDA, as defined, to cash
interest (f)(n)............. 1.70x 1.47x
Ratio of earnings to fixed
charges (o)................. -- 1.36x 1.53x 1.17x -- -- --
</TABLE>
(See footnotes on the following page)
13
<PAGE>
Notes to Summary Historical and Pro Forma Consolidated Financial Data
(a) The summary data have been prepared by combining the unaudited results for
the four months ended April 30, 1992 with the audited results for the eight
months ended December 31, 1992.
(b) Pro forma as if the Transactions had occurred on December 30, 1995. The pro
forma data do not give effect to the management organizational changes which
would include the addition of certain new management fees and the removal of
certain employees and existing management fees. Had such adjustments been
made, management believes that there would not have been a material change
in the Company's results of operations. See "Pro Forma Financial
Information" and "Certain Relationships and Related Transactions."
(c) Includes amortization of deferred financing costs.
(d) Write-off of debt restructuring costs associated with retired debt of $5.3
million and $12.7 million in 1994 and 1997, respectively. Pro forma data for
the year ended December 31, 1996, exclude the write-off of deferred
financing costs which the Company incurred upon the repayment of borrowings
under the Old Credit Agreement and the repurchase of Old 12 1/2% Notes and
Debt Warrants.
(e) No provision for income taxes is reflected in the consolidated financial
statements because the Company is a partnership for which taxable income and
deductions are passed through to the individual partners.
(f) EBITDA, as defined, represents operating income before deducting interest
expense and depreciation and amortization. EBITDA, as defined, is not a
calculation based on generally accepted accounting principles; however, the
amounts included in the EBITDA, as defined, calculation are derived from
amounts included in the historical or pro forma statements of income. In
addition, EBITDA, as defined, should not be considered as an alternative to
net income or operating income, as an indicator of the operating performance
of the Company or as an alternative to operating cash flows as a measure of
liquidity. EBITDA, as defined, results for fiscal 1996 exclude certain one-
time charges related to the Transactions and the change in management and
operations. Included in the one-time charges were $2.5 million related to
severance and hiring costs; $1.4 million in obsolete inventory reserves,
included in cost of sales; and $.5 million in insurance related costs.
(g) Capital expenditures primarily represent the cost of new Stopping Centers
and improvements of existing Stopping Centers. Capital expenditures related
to new Stopping Centers were $2.5 million, $7.0 million, $0, $13.8 million
and $0 for the twelve months ended December 31, 1992 and the years ended
December 31, 1993, December 30, 1994, December 29, 1995 and December 31,
1996, respectively, and $.7 million for the three months ended March 31,
1997.
(h) Pro forma as if the Transactions had occurred on December 31, 1996.
(i) Reflects the 9 1/2% mandatorily redeemable preferred partnership interests
that are owned by Mobil Oil ($12.0 million) and the 8% mandatorily
redeemable preferred partnership interests that are owned by the Cardwell
Group ($7.6 million) which have reduced partner's capital. See
"Capitalization" and "Security Ownership of Certain Beneficial Owners and
Management."
(j) Other net revenues include franchisee fees, income from video poker
machines, discounts on the purchase of franchisee receivables, fuel hauling
revenues, fast food restaurant revenues, phone commissions and revenues from
the motel and recreational vehicle park. Other operating contribution is net
revenues less related operating expenses. Other operating contribution for
1994 exceeded revenues due to a reversal of approximately $2.2 million in
reserves established in 1993 due to a revision of accounting estimates.
(k) Operating contribution is defined as net revenues of the profit centers less
cost of sales and operating expenses related to each respective profit
center.
(l) Includes only units that were open for the full period.
(m) Company-operated full service locations only.
14
<PAGE>
(n) Cash interest excludes $1.2 million of amortization of deferred financing
costs for the year ended December 31, 1996.
(o) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as net income plus fixed charges. Fixed charges consist of
interest expense (including amortization of debt issuance costs) and the
portion of rental expense that is representative of the interest factor
(deemed to be one-third of minimum operating lease rentals.) For the
twelve months ended December 31, 1992, earnings were insufficient to cover
fixed charges by $1.9 million. For the year ended December 31, 1996,
earnings were insufficient to cover fixed charges on a historical and pro
forma basis by $8.8 million and $7.6 million, respectively. For the three
months ended March 31, 1997, earnings were insufficient to cover fixed
charges by $14.1 million.
15
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before making an investment in the New Notes. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth in
the following risk factors and elsewhere in this Prospectus. See "Disclosure
Regarding Forward-Looking Statements."
Substantial Indebtedness; Limitation on Financial Flexibility; Effect of Non-
Compliance with Restrictive Covenants
The Company has substantial indebtedness. At March 31, 1997, the Company
had $185.2 million principal amount of outstanding indebtedness for borrowed
money.
The term loans under the New Credit Agreement require the Company to make
quarterly payments of principal beginning on September 30, 1997. See
"Description of New Credit Agreement" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations --Liquidity and Capital
Resources." The New Credit Agreement and the Indenture impose significant
operating and financial restrictions on the Issuers. These restrictions affect,
and may in certain respects significantly limit or prohibit, among other things,
the ability of the Issuers to incur additional indebtedness, make certain
restricted payments and investments, sell assets or engage in mergers or
consolidations. The ability of the Issuers to meet their obligations under the
New Credit Agreement, the Notes and any other indebtedness depends on the future
operating performance and financial results of the Company, which are subject in
part to factors beyond its control, such as prevailing economic conditions and
financial, business and other factors. The failure of the Issuers to comply with
any of these obligations could result in an event of default under the New
Credit Agreement and the Indenture, which would permit acceleration of the
related debt and acceleration of debt under other instruments that may contain
cross-acceleration or cross-default provisions. In such circumstances, the
marketability, price and future value of the Notes could be adversely affected.
See "Description of New Credit Agreement," "Description of the New Notes" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Ranking
The New Notes will be unsecured obligations of the Issuers ranking pari
passu in right of payment to all existing and future liabilities of the Company
that are not by their terms expressly subordinated to the New Notes, including
the principal of (and premium, if any) and interest on and all other amounts due
on or payable in connection with Senior Indebtedness. At March 31, 1997, there
was $185.2 million of Senior Indebtedness outstanding, including borrowings of
$44.0 million under the New Credit Agreement. The New Credit Agreement permits
up to $109.0 million of borrowings thereunder. The Indenture does not limit the
amount of Senior Indebtedness that the Company may incur provided that such
incurrence of debt is then permitted under the "Limitation on Debt" covenant of
the Indenture.
Effective Subordination
The Company has granted to the lenders under the New Credit Agreement
security interests in substantially all of the present and future assets of the
Company and its subsidiaries, as well as a pledge of all of the issued and
outstanding shares of capital stock of the Company's current and future
subsidiaries. The New Notes will be therefore effectively subordinated to
borrowings under the New Credit Agreement, as well as to other secured Senior
Indebtedness, with respect to the assets securing such indebtedness. In the
event of a default on such secured indebtedness (whether as a result of the
failure to comply with a payment or other covenant, a cross-default, or
otherwise), the parties granted such security interests will have secured claim
on the assets of the Company and its
16
<PAGE>
subsidiaries. If such parties should attempt to foreclose on their collateral,
the Company's financial condition and the value of the Notes would be materially
adversely affected. In the event of certain asset sales, the New Credit
Agreement provides that net proceeds thereof not reinvested as provided therein
must be applied first to the repayment of borrowings under the New Credit
Agreement.
Dependence on Diesel Fuel Sales
During the year ended December 31, 1996, net revenues from the Company's
diesel fuel sales accounted for approximately 68.3% of the Company's revenues.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The volume of diesel fuel sold by the Company and the profit
margins associated with these sales are affected by numerous factors outside of
the Company's control, including the condition of the long-haul trucking
industry, the supply and demand for these products and the pricing policies of
competitors. See "-- Variability of Diesel Fuel Margins; Risk of Supply
Interruption" and "-- Risks Associated with Dependence on Trucking Industry."
Variability of Diesel Fuel Margins; Risk of Supply Interruption
In an attempt to lower its per gallon cost and maintain a diverse supplier
base, the Company historically purchased diesel fuel from various integrated oil
companies, independent oil refineries and petroleum product brokers, with each
of its Stopping Centers generally having between two and five suppliers. The
cost of fuel purchased by the Company and the price at which it is able to
resell fuel to its customers are determined largely by supply and competitive
conditions. Thus, the Company's profit margins on diesel fuel can fluctuate
substantially in very short periods of time. Gross margin per gallon has
declined since 1993 and a further material decline in gross margin per gallon on
diesel fuel would adversely affect the Company's profitability. See "--
Uncertainties Associated with Highly-Competitive Market."
Since the Company typically has no more than a three-day supply of fuel, it
would be susceptible to interruptions in the supply of diesel to its facilities.
The Company can rapidly adjust its pump prices to reflect higher diesel costs;
however it can be adversely affected if it is required to reduce its fuel
margins in such an environment. In addition, sharp increases in diesel prices at
truck stops have historically tended to lead to temporary declines in diesel
sales volumes. The Company experienced rapid increases in diesel prices during
the latter part of 1990, due to a combination of the effects of Iraq's invasion
of Kuwait and recessionary conditions in the United States, and again, to a
lesser extent, during the fall of 1993, due to an increase in the federal excise
tax on diesel fuel and, simultaneously, the effectiveness of a United States
Environmental Protection Agency ("EPA") mandate that trucks use only low-sulfur
fuel.
In the future, however, unforeseeable interruptions in world fuel markets
may cause shortages in, or total curtailment of, fuel supplies. Moreover, a
substantial portion of the oil refining capacity in the United States is
controlled by major oil companies. These companies could in the future determine
to limit the amount of diesel fuel sold to independent operators such as the
Company. Although Mobil Oil supplies diesel fuel to the Company-operated
Stopping Centers, a significant portion of these diesel fuel needs continue to
be supplied from third parties contracted by Mobil Oil. In addition, any new
standards that the EPA may impose on refiners that would necessitate changes in
the refining process could limit the volume of petroleum products available from
refiners in the future. A material decrease in the volume of diesel fuel sold
for an extended time period would have a material adverse effect on the
Company's results of operations. Similarly, an extended period of instability in
the price of diesel fuel could adversely affect the Company's results.
In addition, the Company's patronage by customers desiring to purchase
diesel fuel accounts for a significant portion of customer traffic and has a
direct impact on the revenues and profitability of the Company's other profit
centers, including its restaurant operations and its travel stores. Accordingly,
any significant reductions in fuel supplies and resulting reductions in diesel
fuel sales would materially adversely affect the sale of other items by the
Company.
17
<PAGE>
Uncertainties Associated With Highly-Competitive Market
The truck stop industry is highly competitive and fragmented. Long-haul
trucks can obtain diesel fuel from a wide variety of sources, including their
own fueling terminals, large truck stops, limited service fueling facilities and
some large service stations. The Company believes that, while it competes with
all truck stops, its principal competitors are increasingly other large, multi-
service truck stop chains. To the extent the Company's competitors adopt pricing
strategies or marketing policies that the Company does not meet or provide
products or services that the Company does not offer, they could gain market
share and have an adverse effect on the profitability of the Company. Certain of
the Company's competitors offer diesel fuel at discount prices, which has caused
severe price competition in certain of the Company's markets from time to time.
In addition, the Company competes for the business of long-haul truck fleets,
which frequently demand lower prices on fuel purchases and in some cases choose
to do business in a particular market only with lower cost fuel providers.
Certain of the Company's principal competitors have substantially greater
financial and marketing resources than the Company. See "Business --
Competition."
Risks Associated With Inability to Finance Expansion Program and Capital
Expenditures
The Company plans to resume the growth of its network through building new
properties, acquiring existing truck stops and building or acquiring stand-alone
Petro:Lubes. A typical Stopping Center takes approximately 9 to 12 months to
build. The Company estimates that Stopping Centers built in the next several
years may cost between $7.0 million and $9.5 million each, depending on certain
factors, including land acquisition and site preparation costs, required paving
and local construction costs. The acquisition of existing truck stops and
conforming them to the Company's requirements will also require significant
funds. The Company also intends to increase capital expenditures to improve
existing Company-operated facilities. The Company plans to fund its expansion
program and other capital expenditures through a combination of internally
generated funds and borrowing under its New Credit Agreement. The Company's
expansion program may also require additional financing. The New Credit
Agreement and the Indenture contain certain restrictions on the ability of the
Company to borrow under the Expansion Facility. If the Company were unable to
borrow under the New Credit Agreement or obtain additional financing, it would
have to curtail or halt its expansion program. See "-- Substantial Indebtedness;
Limitation on Financial Flexibility; Effect of Non-Compliance with Restrictive
Covenants" above and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of New Credit Agreement."
Risks Associated With Dependence on Trucking Industry
The Company's business is dependent upon the trucking industry in general
and upon long-haul trucks in particular. In turn, the trucking industry is
dependent on economic factors, such as the level of domestic economic activity
and interest rates, as well as operating factors such as fuel prices and fuel
taxes over which the Company has no control and which could contribute to a
decline in truck travel. The long-haul trucking business is also a mature
industry that has grown slowly in recent years and has been susceptible to
recessionary downturns. Available data indicate that diesel consumption by the
trucking industry has grown more slowly than trucking ton-miles, as
technological improvements in truck engines have increased their fuel
efficiency, a trend that is expected to continue. Any sustained decline in
operations by the long-haul trucking industry would adversely affect the
Company.
Risk of Environmental Exposure
A significant portion of the Company's business consists of storing and
dispensing petroleum products, activities that are subject to increasingly
stringent regulation by both the federal and state governments. See Note 2 to
the Company's Consolidated Financial Statements for the year ended December 31,
1996 for a discussion of its accounting policies relating to its environmental
matters. However, if additional requirements are imposed, additional
expenditures may be required. In addition, under various environmental laws a
current or previous owner
18
<PAGE>
or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances (which may include petroleum or
petroleum products) on, under or in such property. Certain laws typically impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. Persons who arrange, or are
deemed to have arranged, for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment site, regardless of whether such site is
owned or operated by such person. The Company is not currently involved in any
litigation or other proceedings seeking to impose such liability. As a result of
the business of the Company and the quantity of petroleum products that it
handles, there can be no assurance that hazardous substance contamination does
not exist or that material liability will not be imposed in the future. See
"Business -- Governmental Regulation -- Environmental Regulation."
Potential Conflicts of Interest of Control Parties With Holders of the New Notes
Chartwell, Mobil Long Haul and the Cardwell Group together control 100% of
the voting power of the Company. See "Description of Restated Partnership
Agreement." Consequently, Chartwell, Mobil Long Haul and the Cardwell Group have
the power to appoint all of the members of the Company's Board of Directors and
control the direction and future operations of the Company. As a result,
circumstances could arise in which the interests of Chartwell, Mobil Long Haul
and the Cardwell Group, as equity holders, could be in conflict with interests
of the holders of the New Notes. For example, if the Company encounters
financial difficulties or is unable to pay its debts as they mature, the
interests of the Company's equity investors might conflict with those of the
holders of the New Notes. In addition, the equity investors may have an interest
in pursuing acquisitions, divestitures, financings or other transactions that,
in their judgment, could enhance their equity investment, even though such
transactions might involve risks to the holders of the New Notes.
Dependence on Key Personnel
The Company's future success depends to a significant extent on the efforts
and abilities of its management team. The loss of the services of certain of
these individuals could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that its future success also will depend significantly upon its ability to
attract, motivate and retain additional highly skilled managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting, assimilating and retaining the
personnel it requires to grow and operate profitably.
Termination of Franchise Agreements
Of the Company's 43 Stopping Centers, 17 are operated under franchise
agreements with franchisees, with certain franchisees operating multiple
locations. During 1996, the Company's franchisees expressed dissatisfaction with
certain of the terms of their franchise agreements and the franchisees'
relationship with the Company. While management has held discussions with the
franchisees and, based on these discussions, believes that the Company's
relationship with the franchisees will improve, there can be no assurance that
such improved relationship will be forthcoming. In addition, the original terms
of the franchise agreements with respect to two Stopping Centers, representing
approximately 1.2% of the Company's operating contribution for the year ended
December 31, 1996, expired in September 1995 and March 1996, respectively, and
each has been extended by letter agreements through June 1997. Those two
franchisees were unwilling to enter long-term extensions of their franchise
arrangements prior to consummation of the Transactions. The Company is currently
in the process of negotiating new formal franchise agreements with all of its
franchises, including the renewal contracts with these two franchisees. Based on
discussions with the Company's franchisees, management believes that all of the
Company's franchisees will enter into new franchise agreements with the Company
prior to the end of 1997. With respect to its two expired franchise agreements,
based on discussions with these two franchisees, management believes that the
two franchisees will enter into franchise agreements with the Company by the end
of 1997. Until such time that a new franchise agreement has been negotiated, the
Company intends to extend these two franchise agreements by letter agreement. If
the expired franchise agreements are not renewed, or if any of the other
franchise agreements cease to be
19
<PAGE>
operative, the Company's ability to enter into arrangements with other
franchisees could be adversely affected. This could result in an adverse effect
on franchise revenues of the Company as well as an adverse effect on the
Company-operated Stopping Centers. See "Business --Franchises."
Adverse Effects of an Inability to Effect Operating Strategy
The failure to implement the Company's operating strategy effectively and
assimilate new management could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company can successfully institute cost controls, operating
efficiencies or revenue enhancement. The Company's future growth could place a
significant strain on its personnel and resources. See "Business -- Operating
Strategy."
Risk of Inability to Acquire and Develop New Locations
An important component of the Company's strategy is to expand its network
by developing new locations and pursuing acquisitions. However, the number of
potential locations is limited and there can be no assurance that the Company
will be able to develop new sites or negotiate and consummate acquisitions or
that new locations can be operated profitably or integrated successfully into
the Company's operations. The Company has in the past and could in the future
experience difficulty in obtaining zoning changes or receiving permits from
governmental authorities in connection with the development of new Stopping
Centers. In some cases, the cost of proceeding with requests for rezoning or
permits may deter the Company from acquiring an otherwise attractive location.
The Company must compete with other truck stops and a variety of other
businesses in obtaining desirable locations near interstate highway exits. In
addition, acquisitions by the Company are subject to various risks generally
associated with the acquisition of businesses, including the financial impact of
expenses associated with the integration of acquired businesses. There can be no
assurance that the Company's network expansion through development and
acquisition of new locations will not have an adverse impact on the Company's
business, financial condition or results of operations. If suitable
opportunities arise, the Company anticipates that it would finance future growth
through available cash, borrowing under the New Credit Agreement, and/or through
additional debt or equity financing. There can be no assurance that such debt or
equity financing would be available to the Company on acceptable terms when, and
if, suitable strategic opportunities arise or that the Company would be able to
achieve its expansion goals. See "Business -- Operating Strategy."
Risk of Inability to Finance a Change of Control
Upon a Change of Control, the Issuers are required to offer to repurchase
all outstanding Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of repurchase. A Change of Control will trigger an
event of default under the New Credit Agreement which would permit the lenders
party thereto to accelerate the debt under the New Credit Agreement. Therefore,
upon the occurrence of a Change of Control, the Company may be required to repay
such other outstanding indebtedness and to repurchase the Notes. Should a Change
of Control occur and a substantial amount of Notes are presented for purchase,
there can be no assurance that sufficient funds will be available at the time of
any Change of Control to repay debt under the New Credit Agreement and to make
any required repurchases of Notes tendered. The source of funds for any such
repurchase will be the Issuers' available cash or cash generated from operations
or other sources, including borrowing, sales of assets or additional public or
private offerings of debt or equity securities. There can be no assurance that
the Company would be able to obtain such financings. Further, the provisions of
the Indenture may not afford holders of Notes protection in the event of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely effect holders of Notes, if
the transaction does not result in a Change of Control. See "-- Ranking," "--
Effective Subordination," "Description of the New Notes -- Change of Control"
and "Description of New Credit Agreement."
20
<PAGE>
Fraudulent Conveyance Considerations
The incurrence by the Company of the indebtedness evidenced by the Notes to
retire indebtedness is subject to review under relevant federal and state
fraudulent conveyance statutes in a bankruptcy or reorganization case or a
lawsuit by or on behalf of creditors of the Company. Under these statutes, if a
court were to find that the obligations were incurred with the intent of
hindering, delaying or defrauding creditors or that the Company received less
than a reasonably equivalent value or fair consideration for those obligations
and, at the time of their incurrence, the Company either (i) was insolvent or
rendered insolvent by reason thereof, (ii) was engaged in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital or (iii) intended to or believed that it would incur debts beyond
its ability to pay as they matured or became due, the court could void those
obligations. If a court were to determine that the indebtedness to be refinanced
with the proceeds of the Offering was incurred in a fraudulent transfer under
the foregoing standards, then a fraudulent conveyance claim also could be
asserted with respect to the Notes.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a Company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair salable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature.
Risk of Increase in Labor Costs
The minimum wage was increased to $4.75 per hour in September 1996 and will
increase to $5.25 in October 1997. A further increase in the minimum wage could
result in labor cost increases, which the Company may be unable to pass on to
its customers through increased prices.
Absence of Public Market for the Notes
There has previously been only a limited secondary market and no public
market for the Old Notes, and there can be no assurance as to the liquidity of
any market that may develop for the New Notes, the ability of the holders of the
New Notes to sell their New Notes or the prices at which the holders of the New
Notes would be able to sell their New Notes. The New Notes could trade at
prices higher or lower than their principal amount, depending on a number of
factors, including, among other things, the market for similar securities, the
Company's operating results and prevailing interest rates. The Company does not
intend to list the New Notes on a national securities exchange or to apply for
quotation of the New Notes through the National Associate of Securities Dealers
Automated Quotation System.
Consequences of the Exchange Offer on Non-Tendering Holders of the Old Notes
The Issuers intend for the Exchange Offer to satisfy their registration
obligations under the Registration Rights Agreement. If the Exchange Offer is
consummated, the Issuers do not intend to file further registration statements
for the sale or other disposition of Old Notes. Consequently, following
completion of the Exchange Offer, holders of Old Notes seeking liquidity in
their investment would have to rely on an exemption to the registration
requirements under applicable securities laws, including the Securities Act,
with respect to any sale or other disposition of the Old Notes.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, which
represent the Company's expectations or beliefs concerning future events that
involve risks and uncertainties. All statements other than statements of
historical facts included in this
21
<PAGE>
Prospectus, including, without limitation, the statements under "Prospectus
Summary," "The Transactions," "Business" and elsewhere herein, may be considered
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct.
THE EXCHANGE OFFER
Terms of the Exchange Offer
General
The Old Notes were sold by the Issuers on January 30, 1997 in a private
placement in reliance on Regulation D of the Securities Act and/or section 4(2)
of the Securities Act. The Old Notes were sold to the Initial Purchasers who
resold the Old Notes to "qualified institutional buyers" within the meaning of
Rule 144A under the Securities Act. The Initial Purchasers required as a
condition to the purchase of the Old Notes that the Company grant the purchasers
of the Old Notes certain registration rights pursuant to the Registration Rights
Agreement. The Registration Rights Agreement required the Company to file with
the Commission following the closing of the Offering (the "Closing") on January
30, 1997 (the "Closing Date"), a registration statement relating to an exchange
offer (the "Exchange Offer Registration Statement") pursuant to which notes
which are substantially identical to the Old Notes would be offered in exchange
for the then outstanding Old Notes tendered at the option of the holders
thereof. The form and terms of the New Notes are identical in all material
respects to the form and terms of the Old Notes except (i) that the New Notes
have been registered under the Securities Act, (ii) that the New Notes are not
entitled to certain registration rights which are applicable to the Old Notes
under the Registration Rights Agreement, and (iii) certain contingent interest
rate provisions applicable to the Old Notes are not applicable to the New Notes.
In the event that the applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer, the Company has agreed
to use its best efforts to cause to become effective a shelf registration
statement with respect to the resale of the Old Notes (the "Shelf Registration
Statement") and to keep such Shelf Registration Statement effective for a period
of up to three years. The Exchange Offer is being made to satisfy the
contractual obligations of the Company under the Registration Rights Agreement.
The Company has agreed that if (i) the Company failed to file the Exchange
Offer Registration Statement or Shelf Registration Statement relating to the
Exchange Offer within 75 days following the Closing Date, (ii) such Exchange
Offer Registration Statement (or, if applicable, the Shelf Registration
Statement) has not become effective within 135 days following the Closing Date,
(iii) the Exchange Offer has not been consummated within 45 business days after
the effective date of the Exchange Offer Registration Statement or (iv) certain
other specified events occur (each such events referred to in clauses (i)
through (iv) above is a "Registration Default"), then the sole remedy available
to holders of the Old Notes would be the immediate assessment of additional
interest ("Additional Interest") as follows: the per annum interest rate on the
Old Notes will increase by 50 basis points; and the per annum interest rate will
increase by an additional 25 basis points for each subsequent 90-day period
during which the Registration Default remains uncured, up to a maximum
additional interest rate of 200 basis points per annum in excess of 10 1/2%.
All Additional Interest will be payable to holders of the Old Notes in cash on
the same original interest payment dates as the Old Notes, commencing with the
first such date occurring after any such Additional Interest commences to
accrue, until such Registration Default is cured. After the date on which such
Registration Default is cured, the interest rate on the Old Notes will revert to
10 1/2%, the interest rate originally borne by the Old Notes.
The holders of any Old Notes not tendered in the Exchange Offer will not be
entitled to require the Company to file a shelf registration statement. Any Old
Notes remaining outstanding following consummation of the Exchange Offer will be
treated together with the New Notes as one series for purposes of the Indenture.
See "Description of the New Notes -- Exchange Offer; Registration Rights."
22
<PAGE>
An exchange offer shall be deemed to have been consummated upon the earlier
to occur of (i) the Company having exchanged New Notes for all outstanding Old
Notes (other than Old Notes held by a Restricted Holder) pursuant to such
exchange offer and (ii) the Company having exchanged, pursuant to such exchange
offer, New Notes for all Old Notes that have been validly tendered and not
withdrawn on the Expiration Date. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under applicable securities laws, including the Securities Act.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. The exchange of New Notes for Old Notes will be made (i) with respect to
all Old Notes validly tendered and not withdrawn on or prior to the Early
Exchange Date, within two business days following the Early Exchange Date, and
(ii) with respect to all Old Notes validly tendered and not withdrawn after the
Early Exchange Date but on or prior to the Expiration Date, within two business
days following the Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly following each of the Early Exchange
Date and the Expiration Date. The Company will issue $1,000 principal amount of
New Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer in denominations of $1,000 and integral
multiples of $1,000 in excess thereof.
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to unrelated third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by the holders thereof
(other than a Restricted Holder) 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 are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in the distribution
of such New Notes. See "Mary Kay Cosmetics, Inc.," SEC No-Action Letter
(available June 5, 1991); "Morgan Stanley & Co., Incorporated," SEC No-Action
Letter (available June 5, 1991); and "Exxon Capital Holdings Corporation," SEC
No-Action Letter (available May 13, 1988). 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."
If any person were to participate in the Exchange Offer for the purpose of
distributing securities in a manner not permitted by the Commission's
interpretation, such person (i) could not rely on the position of the staff of
the Commission enunciated in "Exxon Capital Holdings Corporation" or similar
interpretive letters and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Accordingly, each eligible holder wishing to accept the
Exchange Offer must represent to the Company in the Letter of Transmittal that
the conditions described above have been met.
In connection with the issuance of the Old Notes, the Company arranged for
the inclusion of the Old Notes initially purchased by qualified institutional
buyers on the Private Offerings, Resales and Trading through Automated Linkages
(PORTAL) market. The Company also arranged for the Old Notes initially
purchased by qualified institutional buyers to be issued and transferable in
book-entry form through the facilities of DTC, acting as depository, and in
DTC's Same-Day Funds Settlement System. The New Notes will also be issuable and
transferable in book-entry form through the DTC in the Same-Day Funds Settlement
System.
As of the date of this Prospectus, $135,000,000 aggregate principal amount
of the Old Notes is outstanding.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of __________, 1997 (the "Record
Date").
23
<PAGE>
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purpose of receiving New Notes from the Company and
delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by the Company. The Company has agreed
to pay, subject to the instructions in the Letter of Transmittal, all transfer
taxes, if any, relating to the sale or disposition of such holder's Old Notes
pursuant to the Exchange Offer. See "-- Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean __________, 1997, unless the Company,
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "-- Conditions" shall have occurred and shall not have been waived
by the Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, and (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Notes. Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
Interest on the New Notes
The New Notes will bear interest from January 30, 1997, the date of
issuance of the Old Notes, payable semi-annually on February 1 and August 1 of
each year, commencing on August 1, 1997, at the rate of 10 1/2% per annum.
Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to
have waived the right to receive any payment in respect of interest on the Old
Notes accrued from January 30, 1997 until the date of the issuance of the New
Notes.
Procedure for Tendering
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Old
24
<PAGE>
Notes (unless such tender is being effected pursuant to the procedure for book-
entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States (an "Eligible Institution") unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered holder 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.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, 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 or confirmed by the Exchange Agent at its
addresses set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder or
any person whose Old Notes are held of record by DTC who desires to deliver such
Old Notes at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust Company or other nominee and who wishes
to tender his Old Notes should contact the registered holder promptly and
instruct such registered holder to tender on his behalf. If such beneficial
holder wishes to tender on his own behalf, such beneficial holder must, prior to
completing and executing the Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register ownership of the Old Notes in
such holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of a
corporation or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
25
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not validly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent without cost to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each holder will represent to the Company that, among other
things (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of such holder's business, (ii) such holder is
not participating, does not intend to participate and has no arrangement or
understanding with any person to participate, in a distribution of such New
Notes, (iii) such holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company and (iv) such holder is not a broker-dealer who
acquired Old Notes directly from the Company to resell pursuant to Rule 144A or
any other available exemption under the Securities Act.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Early Exchange Date or the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Early Exchange Date or the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby, and guaranteeing
that, within three business days after the date of execution of the Notice of
Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof), together
with the certificate(s) representing the Old Notes to be tendered in proper form
for transfer and any other documents required by the Letter of Transmittal, will
be deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
into the Exchange Agent's account at DTC of Old Notes delivered electronically)
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within three business days after the date of execution of the
Notice of Guaranteed Delivery.
26
<PAGE>
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date and prior to acceptance for exchange thereof by the Company.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to the Old
Notes to register the transfer of such Old Notes into the name of the Depositor
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by the Company, 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 purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned by the Exchange Agent to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following one of the procedures described above
under "-- Procedure for Tendering" at any time prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Company will not
be obligated to consummate the Exchange Offer if the New Notes to be received
will not be tradeable by the holder, other than in the case of Restricted
Holders, without restriction under the Securities Act and the Exchange Act and
without material restrictions under the blue sky or securities laws of
substantially all of the states of the United States. Such condition will be
deemed to be satisfied unless a holder provides the Company with an opinion of
counsel reasonably satisfactory to the Company to the effect that the New Notes
received by such holder will not be tradeable without restriction under the
Securities Act and the Exchange Act and without material restrictions under the
blue sky laws of substantially all of the states of the United States. The
Company may waive this condition.
If the condition described above exists, the Company will be entitled to
refuse to accept any Old Notes and, in the case of such refusal, will return all
tendered Old Notes to exchanging holders of the Old Notes. See "Description of
the New Notes -- Exchange Offer; Registration Rights."
Exchange Agent
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. Questions and requests
for assistance and requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent addressed as
follows:
By Hand Delivery: State Street Bank and Trust Company
Corporate Trust Department
Fourth Floor
Two International Place
Boston, MA 02110
Attn: Sandra Szczsponik
27
<PAGE>
By Registered or State Street Bank and Trust Company
Certified Mail: Corporate Trust Department
P.O. Box 778
Boston, MA 02102
Attn: Sandra Szczsponik
By Overnight Courier: State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110
Attn: Sandra Szczsponik
Facsimile Transmission: (617) 664-5371
(Eligible Institutions and Confirm: (617) 664-5344
Withdrawal Notices Only) For Information Call: 1-800-531-0368
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
Accounting Treatment
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the New Notes under generally
accepted accounting principles.
28
<PAGE>
THE TRANSACTIONS
The Equity Investment
In October 1996, James A. Cardwell, Sr. ("Jack Cardwell"), James A.
Cardwell, Jr. ("Jim Cardwell"), JAJCO II, Inc. ("JAJCO"), Petro, Inc. (together
with Jack Cardwell, Jim Cardwell, and JAJCO, collectively, the "Cardwell
Group"), Mobil Long Haul Inc. ("Mobil Long Haul"), wholly-owned by Mobil Oil,
Petro Holdings GP Corp. ("Holdings GP"), Petro Holdings LP Corp. ("Holdings LP,"
and together with Holdings GP, "Chartwell," both of which are affiliates of
Chartwell Investments Inc. ("Chartwell Investments")), and the Company entered
into an Omnibus Agreement pursuant to which, at the Closing on January 30, 1997,
Chartwell invested $20.7 million and Mobil Long Haul invested $15.0 million to
acquire the general and limited partnership interests of the Company owned by
Sequoia Ventures, Inc. ("SVI") and Roadside, Inc. ("Roadside," and together with
SVI, the "Fremont Partners") and invested in the Company. The investment
proceeds were used to acquire the interests of the Company held by the Fremont
Partners for approximately $25.6 million and to invest approximately $10.1
million in the Company. In addition, Kirschner invested $1.0 million in the
Company in connection with the Transactions. Prior to consummation of the
Transactions, no mandatorily redeemable preferred partnership interests were
outstanding. In connection with the Transactions, the mandatorily redeemable
preferred partnership interests were issued (i) to the Cardwell Group for
certain limited common partnership interests of the Company previously owned by
them and (ii) to Mobil Long Haul for certain limited common partnership
interests previously owned by the Fremont Partners and acquired by Mobil Long
Haul and cash. The common partnership interests of the Company are owned by
Chartwell (approximately 50.8%), the Cardwell Group (approximately 39.9%), Mobil
Long Haul (approximately 7.4%) and Kirschner (2.0%), and the mandatorily
redeemable preferred partnership interests are owned by Mobil Long Haul ($12.0
million) and the Cardwell Group ($7.6 million). Chartwell and the Cardwell
Group own both general and limited partnership interests and Mobil Long Haul and
Kirschner own only limited partnership interests. The mandatorily redeemable
preferred partnership interests are entitled to cumulative preferred returns at
a rate of 9.5% in the case of the mandatorily redeemable preferred partnership
interests owned by Mobil Long Haul and 8.0% in the case of the mandatorily
redeemable preferred partnership interests owned by the Cardwell Group, and are
subject to mandatory redemption 270 days after the tenth anniversary of the
Closing Date, which is subsequent to the maturity date of the Notes. The
preferred returns on the mandatorily redeemable preferred partnership interests
accrue, but are only payable in cash if permitted by the Company's then existing
debt instruments. The Indenture and the New Credit Agreement restrict the
payment of dividends on mandatorily redeemable preferred partnership interests.
Mobil Oil Relationships
A key element of the Company's operating strategy is its newly-formed
strategic alliance with Mobil Oil. This long-term alliance will combine the
Company's premier facilities with the strong Mobil brand name. The high quality
brand recognition of both the Company and Mobil Oil in their respective
businesses will provide a platform for joint services and marketing initiatives
to increase volume. Mobil Oil has a vested interest in the Company's future
performance by virtue of the $15.0 million investment in common and preferred
limited partnership interests of the Company by Mobil Long Haul. In connection
with the Transactions, Mobil Oil and the Company have entered into 10-year
supply and marketing agreements. As an important component of the alliance, all
Company-operated diesel fuel islands and gasoline fuel islands at 11 of the
Company-operated Stopping Centers will be branded with the Mobil name and all
Company-operated Petro:Lube operations will feature Mobil's Delvac brand
lubricants.
Together, the Company and Mobil Oil expect to provide an integrated
solution for many critical needs of fleets including on-site and over-the-road
fueling, fuel price risk management and an integrated billing and data capture
system. These efforts will be supported by joint fleet and franchisee
solicitations and advertising and promotional programs. The Company expects that
this alliance will enable it to increase its diesel fuel volume and leverage the
resulting traffic increases into higher margin non-fuel sales in its other
profit centers. The alliance also
29
<PAGE>
includes the full-time commitment of certain Mobil Oil management personnel and
services. Management believes that this alliance will provide the Company with a
competitive advantage in attracting fleet business. See "Certain Relationships
and Related Transactions-- Motor Fuels Franchise Agreement," "-- Master Supply
Contract for Resale of Oils and Greases," "-- Marketing Services Agreement," "--
Joint Project Development Agreement, and "-- Secondment Letter Agreement."
New Senior Management and Board of Directors
In connection with the Transactions, the Company has installed a new senior
management team and organizational structure. This team includes Jack Cardwell,
the Company's founder, who has resumed active management responsibility for the
Company's operations as Chairman, Chief Executive Officer and President. The
Company also recently hired Larry Zine, who has over 15 years of experience in
the retail gasoline marketing and convenience store industries, as Chief
Financial Officer. Mr. Zine, the former Chief Financial Officer of The Circle K
Corporation, was integrally involved in that company's turnaround, initial
public offering and subsequent sale. In addition, Evan Brudahl, Manager of U.S.
Diesel Retail Marketing and Travel Center Business at Mobil Oil with 19 years of
experience in the retail petroleum business, has assumed the duties of Senior
Vice President of Strategic Planning and Development. Mr. Brudahl was integrally
involved in the development and implementation of a successful turnaround of
certain of Mobil Oil's U.S. company-operated gasoline stations and convenience
stores. Jim Cardwell, who joined the Company in 1982, has assumed the position
of Senior Vice President of Operations. See "Management." The Company's
organizational structure has been changed to provide profit center managers and
field supervisors clear roles, responsibilities and accountability for operating
results. Headquarters functions will be streamlined with clearer accountability
for support responsibilities and authority. Compensation for line and staff
management will be modified to be based on specific profit center performance,
as well as the Company's overall operating performance.
At the Closing, the Partnership Agreement of the Company was amended and
restated (as amended and restated, the "Restated Partnership Agreement") to
reflect the Transactions and the governance terms and conditions of the Company
after the Closing. The Board of Directors of the Company is composed of six
members, each of whom has one vote, composed of two representatives of each of
the Cardwell Group, Chartwell and Mobil Long Haul. Chartwell has the right to
nominate two additional independent directors, subject to approval thereof by
the Executive Committee. The Executive Committee is composed of one
representative of each of Chartwell, the Cardwell Group and Mobil Long Haul.
Under certain circumstances described in the Restated Partnership Agreement, the
Chartwell representatives have the right to cast a majority of the votes on the
Board of Directors, the Executive Committee and the Operating Committee. See
"Description of Restated Partnership Agreement."
Chartwell Investments has entered into a 10-year Management Consulting
Agreement with the Company pursuant to which Chartwell Investments provides
management services to the Company. See "Certain Relationships and Related
Transactions -- Chartwell Management Consulting Agreement." The Company has
entered into three-year employment agreements with Jack Cardwell and Jim
Cardwell and extended certain pre-existing agreements between the Cardwell Group
entities pursuant to which such entities provide services to the Company. See
"Management -- Executive Compensation -- Arrangements After Consummation of the
Transactions -- Employment Agreements" and "Certain Relationships and Related
Transactions."
New Credit Agreement
The Company has entered into the New Credit Agreement pursuant to which the
Company has a $25.0 million Revolving Credit Facility, a $40.0 million Expansion
Facility, a five year $14.0 million term loan ("Term Loan A") and a seven year
$30.0 million term loan ("Term Loan B"). At the Closing, the Company incurred
$20.0 million of Term Loan A borrowings, $6.0 million of which were repaid
subsequent thereto.
The Revolving Credit Facility permits the Company to borrow, repay and
reborrow up to $25.0 million at any time until the fifth anniversary of the
Closing Date, the proceeds of which may be used for working capital
30
<PAGE>
and other corporate purposes. The Expansion Facility, the proceeds of which may
be used for the acquisition and development of new Stopping Centers and stand-
alone Petro:Lubes, permits the Company to borrow, repay and reborrow up to $40.0
million at any time until the third anniversary of the Closing Date (except with
respect to up to $10.0 million, which if not borrowed prior to the third
anniversary, may be borrowed prior to the fourth anniversary), and to repay the
same in installments on or prior to the fifth anniversary of the Closing Date.
Term Loan A will be repayable in 15 quarterly installments, commencing on
September 30, 1997. Term Loan B will be repayable in 26 quarterly installments,
commencing on September 30, 1997.
Borrowings under the New Credit Agreement bear interest at various interest
rates, as selected by the Company based on certain floating reference rates plus
a margin. The New Credit Agreement contains customary affirmative and
restrictive covenants on the part of the Company and its subsidiaries.
Borrowings under the New Credit Agreement are secured by substantially all of
the assets of the Company and its subsidiaries and the partnership interests of
Mobil Long Haul and Chartwell and guaranteed by each of the Company's
subsidiaries, which guarantees in turn are secured by substantially all of such
subsidiaries' assets.
Tender Offer; Noteholder Agreements
On December 19, 1996, Holdings GP commenced the Tender Offer for 100% of
the Old 12 1/2% Notes at a cash price of $1,025 per $1,000 principal amount of
Old 12 1/2% Notes, plus accrued and unpaid interest, of which $100 million
aggregate principal amount was outstanding, and 100,000 Debt Warrants at a cash
price of $56.76 per Debt Warrant, which upon exercise would have resulted in the
issuance of an additional $5.5 million principal amount of Old 12 1/2% Notes.
Holders of Old 12 1/2% Notes who tendered the Old 12 1/2% Notes consented to
amendments to the Indenture (the "Old 12 1/2% Notes Indenture") governing the
Old 12 1/2% Notes (the "Amendments"), which eliminated certain covenants
contained in the Old 12 1/2% Notes Indenture, including those governing "Debt of
the Company," "Debt of Restricted Subsidiaries," "Restricted Payments,"
"Transactions with Affiliates," "Liens," "Subsidiary Payment Restrictions,"
"Guarantees by Restricted Subsidiaries," "Capital Interests of Restricted
Subsidiaries," and "Default Statements; Compliance Certificate," modified
certain other covenants or provisions contained therein, including modifying the
defeasance, merger, consolidation and asset sale provisions and amended the
"Change of Control" definition in the Old 12 1/2% Notes Indenture such that the
Transactions and compliance with provisions of the Restated Partnership
Agreement did not constitute a "Change of Control" requiring the Company to make
an offer to repurchase the Old 12 1/2% Notes at 101% of the outstanding
principal amount thereof. At the Closing, Holdings GP assigned its rights and
obligations under the Tender Offer to the Company, and the Company repurchased
the tendered Old 12 1/2% Notes and Debt Warrants. Approximately 94% of such Old
12 1/2% Notes were tendered and, as a result, the required vote was obtained to
approve the Amendments and to meet the minimum condition contained in the Tender
Offer.
USE OF PROCEEDS
The Issuers will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes offered
hereby, the Issuers will receive, in exchange, Old Notes in like principal
amount. The net proceeds of the Offering (estimated to be $130.2 million after
deducting Initial Purchasers' discounts and estimated expenses of the Offering),
together with borrowings under the New Credit Agreement, proceeds of the Equity
Investment in excess of the direct payment to the Fremont Partners and the
proceeds of the Kirschner Investment, were used to repay borrowings under the
Old Credit Agreement, to repurchase Old 12 1/2% Notes and Debt Warrants, for
general corporate purposes and to pay fees and expenses associated with the
Transactions.
31
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997:
<TABLE>
<CAPTION>
As of March 31, 1997
-----------------------
(dollars in thousands)
Actual
----------
<S> <C>
Cash.......................................... $ 18,304
--------
Current portion of long-term debt............. $ 2,750
Long-term debt:
Existing revolving credit facility.......... -
Existing term loans......................... -
New revolving credit facility............... -
New term loans.............................. 41,250
Old 12 1/2% Notes........................... 6,215
Debt Warrants............................... -
10 1/2% Senior Notes........................ 135,000
Total non-current long-term debt......... 182,465
Total long-term debt..................... 185,215
-------
Mandatorily redeemable preferred partnership
interest(a)(b)............................... 19,891
-------
Partners' capital (deficit)(b)(c)............. (19,914)
-------
Total capitalization..................... $185,215
--------
</TABLE>
(a) Mandatorily redeemable preferred partnership interests consist of
mandatorily redeemable preferred limited partnership interests, of which
Mobil Long Haul owns $12.0 million accruing preferred return at a stated
rate of 9.5% and the Cardwell Group owns $7.6 million accruing preferred
return at a stated rate of 8.0%. The preferred returns on mandatorily
redeemable preferred partnership interests accrue, but are only payable in
cash if permitted by the Company's then existing debt instruments.
(b) For purposes of the Transactions, the Cardwell Group partnership interests
were given an implied value of approximately $23.9 million, of which $7.6
million is the face value of mandatorily redeemable preferred partnership
interests and approximately $16.3 million is the implied value of the
common partnership interests that it received in connection with the
Transactions. The value of the Cardwell Group's partnership interests have
been implied based on the partnership interest purchase price paid and the
capital contributions to the Company made by Chartwell and Mobil Long Haul
in the Transactions.
(c) Partners' Capital consists of the partners' capital of the Cardwell Group,
Chartwell, Mobil Long Haul and Kirschner. Equity investments in connection
with the Transactions total approximately $36.7 million, $20.7 million
from Chartwell, $15.0 million from Mobil Long Haul and $1.0 million from
Kirschner. Of the approximately $36.7 million of equity investments, $25.6
million was paid directly to the Fremont Partners to purchase their
partnership interests and the remaining approximately $11.1 million was
invested in the Company. At Closing, partners' capital was reduced by
$19.6 million to reflect the issuance of the mandatorily redeemable
preferred partnership interests. Additional adjustments to the partners'
capital account included deductions of approximately $3.1 million
reflecting the write-off of original issue discounts on the Old 12 1/2%
Notes and Debt Warrants, approximately $2.5 million reflecting the write-
off of the premium paid to repurchase the Old 12 1/2% Notes and Debt
Warrants, approximately $7.2 million reflecting the write-off of deferred
debt issuance costs related to the Old Credit Agreement, Old 12 1/2% Notes
and Debt Warrants, and approximately $673,000 reflecting termination of
the existing interest rate swap agreement.
32
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet of the
Company as of December 31, 1996 and the Unaudited Pro Forma Consolidated
Statement of Operations of the Company for the year ended December 31, 1996 have
been prepared to reflect: (i) the sale of the Old Notes and the application of
the proceeds therefrom; and (ii) the consummation of the Transactions. The
Unaudited Pro Forma Consolidated Balance Sheet has been prepared as if such
transactions occurred on December 31, 1996 and the Unaudited Pro Forma
Consolidated Statement of Operations has been prepared as if such transactions
occurred as of December 30, 1995. The Pro Forma Financial Information is
unaudited and not necessarily indicative of the results that would have actually
occurred if the sale of the Old Notes and the Transactions had been consummated
as of December 31, 1996, or December 30, 1995, or results which may be obtained
in the future. The pro forma adjustments, as described in the Notes to the Pro
Forma Financial Information, are based on available information and upon certain
assumptions that management believes are reasonable. The Pro Forma Financial
Information should be read in conjunction with the consolidated financial
statements and notes thereto, included elsewhere herein.
33
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
As of December 31, 1996
-----------------------
Pro Forma
Historical Adjustments Pro Forma(a)
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................... $ 3,182 $135,000(b) $ 18,774
(102,807)(c)
(15,116)(d)
10,147 (e)
1,000 (e)
(12,632)(f)
Accounts receivable, net of allowance for uncollectible
accounts of $321....................................................... 10,401 10,401
Inventories............................................................. 15,195 15,195
Other current assets.................................................... 1,404 1,404
Due from affiliates..................................................... 2,091 2,091
-------- -------- --------
Total current assets................................................. 32,273 15,592 47,865
Property and equipment, net............................................... 159,539 159,539
Deferred debt issuance and organization costs, net of accumulated
amortization of $6,728.................................................. 11,305 12,632 (f) 16,678
Other assets.............................................................. 5,983 (7,259)(g) 5,983
-------- -------- --------
Total assets......................................................... $209,100 $ 20,965 $230,065
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt....................................... $ 6,928 $ (6,928)(d) $ 2,000
2,000 (d)
Trade accounts payable.................................................. 15,723 15,723
Accrued expenses and other liabilities.................................. 21,160 (1,006)(c) 20,154
Due to affiliates....................................................... 2,325 2,325
-------- -------- --------
Total current liabilities............................................ 46,136 (5,934) 40,202
Notes payable............................................................. 21,639 (21,639)(d) -
Long-term debt, excluding current portion................................. 138,160 135,000 (b) 189,039
(91,139)(c)
(5,106)(c)
(35,876)(d)
48,000 (d)
-------- -------- --------
Total liabilities.................................................... 205,935 23,306 229,241
-------- -------- --------
Mandatorily redeemable preferred partnership interest..................... - 19,600 (h) 19,600
Partners' capital......................................................... 3,165 (4,996)(c) (18,776)
(560)(c)
(673)(d)
10,147 (e)
1,000 (e)
(19,600)(h)
(7,259)(g)
-------- -------- --------
Total partners' capital.............................................. 3,165 (21,941) (18,776)
-------- -------- --------
Total liabilities and partners' capital.............................. $209,100 $ 20,965 $230,065
======== ======== ========
</TABLE>
(See footnotes on the following page)
34
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(a) Pro forma as if the Transactions had occurred on December 31, 1996.
(b) To reflect the sale of the Old Notes.
(c) To reflect the purchase of approximately 94% of the Old 12 1/2% Notes and
approximately 99% of the Debt Warrants, including (i) accretion to the face
amount and tender premium of the Old 12 1/2% Notes of $5.0 million; (ii)
accretion to the face amount and tender premium of the Debt Warrants of
$560,000; and (iii) payment of accrued interest of $1.0 million.
(d) To reflect the repayment of borrowings under the existing revolving credit
facility of approximately $21.6 million and term loans of approximately
$42.8 million under the Old Credit Agreement with term loan borrowings
under the New Credit Agreement in the amount of $50.0 million and $14.4
million of proceeds from the sale of the Old Notes.
(e) To reflect the Equity Investment and the Kirschner Investment. The $35.7
million Equity Investment was used by Chartwell and Mobil Oil to directly
purchase the partnership interests of the Fremont Partners (approximately
$25.6 million) and invest in the Company ($10.1 million). The Kirschner
Investment ($1.0 million) is a direct investment in the Company.
(f) To reflect payment of new debt issuance costs of $12.6 million related to
the Old Notes and the New Credit Agreement.
(g) To reflect write-off of deferred debt issuance costs of $7.3 million
related to the Old 12 1/2% Notes and the Old Credit Agreement.
(h) To reflect the issuance of mandatorily redeemable preferred partnership
interests of $19.6 million. The mandatorily redeemable preferred
partnership interests were issued (i) to the Cardwell Group for certain
limited common partnership interests of the Company previously owned by
them and (ii) to Mobil Long Haul for certain limited common partnership
interests previously owned by the Fremont Partners and acquired by Mobil
Long Haul and cash.
35
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-----------------------------------------
Pro Forma
Historical Adjustments(a) Pro Forma(a)
---------- -------------- ------------
<S> <C> <C> <C>
Net revenues:
Diesel fuel island.............. $435,071 $ $435,071
Petro:Lube...................... 44,082 44,082
Restaurant...................... 47,335 47,335
Travel and convenience store.... 67,104 67,104
Petro:2......................... 33,584 33,584
Other........................... 9,881 9,881
-------- ------ --------
Total net revenues........... 637,057 637,057
Costs and expenses:
Cost of sales................... 511,431 511,431
Operating expenses.............. 81,522 81,522
General and administrative...... 13,925 13,925
Employee severance, benefit and
placement expenses............. 2,534 2,534
Depreciation and amortization... 12,204 12,204
-------- ------ --------
Total costs and expenses..... 621,616 621,616
Operating income............. 15,441 15,441
Recapitalization costs............ 2,938 2,938
Interest expense.................. 21,263 (1,164)(b) 20,099
-------- -------- --------
Net income (loss)............ $ (8,760) $1,164 $ (7,596)
======== ====== ========
Ratio of earnings to fixed
charges(c)....................... -- --
======== ========
</TABLE>
(See footnotes on the following page)
36
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Operations
(a) Pro forma as if the Transactions had occurred on December 30, 1995. The pro
forma data do not give effect to the addition of new management fees
(approximately $900,000), the removal of certain personnel (approximately
$652,000) and the removal of certain existing management fees
(approximately $250,000). Management believes that there would not have
been a material change in the Company's Statement of Operations had such
adjustments been made. Pro Forma Statement of Operations adjustments do not
include the following extraordinary items totalling approximately $13.5
million: (i) write-off of deferred debt issuance costs associated with
retired debt; (ii) accretion to the face amount and purchase premium of Old
12 1/2% Notes; (iii) accretion to the face amount and purchase premium of
Debt Warrants after exercise; and (iv) payment of interest rate swap
agreement termination costs.
(b) Pro forma to reflect the adjustment to interest expense for the issuance of
the Old Notes and the funding of the New Credit Agreement in connection
with the Transactions. Interest expense on the Notes is based on the
interest rate of 10.5%. Interest expense on the New Credit Agreement is
based on the December 31, 1996 LIBOR rate of 5.56% plus the applicable
spread, resulting in a weighted average annual effective rate of 8.3%. Pro
forma interest expense includes the amortization of debt financing costs of
$1.2 million for the year ended December 31, 1996.
(c) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as net income plus fixed charges. Fixed charges consist of
interest expense (including amortization of debt issuance costs) and the
portion of rental expense that is representative of the interest factor
(deemed to be one-third of minimum operating lease rentals). Earnings were
insufficient in 1996 to cover fixed charges by $8.8 million and $7.6
million on a historical and pro forma basis, respectively.
37
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected consolidated financial data as of and for the years ended
December 31, 1996, December 29, 1995, December 30, 1994 and December 31, 1993
have been derived from the audited financial statements of the Company. The
selected consolidated balance sheet data as of December 31, 1992 have been
derived from the Company's audited balance sheet. The selected consolidated
statement of operations data for the twelve months ended December 31, 1992 have
been prepared by combining the unaudited results for the four month period ended
April 30, 1992 with the audited income statement for the eight month period
ended December 31, 1992. The selected consolidated data for the three months
ended March 31, 1997 are derived from unaudited financial statements. The
unaudited financial data presented include, in the opinion of management, all
necessary adjustments required for fair presentation of such data. Beginning in
1994, the Company adopted a 52/53 week fiscal year, which ends on the Friday
closest to December 31. The Company adopted the calendar year as the fiscal
year effective December 31, 1996.
The selected pro forma consolidated financial data as of and for the year
ended December 31, 1996 have been prepared to reflect: (i) the sale of the Old
Notes and the application of the proceeds therefrom; and (ii) the consummation
of the Transactions. The unaudited pro forma consolidated balance sheet data
have been prepared as if such transactions occurred on December 31, 1996 and the
unaudited consolidated income statement data have been prepared as if such
transactions occurred as of December 30, 1995. The selected pro forma
consolidated financial data are not necessarily indicative of the results of
operations of the Company had the transactions reflected therein actually been
consummated on the dates assumed and are not necessarily indicative of the
results of operations for any future period. The selected consolidated financial
data should be read in conjunction with "Unaudited Pro Forma Consolidated
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto of the Company contained elsewhere herein.
38
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
Twelve ----------------------------------------------------------- Three
Months Ended Pro Forma Months Ended
December 31, December 31, December 30, December 29 December 31, December 31, March 31,
1992(a) 1993 1994 1995 1996 1996(b) 1997
------------ ------------ ------------ ----------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
- ----------------------
Net revenues:
Diesel fuel island........ $282,781 $ 304,266 $318,761 $351,136 $435,071 $435,071 $113,706
Petro:Lube................ 29,696 30,754 34,160 36,198 47,335 47,335 10,568
Restaurant................ 40,711 41,819 43,877 47,387 44,082 44,082 11,728
Travel and convenience
store.................... 48,529 50,556 54,733 61,590 67,104 67,104 15,583
Petro:2................... 23,145 26,304 26,798 27,734 33,584 33,584 8,937
Other(c).................. 7,881 8,904 9,564 8,970 9,881 9,881 2,043
------------ ------------ ------------ ----------- ------------ ------------ ------------
Total net revenues....... 432,743 462,603 487,893 533,015 637,057 637,057 162,565
Costs and expenses:
Cost of sales............. 333,673 353,761 373,436 411,893 511,431 511,431 11,390
Operating expenses........ 64,007 66,706 64,968 73,052 81,522 81,522 20,256
General and administrative 11,241 12,933 11,448 12,053 13,925 13,925 3,988
Employee benefit,
severance and placement
expenses............... - - - - 2,534 2,534 -
Depreciation and
amortization............. 6,848 7,819 8,851 11,144 12,204 12,204 2,995
------------ ------------ ------------ ----------- ------------ ------------ ------------
Total costs and expenses. 415,769 441,219 458,703 508,142 621,616 621,616 158,885
------------ ------------ ------------ ----------- ------------ ------------ ------------
Operating income........... 16,974 21,384 29,190 24,873 15,441 15,441 3,680
Recapitalization costs.... - - - - 2,938 2,938 -
Interest expense, net(d).. 18,845 15,515 18,711 21,098 21,263 20,099 5,070
------------ ------------ ------------ ----------- ------------ ------------ ------------
Income (loss) before
extraordinary item
and minority interest..... (1,871) 5,896 10,479 3,775 (8,760) (7,596) (1,390)
Extraordinary item (e).... - - 5,250 - - - 12,745
Minority interest......... - 52 191 - - - -
------------ ------------ ------------ ----------- ------------ ------------ ------------
Net income (loss)(f)....... $ (1,871) $ 5,817 $ 5,038 $ 3,775 $ (8,760) $ (7,596) $(14,135)
============ ============ ============ =========== ============ ============ ============
Other Data:
- ---------------------------
EBITDA, as defined(g)...... $23,822 $ 29,203 $ 38,041 $ 36,017 $ 32,108 $ 32,108 $6,675
Capital expenditures(h).... 6,750 10,665 8,428 19,508 5,523 5,523 746
Ratios of earnings to
fixed charges(i).......... - 1.36x 1.53x 1.17x - - -
<CAPTION>
As of As of December 31, 1996
-------------------------------------------------------- -----------------------
March 31,
December 31, December 31, December 30, December 29, ------------
1992 1993 1994 1995 Actual Pro Forma(b) 1997
------------ ------------ ------------ ------------ ------ ------------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
- -------------------
Total assets............... $179,733 $ 190,848 $206,148 $221,699 $209,100 $230,065 $229,584
Total debt................. 149,484 143,843 161,459 168,392 166,727 191,039 185,210
Total mandatorily
redeemable preferred
partnership
interests(j)............. - - - - - 19,600 19,891
Total partners' capital
(deficit)(j).............. (5,343) 3,042 7,968 11,925 3,165 (18,776) (19,814)
Working capital............ (22,365) (156,614) (8,922) (9,607) (13,863) 7,663 1,163
Cash Flow Presentation:
- ---------------------------
Cash provided by operating
activities................ n/a $ 14,792 $ 13,084 $ 12,766 $ 14,668 - $ 6,403
Cash used in investing
activities................ n/a (11,045) (18,995) (21,130) (5,337) - (1,106)
Cash provided by (used in)
financing activities...... n/a 938 2,441 10,229 (11,837) - 9,825
</TABLE>
(See footnotes on the following page)
39
<PAGE>
Notes to Selected Historical and Pro Forma Consolidated
Financial Data
(a) The selected data have been prepared by combining the unaudited results for
the four months ended April 30, 1992 with the audited results for the eight
months ended December 30, 1992.
(b) Pro forma income statement data as if the Transactions had occurred on
December 30, 1995. Pro forma balance sheet data as if the Transactions had
occurred on December 31, 1996. The pro forma data do not give effect to the
management organizational changes which would include the addition of
certain new management fees and the removal of certain employees and
existing management fees. Had such adjustments been made, management
believes that there would not have been a material change in the Company's
results of operations. See "Pro Forma Financial Information" and "Certain
Relationships and Related Transactions."
(c) Other net revenues include franchisee fees, income from video poker
machines, discounts on the purchase of franchisee receivables, fuel hauling
revenues, fast food restaurant revenues, phone commissions and revenues from
the motel and recreational vehicle park.
(d) Includes amortization of deferred financing costs.
(e) Write-off of debt restructuring costs associated with retired debt. Pro
forma data exclude the write-off of deferred financing costs which the
Company incurred upon the repayment of borrowings under the Old Credit
Agreement and the repurchase of Old 12 1/2% Notes and Debt Warrants.
(f) No provision for income taxes is reflected in the consolidated financial
statements because the Company is a partnership for which taxable income and
deductions are passed through to the individual partners.
(g) EBITDA, as defined, represents operating income before deducting interest
expense and depreciation and amortization. EBITDA, as defined, is not a
calculation based on generally accepted accounting principles; however, the
amounts included in the EBITDA, as defined, calculation are derived from
amounts included in the historical or pro forma statements of income. In
addition, EBITDA, as defined, should not be considered as an alternative to
net income or operating income, as an indicator of the operating performance
of the Company or as an alternative to operating cash flows as a measure of
liquidity. EBITDA, as defined, results for fiscal 1996 and the year ended
December 31, 1996 exclude certain one-time charges related to the
Transactions and the change in management and operations. Included in the
one-time charges were $2.5 million related to severance and hiring costs;
$1.4 million in obsolete inventory reserves, included in cost of sales; and
$.5 million in insurance related costs.
(h) Capital expenditures primarily represent the cost of new Stopping Centers
and improvements of existing Stopping Centers. Capital expenditures related
to new Stopping Centers were $2.5 million, $7.0 million, $0, $13.8 million
and $0 for the twelve months ended December 31, 1992 and the years ended
December 31, 1993, December 30, 1994, December 29, 1995, and December 31,
1996, respectively, and $.7 million for the three months ended March 31,
1997.
(i) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as net income plus fixed charges. Fixed charges consist of
interest expense (including amortization of debt issuance costs) and the
portion of rental expense that is representative of the interest factor
(deemed to be one-third of minimum operating lease rentals). For the twelve
months ended December 31, 1992, earnings were insufficient to cover fixed
charges by $1.9 million. For the year ended December 31, 1996, earnings were
insufficient to cover fixed charges on a historical and pro forma basis by
$8.8 million and $7.6 million, respectively. For the three months ended
March 31, 1997, earnings were insufficient to cover fixed charges by $14.1
million.
(j) Reflects the 9.5% mandatorily redeemable preferred partnership interests
owned by Mobil Oil ($12.0 million) and 8.0% mandatorily redeemable preferred
partnership interests owned by the Cardwell Group ($7.6 million) which have
reduced partner's capital. Payment of preferred returns are subject to
restrictive provisions of the Indenture and the New Credit Agreement. See
"Capitalization" and "Security Ownership of Certain Beneficial Owners and
Management."
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Recapitalization
On January 30, 1997, the Company consummated a transaction entered into
in October 1996, in which Chartwell, Mobil Long Haul and the Cardwell Group
entered into an agreement under which Chartwell and Mobil Long Haul invested
$20.7 million and $15.0 million, respectively, in order to directly acquire the
partnership interests of the Company owned by the Fremont Partners for
approximately $25.6 million and invested approximately $10.1 million in the
Company. The Cardwell Group maintained its capital investment in the Company.
Kirschner invested $1.0 million in the Company. The common partnership interests
of the Company are owned by Chartwell (approximately 50.8%), the Cardwell Group
(approximately 39.9%), Mobil Long Haul (approximately 7.4%), and Kirschner
(2.0%), the 9.5% mandatorily redeemable preferred partnership interests are
owned by Mobil Long Haul ($12.0 million) and the 8.0% mandatorily redeemable
preferred partnership interests are owned by the Cardwell Group ($7.6 million).
Chartwell and the Cardwell Group own both general and limited partnership
interests and Mobil Long Haul and Kirschner own only limited partnership
interests. Mobil Oil and the Company also entered into certain supply and
marketing agreements.
As part of the Transactions, the Company issued $135 million of the Old
Notes and made a tender offer for all of, and repurchased approximately 94% of,
its Old 12 1/2% Notes and approximately 99% of the outstanding Debt Warrants.
The Company also replaced its senior collateralized credit facility with
an amended and restated senior collateralized credit facility. The New Credit
Agreement consists of a $25.0 million Revolving Credit Facility, a $14.0 million
Term Loan A, a $30.0 million Term Loan B and a $40.0 million Expansion Facility.
The New Credit Agreement is collateralized by substantially all of the Company's
assets and the partnership interests of Mobil Long Haul and Chartwell and
guaranteed by each of the Company's subsidiaries, which guarantees in turn are
collateralized by substantially all of such subsidiaries' assets.
In the first quarter of 1997, the Company recognized an extraordinary
charge of $12.7 million relating to amendment of the Old Credit Agreement,
retirement of the Old 12 1/2% Notes and Debt Warrants and the write-off of
deferred financing costs.
Overview
The following table sets forth the development of the Company's Stopping
Center network since 1992.
<TABLE>
<CAPTION>
Open at
-------
Open at the end of March 31,
---------------------------- ---------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Company-operated Stopping
Centers:
Full-sized............... 20 21 21 23 23 23
Petro:2 :................ 3 3 3 3 3 3
Franchised................. 12 12 13 15 16 16
Independently operated..... 1 1 1 - - -
---- ---- ---- ---- ---- ----
Total Stopping Centers... 36 37 38 41 42 42
==== ==== ==== ==== ==== ====
</TABLE>
All of the Stopping Centers opened since January 1, 1993 were newly
constructed facilities, except Medford, Oregon, where the Company purchased an
existing truck stop and converted it into a Stopping Center.
41
<PAGE>
In addition to the new full-sized facilities, the Company opened new Petro:Lubes
at its San Antonio, Beaumont and Medford locations in June 1994, January 1995
and April 1996, respectively. At March 31, 1997, there were no new Company-
operated facilities under construction. However a new franchisee location
located in Scranton, Pennsylvania opened on May 27, 1997. The approximate
construction cost of a new stopping center (exclusive of land) is between $7.0
and $9.5 million.
The Company has never closed a Stopping Center and has no current plans
to do so.
Revenues. Historically, the Company's revenues at each of its full-sized
Stopping Centers were recorded through the following divisions: diesel fuel
island, restaurant, Petro:Lube and travel and convenience store. Beginning with
the first quarter of 1997 and in connection with new management, the
presentation format for results of operation has been changed to reflect
revenues from fuel, non-fuel and restaurant. Fuel includes the sale of diesel
and gasoline. Non-fuel includes the sale of merchandise and offering of services
including truck weighing scales, showers, laundry, video games and other
operations. Restaurant operations include the Iron Skillet and certain fast-food
operations. The presentation will allow management to focus more closely on the
major sources of revenues of the business. The Company's Petro:2 division
includes all activities at its Petro:2 units except for revenues from the
Petro:Lube located at the Petro:2. Sales at the Company's store located in the
fuel island building, as well as its revenues from the truck weighing scales,
are included in the results of the diesel fuel island division. The restaurant
division includes the freestanding Iron Skillet restaurant in Arlington, Texas.
The travel and convenience store division includes the Company's revenues from
other activities at the Stopping Center, including showers, laundry, vending
machines, video games and other retail activities, as well as gasoline and auto
diesel sales. Other includes franchisee fees and income from video poker
machines, discounts on franchisee receivables, fuel hauling, fast food
restaurants, motel and RV park.
In May 1994, the Company purchased the rights to certain revenues (the
"Coinage Arrangement") from certain specified activities (pay telephone
services, video games and rentals of retail space) at 14 Stopping Centers.
The Company's fuel revenues and cost of sales include significant
amounts of federal and state motor fuel taxes. Such taxes were $140,460,000,
$150,360,000 and $175,873,000 for the years ended December 30, 1994, December
29, 1995 and December 31, 1996, respectively, and $43,556,000 for the three
months ended March 31, 1997.
Taxes. No provision for income taxes is reflected in the financial
statements as the Company is a partnership for which taxable income and tax
deductions are passed through to the partners.
42
<PAGE>
<TABLE>
<CAPTION>
Supplemental Data
Three
months
Year ended Percent Year ended Percent Year ended Percent ended Percent
December 30, of net December 29, of net December 31, of net March 31, of net
1994 revenues 1995 revenues 1996 revenues 1997 revenues
---- -------- ---- -------- ---- -------- ---- --------
(unaudited)
(in thousands)
--------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues:
Diesel fuel island $318,761 65.3% $351,136 65.9% $435,071 68.3% $113,706 69.9%
Restaurant 43,877 9.0 47,387 8.8 47,335 7.4 11,728 6.9
Petro:Lube 34,160 7.0 36,198 6.8 44,082 6.9 10,568 6.5
Travel and convenience
store 54,733 11.2 61,590 11.6 67,104 10.5 15,583 9.6
Petro:2 26,798 5.5 27,734 5.2 33,584 5.3 8,937 5.5
Other 9,564 2.0 8,970 1.7 9,881 1.6 2,043 1.6
-------- ------ -------- ------ -------- ------ -------- ------
Total $487,893 100.0% $533,015 100.0% $637,057 100.0% $162,565 100.0%
======== ====== ======== ====== ======== ====== ======== ======
Operating Contribution:
Diesel fuel island $ 16,836 5.3% $ 16,357 4.7% $ 16,461 3.8% $4,172 3.7
Restaurant 7,655 17.4 8,074 17.0 7,534 15.9 1,529 13.6
Petro:Lube 7,636 22.3 7,278 20.1 7,863 17.8 1,972 18.7
Travel and convenience
store 4,357 8.0 5,988 9.7 4,569 6.8 1,023 6.6
Petro:2 1,385 5.2 1,150 4.1 853 2.5 254 2.8
Other 11,620 n/a 9,223 n/a 6,824 n/a 1,313 n/a
-------- ----- -------- ------ -------- ------ -------- ------
Total $ 49,489 10.1% $ 48,070 9.0% $ 44,104 6.9% $10,663 6.6%
======== ====== ======== ====== ======== ====== ======== ======
Employee severance, benefit
and placement expenses -- -- 2,534 --
General and administrative
expenses 11,448 12,053 13,925 3,988
Recapitalization costs -- -- 2,938 --
Depreciation and amortization 8,851 11,144 12,204 2,995
Interest expense 18,711 21,098 21,263 5,070
Income before extraordinary
item 10,479 3,775 (8,760) (1,390)
Extraordinary item 5,250 -- -- 12,745
Minority interest 191 -- -- --
-------- -------- --------- ---------
Net income (loss) (1) $ 5,038 $ 3,775 $ (8,760) $(14,135)
======== ======== ========= =========
- ----------------------
</TABLE>
(1) Net income for 1996 is after certain one-time charges related to the
Transactions and the change in management and operations. Included in the
one-time charges to operating income were $2.5 million related to
severance and hiring costs; $1.4 million in obsolete inventory reserves
(included in cost of sales), and $.5 million in insurance related costs.
Costs incurred in connection with the Transactions amounted to $2.9
million.
43
<PAGE>
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 29,
1996
Overview. The Company's new management team assumed organizational
control on January 30, 1997. As a result, many new initiatives and other
organizational changes could not begin to be implemented until after that time.
During the month of February, new senior management personnel began overseeing
each of the Iron Skillet Restaurant division, Travel Center division and Diesel
Fuel Island division. February also marked the beginning of the planned
management transition, and many planned strategic initiatives began to be
implemented in March. Operating results for the first three months of 1997
reflected the changes occurring in the organization and lack of focus from prior
management. January results were significantly below the same month of the prior
year. February results reflected the management transition and March results
exceeded prior year levels reflecting the improved focus on operations due in
part to the management changes. The Company's net revenues increased 9.9% to
$162,565,000 in the first quarter of 1997 from $147,925,000 in the first quarter
of 1996. This increase was due principally to increases in fuel gallons,
increases in fuel selling price per fuel gallon and increases in non fuel sales.
The increase in revenues were off set by higher product costs and slightly
higher operating expenses over the prior year period. General and administrative
expenses increased to approximately $4.0 million from $3.1 million in the prior
year period. This increase was principally due to an increase in the accrual of
certain employee expenses in this year's first quarter and certain transition
costs for new programs in the current year.
Fuel. Revenues increased 12.0% to $123,739,000 in 1997 from $110,342,000
in 1996. Fuel revenues increase was due to an increase in fuel volume combined
with an approximate 7.1% increase in selling price per fuel gallon sold. The
increased selling prices was offset by increases in the wholesale costs of
product. Gross margin on fuel was $8,622,000 for the three months ended March
1997 compared to $8,445,000 for the prior year period. On a per gallon basis,
margins declined approximately 3.6% compared to the prior year.
Non-Fuel. Revenues increased 12.4% to $27,098,000 in 1997 from
$25,677,000 in 1996. The increase in revenues was due primarily to increased
sales at the Petro:Lube facilities combined with improved merchandise sales in
the Company's retail stores.
Restaurant. Revenues were basically flat to slightly down for the
current year period compared to the prior year. Management implemented certain
menu changes at its Iron Skillet Restaurants in mid March designed to enhance
revenues. Gross margin in the restaurants improved by approximately one percent
due in part to management focus on costs and implementation of menu
changes.
Costs and Expenses. Total costs and expenses increased 10.9% from
$143,270,000 in the first quarter of 1996 to $158,885,000 in the first quarter
of 1997 and, as a percentage of net revenues, from 96.9% in the 1996 period to
97.7% in the comparable period of 1997. Costs of sales increased $14,100,000 or
12.0% from 1996 to 1997 due to higher fuel and product costs for both fuel and
non-fuel revenue streams. Operating expenses increased $567,000 or 2.9% to
$20,256,000 in 1997. General and administrative expenses increased to
approximately $4.0 million from $3.1 million in the prior year period. This
increase was principally due to an increase in the accrual of certain employee
expenses in this year's first quarter and certain transition costs for new
programs in the current year.
Interest Expense. Interest expense decreased $260,000 to $5,070,000
during the first quarter of 1997 due to lower interest rates and lower
amortization of debt issuance costs.
Loss before extraordinary item. The Company reported loss before
extraordinary item of $1,390,0000 in 1997 as compared to $675,000 for 1996.
44
<PAGE>
Extraordinary item. Extraordinary item reflects a charge to earnings of
approximately $12.7 million relating to amendment of the Old Credit Agreement,
retirement of Old Notes and Debt Warrants and the write-off of deferred debt
issuance costs.
Net loss. Net loss reflects loss of $14,135,000 for 1997 after the
extraordinary item compared to a reported net loss of $675,000 for 1996.
Year ended December 31, 1996 Compared to Year ended December 29, 1995
Overview. The Company's net revenues increased $104,042,000 or 19.5% to
$637,057,000 for the year ended December 31, 1996. Revenues from comparable
units contributed $94,273,000 or 90.6% of the increase. A Stopping Center is
considered a "comparable unit" as to a particular period in the current year if
it was open during the same period of the prior year. The increase in 1996 net
revenues was due principally to a 13.3% increase in diesel gallons sold, an
11.2% increase in fuel sales price per diesel gallon sold and a 21.8% increase
in Petro:Lube sales. Although net revenues increased in 1996, operating
contribution, which is defined as net revenues less cost of sales and operating
expenses, declined 8.3%. This was due to a reduction in gross margin from 22.7%
of net revenues in 1995 to 19.7% of net revenues in 1996 combined with an 11.6%
increase in operating expenses. The decline in gross margin percentage and
increase in operating expenses is explained in the following presentation of the
profit centers.
Diesel Fuel Island. Revenues increased 23.9% to $435,071,000 in 1996
from $351,136,000 in 1995. The increase in revenues was attributable
predominately to revenues of $6,279,000 from Ocala and Medford locations and a
$77,656,000 or 22.3% increase in revenues from comparable units, due primarily
to higher fuel volume which increased 13.2% combined with a higher selling price
per gallon which increased 11.2%. Fuel margin per gallon decreased by 3.7% in
the period. Operating contribution was flat with 1995 due to higher operating
expenses, offset by an increase in gross margin as a result of higher fuel
volume.
Restaurant. Revenues of $47,335,000 were flat with the 1995 period.
Revenues from new locations in Ocala and Medford contributed $901,000 while
revenues from comparable units were down a similar amount. Operating
contribution declined $540,000 to $7,534,000 in 1996. On a comparable unit
basis, operating contribution declined $660,000 in the 1996 period. The decline
in operating contribution was attributable to the decline in revenues partially
offset by a decline in cost of sales, while operating expenses were flat.
Petro:Lube. Revenues increased $7,884,000 to $44,082,000 in the year
ended December 31, 1996 from $36,198,000 in 1995. The increase was due to growth
in comparable units of $6,576,000 or 18.2% combined with a $1,308,000 increase
due to new locations in Franklin and Medford. Operating contribution increased
$585,000 due to a $2,726,000 or 13.7% increase in gross margin offset by a
$2,141,000 increase in operating expense, primarily due to higher employee
expense associated with increased revenues.
Travel and Convenience Stores. Revenues increased $5,514,000 to
$67,104,000 in 1996 from $61,590,000 in the 1995 period. The increase was due to
a $3,965,000 or 6.4% increase in revenues at comparable units combined with
revenues of $1,549,000 from the Ocala and Medford locations. The increased
revenue at comparable units was due to increased fuel sales of $2,078,000 due to
a 8.0% increase in volume and $1,887,000 due to a higher per gallon sales price
of fuel of 7.0%. Operating contribution declined $1,419,000. The decline was due
to decreased fuel margins combined with higher operating expenses.
Petro:2. Revenues increased $5,850,000 to $33,584,000 in 1996 from
$27,734,000 in 1995. The increase was attributable to a 16.1% increase in fuel
gallons sold combined with a 10.1% increase in average price per gallon sold.
Operating contribution declined $297,000 despite the increase in revenues, due
to a 3.3% decline in fuel margins per gallon combined with an increase in
operating expenses.
45
<PAGE>
Other. Revenues increased $911,000 to $9,881,000 in 1996 from $8,970,000
in 1995. The increase was attributable primarily to increased revenues of
$1,117,000 from the fast food locations and the Medford motel and recreational
vehicle park. The increase was offset slightly by declines in coinage revenue
and video poker at the Company's two Louisiana locations. During 1996, Louisiana
enacted a statute requiring the cessation of video poker operations unless the
parish in which the operations were conducted voted to allow the continued
operation of video poker machines. On November 5, 1996, the parish in which the
Shreveport unit is located voted to continue to allow video poker operations,
while the parish in which the Hammond unit is located voted to disallow video
poker operations. The phase out period for the Hammond location is through June
1999. During the year ended December 31, 1996, the Hammond location generated
approximately $841,000 of revenue from video poker.
Costs and Expenses. Total costs and expenses increased 22.3% from
$508,142,000 in 1995 to $621,616,000 in 1996. The increase related to higher
cost of sales due to higher fuel costs, costs associated with new locations,
increase in general and administrative expense, increase in depreciation and
amortization and employee severance, benefit and placement expenses. Increase in
cost of sales was attributable in part to adjustments related to establishment
of inventory reserves of approximately $1,400,000. General and administrative
expenses increased $1,872,000 due to increased employee expense and professional
fees associated with the management changes. Depreciation and amortization
increased due to additional 1996 capital expenditures combined with full year
depreciation of the Medford and Ocala locations. Employee severance, benefit and
placement expenses relate primarily to severance costs of old management and
placement and relocation of new management as a result of the Transactions.
During the fourth quarter of 1996, the Company recognized certain one-
time charges of $2.5 million related to severance and hiring costs, $1.4 million
in obsolete inventory and $.5 million in insurance related costs. Prior to
implementation of the Merchandise Management System (MMS) during 1996, the
Company did not have a system capable of accumulating data related to movement
of individual inventory items. With the implementation of the MMS, the Company
was able to specifically identify individual inventory item movement and as a
result, has established a new policy related to the reserve for excess
inventory. This policy was established at December 31, 1996.
Recapitalization Costs. This represents costs incurred by the Company in
1996 associated with the Transactions. Costs include legal and professional fees
combined with the investment banking fees paid with respect to the Transactions.
Interest Expense. Interest expense of $21,263,000 in 1996 was flat
compared to 1995, due to lower average level of debt outstanding offset by an
increase in the interest rate.
Net Income. The Company's net income declined $12,535,000 to a reported
net loss of $8,760,000 in 1996 compared to reported net income of $3,775,000 in
1995.
Year ended December 29, 1995 Compared to Year ended December 30, 1994
Overview. The Company's net revenues increased $45,122,000 or 9.2% to
$533,015,000 for the year ended December 29, 1995. Revenues from units opened
before 1994 ("comparable units") contributed $21,097,000 or 4.3% of the
increase, coupled with revenues from new locations in Medford, Oregon and Ocala,
Florida, which contributed an additional 4.9% or $24,025,000 in revenues during
1995. Although net revenues increased 9.2% in 1995, due principally to increases
in fuel volume and higher travel and convenience store sales, operating
contribution, which is defined as net revenues less cost of sales and operating
expenses, declined 2.9% to $48,070,000. This was due to a reduction in gross
margin from 23.5% of net revenues in 1994 to 22.8% of net revenues in 1995
combined with a 12.4% increase in operating expenses in total and a 4.7%
increase in operating expenses on a comparable unit basis. The decline in gross
margin percentage and increase in operating expenses is explained in the
following presentation of the profit centers.
46
<PAGE>
Diesel Fuel Island. Revenues increased 10.2% to $351,136,000 in 1995
from $318,761,000 in 1994. The increase in revenues was attributable in part to
revenues from the Medford and Ocala locations which contributed 5.0% or
$16,029,000 of revenues and a 5.2% or $16,345,000 increase in revenues from
comparable units. Operating contribution decreased by 2.9% in total and 5.4% on
a comparable unit basis. The decline in operating contribution was due to a 6.1%
reduction in fuel margin per gallon as a result of a shift in margin mix to
higher volume fleet business which is generally "cost plus" or requires higher
levels of discounts. In addition to lower fuel margins, higher levels of
operating expense, primarily third party billing fees, contributed to the
decline.
Restaurant. Revenues increased 8.0% to $47,387,000 in 1995 from
$43,877,000 in 1994. Of the 8.0% increase, 5.9% came from the two new locations
and 2.1% came from comparable units. Operating contribution increased 5.5% but
declined as a percent of revenue. Gross margin as a percent of revenue declined
slightly due to higher produce and meat costs. Operating expenses increased 7.5%
in total, but were flat with 1994 on a comparable unit basis.
Petro:Lube. Revenues increased 6.0% to $36,198,000 in 1995 from
$34,160,000 in 1994. The increase was due to $1,354,000 of revenues from new
lubes at the Beaumont, Texas location, which opened in January 1995 and the
Ocala, Florida location, which opened June 1995, combined with a 2.0%
improvement in net revenues from comparable units. Operating contribution
declined 4.7% in total and 7.8% on a comparable unit basis. This was primarily
due to an 11.0% price increase in oil costs, which was absorbed by the Company
and a reduction in tire margins in an effort to stimulate tire sales.
Travel and Convenience Stores. Revenues increased 12.5% to $61,590,000
in 1995 from $54,733,000 in 1994. The increase was due to revenues of $3,788,000
from the new locations in Medford, Oregon and Ocala, Florida combined with a
5.6% or $3,069,000 increase in revenues at comparable units. Of the revenue
increase at comparable units, approximately $832,000 was Coinage Arrangement
revenue reported as Other in 1994. Operating contribution increased 37.4% in
total and 34.9% on a comparable unit basis. Excluding the revenue from the
Coinage Arrangement, operating contribution increased 18.3% due to improved fuel
margins in 1995.
Petro:2. Revenues increased 3.5% to $27,734,000 in 1995 as compared to
$26,798,000 in 1994, attributable to a 3.8% increase in fuel gallons sold.
Despite the increase in revenues, the operating contribution declined $235,000
due to lower fuel margins (as described above in the fuel island section)
combined with an increase in operating expense.
Other. Other revenues declined 6.3%, from $9,564,000 for the year ended
December 30, 1994 to $8,970,000 for the year ended December 29, 1995, due to a
$924,000 decline in video poker revenues and a reclassification of revenues from
the Coinage Arrangement of $832,000 for 1995. The declines were partially offset
by revenues from the motel and recreational vehicle park at the Medford location
and revenues from the fast food establishments at three locations. The video
poker decline was due to increased competition from other video poker operations
and riverboat gambling operations, as well as an increase in the tax payable to
the state of Louisiana. The operating contribution decline of $2,397,000 was due
primarily to the reduction of revenues from video poker and the Coinage
Arrangement, which have no direct expense associated with them, and are a direct
reduction of operating contribution.
Costs and Expenses. Total costs and expenses increased 10.8% from
$458,703,000 for the year ended December 30, 1994 to $508,142,000 for the year
ended December 29, 1995 and, as a percentage of net revenues, from 94.0% in the
1994 period to 95.3% in the comparable period of 1995. Costs of sales increased
$38,458,000 or 10.3% from 1994 to 1995 due primarily to $18,523,000 associated
with the new locations and an increase in costs in the diesel fuel island,
restaurants and Petro:lubes on a comparable unit basis. Operating expenses
increased $8,084,000 or 12.4% to $73,052,000 in 1995. This increase was due
primarily to $4,555,000 in operating expenses from the Medford and Ocala
locations combined with a $3,529,000 increase in comparable units, which was
primarily in the diesel fuel islands, Petro:lube, and travel and convenience
stores. General and administrative
47
<PAGE>
expenses increased $605,000 or 5.3% from $11,448,000 in 1994 to $12,053,000 in
1995. As a result of the above, operating income declined 14.8% from $29,190,000
in the 1994 period to $24,873,000 in the 1995 period.
Depreciation and Amortization. Depreciation and amortization of the
Company relates to depreciation of the physical assets of the Company and the
amortization of the Coinage Arrangement and other assets. The increase of
$2,293,000 from 1994 to 1995 relates to a full year amortization of the Coinage
Arrangement combined with an increase in depreciation expense related to the new
sites in Medford and Ocala.
Interest Expense. Interest expense increased $2,387,000 during 1995 as
compared to 1994, due primarily to higher levels of debt outstanding, higher
amortization of debt issuance costs related to a full year and higher interest
rates during the year.
Extraordinary Charge. In connection with its Refinancing completed in
May 1994 (the "1994 Refinancing"), the Company incurred an extraordinary charge
of $5,250,000 for the write off of (i) the unamortized debt issuance costs
associated with the Company's prior revolving credit facility (the "Congress
Revolver"), and certain mortgage notes payable to various lenders (the "Old
Mortgage Facilities") and (ii) the prepayment premium paid in connection with
the repayment of certain of these facilities.
Net Income. Net income of the Company decreased to $3,775,000 in 1995
from $5,038,000 in 1994 while income before extraordinary item and minority
interest declined from $10,479,000 in 1994 to $3,775,000 in 1995. The decline
was due to higher interest expense combined with a reduction in operating income
due to higher costs of sales and operating expenses and a $2,293,000 increase in
depreciation and amortization from 1994 to 1995.
Liquidity and Capital Resources
Capital expenditures totaled $5,523,000 for the year ended December 31,
1996, $19,508,000 for the year ended December 29, 1995 and $746,000 for the
three months ended March 31, 1997. The Company has planned capital expenditures
of approximately $10.0 million in 1997. Included in capital expenditures for
1996 were funds spent on the construction of the new lubes in Medford, Oregon
and Franklin, Kentucky. Capital expenditures in 1995 included funds spent on the
acquisition of Medford, Oregon and the construction of the Ocala, Florida
Stopping Center.
At March 31, 1997, the Company had availability under the Revolving
Credit Facility of approximately $21,000,000.
Acquisition. In January 1995, the Company acquired an existing truck
stop in Medford, Oregon. The Medford facility is designed similarly to the
Company's Stopping Centers with a diesel fuel island, restaurant, travel store
and free-standing convenience store. In addition, this location has a motel and
RV park. The Company constructed a Petro:Lube at this location which opened
early in the second quarter of 1996. The Company utilized a portion of its
revolving line of credit under the Old Credit Agreement to fund the construction
of the Petro:Lube.
Expansion. In June 1995, the Company opened its Ocala, Florida location.
The Ocala location is a typical Stopping Center with the addition of a free
standing Wendy's (branded food restaurant) that opened in October 1995. In June
1996, the Company opened its first stand-alone Petro:Lube operation. The
construction costs of the Ocala, Florida unit and new stand-alone Petro:Lube
were funded by a combination of borrowing on the revolving line of credit under
the Old Credit Agreement and internally generated funds.
Insurance. The Company up to certain limits pays its own workers'
compensation and general liability claims. The Company paid claims aggregating
$1,302,000 and $331,000 relating to workers' compensation and general liability,
respectively, for 1996 and $638,000 and $43,000 relating to workers'
compensation and general liability, respectively, for the three months ended
March 31, 1997. The Company believes it provides an accrual adequate to cover
both known and incurred but not reported claims.
48
<PAGE>
The Company had positive working capital of $1,163,000 at March 31,
1997, and negative working capital of $13,863,000 at December 31, 1996,
$9,607,000 at December 29, 1995 and $8,922,000 at December 30, 1994. Negative
working capital is normal in the truckstop industry. The truckstop business is
an industry that generates a large amount of cash business with relatively low
levels of inventories and receivables, as a percentage of revenues. A
substantial majority of the Company's sales are cash (or the equivalent in the
case of credit card sales or sales paid for by check on a daily basis by third-
party billing companies). Diesel fuel inventory turns every two to three days,
and store merchandise inventories normally turn every 90 days. Based upon the
above, the overall inventory turns approximately every 13 days.
While the Company continues to utilize interest rate swap agreements to
manage interest rate exposure, the historical cost thereof has not been material
to the Company.
Recent Developments
In connection with the Transactions, the Old Credit Agreement was repaid
with borrowings under the New Credit Agreement, the net proceeds from the sale
of the Old Notes, a portion of the proceeds of the Equity Investment and the
proceeds of the Kirschner Investment. The New Credit Agreement provides for a
$25.0 million Revolving Credit Facility, a $40.0 million Expansion Facility, a
$14.0 million Term Loan A and a $30.0 million Term Loan B.
The Revolving Credit Facility permits the Company to borrow, repay and
reborrow up to $25.0 million at any time until the fifth anniversary of the
Closing Date, the proceeds of which may be used for working capital and other
corporate purposes. Up to $5.0 million of the Revolving Credit Facility is
available for the issuance of standby and documentary letters of credit. The
Expansion Facility permits the Company to borrow, repay and reborrow up to $40.0
million for the acquisition and development of new Stopping Centers and stand-
alone Petro:Lubes at any time until the third anniversary of the Closing. Term
Loan A is repayable in 15 quarterly installments, commencing on September 30,
1997. Term Loan B is repayable in 26 quarterly installments commencing on
September 30, 1997.
Aggregate yearly term loan principal payments under the New Credit
Agreement will be as follows: (i) $2.0 million in 1997; (ii) $3.0 million in
1998; (iii) $4.5 million in 1999; (iv) $5.5 million in 2000; (v) $1.5 million in
2001; (vi) $13.5 million in 2002; and (vii) $14.0 million in 2003.
Borrowings under the New Credit Agreement are collateralized by
substantially all of the Company's assets and the partnership interests of Mobil
Long Haul and Chartwell and guaranteed by each of the Company's subsidiaries,
which guarantees in turn are collateralized by substantially all of such
subsidiaries' assets.
Management of the Company believes that internally generated funds,
together with amounts available under the Revolving Credit Facility, will be
sufficient to satisfy its cash requirements for operations through 1997 and the
foreseeable future thereafter. The Company also expects that expansion and
future acquisitions would be financed from funds generated from operations,
borrowings under the Revolving Credit Facility and the Expansion Facility and
additional financings.
Of the Company's 43 Stopping Centers, 17 are operated under franchise
agreements with franchisees, with certain franchisees operating multiple
locations. During 1996, the Company's franchisees expressed dissatisfaction with
certain of the terms of their franchise agreements and the franchisees'
relationship with the Company. While management has held discussions with the
franchisees and, based on these discussions, believes that the Company's
relationship with the franchisees will improve, there can be no assurance that
such improved relationship will be forthcoming. In addition, the original terms
of the franchise agreements with respect to two Stopping Centers, representing
approximately 1.2% of the Company's operating contribution for the year ended
December 31, 1996, expired in September 1995 and March 1996, respectively, and
each has been extended by letter agreements through June 1997. Those two
franchisees were unwilling to enter long-term extensions of their franchise
arrangements prior
49
<PAGE>
to consummation of the Transactions. The Company is currently in the process of
negotiating new formal franchise agreements with all of its franchisees,
including the renewal contracts with these two franchisees. Based on discussions
with the Company's franchisees, management believes that all of the Company's
franchisees will enter into new franchise agreements with the Company prior to
the end of 1997. With respect to its two expired franchise agreements, based on
discussions with these two franchisees, management believes that the two
franchises will enter into franchise agreements with the Company by the end of
1997. Until such time that a new franchise agreement has been negotiated, the
Company intends to extend these two franchise agreements by letter agreement. If
the expired franchise agreements are not renewed, or if any of the other
franchise agreements cease to be operative, the Company's ability to enter into
arrangements with other franchisees could be adversely affected. This could
result in an adverse effect on franchise revenues of the Company as well as an
adverse effect on the Company-operated Stopping Centers. See "Business --
Franchises." If the Company is successful in entering into new contracts with
all or most of its current franchisees, management does not believe that the new
franchise agreements will have a material effect on the Company's results of
operations or liquidity.
Environmental
Accruals for environmental matters are recorded in operating expenses
when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. The measurement of environmental
liabilities is based on an evaluation of currently available facts with respect
to each individual site and considers factors such as existing technology,
presently enacted laws and regulations and prior experience in remediation of
contaminated sites. Accrued liabilities are exclusive of claims against third
parties and are not discounted.
The Company is subject to contingencies pursuant to environmental laws
and regulations that in the future may require the Company to take action to
correct the effects on the environment of prior disposal practices or releases
of chemical or petroleum substances by the Company or other parties. The Company
has accrued for certain environmental remediation activities consistent with the
policy set forth in Note 2 to the consolidated financial statements. At December
31, 1996, such accrual amounted to approximately $217,000 and, in management's
opinion, was appropriate based on existing facts and circumstances. Under the
most adverse circumstances, however, this potential liability could be
significantly higher. In the event that future remediation expenditures are in
excess of amounts accrued, management does not anticipate that they will have a
material adverse effect on the consolidated financial position or results of
operations of the Company. At December 31, 1996, the Company has recognized
approximately $256,000 in the consolidated balance sheet related to recoveries
of certain remediation costs from third parties.
The Company plans to spend approximately $300,000 in 1997 to achieve
compliance with existing regulations that have future compliance dates. During
1994, 1995 and 1996, the Company's expenditures for environmental matters were
$151,000, $261,000 and $180,000, respectively.
50
<PAGE>
BUSINESS
The Company is a leading operator of large, full-service truck stops
with a nationwide network of 43 facilities known as "Petro Stopping Centers."
The Stopping Centers, located in 28 states, are recognized as premier facilities
in the industry and, according to recent surveys, the Company's network is the
preferred truck stop chain of professional drivers. The Company has built this
reputation by providing a high level of customer service in a consistently clean
and friendly environment. Each Stopping Center offers a broad range of products,
services and amenities, including diesel fuel, gasoline, home-style restaurants,
truck preventive maintenance centers ("Petro:Lubes") and travel and convenience
stores to commercial truck drivers, other highway motorists and local residents.
Of the 43 Stopping Centers, 17 are operated by franchisees who are required to
meet the Company's high standards of quality and service. For the year ended
December 31, 1996, the Company generated net revenues of approximately $637.1
million, EBITDA, as defined, of approximately $32.1 million and net loss of
approximately $8.8 million. For the three months ended March 31, 1997, the
Company generated net revenues of approximately $162.6 million, EBITDA, as
defined, of approximately $6.7 million and net loss of approximately $14.1
million, which included an extraordinary loss of $12.7 million.
The Company's business was founded by Jack Cardwell, who opened the
Company's first truck stop in El Paso, Texas in 1975. Until 1992, the Company
conducted its operations through a variety of entities owned by Mr. Cardwell and
members of his family. Effective as of April 30, 1992, affiliates of the Fremont
Partners made an equity investment in the business through two Delaware limited
partnerships, Petro PSC Properties, L.P. ("Petro Properties") and Petro PSC,
L.P. ("Petro PSC"). Effective December 31, 1994, Petro Properties and its
principal operating subsidiary, Petro PSC, were merged and the name of the
surviving partnership was changed to Petro Stopping Centers, L.P., a Delaware
limited partnership.
On January 30, 1997, Chartwell and Mobil Long Haul invested $20.7
million and $15.0 million, respectively, to acquire the partnership interests of
the Company owned by the Fremont Partners for $25.6 million and to invest
approximately $10.1 million in the Company. The Cardwell Group has maintained
its capital investment in the Company. Kirschner invested $1.0 million in the
Company in connection with the Transactions. Chartwell and the Cardwell Group
own both general and limited partnership interests and Mobil Long Haul and
Kirschner own only limited partnership interests. See "The Transactions."
The Company's primary customers are commercial and private trucking
fleets and professional truck drivers that comprise the long-haul sector of the
trucking industry. The Company sells diesel fuel to over 9,000 trucking
accounts, of which 1,000 regularly purchase over 5,000 gallons of diesel fuel
per month. By serving the needs of this customer base, the Company has continued
to grow its revenues and generate stable cash flow.
In order to better leverage its reputation and fleet customer base and
to further its operating strategy, the Company has entered into a strategic
alliance with Mobil Oil under which an affiliate of Mobil Oil has invested in
the Company and all of the Company-operated diesel fuel islands will be branded
with the Mobil name and image. Management believes that this alliance will
enable the Company to enhance the services it offers to its customers and result
in increases in its traffic and volume.
The Company's marketing strategy targets customers who seek premium,
full-service facilities at competitive prices. This differentiates the Company
from truck stop chains and independently-operated facilities that offer diesel
fuel with fewer services and amenities. Industry data indicates that two-thirds
of the stops made by truck drivers are for non-fuel purposes. As a single source
provider of professional truck drivers' over-the-road needs, including fuel,
meals, truck maintenance, entertainment, showers, laundry facilities and other
amenities, the Company is well positioned to capture a large portion of
professional drivers' over-the-road expenditures. This focus has resulted in the
Company's operating contribution, which averaged over $1.7 million per Company-
operated location during the year ended December 31, 1996, being generated from
a diverse group of profit centers. During this period, operating contribution
was generated by diesel fuel islands (approximately 37%); Petro:Lubes
51
<PAGE>
(approximately 18%); restaurants (approximately 17%); and travel centers,
including travel and convenience stores and other services (approximately 28%).
The Company's facilities are designed to offer a number of benefits to truck
fleet operators and drivers. These advantages generally include well-lit and
fenced parking lots to enhance security for drivers, trucks and freight;
spacious parking areas and well-designed traffic flow to reduce truck stop
accidents; and fewer stops and out-of-route miles through the use of the
Company's one-stop, multi-service facilities. As trucking fleets consolidate and
outsource their fueling as well as maintenance requirements, the Company's
facilities continue to experience sizable growth in diesel fuel volume and
preventive maintenance revenues. For the year ended December 31, 1996, diesel
fuel volume increased by 13.2% and Petro:Lube revenues increased by 18.2% on a
comparable unit basis from the year ended December 29, 1995.
The U.S. truck stop industry is large and highly fragmented. According to
industry data, which is limited, there are approximately 2,200 truck stops
located on interstate highways. Management believes that approximately 27% are
operated by eight major national or regional truck stop chains, which accounted
for approximately 40% of the estimated 12.5 billion gallons of over-the-road
diesel fuel sold in 1994 in the United States. Management also believes that the
market share of these large chains will continue to increase as fleets seek to
use fewer, national providers who can service all of their needs. Trucking
fleets typically place a limited number of truck stop chains in their approved
fuel networks in an attempt to consolidate and leverage purchasing power.
Operating Strategy
During the last few years, the Company employed marketing and operational
strategies borrowed from conventional retailing and hospitality businesses. In
connection with the Transactions, the Company installed a new senior management
team and organizational structure. The new management team believes these prior
strategies were not well suited to the truck stop industry and resulted in
reduced focus on the Company's historically successful core strategy. As a
result, management believes recent operating performance does not fully reflect
the Company's competitive advantages. While management believes that these
programs have not impaired the Company's strong franchise with its core
customers, management plans to refocus the Company on its historical strengths
and implement new programs and initiatives designed to grow revenue and improve
profitability.
Management's strategy is to maximize profitability and cash flow by: (i)
capturing additional diesel fuel volume and leveraging the resulting traffic
increases into sales in the Company's other higher margin profit centers; (ii)
improving operating performance with enhanced management information systems,
product offerings, cost reduction efforts and other operating efficiencies; and
(iii) expanding the Company's national network of full-service facilities by
acquiring and developing Stopping Centers and strategically located stand-alone
Petro:Lubes.
New Management Team and Organizational Structure
The Company's new management team includes Jack Cardwell, the Company's
founder, who has resumed active management responsibility for the Company's
operations as Chairman, Chief Executive Officer and President. The Company also
recently hired Larry Zine, who has over 15 years of experience in the retail
gasoline marketing and convenience store industries, to assume the position of
Chief Financial Officer. Mr. Zine, the former Chief Financial Officer of The
Circle K Corporation, was integrally involved in that company's turnaround,
initial public offering and subsequent sale. In addition, Evan Brudahl, Manager
of U.S. Diesel Retail Marketing and Travel Center Business at Mobil Oil with
nineteen years of experience in the retail petroleum business, has assumed the
duties of Senior Vice President of Strategic Planning and Development. Mr.
Brudahl was integrally involved in the development and implementation of a
successful turnaround of certain of the Mobil Oil U.S. company-operated gasoline
stations and convenience stores. Jim Cardwell, who joined the Company in 1982,
has assumed the position of Senior Vice President of Operations. See
"Management." In addition, the entire management organization has been
structured to give profit center and divisional managers clearer responsibility
for, and compensation based
52
<PAGE>
upon, the profitability of their respective operations. Management believes that
this new organizational structure and incentive program will lead to greater
accountability and yield increased profitability.
Capitalize on Strategic Alliance With Mobil
As the U.S. trucking industry continues to consolidate, fleets are searching
for ways to reduce their total operating costs and deal with fewer suppliers.
The high-quality brand recognition of both the Company and Mobil Oil will
provide a platform for joint services and marketing initiatives in an attempt to
increase volume. Through their new alliance, the Company and Mobil Oil plan to
provide integrated "one-stop" services for many of a fleet's most critical
needs, including both on-site and over-the-road fueling, fuel price risk
management and an integrated billing and data capture system. The alliance
should enable Mobil Oil and the Company to create a nationally recognized retail
and terminal fuel marketing program. Management believes that the Petro/Mobil
strategic alliance will provide the Company with a competitive advantage which
will be difficult for other industry participants to replicate in the immediate
future.
The following list highlights other important aspects of the Petro/Mobil
relationship:
Capital Investment Mobil Oil has a vested interest in the Company's future
performance by virtue of the $15.0 million investment in common and preferred
limited partnership interests of the Company by Mobil Long Haul.
Diesel Branding At all Company-operated diesel fuel islands, the Petro/Mobil
marketing alliance will be reinforced by the addition of Mobil signage and the
sale of Mobil branded diesel fuel. Mobil Oil will incur all expenses associated
with branding the diesel fuel islands and has entered into a 10-year agreement
to supply the diesel fuel requirements of the Company-operated Stopping Centers.
Gasoline Branding The automobile fuel islands ("Auto Fuel Islands") at 11 of
the Company-operated Stopping Centers will convert to the Mobil brand. The
Company will also install new gasoline dispensers with credit card readers at
most of these locations. The Company has entered into a 10-year supply agreement
pursuant to which Mobil Oil will supply gasoline for the Mobil branded Auto Fuel
Islands.
Delvac Lubricants Mobil Oil has entered into a 10-year supply agreement to
supply Delvac brand lubricants for use in the Company-operated Petro:Lubes and
for sale at its Company-operated diesel fuel islands. Mobil Oil will support
Delvac sales with promotional events and media programs which will be integrated
into Mobil Oil and the Company's ongoing advertising programs.
Access to Personnel and Services Mobil Oil has agreed to support its alliance
by providing the Company with access to certain Mobil Oil personnel and
services. In addition to Mr. Evan Brudahl, the Company's new Senior Vice
President of Strategic Planning and Development, two other Mobil Oil employees
have been transferred to the Company's headquarters. One individual, with 15
years of experience in finance, convenience store and retail petroleum
marketing, has been charged with coordinating all aspects of the Petro/Mobil
relationship, including the Petro/Mobil joint fleet and franchisee solicitation
and the development of a joint integrated billing and data capture system. The
second Mobil Oil employee is responsible for accounting and supply-related
administrative issues. Mobil Oil also is expected to make available to the
Company certain additional services and personnel on a project specific basis,
anticipated to include Stopping Center design, layout and construction cost
reduction, and convenience store merchandising layout and shrink control.
Implementation of Management Information Systems
The Company plans to complete several initiatives to strengthen its systems in
order to provide management with the tools to better monitor and improve
operating performance. In the past, despite well designed systems, the
53
<PAGE>
responsibility for implementing systems related projects was not clearly
defined. In the new management structure, profit center and corporate divisional
managers are directly accountable for the improvements related to their area of
authority. An important component of the Company's strategy is to position
itself as the "technology leader" among truck stop operators and to use this
position to further distinguish the value and services it offers to its
customers. Toward this end, management is expected to complete a number of
systems-based improvements throughout the Company's operations. The following
list highlights certain of these initiatives:
Fuel Island POS System The Company is currently in the final testing phase of
a new card-based fuel island point of sale system (the "fuel island POS system")
in preparation for its 1997 implementation. This system is expected to reduce
the labor cost of processing fueling transactions while increasing efficiency
and peak period capacity. The system will also enable the Company to capture and
monitor data to track profitability by customer and location. Eventually, the
system is expected to be fully integrated with other profit centers to enable
the Company to develop marketing efforts based on an analysis of total sales and
profitability from a particular customer at all profit centers and
locations.
Financial Reporting System The management team plans to refine the quality
and format of the Company's management reporting systems. While the existing
system has extensive data processing capabilities, management plans to improve
variance reporting and generate more useful data on customers and their usage
profiles. Improvements in the financial reporting system are expected to provide
operating results and fleet sales data that will enable management to identify
and quickly respond to trends or issues that arise.
Other projects include the installation of a new system to track preventive
maintenance work performed for Petro:Lube customers and provide comprehensive
reporting to fleets and management, and new technology to replace the point of
sale order entry system in the Iron Skillet restaurants.
Cost Controls, Operating Efficiencies and Revenue Enhancements
Management has identified a series of initiatives designed to reduce costs,
increase operating efficiencies and enhance revenues in each profit center as
well as reduce corporate and general and administrative expenses.
Diesel Fuel Island. The fuel island POS system is expected to reduce the
amount of time and labor required to process fueling transactions and
eliminate approximately 70 fuel island employees (an average of 2.7 per
location) during the next two years, which is projected to result in an
estimated annual savings of approximately $1.0 million. In addition, the new
fuel island POS system is also expected to increase throughput capacity by
increasing the speed at which drivers complete the fueling process. Other
fuel island initiatives include re-merchandising with vendor involvement and
implementing a series of branded and proprietary fast food offerings at
certain of the central services buildings.
Petro:Lube. A new pricing program has been implemented which offers
Mobil Delvac, Shell or Chevron motor oil for the same price as part of a
lube and oil and filter change ("LOF"), which results in an increase LOF
gross margin by over four percentage points. Management believes that this
new pricing program should not reduce the number of LOF's performed by the
Company and as a result should increase operating contribution. In addition,
the Company expects to add minor mechanical repair services at 9 locations
in 1997. The Company began offering these services at 11 locations in 1996
which generated average monthly revenue and operating contribution of
$16,226 and $6,750, respectively, from such services excluding a one month
start-up period.
Iron Skillet Restaurants. Focus is being placed upon improving
restaurant purchasing and operating performance through increased management
supervision by installing a new director of Iron Skillet operations, who has
already assumed this position, and by installing regional directors of
operations who are directly responsible for restaurant operations only. The
new director of operations is refining Iron
54
<PAGE>
Skillet's menu offerings through price adjustments, salad bar and meal
combinations and re-introducing its formerly popular regional side dishes in
an effort to increase revenues. Management believes that opportunities exist
to rebid certain contracts and reduce other operating and supply expenses.
Travel and Convenience Store. Inventory shrink in the Company's travel
and convenience stores for the year ended December 31, 1996 was
approximately 8% of sales, which management believes significantly exceeds
the industry average. Based on current travel and convenience store
merchandise sales, each 1% of sales by which shrink is reduced is projected
to result in $300,000 of additional operating contribution. A Mobil Oil
employee responsible for loss prevention and shrink control will be
assisting the Company in this area. Management believes that additional
opportunities exist to reduce costs and enhance revenues, including
increasing vendor rebates, allowances and promotions, increasing sales
through re-merchandising and reducing labor costs by utilizing a newly-
created labor model to better match labor hours with store revenues.
General and Administrative. A new property, casualty and general
liability insurance package has been implemented at an annual cost savings
of approximately $1.0 million per year. Management has also targeted cost
reductions in medical, life and disability benefits insurance through
program restructuring and competitive bidding. Management is currently
reviewing other corporate, general and administrative expenses and believes
that opportunities exist to reduce costs.
Members of the new management team have also successfully reduced
corporate accounting and finance staff and expenses at other companies by
re-engineering and automating accounting and payment processes through the
introduction of electronic data interchange with vendors. Electronic data
interchange reduces multiple data entry and the need for many manual
reconciliation processes. Management believes opportunities exist to reduce
the number of personnel in this area.
Expansion of National Network
The Company plans to expand its network in order to strengthen its national
presence. The Company believes that expansion of its network will increase its
appeal to, and as a result, its volume of business with, truck fleets. However,
the Company will initially focus on improving the efficiency and profitability
of its existing operations. It is anticipated that network growth will be
achieved through (i) the acquisition and subsequent upgrading of independent
truck stops and regional chains to meet the Company's standards; (ii) the
building of new Company-operated Stopping Centers; and (iii) the franchising of
additional Stopping Centers. In addition, the Company intends to acquire and
build new stand-alone Petro:Lube facilities in strategic locations.
After selecting a general locale for a potential new Stopping Center, the
Company will analyze whether to buy, build or franchise such location. Such
determination will be made after a detailed investigation of long-haul truck
traffic, access to the interstate highway, visibility, proximity and nature of
competition, land availability and price, amount of land preparation required
for development, environmental and regulatory considerations, zoning limitations
and the availability and cost of utilities and labor. The Company's site
selection criteria will also include a minimum number of gallons of diesel fuel
expected to be sold monthly at the new site in order to justify the required
capital investment. In selecting additional sites, the Company will seek to
increase the number of heavily traveled interstate routes covered by its network
and to locate its facilities approximately 250 to 300 miles apart along major
interstate highway routes, permitting a driver on a route served by the Company
to stop at a Stopping Center every four to six hours.
The Company expects to continue to focus on opening both Company-owned and
operated facilities as well as franchised locations. The Company has identified
a number of potential locations for the expansion of its network including: (i)
existing truck stops, which are attractive acquisition candidates; (ii) vacant
land for new Stopping
55
<PAGE>
Center development and stand-alone Petro:Lubes; (iii) existing lube, oil and
filter operations which may be acquired; and (iv) additional franchised Stopping
Centers.
The newest addition to the Company's network is a franchised Stopping Center
located in Scranton, Pennsylvania. This newly-constructed full-size facility
opened in May 1997.
A typical Stopping Center takes approximately 9 to 12 months to build. The
Company estimates that Stopping Centers built in the next several years may cost
between $7.0 million and $9.5 million each, depending on certain factors,
including land acquisition and site preparation costs, required paving and local
construction costs. The Company will work with certain Mobil Oil personnel to
evaluate potential design, layout and construction changes in order to improve
the economics of new Stopping Centers.
Petro Stopping Centers
Of the 26 Company-operated Stopping Centers, 23 are full-size locations and
three are "Petro:2" units, which are smaller facilities with fewer amenities
than the full-service locations. Of the 17 franchised facilities, 14 are "full-
service" locations and three are "Petro:2" units. A typical full-size Stopping
Center is built on 15 to 30 acres with separate entrances and parking areas for
trucks and automobiles. Parking areas typically accommodate 200 to 300 trucks
and 100 to 175 cars or recreational vehicles, and are well lit and fenced to
maximize customer safety. Petro Stopping Centers are open 24 hours a day and
typically consist of the following:
Diesel Fuel Island
The diesel fuel island is a self-service facility for professional drivers
which typically consists of 8 to 16 fueling lanes configured in a split crescent
formation. An equal number of fuel dispensers are located on both sides of a
central services building. This layout facilitates highway access and traffic
flow since all trucks approach the fueling lanes from the same direction. To
ensure efficient peak-period capacity, the fuel dispensers are computer driven,
high speed units. Each fueling lane permits simultaneous fueling of each of the
truck's two tanks. All diesel fuel sold by the Company is currently branded
"Petro." Pursuant to its strategic alliance with Mobil Oil, the Company will
convert to selling Mobil branded diesel fuel at all of the Company-operated
diesel fuel islands. All Company-operated diesel fuel islands and dispensers
will carry signage with both the "Petro" and "Mobil" brand names. Mobil Oil will
bear the costs associated with branding the Company's diesel fuel islands Mobil.
The central services building provides efficient transaction processing
through the use of integrated, computerized cash registers and an organized data
collection system. Currently, "runners" at each fuel island collect information
while trucks are being fueled. This data, including driver and company names,
license number and mileage, is manually recorded in the computer system before
the driver walks to the cashier to pay for the fuel.
A new fuel island POS system is being tested in preparation for
implementation in 1997. The new system is expected to improve the speed and
efficiency in which the Company processes fuel purchase transactions. The new
system will include the installation of fuel island card readers at each fuel
dispenser allowing for rapid automatic data capture and recording which is
currently input manually. This is expected to improve the speed of transaction
processing and provide operating efficiencies while reducing labor costs. The
connectivity of an existing frame relay network to third-party providers is
expected to reduce transaction processing times from a current average of 40
seconds to an average of 4 seconds. In addition, the new system will reduce the
level of required cashier involvement to help further accelerate processing and
improve customer service while minimizing processing errors and reconciliation
problems.
To attract the business of drivers seeking a quick refueling stop, each
central services building includes a "mini-mart" offering an array of deli take
out food, snack foods, beverages, toiletries and a basic selection of trucker
accessories and supplies. In addition, the central services building also
provides other related services
56
<PAGE>
including certified scales, check cashing, money wire services, permit services,
faxing and copying. These facilities enable the driver seeking a quick refueling
stop to purchase consumables and services while refueling.
The average diesel fuel island sold approximately 5.6 million gallons of
diesel fuel and generated $713,695 of merchandise and other revenues during the
year ended December 31, 1996. The diesel fuel islands, in the aggregate,
generated $435.1 million in revenue and $16.5 million in operating contribution
during the year ended December 31, 1996.
Petro:Lube Express Truck Service Center
In 1983 the Company opened its first Petro:Lube facility to provide "while-
you-wait" preventive maintenance service for trucks. Since that time,
Petro:Lubes have been introduced at all of the Company-operated full-size
Stopping Centers and at two of its three Petro:2 locations. During 1996, the
Company opened its first stand-alone Petro:Lube.
Petro:Lube facilities offer oil and filter changes, lubrication and new,
used and retread tires, as well as tire repair. All Petro:Lube operations
feature highly recognized quality brands. The Company was the first truck stop
chain to offer service to truckers on an express basis. During the year ended
December 31, 1996, Petro:Lube performed approximately 170,000 oil changes and
serviced approximately 500,000 trucks. The Company believes that Petro:Lube's
focus on preventive maintenance and express service provides it with a
competitive advantage, which would be difficult to replicate in the near-term.
Petro:Lube facilities generally are located in a separate building toward
the rear of a Stopping Center and typically consist of four through-bay
entrances, with two in-ground pits. Two to four employees typically work at the
Petro:Lube operations at any particular time. The average Petro:Lube order takes
less than 45 minutes to complete at prices ranging from $104.99 for an oil and
filter change to $134.99 for more complete maintenance service, including a
complete tractor lube and the replacement of all filters.
Each Petro:Lube sells a limited number of high-quality brands such as Mobil
Delvac, Shell Rotella and Chevron Delo heavy duty motor oils and Kelly,
Bridgestone and Firestone tires. Under the marketing agreements entered into
with Mobil Oil, Petro:Lube locations feature Mobil's Delvac brand lubricants and
will develop marketing programs and strategies with Mobil Oil. Each Petro:Lube
honors manufacturers' warranties as well as the Company's warranties for work
performed at any Petro:Lube throughout the country.
Petro:Lube services are primarily utilized by owner/operators and small
fleets, but larger fleets are increasingly looking to out source their
maintenance needs. In addition to Stopping Center locations, the Company opened
a stand-alone Petro:Lube in 1996, and has plans to add at least one additional
stand-alone site in 1997. Petro:Lube management believes that a significant
opportunity exists to develop stand-alone Petro:Lube units at strategic
locations throughout the country.
For the year ended December 31, 1996, Petro:Lube had revenues of $44.1
million and operating contribution of $7.9 million. During the period, revenues
and operating contribution grew 21.8% and 8.0%, respectively.
Iron Skillet Restaurants
Each full-size Stopping Center includes the Company's trademarked "Iron
Skillet" restaurant. This home-style, sit down restaurant typically seats
approximately 180 customers, and features counter and waitress service, a soup
and salad bar and three "All-You-Can-Eat" buffets per day. In a recent survey,
the Iron Skillet was the truck stop restaurant chain most preferred by
professional truck drivers.
57
<PAGE>
The Iron Skillet prides itself on the "home cooked" items prepared fresh at
each location. Recipes developed at the Company's test kitchen in El Paso are
accessible from each location by computer. While most menu items and pricing are
consistent throughout the chain, the Company plans to reintroduce regional
specialties which were extremely popular in the past. By combining reasonable
prices with quality home-style cooking, the Iron Skillet provides its customers
with quality, value and a pleasant dining experience.
Iron Skillet restaurants are open 24 hours per day, 365 days per year and
feature certain tables and counter seats which are specially reserved for
professional drivers. This enables the staff to provide the personal service
which is the Company's hallmark. Public telephones are generally available
throughout the dining area for customer convenience.
For the year ended December 31, 1996, Iron Skillet had revenues of $47.3
million and operating contribution of $7.5 million.
Travel and Convenience Stores
Each Stopping Center includes a travel store featuring merchandise
specifically selected to cater to a professional truck driver's shopping needs
during the long periods typically spent away from home. Merchandise categories
include clothing, electronics such as televisions, mobile satellite dishes,
VCR's and CB radios as well as toiletries, gifts and truck accessories such as
cables, fuses, reflectors and antennae. The travel stores also carry a wide
array of Company branded merchandise such as coffee mugs, travel bags, hats, T-
shirts and other items designed to further increase recognition of the Petro
brand. A travel store typically carries approximately 4,500 SKUs and averages
2,400 square feet of selling space.
Gasoline and automobile diesel fuel are sold from a separate Auto Fuel
Island at 25 of the Company's 26 locations. The Auto Fuel Islands are located
near the travel store (or in eight instances near a freestanding convenience
store) and accessed by separate "auto-only" entrances which help to separate
auto and truck traffic at the facility. The typical Auto Fuel Island is
equipped with 4 to 12 fuel dispensers for convenient and efficient fueling. The
typical stand-alone convenience store averages 570 square feet of selling space
and carries snacks, basic groceries and automobile supplies such as motor oil.
The Company intends to convert 11 of its Company-operated Auto Fuel Islands
to the Mobil brand in 1997 and plans to install new gasoline dispensers with
credit card readers at most of such locations. The Company believes that
consistent use of the high-quality Mobil name and the addition of credit card
readers will enable the Company to increase its appeal to automobile customers,
and increase the sales volume of its Auto Fuel Islands, restaurants, and travel
stores.
The travel store unit accounted for $67.1 million in revenues and $4.6
million in operating contribution for the year ended December 31, 1996.
Additional Products and Services
To meet the personal and business needs of commercial drivers and other
motorists, the Company provides numerous additional services at its Stopping
Centers. The Company believes that these help to differentiate the Company's
facilities from those of its competitors. At the typical Stopping Center,
customers have access to telephone, fax and other communications services,
overnight express drop boxes and ATMs. Professional drivers have convenient on-
site access to a certified truck weighing scale and a truck wash operated by a
third-party at most locations. In addition, they can receive their paychecks and
cash advances from the diesel fuel island cashier's building. For a driver's
comfort and relaxation, Stopping Centers provide laundry facilities, game rooms,
television viewing rooms and at certain Stopping Centers, movie theaters. These
common areas are designed to provide hospitable areas separate from the
restaurant and other retail spaces.
58
<PAGE>
The Company introduced nationally branded fast food concepts at several of
its locations in 1995. Industry surveys indicate that, of the three meals
consumed daily by professional truck drivers, approximately 1.25 are sit-down
meals. As a result, the introduction of fast food offerings is expected to
enable the Company to capture additional revenues and generate incremental
operating profits at its Stopping Centers from drivers who desire a quick
alternative to the Company's Iron Skillet restaurants. The Company currently
operates one Wendy's, one Blimpie Subs & Salads and two Pizza Hut Express units
and plans to expand its fast food program during the next several years.
Nationally branded fast food outlets enhance the Company's visibility and appeal
to interstate motorists and local residents who may be less familiar with the
Stopping Centers than professional drivers.
Each full-size Stopping Center features 12 to 18 private shower facilities.
The showers are fully tiled for easy maintenance and are professionally cleaned
after each use. Each shower room is equipped with a lock to provide privacy and
security. The Company also leases retail space at its Stopping Centers to
independent merchants who sell jewelry and other items and who also provide
haircutting, shoe shine and other services.
Since June 1993, the Stopping Centers located in Hammond and Shreveport,
Louisiana have featured video poker operations. The primary customers for these
activities are local area residents. The video poker operations at each of these
sites feature 50 machines and are conducted in a stand-alone building, separated
from other Stopping Center facilities. A third-party operator manages the video
poker operations and incurs substantially all related expenses while paying a
portion of each machine's "winnings" to the Company. During 1996, Louisiana
enacted a statute requiring the cessation of video poker operations unless the
parish in which the operations were conducted voted to allow the continued
operations of video poker machines. On November 5, 1996, the parish in which the
Shreveport facility is located voted to continue to allow video poker
operations, while the parish in which the Hammond facility is located voted to
disallow video poker operations. The phase out period for the Hammond location
is through June 1999.
Petro:2 Centers
Three Company-operated and three franchised facilities are Petro:2 Centers
("Petro:2") which provide the same basic fueling, restaurant, truck preventive
maintenance and retail store services as full-sized Stopping Centers, but on a
smaller scale and with fewer amenities. Unlike a full-size Stopping Center, a
Petro:2 has a relatively small single building which supports the cashier
functions for both the diesel and gasoline fuel islands. The original Petro:2
design and concept included a restaurant, known as the "Quick! Skillet,"
offering a narrower menu selection than the Iron Skillet restaurant at full-
facility Stopping Centers. Two of the Company-operated Petro:2 Centers currently
contain a "Quick! Skillet" and one now contains a Blimpie Subs & Salads. The
retail store at a Petro:2 is more comparable to a large convenience store with
some merchandise specifically targeted for truckers.
Petro:2 Centers had revenues of $33.6 million and operating contribution of
approximately $852,900 for the year ended December 31, 1996.
Industry Overview
Trucking is the freight shipment method which provides businesses with the
greatest flexibility in managing their inventories. Truck deliveries offer more
precise scheduling windows and economical access to more locations than other
delivery methods. As a result, trucking's share of the domestic freight market
is expected to increase during the next several years. Industry surveys estimate
demand for over-the-road diesel fuel to grow at a rate of 2 to 3% per year. This
growth rate is slower than the projected increase in ton miles as various
technological advances continue to improve fuel economy.
The trucking industry has experienced continued consolidation since its de-
regulation in 1980. While the industry is still highly fragmented, consolidation
is expected to continue and to increase the buying power of the largest fleet
operators. As trucking companies seek to minimize their operating costs by
reducing fuel expenses, they have developed more sophisticated buying practices
and are using their greater influence to negotiate favorable fuel
59
<PAGE>
pricing. As a result, many fleets increasingly seek to do business with fewer,
larger truck stop chains to maximize their volume and available discounts and
rebates. In many instances, a trucking company will permit its drivers to stop
only at facilities operated by a limited list of approved providers.
Although fuel pricing is an important consideration, a fleet's determination
of approved truck stops also reflects its efforts to recruit and retain drivers.
Many trucking companies experience annual driver turnover in excess of 100%. To
reduce the costs associated with these high turnover levels, fleets continue to
search for ways to improve their drivers' quality of life. Efforts have included
meaningful pay increases, reduced trip length and allowing drivers to utilize
truck stop facilities that they prefer.
Industry data indicate that two-thirds of the stops made by truck drivers
are for non-fuel purposes. Federal safety regulations currently limit the
driving time of commercial truck drivers and have spurred the growth of non-fuel
driver amenities. Management believes that the Company's reputation for quality
and service, combined with its extensive product offerings, new management team
and organizational structure and strategic alliance with Mobil Oil will enable
the Company to continue to take advantage of these industry trends and improve
profitability at each of its profit centers.
To further improve their operating cost structure, fleets have begun
outsourcing their preventive maintenance and repair needs. The Company's
Petro:Lube operations are ideally positioned to benefit from this trend.
Competition
The U.S. truck stop industry is large and highly fragmented. According to
industry data, which is limited, there are approximately 2,200 truck stops
located on interstate highways. Management believes that approximately 27% are
operated by eight major national or regional truck stop chains. Long-haul trucks
can obtain diesel fuel from a wide variety of sources, including their own
fueling terminals, chains of large, high-quality truck stops, limited service
fueling facilities and some large service stations. The Company believes that,
while it competes with all truck stops, its principal competitors are
increasingly large, multi-service truck stop chains. Management believes that
eight chains accounted for approximately 40% of the 12.5 billion gallons of
over-the-road diesel fuel sold in 1994 in the United States and that the market
share of these large chains continues to increase as fleets look to do business
with fewer, more nationally represented providers to meet their needs. Trucking
fleets typically place a limited number of truck stop chains in their approved
fuel networks in an attempt to consolidate and leverage purchasing power.
Certain of the Company's competitors have substantially greater financial and
marketing resources than the Company.
The Company prices its diesel fuel competitively. A number of other large,
multi-service truck stop chains build somewhat smaller and less expensive
facilities, emphasizing low-priced diesel fuel and fast food restaurants. Many
of the other truck stop chains employ discount pricing of diesel fuel to
compete. At the same time, increased competition and over capacity among
trucking companies in recent years have increased truck fleet owners' focus on
reducing their operating costs. This has put increased pressure on diesel fuel
margins for the Company and its competitors. In recent years, a number of the
larger fleets have also opened proprietary terminals along their most-travelled
routes. In addition, from time to time, the Company is subject to intense price
competition in certain of its markets.
Trademarks and Trade Names
The Company is the owner in the United States of various trademarks and
service marks. The Company grants franchisees the non-exclusive right to use the
proprietary marks at franchised locations. The Company regards its trademarks
and service marks as valuable assets and believes that they have significant
value in the marketing of its products and services. The Company vigorously
protects its trademarks and service marks against infringement.
60
<PAGE>
Governmental Regulation
Environmental Regulation
The Company's operations and property are subject to extensive federal and
state legislation and regulations relating to environmental matters. The Company
uses underground and above ground storage tanks to store petroleum products and
waste oils. Statutory and regulatory requirements for underground storage tank
("UST") systems include requirements for tank construction, integrity testing,
leak detection and monitoring, overfill and spill control, and mandate
corrective action in case of a release from an UST into the environment. The
Company is also subject to regulations in certain locations relating to vapor
recovery and discharges into water. Management believes that all of its USTs are
currently in compliance with applicable requirements and that it is currently in
compliance with all other applicable environmental laws and regulations. Some
existing laws and regulations relating to USTs do not become applicable
immediately and have future compliance schedules. The Company is currently in
the process of installing cathodic protection and overfill equipment or devices
on its older USTs (those installed before 1988) and plans to complete that work
on or before the dates required to achieve compliance under the current
regulations. The Company plans to spend approximately $300,000 in 1997 in
connection with this work. If additional requirements are imposed, additional
expenditures may be required. During 1994, 1995 and 1996, the Company's
expenditures for environmental matters were $151,000, $261,000 and $180,000,
respectively. See Note 2 to the Company's Consolidated Financial Statements for
the year ended December 31, 1996 for a discussion of its accounting policies
relating to environmental matters.
In connection with its ownership of the properties and operation of its
business, the Company may also be subject to liability under various federal,
state and local environmental laws, ordinances and regulations relating to
cleanup and removal of hazardous substances (which may include petroleum or
petroleum products) on, under or in such property. Certain laws typically impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. Persons who arrange, or are
deemed to have arranged, for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment site, regardless of whether such site is
owned or operated by such person. The Company is not involved in any litigation
or other proceedings seeking to impose such liability. Where required or
believed by the Company to be warranted, the Company takes action at Company-
operated locations to correct the effects on the environment of prior disposal
practices or releases of chemical or petroleum substances by the Company or
other parties. In light of the business of the Company and the quantity of
petroleum products that it handles, there can be no assurance that hazardous
substance contamination does not exist or that material liability will not be
imposed in the future.
Other Regulation
The Company is also subject to local licensing ordinances. The issuance of
permits for service station and lubrication operations is generally a matter of
discretion and is subject to the underlying requirement that the granting of the
permit be consistent with health, safety and moral welfare of the community.
Although the Company believes that careful planning and site selection reduces
the likelihood of significant zoning opposition, significant opposition to the
construction of a Stopping Center, if encountered, may cause the Company to
incur substantial expenses and delay.
The Company's restaurant operations are subject to federal, state and local
regulations concerning health standards, sanitation, fire and general safety,
noncompliance with which could result in temporary or permanent curtailment or
termination of a restaurant's operations. In addition, difficulties in obtaining
the required licensing or approvals could result in delays or cancellations in
the openings of new restaurant facilities.
In addition, the Company's video poker operations are subject to oversight
at the state and local level. During 1996, Louisiana enacted a statute requiring
the cessation of video poker operations unless the parish in which
61
<PAGE>
the operations were conducted voted to allow the continued operations of video
poker machines. On November 5, 1996, the parish in which the Shreveport facility
is located voted to continue to allow video poker operations, while the parish
in which the Hammond facility is located voted to disallow video poker
operations. The phase out period for video poker at the Hammond facility is
through June 1999.
The Company as a franchisor is also subject to federal and state regulation
in the states in which it offers franchises or where franchised Stopping Centers
are currently operating. Federal regulations require that the Company provide
each perspective franchisee with a disclosure document that provides information
regarding the Company and the relevant provisions of the franchise agreement and
other ancillary contracts. In addition, certain state regulations require that
the franchisor be registered or be exempt from the applicable registration
requirements. Federal and state franchising laws prohibit certain "deceptive
trade practices" and, in some cases, impose fairness and "anti-discrimination"
standards on the Company.
In addition to the franchise regulations outlined immediately above, the
Company's operations are subject to the Petroleum Marketing Practices Act
("PMPA"). PMPA is a federal law that prohibits a franchisor engaged in the sale,
consignment or distribution of refiner-branded motor fuels from terminating or
failing to renew a "franchise" or "franchise relationship," except on specified
grounds and only after compliance with the statute's notification provisions.
PMPA expressly preempts state law concerning the termination, nonrenewal and
notice thereof with respect to motor fuel franchises. PMPA is enforced
judicially through cases interpreting the statute.
The Company, currently a franchisee under the PMPA, will also become a
franchisor under the PMPA because it is able to distribute and sell diesel fuel
and gasoline under Mobil Oil's trademarks to its franchisees. Thus, the Company
will become subject, as a franchisor, to PMPA's termination, nonrenewal and
notice requirements in each of its individual, motor fuel contracts with its
franchisees. At the same time, the Company will be entitled to PMPA's
protections in its branded supply agreements with Mobil Oil, as well as other
branded suppliers.
The Company is not party to any PMPA litigation. Moreover, the Company will
carefully negotiate and draft its supply agreements with franchisees in order to
comply with the statute and will keep apprised of case law developments.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes its facilities
are in compliance with these requirements, a determination that the Company is
not in compliance with the ADA could result in the imposition of fines or an
award of damages, which could adversely affect the Company.
The Company believes that all of its Stopping Centers are in compliance with
existing laws and regulations. However, new laws and regulations could require
the Company to incur significant additional costs.
Litigation
The Company is from time to time involved in routine litigation incident to
its operations. The Company believes that the litigation currently pending or
threatened against it will not have a material adverse effect on its
consolidated financial condition.
Employees
At December 31, 1996, the Company had a total of 3,529 employees, of which
3,336 were full-time and 193 were part-time. At that date, 500 of the Company's
employees were salaried and performed executive, management or administrative
functions and the remaining 3,029 employees were hourly employees. Almost 95%
of the Company's employees worked at the Stopping Centers and most employees at
the Stopping Centers work on an hourly basis.
62
<PAGE>
The Company has never had a work stoppage and none of its employees is
represented by a labor organization. The Company believes that it provides
working conditions, wages and benefits that are competitive with other providers
of the kinds of products and services offered by the Company.
Properties
The Company's corporate headquarters is located in a three-story building in
El Paso, Texas which contains approximately 30,000 square feet of space. The
Company leases the entire building from a member of the Cardwell Group and in
turn subleases approximately 2,700 square feet of space to an unrelated tenant.
The Company's lease of the building expires in December 2005 and provides for
annual rental payments of $336,000, plus taxes, maintenance and operating
expenses. See "Certain Relationships and Related Transactions."
The Company also owns sites in Jonesboro, Georgia, Green River, Wyoming and
Beaverdam, Ohio which are suitable for the construction of new Stopping Centers.
The Company also has options, which expire in December 2006, to purchase vacant
land owned by the Cardwell Group that is located adjacent to four of the
existing Stopping Centers: Shreveport, Louisiana (7 acre subject to option);
Weatherford, Texas (34 acres); Beaumont, Texas (17 acres); and Oklahoma City,
Oklahoma (30 acres). See "Certain Relationships and Related Transactions."
The Company owns 23 of its 26 Stopping Centers in their entirety, owns all
but four acres of its West Memphis Stopping Center site, owns the facility and
leases the land at its Hammond, Louisiana site and leases its Effingham,
Illinois Stopping Center site in its entirety.
The Stopping Center located in Effingham, Illinois is leased from an entity
owned by current and former employees of the Company. The lease expires in May
2006 and provides for adjustable rental payments tied to interest rates (the
"Basic Rent"), which currently are approximately $89,000 per month, plus taxes
and operating expenses. The Company has three consecutive options to renew this
lease for terms of five years each at rental rates equal to the Basic Rent, plus
certain adjustments at the time of renewal and a right of first refusal to
purchase the Stopping Center complex at a purchase price agreed upon between the
lessor and a third party. See "Certain Relationships and Related Transactions."
The land at the Hammond, Louisiana and a small portion (approximately four
acres) of the West Memphis, Arkansas Stopping Centers are subject to ground
leases. The Hammond ground lease expires in September 1998 and provides for
annual rental payments of $109,000, plus taxes. The Company has an option to
renew the ground lease for an additional six years at the current annual rent
increased by the percentage increase in the consumer price index from the
commencement date of the lease to the commencement of the first option, provided
that such increase shall not exceed 10%. The Company has the option, which
expires at the end of the lease term, to purchase the entire 21 acre tract of
land for $4.53 per square foot. If the Company elects to purchase less than all
of the property, the price shall be at a price to be determined according to a
formula specified in the lease. The Company's ground lease at the West Memphis
site expires in April 2005, and the Company has two additional options to renew
the ground lease for 10 years each, with scheduled rent increases every five
years, and a right of first refusal to purchase the land at a purchase price
agreed upon between the Company and the third party. Under the lease, the
Company makes annual rental payments of approximately $40,000, plus taxes.
63
<PAGE>
The following table outlines the Company-operated Stopping Centers:
<TABLE>
<CAPTION>
(Approximate) (Approximate)
---------------------- -------------
Size of
Stopping Total Main Truck Auto
Date Center Acreage at Diesel Gasoline Building Parking Parking
Opened Acreage Location Dispensers Dispensers (Sq. Ft.) Spaces Spaces
------ ------- ---------- ---------- ---------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Company-operated
Full-sized
El Paso, Texas................ Apr. 1975 31 51 12 8 20,000 350 96
Weatherford, Texas............ Sept. 1977 25 25 12 10 21,000 300 128
Beaumont, Texas............... May 1981 20 20 12 8 12,300 275 196
San Antonio, Texas............ Sept. 1982 21 21 12 10 13,200 250 85
Eloy/Casa Grande, Arizona..... June 1984 23 36 12 12 12,300 200 99
Corning, California........... May 1985 18 18 12 12 12,300 120 138
Amarillo, Texas............... June 1985 20 32 12 12 13,800 276 134
Shreveport, Louisiana......... Nov. 1985 18 21 12 12 13,800 242 118
Hammond, Louisiana(a)......... Jan. 1986 16 21 12 12 12,300 200 120
West Memphis, Arkansas(a)..... Aug. 1986 24 63 12 12 13,800 280 172
Milan, New Mexico............. Nov. 1986 23 30 12 12 13,800 200 127
Knoxville, Tennessee.......... Mar. 1987 25 25 12 12 13,800 200 160
Kingman, Arizona.............. Dec. 1987 38 67 12 8 14,600 180 175
Oklahoma City, Oklahoma....... May 1988 30 30 12 8 14,600 200 187
Perrysburg/Toledo, Ohio....... Aug. 1988 33 74 12 8 20,000 375 215
Kingdom City, Missouri........ Feb. 1989 25 35 12 8 20,500 235 195
Bucksville, Alabama........... Feb. 1990 48 51 12 8 14,400 252 167
Girard/Youngstown, Ohio....... May 1990 29 98 14 8 20,000 312 170
Effingham, Illinois(a)........ Mar. 1991 30 30 14 8 20,000 300 138
Atlanta, Georgia.............. Mar. 1992 64 69 16 No Gas 21,500 490 129
Laramie, Wyoming.............. Oct. 1993 35 50 12 6 15,500 180 111
Ocala, Florida................ Jun. 1995 37 170 12 8 20,500 230 230
Medford, Oregon............... Jan. 1995 15 15 8 8 11,500 95 110
Petro:2
Vinton, Texas................. Jan. 1991 8 19 7 8 4,800 55 8
Kingston Springs, Tennessee... Sept. 1991 9 12 8 8 6,900 85 42
Shorter, Alabama.............. Sept. 1991 9 9 4 4 12,700 75 39
</TABLE>
- ----------
(a) As discussed above, the Effingham, Illinois facility is owned by one present
and five former Company employees and leased to the Company, and the Hammond,
Louisiana and four acres of West Memphis, Arkansas units are subject to ground
leases.
64
<PAGE>
Franchises
Since 1985, the Company has franchised others to operate Stopping Centers
in particular markets. The following table sets forth information on the
Company's franchised Stopping Centers:
<TABLE>
<CAPTION>
Date Expiration for
Location Opened Franchisees(a)
- ------------------------------ ---------- -----------------
<S> <C> <C>
Full-sized
Elkton, Maryland........... Sept. 1985 June 1997
Ft. Chiswell, Virginia..... Mar. 1986 June 1997
Portage, Wisconsin......... Sept. 1986 Dec. 2001
Joplin, Missouri........... Oct. 1987 Oct. 1997
Lake Station, Indiana...... Oct. 1987 Oct. 1997
Ruther Glen, Virginia...... Mar. 1988 Mar. 1998
New Paris, Ohio............ Oct. 1989 Oct. 1999
Florence, South Carolina... Feb. 1991 Feb. 2001
Rochelle, Illinois......... Apr. 1992 Apr. 2002
Fargo, North Dakota........ Nov. 1994 Nov. 2004
Carnsville, Georgia........ Jan. 1995 Jan. 2005
Bordentown, New Jersey(b).. July 1989 Dec. 2005
York, Nebraska............. Dec. 1996 Dec. 2006
Scranton, Pennsylvania..... May 1997 May 2007
Petro:2
Benton Harbor, Michigan.... July 1989 July 1999
Salina, Kansas............. Feb. 1990 Feb. 2000
Jerome/Twin Falls.......... Dec. 1990 Feb. 2000
</TABLE>
- ------
(a) All franchise agreements with the exception of one are for an initial ten
year term and are automatically renewed for two five-year terms subject to
the satisfaction of certain conditions, unless the franchisee gives a
termination notice at least 12 months prior to expiration. The franchise
agreement for the Portage, Wisconsin location has been amended so that its
initial term is approximately 15 years (expiring on December 1, 2001) and
it provides for only one five year renewal. All franchise agreements are in
their initial term including the Elkton and Ft. Chiswell agreements, whose
initial terms have been extended from their initial termination dates of
September 1995 and March 1996, respectively, until June 1997 by letter
agreements. The Company is currently in the process of attempting to obtain
a first renewal of such agreements. The Company believes that these
franchises will be renewed.
(b) Bordentown, New Jersey was a licensee prior to December 1995, at which time
it became a franchised location.
One franchisee operates four locations, two operate three locations and six
operate one location each. Highway Service Ventures Inc., a company in which
Jack Cardwell owns a 32.5% interest, operates the Elkton, Maryland, Ruther Glen,
Virginia, Florence, South Carolina and Carnesville, Georgia locations. See
"Certain Relationships and Related Transactions."
The newest addition to the Company's network is a franchised Stopping
Center located in Scranton, Pennsylvania. This newly-constructed full-size
facility opened in May 1997. Company purchases diesel fuel from various
integrated oil companies, independent oil refineries and petroleum product
brokers. Fuel for any single Stopping Center is typically purchased from two to
five established supply sources.
Of the Company's 43 Stopping Centers, 17 are operated under franchise
agreements with franchisees, with certain franchisees operating multiple
locations. During 1996, the Company's franchisees expressed dissatisfaction with
certain of the terms of their franchise agreements and the franchisees'
relationship with the Company. While
65
<PAGE>
new management has held discussions with the franchisees and, based on these
discussions, believes that the Company's relationship with the franchisees will
improve, there can be no assurance that such improved relationship will be
forthcoming. In addition, the original terms of the franchise agreements with
respect to two Stopping Centers, representing approximately 1.2% of the
Company's operating contribution for the year ended December 31, 1996, expired
in September 1995 and March 1996, respectively, and each has been extended by
letter agreements through June 1997. The Company is currently in the process of
negotiating new formal franchise agreements with all of its franchisees,
including the renewal contracts with these two franchisees. Based on discussions
with the Company's franchisees, management believes that all of the Company's
franchisees will enter into new franchise agreements with the Company prior to
the end of 1997. With respect to its two expired franchise agreements, based on
discussions with these two franchisees, management believes that the two
franchises will enter into franchise agreements with the Company by the end of
1997. Until such time that a new franchise agreement has been negotiated, the
Company intends to extend these two franchise agreements by letter agreement. If
the expired franchise agreements are not renewed, or if any of the other
franchise agreements cease to be operative, the Company's ability to enter into
arrangements with other franchisees could be adversely affected. This could have
an adverse effect on franchise revenues of the Company as well as an adverse
effect on the Company-operated Stopping Centers.
Each existing franchise agreement grants to the franchisee the right and
license to operate a Stopping Center in a specified territory. The franchise
agreements require that the franchisee build, at its own expense, and operate
the Stopping Center in accordance with certain requirements, standards and
specifications prescribed by the Company, including site approval and that the
franchisee purchase certain products from suppliers approved by the Company. The
Company, in turn, is obligated to provide the franchisee with, among other
things, advisory assistance in the operation of the franchised Stopping Center
and assistance in connection with advertising and promotional programs.
For the year ended December 31, 1996, the Company's revenues from its
franchisees totaled $3.4 million. In addition, franchisees contributed $292,000
to advertising programs sponsored by the Company during the period.
While a majority of diesel purchases at Stopping Centers are paid by third-
party billing companies, a portion of diesel fuel purchases are paid for through
direct billing arrangements with particular trucking companies. As provided in
the franchise agreements, the Company purchases all of the receivables generated
by the franchisees from customers using direct billing arrangements. These
purchases are on a non-recourse basis to the franchisee.
In addition, upon termination or expiration of the franchise agreement in
the event that the franchisee wishes to accept an offer from a third party to
purchase its facility, each franchise agreement grants the Company a right of
first refusal to purchase the facility, at the price offered by the third party.
Similarly, in nine cases, the Company has the right to purchase the franchise
for fair market value, as determined by the parties or an independent appraiser,
upon termination or expiration of the franchise agreement. Each franchise
agreement also contains a three-year covenant by the franchisee not to compete
with the Company at any other location in the area upon termination or
expiration of the franchise agreement.
Supply
The Company purchases diesel fuel for each of its Company-operated Stopping
Centers on a daily basis. The purchase decision is made centrally in El Paso
each morning, based on the information reported by each of the Stopping Centers'
diesel fuel managers. The Company's fuel purchaser receives daily price quotes
from suppliers in each of the Company's markets through an on-line computer
system. The El Paso office then provides site managers with purchasing
instructions. Each location typically maintains a one to three day inventory of
fuel. The Company purchases diesel fuel from various integrated oil companies,
independent oil refineries and petroleum product brokers. Fuel for any single
Stopping Center is typically purchased from two to five established supply
sources.
66
<PAGE>
During 1996, the Company purchased diesel fuel from 10 key suppliers and
over 30 other suppliers. No single supplier accounted for more than
approximately 10% of the total amount of diesel purchased.
Historically, the Company has not entered into significant long-term
contracts with fuel suppliers and engaged in only limited hedging activities. On
occasion the Company has purchased fuel in the forward contract market. On
January 30, 1997, the Company entered into 10-year supply agreements with Mobil
Oil under which Mobil Oil will supply the Company-operated Stopping Centers'
diesel fuel requirements as well as a portion of their lubricant and gasoline
requirements. The diesel fuel sold at all Company-operated Stopping Centers will
be branded Mobil, and the Company-operated Petro:Lubes will feature Mobil Delvac
lubricants. Under the diesel fuel and gasoline supply agreement, the Company has
agreed to purchase from Mobil Oil specified distribution terminals a minimum
number of gallons of diesel fuel and gasoline on a monthly basis and on an
annual basis, subject to product availability and reductions by Mobil Oil under
certain described circumstances and subject to existing gasoline supply
contractual obligations. The supply agreement allows the Company to continue to
negotiate for the purchase of diesel fuel with third-party suppliers approved by
Mobil Oil. If the Company is able to obtain a lower diesel fuel price from a
third-party supplier in a particular market area, the Company may request that
Mobil Oil meet such lower price or allow a portion of the Company's diesel fuel
requirements to be supplied from such Mobil Oil approved third-party supplier,
in which case Mobil Oil would purchase the diesel fuel from the supplier and
resell the product to the Company. Any change in supply source, however, does
not affect the Company's requirement to purchase the annual minimum number of
gallons from Mobil Oil specified distribution terminals fixed by the supply
agreement. The supply agreement also places a monthly limit on the maximum
number of gallons of diesel fuel and gasoline that the Company may lift from
Mobil Oil specified distribution terminals.
The Company currently sells branded gasoline at 16 of its Stopping Centers
under agreements with Chevron, Exxon, Amoco, Texaco and Mobil Oil. In addition,
nine locations currently sell "Petro brand" gasoline.
67
<PAGE>
MANAGEMENT
The following sets forth certain information with respect to the persons
who are members of the Company's Board of Directors, Executive Committee,
Operating Committee and senior management team.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James A. Cardwell, Sr...... 65 Chairman, Chief Executive Officer, President,
Member of the Executive Committee, Operating
Committee and Director
Larry Zine................. 42 Executive Vice President, Chief Financial
Officer and Member of Operating Committee
Evan Brudahl............... 41 Senior Vice President of Strategic Planning
and Development, Member of Operating Committee
and Director
James A. Cardwell, Jr...... 37 Senior Vice President of Operations, Member
of Operating Committee and Director
Travis R. Roberts.......... 61 Vice President of Real Estate Services and
Member of Operating Committee
David Latimer.............. 38 Vice President of Petro:Lube and Member of
Operating Committee
David A. Haug.............. 36 Vice President of Finance
Todd R. Berman............. 40 Member of the Executive Committee and Director
Lynne M. Lachenmyer........ 38 Member of the Audit Committee and Director
Michael S. Shein........... 33 Member of the Operating Committee, Member of
the Audit Committee and Director
</TABLE>
James A. (Jack) Cardwell, Sr. -- Jack Cardwell founded the Company in 1975
and has been serving as the Chief Executive Officer since May 1992 and has been
a member of the Board of Control since its formation in 1992. He is the Chairman
and President with responsibility for the Company's overall performance, while
defining Petro's image in the marketplace and identifying growth opportunities
and overseeing employee and customer retention. He served as the Chairman of the
National Association of Truck Stop Operators ("NATSO") in 1983 and 1984 and has
worked on various committees of NATSO since that time. He currently serves as a
trustee for Security Capital Pacific Trust (a New York Stock Exchange Company)
and is on the Board of Directors for The El Paso Electric Company. Mr. Cardwell
has been the President and a director of PFC since February 1994. Jack Cardwell
is the father of Jim Cardwell.
Larry Zine -- Larry Zine was hired in December 1996 as Executive Vice
President and Chief Financial Officer and is responsible for all financial,
accounting, management information and insurance and benefit services for the
Company. Mr. Zine was the Executive Vice President and Chief Financial Officer
for The Circle K Corporation, the second largest chain of convenience stores in
the United States, from 1988 to 1996. Mr. Zine was an integral part of The
Circle K Corporation's reorganization from bankruptcy in July 1993, its initial
public offering in March 1995 and subsequent sale in June 1996. Mr. Zine had
worked for The Circle K Corporation for 15 years in various capacities including
the last eight years as Chief Financial Officer. Mr. Zine also has been Chief
68
<PAGE>
Financial Officer and a director of PFC since January 30, 1997. Mr. Zine was
educated at the University of North Dakota and holds an M.S. degree in
Accounting and a B.S.B.A. in marketing.
Evan Brudahl -- Evan Brudahl, a Mobil Oil employee, has been the Senior
Vice President of Strategic Planning and Development and a director since
January 30, 1997. Mr. Brudahl is responsible for strategic planning and
development functions of the Company. This includes overseeing field support
services, advertising, human resources, corporate planning and franchise
operations. Mr. Brudahl was most recently the Manager of U.S. Diesel Retail
Marketing and Travel Center Business at Mobil Oil and has worked for Mobil Oil
for 19 years. He has held the positions of District Manager, Manager of U.S.
Company-operated Gasoline Stations Operations, Franchise Manager, and various
other positions in U.S. Marketing and Accounting areas of Mobil Oil. He received
a B.B.A. in Marketing from the University of Wisconsin at Whitewater.
James A. (Jim) Cardwell, Jr. -- Jim Cardwell has been Senior Vice President
of Operations and Marketing since January 30, 1997 with responsibility for the
Company's operations and fuel purchasing. Mr. Cardwell has been involved with
the Company full time for 14 years and has held various positions including
profit center management and was Vice President of Operations from 1986 to 1992.
Prior to his current position, he served as Vice President of National Sales and
Promotion from June 1993 to January 1997. He also has been a director of PFC
since March 31, 1996. Mr. Cardwell studied Management and Finance at the
University of North Texas. Currently he serves on the board of NATSO and is
Chairman of the Board of the NATSO Foundation. He is also a member of the Young
Presidents Organization. Jim Cardwell is the son of Jack Cardwell.
Travis Roberts -- Travis Roberts has been Vice President of Real Estate
Services since January 30, 1997. Mr. Roberts manages support services related to
maintenance at existing sites, capital projects at existing sites, new site
acquisition and construction, franchisee support, and new site selection. Mr.
Roberts served as Vice President of Maintenance and Development. Mr. Roberts
joined the Company at its inception in 1975. He was Vice President of
Development from 1985 to 1992.
David Latimer -- David Latimer has been serving as Vice President of
Petro:Lube since April 1995, prior to which he served as Vice President of
Operations from 1993 to 1995. Mr. Latimer joined the Company in 1983 and was
instrumental in the introduction and development of the Petro:Lube Express Truck
Service Center business. Mr. Latimer served for 4 years on the
Bridgestone/Firestone Dealer Board and is a current member of the Kelly
Springfield Advisory Council. Mr. Latimer also serves as the Company
representative to the National Tire Dealers and Retreaders Association and The
Maintenance Council.
David A. Haug -- David A. Haug has been Vice President of Finance of the
Company since January 30, 1997. Prior to his current position he served as the
Controller for the Company, a position he held since April 1990. Prior to
joining the Company he was an audit manager with Lauterbach, Borschow and
Company, Certified Public Accountants from 1982 to 1990. He received a B.A. in
accounting from New Mexico State University and is a Certified Public Accountant
in the state of Texas.
Todd R. Berman -- Todd Berman has been a director of the Company since
January 30, 1997. Mr. Berman is the founder and President of Chartwell
Investments. Mr. Berman has served as Chairman of the Board of Griffith
Consumers Company, one of the nation's largest independent distributors of
heating oil and other petroleum products, since 1994; as Chairman of SunPark,
Inc., a major owner and operator of off-site airport parking lots, since
November 1995; and as Chairman of Carl King, Inc., the leading operator of gas
stations and convenience stores in the Delmarva peninsula (Delaware, Maryland,
Virginia), since 1994. Mr. Berman has been with Chartwell or its predecessor
since 1992. Mr. Berman received an A.B. from Brown University and an M.B.A. from
Columbia University Graduate School of Business.
Lynne M. Lachenmyer -- Lynne Lachenmyer has been a director of the Company
since May 20, 1997, and has served as President of Mobil Long Haul and President
of Mobil Diesel Supply Co., Inc. since such date. Ms.
69
<PAGE>
Lachenmyer has been with Mobil Oil for 17 years and, since April 1997, has
served as manager of Mobil Oil's North American Distillate Business. Prior to
this role, Ms. Lachenmyer managed a segment of Mobil Chemical's Global Aromatics
Business from 1995 to 1997, managed strategic planning and investments for Mobil
Chemical's Petrochemical business from 1994 to 1995 and worked in Mobil Oil's
Fairfax, Virginia headquarters from 1991 to 1994, in the areas of competitive
refining analysis and refinery supply and logistics programming. Ms. Lachenmyer
obtained her B.S. in Chemical Engineering from California Polytechnic
University.
Michael S. Shein -- Mr. Shein has been a director of the Company since
January 30, 1997. Mr. Shein, a managing director and co-founder of Chartwell
Investments, has been with Chartwell Investments or its predecessor since 1992.
Mr. Shein has been a director of Griffith Consumers Company, one of the nation's
largest independent distributors of heating oil and other petroleum products,
since December 1994; a director of SunPark, Inc., a major owner and operator of
off-site airport parking lots, since November 1995; and a director of Carl King,
Inc., the leading operator of gas stations and convenience stores in the
Delmarva Peninsula (Delaware, Maryland, Virginia), since December 1994. He
received a B.S., summa cum laude, from The Wharton School at the University of
Pennsylvania.
Executive Compensation
Arrangements After Consummation of the Transactions
Employment Agreements
On January 30, 1997, the Company entered into employment agreements with
Jack Cardwell and Jim Cardwell and, effective December 16, 1996, entered into an
employment agreement with Mr. Zine. The employment agreements commenced on the
date of execution and expire on December 31, 1999. Under the employment
agreements, the annual base salaries of Jack Cardwell, Jim Cardwell and Mr. Zine
(the "Executives") are $362,700, $135,000 and $290,000, respectively, are
subject to review and may be increased by the Company's Board of Directors (or
compensation committee, if one is elected). Jack Cardwell and Jim Cardwell are
also entitled to participate in any bonus plan approved by the Board of
Directors of the Company. Mr. Zine is eligible to receive an annual cash bonus,
based on parameters to be established by Jack Cardwell and Mr. Zine and approved
by the Board of Directors; provided, that Mr. Zine's bonus will not be less than
40% of his base salary for the calendar year ended December 31, 1997.
The Executives are also entitled to any other benefits generally available
to the senior management of the Company. In addition, as described under the
"Incentive Equity Plan," the Company intends to establish an incentive equity
plan for senior management of the Company. Pursuant to their employment
agreements, Jim Cardwell and Mr. Zine are entitled to participate in the equity
incentive plan. On the Closing Date, Mr. Zine received, under the incentive
equity plan, options to purchase (at an exercise price per share of
approximately $400,000 per 1%) 2.75% of the Company's common partnership
interests, on a fully diluted basis, or a stock appreciation instrument
equivalent.
If the Company terminates any of the employment agreements without cause or
because the officer has been incapacitated for three consecutive months, or the
Executive terminates his employment agreement for "good reason" (as defined in
each Employment Agreement), then the terminated officer will be entitled to
continue to receive his salary, plus certain benefits, for twelve months from
the date of the notice of termination. The employment agreements contain certain
customary nonsolicitation provisions upon termination of such agreements.
Secondment Letter Agreement
The Company entered into an agreement with Mobil Oil providing for the
temporary secondment (or loan) of one of Mobil Oil's employees, Evan C. Brudahl,
to the Company. The period of secondment commenced upon
70
<PAGE>
the Closing Date and is contemplated to continue until July 1, 2000, subject to
certain termination rights, including the right of Mobil Oil or the employee to
terminate the agreement in their discretion. Under the agreement, the Company
has the right, if the employee is performing at an unacceptable level, to
terminate the secondment period on 120 days' notice. During the secondment
period, the loaned employee will continue as an employee of Mobil Oil but will
be under the day-to-day supervision of the Company. The Company is responsible
for all compensation, benefit and other expenses relating to the secondment of
the employee to the Company.
Incentive Equity Plans
The Company intends to establish an equity incentive plan to attract and
retain key personnel, including senior management, and to enhance their interest
in the Company's continued success. The Company anticipates that the aggregate
equity issued pursuant to such plans and any future plans will be between 5% and
10% of the fully diluted equity of the Company.
Compensation Prior to Consummation of the Transactions
Summary Compensation Table
The following table presents information concerning compensation paid for
services to the Company during 1994, 1995 and 1996 to the Chief Executive
Officer of the Company and the four other most highly paid executive officers
employed by the Company at the end of 1996, collectively, the "Named Executive
Officers." The employment of Mr. Schillaci and Mr. Fitzgerald was terminated
upon consummation of the Transactions.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
-------------------------------- ----------------
Name and Options All Other
Principal Position Year Salary Bonus (% Interest)(a) Compensation
- ------------------------------------- --------- ------------ ------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
James A. Cardwell, Sr................ 1996 $363,686 $ -0- $186,152(b)
Chief Executive Officer 1995 363,685 -0- 259,850
1994 385,563 193,895 439,466
Joseph R. Schillaci.................. 1996 274,189 10,586(c)
President & Chief Operating Officer 1995 272,602 30,000 2.90% 11,325
1994 247,771 134,235 11,658
Walter A. Fitzgerald, Jr............. 1996 145,514 -0- 960
Vice President-Operations 1995 128,133 20,000 .70 24,176(d)
1994(e) 36,923 15,000
David Latimer........................ 1996 123,296 -0- .40 2,767(f)
Vice President-Lube Operations 1995 117,491 20,000 3,498
1994 112,067 57,410 2,641
James A. Cardwell, Jr................ 1996 107,882 -0- 1,179(f)
Vice President-National Sales 1995 101,642 10,000 1,500
and Promotions 1994 100,059 40,712 1,615
</TABLE>
- ------
(a) Options held by the Named Executive Officers in the Company, expressed as a
percent of the partnership equity. All of such options were terminated
upon consummation of the Transactions at no cost to the Company.
(b) Represents employer contributions to the Company's 401(k) Plan of $3,497,
$3,295 and $4,362 in 1996, 1995 and 1994, respectively, and life insurance
premiums paid by the Company for the benefit of Mr. Cardwell in the amounts
of $182,655, $256,555 and $434,804 in 1996, 1995 and 1994, respectively.
(c) Represents insurance premiums of $7,653, $7,653 and $7,388 paid by the
Company for the benefit of Mr. Schillaci in 1996, 1995 and 1994,
respectively, and $2,933, $3,672 and $4,270 of employer contributions to
the Company's 401(k) Plan for 1996, 1995 and 1994, respectively.
(d) Represents $23,663 of payments in connection with relocation expenses
incurred by Mr. Fitzgerald and $513 of employer contributions to the
Company's 401(k) Plan.
(e) Employment with the Company commenced in 1994.
(f) Represents employer contributions to the Company's 401(k) Plan.
71
<PAGE>
Options Grants
At December 29, 1996, Options covering 4.4% of the partnership interests in
the Company were outstanding, of which none were exercisable. All of such
Options were terminated upon consummation of the Transactions at no cost to the
Company.
Employment Agreements
The Company and Joseph R. Schillaci, the Company's former President and
Chief Operating Officer, entered into an employment agreement dated as of
January 1, 1993 (the "Employment Agreement"). The Company terminated the
Employment Agreement at the Closing of the Transactions. Pursuant to the terms
of the Employment Agreement, at the Closing, the Company: (i) paid Mr. Schillaci
a lump sum of $300,000; and (ii) paid Mr. Schillaci for reasonable expenses in
connection with his relocation and out-placement assistance.
Management Retention Plan
The Company has entered into agreements with 21 members of management to
secure promises from such key executives to remain in the employ of the Company
in the event of the occurrence of a transaction after which the current partners
hold less than 50% of the total ownership interests in the Company (a "Change in
Ownership"). Under the agreements, if an executive (i) promises to remain in the
employ of the Company for 60 days after a Change in Ownership and is not offered
continuing employment with the Company after such 60-day period or (ii) is
terminated within six months of a Change in Ownership, such executive will be
eligible to receive a predetermined amount up to $150,000 in six equal monthly
installments and, in some cases, up to $25,000 in relocation expenses.
Employee Benefits Plans
The Company sponsors a defined contribution retirement plan under Internal
Revenue Code Section 401(k) covering substantially all of its employees. Company
contributions equal 50% of the participants' contributions up to 2% of the
participants' annual salary and aggregated approximately $115,000, $132,000 and
$138,000 for the years ended December 30, 1994, December 29, 1995 and December
31, 1996, respectively.
On December 19, 1996, the Company filed with the Internal Revenue Service
("IRS"), pursuant to IRS Rev. Proc. 94-62, a request for a compliance statement
with respect to the Petro Stopping Centers, L.P. 401(k) Plan (the "Plan"). The
compliance statement request relates to the Plan's failure (i) to allocate
participant forfeitures pursuant to the terms of the Plan and (ii) to correctly
apply the actual deferral percentage test and the actual contribution percentage
test (items (i) and (ii) hereinafter collectively referred to as the
"Operational Defects"). The Operational Defects relate to Plan years 1990
through 1995. The Company does not believe that the existence or resolution of
the Operational Defects are material to its business.
72
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's common partnership interests by each general partner,
each limited partner who owns more than 5% of the Company's common partnership
interests, each director who beneficially owns partnership interests, each
executive officer who beneficially owns partnership interests and all directors
and executive officers of the Company as a group. Except as set forth in the
footnotes to the table, each partner listed below has informed the Company that
such partner will have (i) sole voting and investment power with respect to such
partner's partnership interests, except to the extent that authority is shared
by spouses under applicable law and (ii) record and beneficial ownership with
respect to such partner's partnership interests.
<TABLE>
<CAPTION>
Type of Class of Invested Percentage
Names and Address Interest Interest Capital of Class
- ----------------------------- --------------- -------- -------------- --------------
<S> <C> <C> <C> <C>
James A. Cardwell, Sr........ General Partner Common $ 485,560(1) 1.896%(2)
6080 Surety Drive Limited Partner Common 14,143,493(1) 34.6515(3)
El Paso, Texas 79905
Chartwell L.P.(4)............ General Partner Common 400,000 0.9880
c/o Maples & Calder Limited Partner Common 20,330,000 49.8085
Ugland House
P.O. Box 309
George Town, Grand Cayman
Cayman Islands (B.W.I.)
James A. Cardwell, Jr........ Limited Partner Common 1,640,947(1) 4.0203(5)
6080 Surety Drive
El Paso, Texas 79905
Mobil Long Haul Inc.......... Limited Partner Common 3,000,000 7.3500
3225 Gallows Road
Fairfax, Virginia 22037
--------------
98.0000%
All directors and officers
as a group (10 persons) 39.8614%
</TABLE>
- ----------
(1) Represents the implied carryover value of the Cardwell Group in the Company
after the consummation of the Transactions. The Cardwell Group did not
receive or invest any cash in the Transactions. For purposes of the
Transactions, its partnership interests were given an implied value of
approximately $23.9 million, of which $7.6 million was the face value of
8.0% mandatorily redeemable preferred partnership interests and
approximately $16.3 million was the implied value of common partnership
interests. The value of the Cardwell Group's partnership interests has
been implied based on the partnership interest purchase price paid and
capital contributions to the Company made by Chartwell and Mobil Long Haul
in the Transactions.
(2) Represents partnership interests owned of record by Petro, Inc. Petro, Inc.
is a wholly owned subsidiary of Nevada Trio, Inc., a Nevada corporation,
which is a wholly owned subsidiary of Card Partners, L.P., a Texas limited
partnership of which Jack Cardwell and Mrs. Jack Cardwell are limited
partners and of which Texas Mec, Inc., a Texas corporation, is the general
partner. Jack Cardwell is the sole shareholder of Texas Mec, Inc.
Accordingly, Jack Cardwell may be deemed to have beneficial ownership of
the partnership interests owned by Petro, Inc.
(3) Includes partnership interests owned of record by Petro, Inc. Petro, Inc.
is a wholly owned subsidiary of Nevada Trio, Inc., a Nevada corporation,
which is a wholly owned subsidiary of Card Partners, L.P., a Texas limited
partnership of which Jack Cardwell and Mrs. Jack Cardwell are limited
partners and of which Texas Mec, Inc., a Texas corporation, is the general
partner. Jack Cardwell is the sole shareholder of Texas Mec, Inc.
Accordingly, Jack Cardwell may be deemed to have beneficial ownership of
the partnership interests owned by Petro, Inc.
(4) Represents partnership interests owned of record by Petro Holdings GP Corp.
and Petro Holdings LP Corp. Petro Holdings GP Corp., a Delaware
corporation, is a wholly owned subsidiary of Petro Holdings LP Corp., which
is a wholly-owned subsidiary of Petro Holdings L.L.C., a Delaware limited
liability Company. Chartwell L.P., a Cayman Islands limited partnership, is
the majority shareholder of Petro Holdings L.L.C. Todd R. Berman, who is a
Director and a member of the Executive Committee of the Company, is a
limited partner of Chartwell L.P. Michael S. Shein, who is a Director and a
member of the Operating Committee of the Company, is also a limited partner
of Chartwell L.P. Mr. Berman and Mr. Shein are the Managers of Petro
Holdings L.L.C. Concurrent with the Closing, an affiliate
73
<PAGE>
of CIBC Wood Gundy Securities Corp., an Initial Purchaser in the Offering,
and The First National Bank of Boston, the Agent and a Lender under the New
Credit Agreement, became minority shareholders of Petro Holdings L.L.C.
(5) Includes partnership interests owned of record by JAJCO II, Inc. Jim
Cardwell is the sole shareholder of JAJCO II, Inc. and may be deemed to
have beneficial ownership of the partnership interest owned by JAJCO II,
Inc.
74
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Tax Reimbursements
The Restated Partnership Agreement requires the Company to make
distributions to each of its partners in an amount sufficient to allow each
partner to pay federal, state and local income taxes with respect to allocations
of taxable income to such partner by the Company. Historically, aggregate tax
distributions to the Company's partners were based on the Company's taxable
income. For the fiscal years ended December 30, 1994, December 29, 1995 and
December 31, 1996, tax distributions made to the Company's partners were
$526,562, $326,236 and $0, respectively. Because tax distributions will in the
future be based on separate allocations of taxable income of the Company's
partners rather than the taxable income of the Company, the aggregate tax
distribution likely will increase by up to approximately $1.2 million per year.
Under certain circumstances, the Company's partners receiving tax distributions
with respect to allocations of taxable income under the Restated Partnership
Agreement will be obligated to repay the portion of such tax distribution that
exceeds the amount of a tax distribution that would have been made had tax
distributions been based on the Company's taxable income.
Principal Executive Offices
The office building in which the Company's principal executive offices are
located is owned by Jack Cardwell, the Chief Executive Officer and a Director of
the Company. The Company leases the entire building under a lease expiring on
December 31, 2005. Under the lease, the Company pays monthly rent totaling
$336,000 per year, as well as taxes, maintenance and other operating expenses.
For each of the fiscal years ended December 30, 1994, December 29, 1995 and
December 31, 1996, the Company made annual rental payments of $336,000.
Effingham, Illinois Stopping Center
The Stopping Center located in Effingham, Illinois is owned by Truck Stop
Property Owners, Inc. ("Truck Stop"), which is owned by Travis Roberts, who is a
current officer of the Company, and five former employees of the Company. Mr.
Roberts owns 22% of the stock of Truck Stop. The Company leases the Effingham
Center under a lease expiring in May 2006, which provides for adjustable rental
payments tied to interest rates (the "Basic Rent"), plus taxes and operating
expenses. The Company has three consecutive options to renew the lease for terms
of five years each at rental rates equal to the Basic Rent, plus certain
adjustments at the time of renewal. The Company also has a right of first
refusal to purchase the Stopping Center at a purchase price agreed upon between
Truck Stop and a third party. For the fiscal years ended December 30, 1994,
December 29, 1995 and December 31, 1996, the Company made rental payments to
Truck Stop of $1,086,000, $1,086,000 and $1,080,000, respectively.
Bordentown Stopping Center
The Stopping Center located in Bordentown, New Jersey is owned by an entity
(the "Bordentown Venture") in which Jack Cardwell held a 50% interest in 1994.
In May 1995, Jack Cardwell sold his interest in the Bordentown Venture to his
partner. The Bordentown location became a franchisee effective December 1995.
Highway Service Ventures, Inc.
Highway Service Ventures, Inc. ("HSV"), a corporation in which Jack
Cardwell owns a 32.5% interest, operates four franchised Stopping Centers
located in Elkton, Maryland; Ruther Glen, Virginia; Florence, South Carolina;
and Carnesville, Georgia pursuant to franchise agreements with the Company. The
initial term of each of these franchise agreements is ten years and they are
automatically renewed for two five-year terms unless terminated by the
franchisee. The initial term of the Elkton, Maryland franchise agreement expired
in September 1995, but such term has been extended through June 1997. The
initial terms of the remaining three franchise agreements will expire in March
1998, February 2001 and January 2005, respectively. None of these franchise
75
<PAGE>
agreements contain terms that are any more favorable to the franchisee than the
terms in any of the Company's other franchise agreements.
Petro:Tread
In May 1992, the Company leased a facility in El Paso, Texas from a trust,
in which Jack Cardwell is a 50% beneficiary, to operate the Company's retread
plant, which produces retread tires for sale at Stopping Centers (including
franchisees) and to others. The lease, which expired in October 1995, provided
for two consecutive renewal options for terms of five years each. The Company
exercised its first renewal option in October 1995 to renew the lease for five
years commencing November 1, 1995. The Company made lease payments of $66,000,
$67,000 and $72,000, respectively, for the fiscal years ended December 30, 1994,
December 29, 1995 and December 31, 1996. In addition, the Company sells retread
tires to El Paso Tire Center, Inc., a corporation in which Jack Cardwell owns
100%. Such sales amounted to $531,000, $288,000 and $153,000 in 1994, 1995 and
1996, respectively.
Product Services Agreement and Fuel Sales Agreement
The Company currently purchases Chevron branded gasoline and motor oils at
cost for five of its Auto Fuel Islands pursuant to a sales agreement with C&R
Distributing, Inc. ("C&R"), a corporation in which Jack Cardwell is the sole
shareholder. In addition, in May 1992, C&R and the Company entered into a
product services agreement terminating in 1999, under which C&R provides the
Company with fuel hauling and fuel pump maintenance and services within the El
Paso, Texas metropolitan area, if requested by the Company. The agreement
provides that C&R will charge the Company for these services at the lowest rates
charged by C&R for similar services and, in any event, at rates that will not
exceed rates available from unrelated parties providing similar services. During
fiscal years 1994, 1995 and 1996, the Company made payments to C&R under these
two agreements aggregating $5,547,000, $7,857,000 and $10,771,000, respectively.
Furthermore, the Company and C&R agreed to notify the other if either party had
petroleum products for sale with no obligation on either party to purchase any
portion of such products. During fiscal years 1994, 1995 and 1996, the Company
made sales to C&R under this agreement aggregating $4,301,000, $4,022,000 and
$3,950,000, respectively. The term of the agreements with C&R have been
extended through December 31, 2004. Notwithstanding the extension, the Company
has the option of not purchasing products or services from C&R if the Company
can purchase such products or services more economically from third parties.
Truck Leasing Agreements
In May 1992, the Company leased seven trucks under agreements from C&R for
use in the Company's business. These agreements expired in December 1993 and
provided aggregate monthly rental payments of $11,930. In January 1994, the
Company replaced these agreements with two new agreements which expired in
January 1995. The new agreements provide for two consecutive one-year renewal
options but leave the monthly rental payments unchanged. The Company exercised
the first renewal option in January 1995. In this connection, the Company made
payments of $72,000 for the year ended December 29, 1995. In June 1995 the
Company terminated the lease agreement and purchased trucks from C&R to use at
the locations for an aggregate purchase price of $212,000.
Option and Right of First Refusal Agreement
In connection with the formation of the Company in May 1992 under an Option
and Right of First Refusal Agreement, Jack Cardwell and Jim Cardwell, officers
and members of the Board of Control of the Company, granted to the Company and
Roadside options, which expire in December 2006, to purchase certain properties
owned by the Cardwells that are located near or adjacent to the Company's
Stopping Centers located in Shreveport, Louisiana (7 acres subject to option),
Weatherford, Texas (34 acres), Beaumont, Texas (17 acres) and Oklahoma City,
Oklahoma (30 acres) (the "Option Properties"), and a right of first refusal on
each of the Option Properties. At the Closing of the Transactions, Roadside
assigned all of its rights under the Option and Right of First Refusal
76
<PAGE>
Agreement to Mobil Long Haul, Holdings GP and Holdings LP. The price at which
an Option Property may be purchased will be equal to the fair market value of
the property when the option is exercised as determined by an appraisal.
Alcohol Sales and Servicing Agreements
In order to continue engaging in retail sales of beer, wine or wine coolers
at a limited number of its facilities after the formation of the Company in May
1992, the Company entered into agreements with CYMA Development Corporation
("CYMA"), C and PPR, Inc. ("C&PPR"), Petro Truckstops, Inc. ("Petro Truckstops")
and Petro Beverage, Inc., which collectively hold permits or licenses to sell
alcoholic beverages in the states of Louisiana, Texas and Oregon. Jack Cardwell,
Jim Cardwell and Mrs. Jack Cardwell own 60%, 30% and 10%, respectively, of the
stock of C&PPR. Jack Cardwell is the sole shareholder of CYMA and Jim Cardwell
is the sole shareholder of Petro Truckstops and Petro Beverage, Inc. The
agreements continue in effect until terminated by either party. Under the
agreements with CYMA and C&PPR, the Company agreed to operate the alcohol sales
business at these locations in exchange for 10% of the gross receipts generated
from alcoholic beverage sales, plus reimbursement of all operating expenses.
Under a similar agreement with Petro Truckstops, dated April 8, 1994, and Petro
Beverage, Inc., dated February 10, 1995, each of which has a one year initial
term and continues in effect until terminated by either party, the Company
receives 15% of gross receipts generated from alcoholic beverage sales. In each
of the agreements, the net payments to the Company are approximately equal to
the gross profit received by the above entities.
Motor Media Arrangements
In connection with the formation of the Company in May 1992, Motor Media,
Inc., a company owned 100% by Jim Cardwell ("Motor Media"), entered into a five-
year agreement with the Company (the "Motor Media Agreement"), under which Motor
Media leases floor and wall space at all Stopping Centers operated by the
Company and sells space for in-store advertising to third parties. Under the
agreement, the Company and Motor Media are entitled to 25% and 75%,
respectively, of the gross revenues generated. Motor Media received $192,000,
$170,000 and $214,000, respectively before its selling, maintenance and
administrative expenses for the fiscal years ended December 30, 1994, December
29, 1995, and December 31, 1996, representing its share of the gross receipts
generated. Motor Media has entered into similar floor and wall space leases with
other truck stops nationwide. The Company and Motor Media have extended the term
of the Motor Media Agreement through April 2002.
Amusement and Video Poker Games Agreements
Under an existing agreement (the "Amusement Agreement") between El Paso
Vending and Amusement Company ("EPAC"), of which Jack Cardwell and Jim Cardwell
own 99% and 1%, respectively, and the Company, EPAC furnishes video and other
games to four of the Company's Stopping Centers and services these games.
Pursuant to the Amusement Agreement, which expires in May 2002 or until earlier
terminated by either party, the Company paid 60% of the revenues generated by
the games to EPAC and retained the remaining 40%. Beginning November 1994, the
arrangement was modified to 50% to EPAC and 50% to the Company. Upon the
termination of the Coinage Arrangements discussed below, the Company amended the
Amusement Agreement to cause EPAC to contract directly with the Company to
furnish and service video and other games at an additional 12 Stopping Centers
that were covered by the Coinage Arrangements. Subsequent thereto, EPAC began
furnishing and servicing games at an additional five Stopping Centers under the
terms of the Amusement Agreement. EPAC received $1,680,000, $1,880,000 and
$2,021,000 in revenues, respectively, generated from the furnishing and
servicing games located at the Stopping Centers for the fiscal years ended
December 30, 1994, December 29, 1995 and December 31, 1996. Since June 1993, the
two Company-operated Stopping Centers located in Louisiana have featured video
poker games operated by a third party. Under the terms of agreements relating to
the operation of, and distribution of revenues derived from, the video poker
operations, the Company is entitled to a specified portion of the revenues of
each machine. Under these arrangements, the operator turns over a share of the
revenues to Petro
77
<PAGE>
Truckstops, a corporation in which Jim Cardwell is the sole shareholder, which
in turn forwards 95% of these revenues to the Company. The Amusement Agreement
has been amended to extend its term through May 2002.
Fremont Group's Annual Fee
Pursuant to the Company's former partnership agreement, the Fremont
Partners provided various services to the Company, including tax and legal
services, and paid the directors' fees for the outside members of the Company's
Board of Control. In consideration for these services, the partnership agreement
provided that the Fremont Partners were entitled to an annual management fee of
$250,000 per year. Upon the Closing of the Transactions, the partnership
agreement was restated. Such services are no longer rendered by the Fremont
Partners and no further fees will be paid to the Fremont Partners. In each of
1994, 1995 and 1996, the Fremont Partners received $250,000 as consideration for
their management services to the Company.
Indemnity Agreements
In order to comply with applicable Internal Revenue Code and Treasury
Regulation provisions dealing with recourse debt, Jack Cardwell, Jim Cardwell,
Texas JIMCO, Inc., JAJCO, Inc., JAJCO II, Inc. and Arcadian Management
Corporation each entered into an indemnity agreement under which each has agreed
to indemnify the Company, the general partners and certain limited partners in
the event that the indemnified party is required to pay certain of the Company's
indebtedness after a default, acceleration by the creditor and exhaustion of any
collateral securing the credit facility. In May 1994, Jack Cardwell, Jim
Cardwell, Texas JIMCO, Inc., JAJCO, Inc., JAJCO II, Inc., and Arcadian
Management Corporation amended their original indemnity agreements in connection
with the May 1994 financing. No payments have been made under these agreements.
Coinage Arrangements
In connection with the formation of the Company in May 1992, Jack Cardwell
retained rights to receive revenues generated from the Coinage Arrangements at
14 Stopping Centers, including the right to 100% of the revenues generated from
leases to third parties of certain retail space (such as barber shops, shoeshine
and repair stands and jewelry stores), coin-operated devices such as pinball,
video and other games and the provision of pay telephone services through
arrangements with AT&T and other carriers. In connection with the 1994
Refinancing, the Company paid approximately $9,440,000 to Jack Cardwell for the
rights to receive revenues under the Coinage Agreements beginning May 1, 1994.
The amount of this payment was based on the formula contained in the original
contract.
In connection with the Coinage Arrangements, Jack Cardwell had entered into
a joint venture agreement (the "Venture") with EPAC under which EPAC furnished
video and other games at 12 of the 14 Company-operated Stopping Centers that
were covered by the Coinage Arrangements and serviced these games. EPAC received
60% of the revenues from these games, while Jack Cardwell received 40% of the
revenues from the games. The Venture was terminated in connection with the 1994
Refinancing.
Motor Fuels Franchise Agreement
On January 30, 1997, the Company and Mobil Oil entered into a 10-year Motor
Fuels Franchise Agreement whereby the Company agreed to purchase Mobil branded
diesel fuel and gasoline for sale and distribution under Mobil Oil's trademarks
at the Company-operated truckstops. The agreement requires the Company to
purchase from Mobil Oil certain minimum monthly and annual quantities of diesel
fuel and gasoline available at Mobil Oil's specified delivery terminals subject
to product availability and reductions by Mobil Oil under certain described
circumstances and subject to existing gasoline supply contractual obligations.
The agreement allows the Company to continue to negotiate for the purchase of
diesel fuel with third-party suppliers approved by Mobil Oil. If the Company is
able to obtain a lower diesel fuel price from a third-party supplier approved by
Mobil in a particular market area, the Company may request that Mobil Oil meet
such lower price or a portion of the diesel fuel
78
<PAGE>
requirements would be supplied from such Mobil Oil approved third-party
supplier, in which case Mobil Oil would purchase the diesel fuel from the
supplier and resell the product to the Company. Any change in supply source,
however, does not affect the Company's requirement to purchase the annual
minimum number of gallons from Mobil Oil specified delivery terminals fixed by
the agreement. The Company is also limited to certain monthly maximum purchase
quantities from each Mobil Oil specified delivery terminal. Prices to be charged
for Mobil Oil fuel to be sold to the Company during the term are based on
certain referenced prices plus or minus discounts or premiums. Subject to
certain adjustments based upon fuel availability at specified Mobil Oil supply
terminals, beginning with the calendar year January 1, 1997, and each succeeding
calendar year thereafter, to the extent the Company purchases from Mobil Oil
quantities of diesel fuel below the minimum amount required by the agreement,
the Company is required to pay Mobil Oil a fee based on the shortfall.
Master Supply Contract for Resale of Oils and Greases
On January 30, 1997, Mobil Oil and the Company also entered into a 10-year
supply agreement whereby the Company will purchase and feature certain Mobil
Delvac branded oils and lubricants at the truckstop locations operated by the
Company.
Marketing Services Agreement
At the Closing of the Transactions, Mobil Oil and the Company entered into
a ten-year Marketing Services Agreement whereby Mobil Oil provides advice and
assistance to the Company on matters concerning the distribution and marketing
of fuels and petroleum products, including certain personnel support. In
connection therewith, the Company will pay to Mobil Oil an annual marketing
services fee of $300,000, payable in two semi-annual installments, and
additionally will pay or directly reimburse Mobil Oil for all costs of certain
personnel support, including salary compensation, benefits, travel and other
out-of-pocket expenses incurred by certain Mobil Oil employees in connection
with the Company's business.
Joint Project Development Agreement
Mobil Oil and the Company have entered into a letter of intent that
contemplates definitive agreements with respect to certain projects related to
the Company or negotiations in good faith with respect to items which do not by
their terms contemplate the execution of a definitive agreement, including the
joint development of a truck stop payment card, an on-and-off site fleet billing
system for the Company's customers, and establishment of a joint products supply
Company.
Secondment Letter Agreement
The Company has entered into an agreement with Mobil Oil providing for the
temporary secondment (or loan) of one of Mobil Oil's employees, Evan C. Brudahl,
to the Company. The period of secondment commenced upon the Closing of the
Transactions and is contemplated to continue until July 1, 2000 subject to
certain termination rights, including the right of Mobil Oil or the employee to
terminate the agreement in their discretion. Under the agreement, the Company
has the right, if the employee is performing at an unacceptable level, to
terminate the secondment period on 120 days' notice. During the secondment
period, the loaned employee will continue as an employee of Mobil Oil but will
be under the day-to-day supervision of the Company. The Company is responsible
for all compensation, benefit and other expenses relating to the secondment of
the employee to the Company.
Chartwell Financial Advisory Agreement
The Company entered into an agreement with Chartwell Investments, providing
for the payment of fees and reimbursement of certain expenses to Chartwell
Investments for acting as financial advisor with respect to the Transactions,
including soliciting, structuring and arranging the financing of the
Transactions. The fees, totaling $2.9 million, equal to 1% of the total
capitalization of the Company plus 1/2 of 1% of the Expansion Facility and
79
<PAGE>
the reimbursement of certain expenses, were paid at the Closing. Mr. Berman and
Mr. Shein are directors of the Company and are officers and directors of
Chartwell Investments.
Chartwell Management Consulting Agreement
The Company has entered into a management consulting agreement with
Chartwell Investments pursuant to which Chartwell Investments provides the
Company with certain management, advisory and consulting services for a fee of
$600,000 for each fiscal year of the Company during the term of the agreement,
with up to an additional $100,000 payable for each fiscal year, provided that
EBITDA, as defined, is at least $45 million, plus reimbursement of certain
expenses. The term of the management consulting agreement is ten years
commencing on the Closing Date and is renewable for additional one year periods
unless the Board of Directors of the Company gives prior written notice of non-
renewal to Chartwell Investments. Mr. Berman and Mr. Shein are directors of the
Company and are officers and directors of Chartwell Investments.
80
<PAGE>
DESCRIPTION OF OLD 12 1/2% NOTES AND DEBT WARRANTS
In 1994, Petro PSC Properties, L.P., a Delaware limited partnership (the
predecessor of the Company) and Petro Financial Corporation issued, in units,
$100.0 million principal amount of Old 12 1/2% Notes and 100,000 Debt Warrants.
The Old 12 1/2% Notes are redeemable at the option of the Company during the 12
month period commencing June 1, 1999 at 103.57% of the principal amount thereof,
during the 12 month period commencing June 1, 2000 at 101.79% of the principal
amount thereof and thereafter at 100% of the principal amount thereof, in each
instance plus accrued and unpaid interest.
The Old 12 1/2% Notes Indenture contains certain covenants including
limitations on indebtedness, limitations on restricted payments, limitations on
sales of restricted subsidiary stock, limitations on transactions with
affiliates, limitations on liens, limitations on disposition of proceeds of
asset sales, limitations on dividends and other payment restrictions affecting
restricted subsidiaries and restrictions on mergers and certain transfers of
assets. A significant number of these covenants were amended or deleted in the
consent solicitation which was a part of the Tender Offer.
Each Debt Warrant is exchangeable following completion of the first to
occur of an initial public offering of common stock of a corporate successor to
the Company, a change of control of the Company, or June 1, 1997. As a result of
the closing of the Transactions, each Debt Warrant will be exchangeable for a 30
business day period commencing 30 days after the Closing, into $55.38 principal
amount of Old 12 1/2% Notes.
Approximately 94% of the Old 12 1/2% Notes and approximately 99% of the
Debt Warrants were acquired by the Company at the closing pursuant to the Tender
Offer.
81
<PAGE>
DESCRIPTION OF NEW CREDIT AGREEMENT
Commitment
The Company has entered into New Credit Agreement dated January 30, 1997,
with The First National Bank of Boston (the "Agent") individually and as agent
for a group of lenders (the "Lenders"), pursuant to which the Company has $25.0
million Revolving Credit Facility, a $40.0 million Expansion Facility, a $14.0
million Term Loan A and a $30.0 million Term Loan B. At the Closing, the Company
incurred $20.0 million of Term Loan A borrowings, $6.0 million of which were
repaid subsequent thereto. Borrowings under Term Loan A and Term Loan B, the net
proceeds of the Offering and the proceeds of the Equity Investment and the
Kirschner Investment, were used to finance the Transactions.
The New Credit Facility contains representations and warranties, funding
and yield protection provisions, conditions precedent, financial and other
covenants and restrictions, events of default and other provisions customary for
bank credit agreements of this type. The following summaries of the material
provisions of the New Credit Agreement do not purport to be complete, and such
provisions, including definitions of certain terms, are qualified in their
entirety by reference to the New Credit Agreement.
General
The Revolving Credit Facility permits the Company to borrow, repay and
reborrow up to $25.0 million at any time until the fifth anniversary of the
Closing, the proceeds of which may be used for working capital and other
corporate purposes. Up to $5.0 million of the revolving Credit Facility is
available for the issuance of standby and documentary letters of credit. The
Expansion Facility, the proceeds of which will be used for the acquisition and
development of Stopping Centers and stand-alone Petro:Lubes, permits the
Company to borrow, repay and reborrow up to $40.0 million at any time until the
third anniversary of the Closing (except as to up to $10.0 million, which if not
borrowed prior to the third anniversary, may be borrowed prior to the fourth
anniversary), and to repay the same in installments on or prior to the fifth
anniversary of the Closing. Term Loan A will be repayable in 15 quarterly
installments, commencing on September 30, 1997. Term Loan B will be repayable in
26 quarterly installments commencing on September 30, 1997.
Mandatory Prepayments
The Company is required to make mandatory prepayments in an amount equal to
50% of excess cash flow after permitted capital expenditures for the first two
fiscal years after the Closing Date and 75% thereafter, if the Company's
consolidated funded indebtedness to consolidated EBITDA, as defined (the
"Leverage Ratio") is equal to or greater than 3 to 1. In addition, the Company
is required to make mandatory prepayments in the amount of 100% of net proceeds
from assets sales in excess of $5.0 million, equity issuances, certain permitted
new debt issuances, tax refunds and insurance claims not reinvested within one
year. The Company is permitted to make voluntary prepayments at any time.
Interest Rate and Fees
Borrowings under the Revolving Credit Facility, Term Loan A and the
Expansion Facility bear interest at floating rates between: (i) 1.0% and 1.5%
(1.5% on the Closing Date) per annum over the higher of the Agent's base rate or
the Federal Fund Rate plus 0.5%; or (ii) 2.25% and 2.75% per annum (2.75% on the
Closing Date) over the Eurodollar Rate. Borrowings under Term Loan B bear
interest at rates between: (i) 2.0% and 2.25% (2.25% on the Closing Date) per
annum over the higher of the Agent's base rate or the Federal Fund Rate plus
1/2%; or (ii) 3.0% and 3.25% (3.25% on the Closing Date) over the Eurodollar
Rate. The marginal rates are subject to adjustment under the New Credit
Agreement, based upon changes in the Company's Leverage Ratio. Eurodollar Rates
will be calculated for interest periods of one, two, three or six months, as
applicable.
82
<PAGE>
The Company pays certain fees and commissions to the Agents and Lenders,
including an annual administrative fee, commitment fees, a Revolving Credit
Facility and Expansion Facility unused commitment fee and letter of credit fee.
Amortization
Aggregate yearly term loan principal payments under the New Credit
Agreement are follows: (i) $2.0 million in 1997; (ii) $3.0 million in 1998;
(iii) $4.5 million in 1999; (iv) $5.5 million in 2000; (v) $1.5 million in 2001;
(vi) $13.5 million in 2002; and (vii) $14.0 million in 2003.
Guarantees and Security
Borrowings under the New Credit Agreement are secured by substantially all
of the Company's assets and the partnership interests of Mobil Long Haul and
Chartwell and guaranteed by each of the Company's subsidiaries, which guarantees
in turn are secured by substantially all of such subsidiaries' assets.
Covenants; Events of Default
The New Credit Agreement contains a number of customary covenants,
including, among other things, (i) prohibitions and/or limitations on the
incurrence of debt, liens, payment of dividends, redemption of partnership
interests, investments, transactions with affiliates, mergers, acquisitions and
asset dispositions and (ii) financial covenants covering leverage, cash flow,
EBITDA, as defined, capital expenditures, minimum net worth and minimum net
working capital. The New Credit Agreement also contains customary events of
default, including a change of control (which is defined to include the
definition of Change of Control in the Indenture).
Conditions
The New Credit Agreement contains a number of conditions to any subsequent
funding by the Lenders, including, among other things, satisfactory appraisals
and environmental reports, and the Company's entry into interest rate protection
agreements satisfactory to the agent.
83
<PAGE>
DESCRIPTION OF THE NEW NOTES
The Old Notes were issued, and the New Notes will be issued, under an
indenture dated as of January 30, 1997 (the "Indenture") among the Company, PFC
and State Street Bank and Trust Company (the "Trustee"). For purposes of this
section of the Prospectus, references to the "Company" or "PFC" shall mean Petro
Stopping Centers, L.P. or Petro Financial Corporation, respectively, without
their subsidiaries; references to the "Issuers" shall mean the Company and PFC,
and references to an "Issuer" shall mean the Company or PFC. The New Notes will
be issued solely in exchange for an equal principal amount of the outstanding
Old Notes pursuant to the Exchange Offer. The terms of the New Notes will be
identical in all material respects to the form and terms of the Old Notes except
that: (i) the New Notes will have been registered under the Securities Act (and
will generally be freely transferable by holders thereof who are not a
Restricted Holder); and (ii) the registration rights and contingent interest
rate provisions applicable to the Old Notes are not applicable to the New Notes.
References in this Section to the "Notes" will be references to the Old Notes
and/or the New Notes, depending upon which are outstanding.
The statements under this caption relating to the Indenture and the Notes
are summaries and are not a complete description of the Indenture or the Notes,
and where reference is made to particular provisions of the Indenture, such
provisions, including the definitions of certain terms, are qualified in their
entirety by reference to all of the provisions of the Indenture and those terms
made a part of the Indenture by the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The definitions of certain capitalized terms used in the
following summary are set forth below under "--Certain Definitions". Unless
otherwise indicated, references under this caption to Sections or Articles are
references to sections and articles of the Indenture. A copy of the Indenture
is available as set forth under "Available Information."
General
The Notes will mature on February 1, 2007 and will be limited to
$135,000,000 in aggregate principal amount. Each Note will bear interest at a
rate of 10 1/2% per annum from the date of original issuance until maturity,
payable semiannually on February 1 and August 1 of each year, commencing August
1, 1997, to the Person in whose name the Note is registered at the close of
business on the January 15 or July 15 next preceding such interest payment date.
Interest on the Notes will be computed on the basis of a 360 day year of twelve
30 day months. As described under "-- Exchange Offer; Registration Rights,"
Additional Interest may accrue and be payable under the circumstances set forth
therein. References herein to "interest" shall be deemed to include any such
"Additional Interest."
Principal of and premium, if any, and interest on the Notes will be
payable, and the Notes will be transferable, at the office or agency of the
Issuers in The City of New York maintained for such purposes, which, initially,
will be the office of the Trustee or an agent thereof; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the Person entitled thereto as shown on the security register. The New Notes
will be issued only in fully registered form without coupons, in denominations
of $1,000 and any integral multiple thereof. No service charge will be made for
any registration of transfer, exchange or redemption of Notes, except in certain
circumstances for any tax or other governmental charge that may be imposed in
connection therewith.
The Issuers' obligations under the Notes will be guaranteed on a senior
unsecured basis by all future Significant Subsidiaries and certain other
Restricted Subsidiaries of the Company. For a description of the future
guarantees of the Notes, see "-- Future Guarantees by Subsidiaries."
Ranking
The Notes are senior unsecured obligations of the Issuers and rank senior
in right of payment to any future subordinated indebtedness of the Issuers.
Loans under the Credit Agreement are secured by substantially all of the
84
<PAGE>
Company's assets and guaranteed by the Company's subsidiaries, which guarantees
in turn are secured by substantially all of such subsidiaries' assets.
Accordingly, while the Notes rank pari passu in right of payment with the loans
under the Credit Agreement and all other liabilities not expressly subordinated
by their terms to the Notes, the Notes are effectively subordinated to the loans
outstanding under the Credit Agreement to the extent of the value of the assets
securing such loans. As of March 31, 1997, the Company had $185.2 million of
Senior Indebtedness outstanding, including $44.0 million of loans outstanding
under the Credit Agreement.
Sinking Fund
There are no mandatory sinking fund payment obligations with respect to the
Notes.
Optional Redemption
The Notes are subject to redemption, at the option of the Issuers, in whole
or in part, at any time on or after February 1, 2002, upon not less than 30 nor
more than 60 days notice at the following Redemption Prices (expressed as
percentages of the principal amount to be redeemed) set forth below, plus
accrued interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant regular record date to receive interest due on
an interest payment date that is on or prior to the Redemption Date), if
redeemed during the 12 month period beginning February 1, of the years
indicated:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002...................................... 105.250%
2003...................................... 103.500
2004...................................... 101.750
2005 and thereafter....................... 100.000
</TABLE>
In addition to the optional redemption of the Notes in accordance with the
provisions of the preceding paragraph, prior to February 1, 2000, the Issuers
may, with the net proceeds of one or more Public Equity Offerings of Qualified
Capital Interests in the Company or a Successor Entity, redeem up to 35% of the
aggregate principal amount of the outstanding Notes at a Redemption Price
(expressed as a percentage of the principal amount to be redeemed) of 110.500%,
plus accrued interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant regular record date to receive interest due on
an interest payment date that is on or prior to the Redemption Date); provided
that at least $87.8 of the principal amount of Notes originally issued remains
outstanding immediately after the occurrence of any such redemption and that any
such redemption occurs within 90 days following the closing of any such Public
Equity Offering.
If less than all of the Notes are to be redeemed, the Trustee will select
the Notes or portions thereof to be redeemed by lot, pro rata or by any other
method the Trustee shall deem fair and appropriate.
Change of Control
Upon the occurrence of a Change of Control, the Issuers will make an Offer
to Purchase all of the outstanding Notes at a Purchase Price in cash equal to
101% of the principal amount tendered, together with accrued interest, if any,
to the Purchase Date. For purposes of the foregoing, an Offer to Purchase shall
be deemed to have been made if (i) within 30 days following the date of the
consummation of a transaction or series of transactions that constitutes a
Change of Control, the Issuers commence an Offer to Purchase all outstanding
Notes at the Purchase Price (provided that the running of such 30-day period
shall be suspended, for up to a maximum of 30 days, during any period when the
commencement of such Offer to Purchase is delayed or suspended by reason of any
court's or governmental authority's review of or ruling on any materials being
employed by the Issuers to effect
85
<PAGE>
such Offer to Purchase, so long as the Issuers have used and continue to use
their best efforts to make and conclude such Offer to Purchase promptly) and
(ii) all Notes properly tendered pursuant to the Offer to Purchase are purchased
on the terms of such Offer to Purchase.
The phrase "all or substantially all," as used in the definition of "Change
of Control," has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the Holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest such election,
there could be no assurance how a court interpreting New York law would
interpret the phrase.
The provisions of the Indenture may not afford Holders protection in the
event of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction affecting the Company that may adversely affect Holders,
if such transaction is not the type of transaction included within the
definition of Change of Control. A transaction involving the management of the
Issuers or their Affiliates, or a transaction involving a recapitalization of
either Issuer, will result in a Change of Control only if it is the type of
transaction specified in such definition. The definition of Change of Control
may be amended or modified with the written consent of a majority in aggregate
principal amount of outstanding Notes. See "--Amendment, Supplement and
Waiver."
There can be no assurance that the Issuers will have adequate resources to
refinance or fund the repurchase of the Notes in the event of a Change of
Control. The failure of the Issuers, following a Change of Control, to make an
Offer to Purchase or to pay when due the Purchase Price of Notes tendered in
conformity with any such Offer will give the Trustee and the Holders the rights
described under "Events of Default".
The Issuers will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Securities Exchange Act of 1934 and other securities laws
or regulations in connection with any repurchase of the Notes as described
above.
The existence of a Holder's rights to require the Issuers to repurchase
Notes in connection with a Change of Control may deter a third party from
acquiring the Issuers in a transaction that would constitute a "Change of
Control."
The Issuers will not be required to make an Offer to Purchase upon a Change
of Control if a third party makes such Offer to Purchase contemporaneously with
or upon a Change of Control in the manner, at the times and otherwise in
compliance with the requirements of the Indenture and purchases all Notes
validly tendered and not withdrawn under such Offer to Purchase.
Certain Covenants
Set forth below are certain covenants contained in the Indenture:
Limitation on Debt
The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Debt (including Acquired Debt), unless immediately
after giving effect to the Incurrence of such Debt and the receipt and
contemporaneous application of the proceeds therefrom, (a) the Interest Coverage
Ratio of the Company and its Restricted Subsidiaries for the last four fiscal
quarters for which financial information is available at the date of
determination (the "Specified Period"), determined on a pro forma basis as if
any such Debt, and any other Debt Incurred since the beginning of the Specified
Period, had been Incurred and the proceeds thereof had been applied at the
beginning of the Specified Period, and any other Debt repaid since the beginning
of the Specified Period had been repaid at the beginning of the Specified
Period, would be greater than 2.0:1 if the Debt is Incurred prior to
86
<PAGE>
February 1, 1999 and 2.25:1 if the Debt is Incurred thereafter and (b) no
Default or Event of Default shall have occurred and be continuing at the time or
as a consequence of the Incurrence of such Debt.
If, during the Specified Period or subsequent thereto and prior to the date
of determination, the Company or any of its Restricted Subsidiaries shall have
engaged in any Asset Sale or acquisition or shall have designated any Restricted
Subsidiary to be an Unrestricted Subsidiary or any Unrestricted Subsidiary to be
a Restricted Subsidiary, EBITDA, as defined, and Adjusted Interest Expense for
the Specified Period shall be calculated on a pro forma basis giving effect to
such Asset Sale or acquisition or designation, as the case may be, and the
application of any proceeds therefrom as if such Asset Sale or acquisition or
designation had occurred on the first day of the Specified Period.
If the Debt which is the subject of a determination under this provision is
Acquired Debt, or Debt Incurred in connection with the simultaneous acquisition
of any Person, business, property or assets, or Debt of an Unrestricted
Subsidiary being designated as a Restricted Subsidiary, then such ratio shall be
determined by giving effect (on a pro forma basis, as if the transaction had
occurred at the beginning of the Specified Period) to both the Incurrence or
assumption of such Acquired Debt or such other Debt by the Company or any of its
Restricted Subsidiaries and the inclusion in EBITDA, as defined, of the EBITDA,
as defined, of the acquired Person, business, property or assets or redesignated
Subsidiary.
Notwithstanding the first paragraph above, the Company and its Restricted
Subsidiaries may Incur Permitted Debt.
The Incurrence of Debt solely to develop a Stopping Center shall be
determined in accordance with the definition of "Incur" set forth herein.
Limitations on Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment unless, at
the time of and after giving effect to the proposed Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or will occur as a consequence thereof;
(b) after giving effect to such Restricted Payment on a pro forma basis,
the Company would be permitted to Incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the provisions described in the
first paragraph under the "Limitation on Debt" covenant; and
(c) after giving effect to such Restricted Payment on a pro forma basis,
the aggregate amount expended or declared for all Restricted Payments made
on or after the date of initial issuance of the Old Notes shall not exceed
the sum (without duplication) of (1) 50% of the Adjusted Net Income (or, if
Adjusted Net Income shall be a deficit, minus 100% of such deficit) of the
Company accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the fiscal quarter in
which the initial issuance of the Old Notes occurred and ending on the last
day of the fiscal quarter immediately preceding the date of such proposed
Restricted Payment, plus (2) 100% of the aggregate net cash proceeds
received by the Company subsequent to the initial issuance of the Notes
from the issuance and sale (other than to a Restricted Subsidiary) of its
Qualified Capital Interests, including Qualified Capital Interests issued
upon the conversion of Debt or Redeemable Capital Interests of the Company
issued after the initial issuance of the Old Notes, and from the exercise
of options, warrants or other rights to purchase such Qualified Capital
Interests, less any such proceeds used to redeem Notes in accordance with
the second paragraph of "Optional Redemption," plus (3) 100% of the net
reduction in Investments (other than Permitted Investments), subsequent to
the date of the initial issuance of the Old
87
<PAGE>
Notes, in any Person, resulting from payments of interest on Debt,
dividends, repayments of loans or advances (but only to the extent such
interest, dividends or repayments are not included in the calculation of
Adjusted Net Income), in each case to the Company or any Restricted
Subsidiary from any Person (including, without limitation, from
Unrestricted Subsidiaries) or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries in accordance with the Indenture,
not to exceed in the case of any Person the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person.
Notwithstanding the foregoing provisions, the Company and its Restricted
Subsidiaries may take the following actions, provided that with respect to
clauses (ii), (iii), (iv), (vi) and (vii) below, immediately after giving effect
to such action, no Default or Event of Default has occurred and is continuing:
(i) the payment of any dividend on Capital Interests in the Company or a
Restricted Subsidiary within 60 days after declaration thereof if at the
declaration date such payment would not have been prohibited by the
foregoing provisions of this covenant;
(ii) the retirement of any Qualified Capital Interests of the Company by
conversion into, or by or in exchange for, Qualified Capital Interests, or
out of net cash proceeds of the substantially concurrent sale (other than
to a Subsidiary of the Company) of other Qualified Capital Interests of the
Company;
(iii) the redemption, defeasance, repurchase or acquisition or
retirement for value of any Debt of the Company that is subordinate in
right of payment to the Notes out of the net cash proceeds of a
substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of new subordinated Debt of the Company incurred in accordance
with the Indenture;
(iv) payments due under the Permitted Affiliate Agreements that would
otherwise constitute Restricted Payments (other than pursuant to clause (v)
below);
(v) cash distributions by the Company to its partners on its Capital
Interests, for so long as it is organized as a partnership or other
substantially similar pass-through entity for federal income tax purposes,
in aggregate amounts not exceeding the aggregate amount of Permitted Tax
Distributions accrued after December 31, 1996;
(vi) the purchase, redemption, retirement or other acquisition for value
of Capital Interests in the Company held by employees or former employees
of the Company or any Restricted Subsidiary (or their estates or
beneficiaries under their estates) upon death, disability, retirement,
termination of employment or pursuant to the terms of any agreement under
which such Capital Interests were issued; provided that the aggregate cash
consideration paid for such purchase, redemption, retirement or other
acquisition of such Capital Interests does not exceed $750,000 in any
fiscal year; and
(vii) payments that would otherwise constitute Restricted Payments, not
to exceed $100,000 in the aggregate.
The actions described in clauses (i), (ii), (iv), (vi) and (vii) of the
immediately preceding paragraph shall reduce, but without duplication, the
amount that would otherwise be available for Restricted Payments under clause
(c) of the first paragraph under this "Limitations on Restricted Payments"
covenant.
If the Company makes a Restricted Payment which, at the time of the making
of such Restricted Payment, in the good faith determination of the Board of
Directors of the Company, would be permitted under the requirements of the
Indenture, such Restricted Payment shall be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustment made in
good faith to the Company's financial statements affecting Adjusted Net Income.
88
<PAGE>
If any Person in which an Investment is made, which Investment constitutes
a Restricted Payment when made, thereafter becomes a Restricted Subsidiary in
accordance with the Indenture, all such Investments previously made in such
Person shall no longer be counted as Restricted Payments for purposes of
calculating the aggregate amount of Restricted Payments pursuant to clause (c)
above, in each case to the extent such Investments would otherwise be so
counted.
If the Company or a Restricted Subsidiary transfers, conveys, sells, leases
or otherwise disposes of an Investment in accordance with the "Limitation on
Asset Sales" covenant, which Investment was originally included in the aggregate
amount expended or declared for all Restricted Payments pursuant to clause (c)
of the definition of "Restricted Payments", the aggregate amount expended or
declared for all Restricted Payments shall be reduced by the lesser of (i) the
Net Cash Proceeds from the transfer, conveyance, sale, lease or other
disposition of such Investment or (ii) the amount of the original Investment, in
each case, to the extent originally included in the aggregate amount expended or
declared for all Restricted Payments pursuant to clause (c) of the definition of
"Restricted Payments."
For purposes of this covenant, if a particular Restricted Payment involves
a non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of the
noncash portion of such Restricted Payment.
Limitations on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries, directly or indirectly, to enter into, create, incur, assume or
suffer to exist any Liens of any kind, other than Permitted Liens, on or with
respect to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom, without securing the Notes
and all other amounts due under the Indenture (for so long as such Lien exists)
equally and ratably with (or prior to) the obligation or liability secured by
such Lien.
Limitation on Dividends and Other Payments Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, cause or suffer to exist or become
effective or enter into any encumbrance or restriction (other than pursuant to
the Indenture, law or regulation) on the ability of any Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Capital Interests or
pay any Debt or other obligation owed to the Company or any Restricted
Subsidiary thereof, (ii) make loans or advances to the Company or any Restricted
Subsidiary thereof, or (iii) transfer any of its property or assets to the
Company or any Restricted Subsidiary of the Company, except:
(a) any encumbrance or restriction in existence on the date of initial
issuance of the Notes, including those required by the Credit Agreement;
(b) any encumbrance or restriction pursuant to an agreement relating to
an acquisition of property, so long as the encumbrances or restrictions in
any such agreement relate solely to the property so acquired (and are not
or were not created in anticipation of or in connection with the
acquisition thereof);
(c) any encumbrance or restriction which exists with respect to a Person
that becomes a Restricted Subsidiary or merges with or into a Restricted
Subsidiary of the Company on or after the date of initial issuance of the
Old Notes, which are in existence at the time such Person becomes a
Restricted Subsidiary but not created in connection with or in anticipation
of such Person becoming a Restricted Subsidiary, and which is not
applicable to any Person or the property or assets of any Person other than
such Person or the property or assets of such Person becoming a Restricted
Subsidiary;
89
<PAGE>
(d) any encumbrance or restriction pursuant to an agreement effecting a
permitted renewal, refunding, replacement, refinancing or extension of Debt
issued pursuant to an agreement referred to in the foregoing clauses (a)
through (c), so long as the encumbrances and restrictions contained in any
such refinancing agreement are no less favorable in any material respect to
the Holders than the encumbrances and restrictions contained in such
agreements in the reasonable judgment of the Board of Directors;
(e) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Restricted Subsidiary or provisions
in agreements that restrict the assignment of such agreement or any rights
thereunder; and
(f) any restriction on the sale or other disposition of assets or
property securing Debt as a result of a Permitted Lien on such assets or
property.
Nothing contained in this "Limitation on Dividends and Other Payments
Affecting Restricted Subsidiaries" covenant shall prevent the Company or any
Restricted Subsidiary from (i) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens" covenant or
(ii) restricting the sale or other disposition of property or assets of the
Company or any of its Restricted Subsidiaries that secure Debt of the Company or
any of its Restricted Subsidiaries Incurred in accordance with the Indenture.
Limitation on Issuance and Sale of Capital Interests in Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary of the Company to
issue any Capital Interest (other than any required directors' qualifying
shares) to any Person other than the Company or a Wholly-Owned Restricted
Subsidiary thereof. The Company will not sell, and will not permit any of its
Restricted Subsidiaries to sell, any Capital Interests in any Restricted
Subsidiary to any Person other than the Company or a Wholly-Owned Restricted
Subsidiary unless all such Capital Interests owned by the Company and its
Restricted Subsidiaries are sold in one or more contemporaneous transactions;
provided, however, that the Company will not sell any Capital Interest in PFC to
any Person other than a Wholly-Owned Restricted Subsidiary of the Company.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless the Company or such Restricted Subsidiary, as
the case may be, (i) receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the property or assets sold or otherwise
disposed of; (ii) at least 85% of the consideration received by the Company or
such Restricted Subsidiary for such property or assets consists of cash or
Eligible Cash Equivalents; provided that the amount of any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinate to the Notes or any Guarantee
thereof by any Restricted Subsidiary) that are assumed or forgiven by the
transferee of any such assets will be deemed to be cash for the purposes of this
clause (ii); and (iii) the Net Cash Proceeds received by the Company or such
Restricted Subsidiary are applied, to the extent the Company elects, (A) to
repay and permanently reduce outstanding Permitted Secured Debt or the Old 12
1/2% Notes (including Old 12 1/2% Notes issuable in connection with the Debt
Warrants) and to permanently reduce the commitments in respect thereof,
provided, however, that such repayment and commitment reduction occurs within
270 days following the receipt of such Net Cash Proceeds or (B) to an investment
in Replacement Assets, provided, however, that such investment occurs or the
Company or such Restricted Subsidiary enters into contractual commitments to
make such investment, subject only to customary conditions (other than the
obtaining of financing), on or prior to the 270th day following receipt of such
Net Cash Proceeds (the "Reinvestment Date") and Net Cash Proceeds contractually
committed are so applied within 365 days following the receipt of such Net Cash
Proceeds. Notwithstanding any provision of this "Limitation on Asset Sales"
covenant, Asset Swaps and Fuel Hedging Obligations entered into by the Company
or any Restricted Subsidiary in the ordinary course of business shall not be
subject to clause (ii) of the immediately preceding sentence.
90
<PAGE>
Any Net Cash Proceeds from any Asset Sale that are not used to reinvest in
Replacement Assets and/or repay Permitted Secured Debt or the Old 12 1/2% Notes
(including Old 12 1/2% Notes issuable in connection with the Debt Warrants)
shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
Issuers shall make an Offer to Purchase, from all Holders, Notes in an aggregate
principal amount equal to the Excess Proceeds, at a Purchase Price in cash equal
to 100% of the principal amount thereof, together with accrued interest, if any,
to the Purchase Date. If the aggregate principal amount of Notes surrendered by
Holders exceeds the amount equal to the Excess Proceeds, the Trustee shall
select the Notes to be purchased on a pro rata basis. To the extent that any
amount of Excess Proceeds remains after completion of such Offer to Purchase,
the Company may use such remaining amount for general corporate purposes, and
the amount of Excess Proceeds shall be reset to zero.
The Issuers will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and other securities laws or regulations in
the event that an Asset Sale Offer is required under the circumstances described
therein.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, conduct any business or enter into or
permit to exist any transaction or series of related transactions (including,
but not limited to, the purchase, sale or exchange of property, the making of
any Investment, the giving of any Guarantee or the rendering of any service)
with any Unrestricted Subsidiary or any Affiliate of the Company or any
Restricted Subsidiary other than transactions solely among any of the Company
and its Restricted Subsidiaries (an "Affiliate Transaction") unless: (i) such
business, transaction or series of related transactions is on terms no less
favorable to the Company or such Restricted Subsidiary than those that could be
obtained in a comparable arm's length transaction between unaffiliated parties;
and (ii) with respect to an Affiliate Transaction involving an amount or having
a value in excess of $500,000, the Company delivers to the Trustee an officers'
certificate stating that such business, transaction or series of related
transactions complies with clause (i) above. In the case of an Affiliate
Transaction involving an amount or having a value in excess of $2,000,000 but
less than or equal to $10,000,000, the Company must obtain a resolution of the
Board of Directors (including a majority of Disinterested Directors, if any)
certifying that such Affiliate Transaction complies with clause (i) above. In
the case of an Affiliate Transaction involving an amount or having a value in
excess of $10,000,000, the Company must obtain a written opinion of a nationally
recognized investment banking firm or other expert stating that the transaction
is fair to the Company or such Restricted Subsidiary from a financial point of
view. The foregoing limitation does not limit, and shall not apply to, (1) any
transaction or series of related transactions pursuant to the terms of the
Permitted Affiliate Agreements, (2) cash distributions permitted under clause
(v) of the second paragraph of the Limitations on Restricted Payments covenant,
relating to Permitted Tax Distributions, (3) the payment of reasonable and
customary fees to members of the Board of Directors of the Company or a
Restricted Subsidiary who are outside directors and (4) the payment of
reasonable and customary compensation to officers and employees of the Company
or any Restricted Subsidiary as determined by the Board of Directors thereof in
good faith. The aggregate management, consulting and similar fees paid by the
Company (excluding amounts paid pursuant to the last sentence of this covenant)
(x) to Chartwell shall not exceed $750,000 during any fiscal year and (y) to
Mobil Oil shall not exceed $300,000 in any fiscal year; provided that in each
case any such fees may accrue but shall not be paid by the Company at any time
after the occurrence and during the continuance of a Default or Event of Default
until such Default or Event of Default is cured, whereupon such accrued and
unpaid fees may be paid in addition to such other permitted fees. The Company
may in addition pay advisory fees to an Affiliate of the Company with respect to
specific transactions, provided such payments would be permitted under the first
paragraph of the Limitations on Restricted Payments covenant. In addition, for
purposes of this "Transactions with Affiliates" covenant, any transaction or
series of related transactions between the Company or any Restricted Subsidiary
and an Affiliate of the Company that is approved by a majority of the
Disinterested Directors, if any, shall be deemed to comply with
91
<PAGE>
clause (i) above. Notwithstanding the provisions of this covenant, the Company
was permitted to pay fees on the Closing Date in connection with the
consummation of the Transactions as described in this Prospectus.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale and Leaseback Transaction unless (i) the
consideration received in such Sale and Leaseback Transaction is at least equal
to the fair market value of the property sold, as determined by a board
resolution of the Company, and (ii) immediately prior to and after giving effect
to the Attributable Debt in respect of such Sale and Leaseback Transaction, the
Company could incur at least $1.00 of additional Debt (other than Permitted
Debt) in compliance with the covenant described under "Limitation on Debt."
Provision of Financial Information
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company will, to the
extent accepted by the Commission and not prohibited under the Exchange Act,
file with the Commission the annual reports, quarterly reports and other
documents which the Issuers would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were subject thereto, such documents to be filed with the Commission
on or prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required to file them. The Company will also, in any
event, (a) within 15 days of each Required Filing Date (i) transmit by mail to
all Holders, as their names and addresses appear in the security register,
without cost to such Holders, and (ii) file with the Trustee copies of the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act or any successor provisions thereto if the Company
were subject thereto and (b) if filing such documents by the Company with the
Commission is not accepted by the Commission or is prohibited under the Exchange
Act, promptly upon written request, supply copies of such documents to any
prospective Holder.
Payments for Consent
Neither the Company nor any of its Restricted Subsidiaries shall, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes that so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
Limitation on Creation of Unrestricted Subsidiaries
The Company may designate any Subsidiary of the Company to be an
"Unrestricted Subsidiary" as provided below in which event such Subsidiary and
each other Person that is then or thereafter becomes a Subsidiary of such
Subsidiary will be deemed to be an Unrestricted Subsidiary. "Unrestricted
Subsidiary" means (1) any Subsidiary designated as such by the Board of
Directors as set forth below where (a) neither the Company nor any of its
Restricted Subsidiaries (i) provides credit support for, or Guarantee of, any
Debt of such Subsidiary or any Subsidiary of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Debt) or (ii) is directly
or indirectly liable for any Debt of such Subsidiary or any Subsidiary of such
Subsidiary, and (b) no default with respect to any Debt of such Subsidiary or
any Subsidiary of such Subsidiary (including any right which the holders thereof
may have to take enforcement action against such Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of the Company and
its Restricted Subsidiaries to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity and (2) any Subsidiary of an Unrestricted Subsidiary. The Company may
designate any Subsidiary (other than PFC)
92
<PAGE>
to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital
Interests of, or owns or holds any Lien on any property of, any other Restricted
Subsidiary of the Company, provided that either (x) the Subsidiary to be so
designated has total assets of $1,000 or less or (y) immediately after giving
effect to such designation, the Company could incur at least $1.00 of additional
Debt pursuant to the first paragraph under "Limitation on Debt" and provided,
further, that the Company could make a Restricted Payment in an amount equal to
the greater of the fair market value or book value of such Subsidiary pursuant
to "Limitation on Restricted Payments" and such amount is thereafter treated as
a Restricted Payment for the purpose of calculating the aggregate amount
available for Restricted Payments thereunder. An Unrestricted Subsidiary may be
designated as a Restricted Subsidiary if (i) all the Debt of such Unrestricted
Subsidiary could be Incurred under the "Limitation on Debt" covenant and (ii)
all the Liens on the property and assets of such Unrestricted Subsidiary could
be incurred pursuant to the "Limitations on Liens" covenant.
Consolidation, Merger, Conveyance, Transfer or Lease
The Company will not, and will not permit any Restricted Subsidiary to, in
any transaction or series of transactions, consolidate with or merge into any
other Person (other than a merger of a Restricted Subsidiary into the Company in
which the Company is the continuing Person or the merger of a Restricted
Subsidiary into or with another Restricted Subsidiary or another Person that as
a result of such transaction becomes a Restricted Subsidiary), or transfer all
or substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole, to any other Person, unless:
(i) either (a) the Company shall be the continuing Person or (b) the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged, or the Person that acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or
substantially all of the property and assets of the Company (such Person,
the "Surviving Entity"), (1) shall be a corporation, partnership, limited
liability company or similar entity organized and validly existing under
the laws of the United States, any political subdivision thereof or any
state thereof or the District of Columbia, and (2) shall expressly assume,
by a supplemental indenture, the due and punctual payment of all amounts
due in respect of the principal of (and premium, if any) and interest on
all the Notes and the performance of the covenants and obligations of the
Issuers under the Indenture;
(ii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including,
without limitation, any Debt Incurred or anticipated to be Incurred in
connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing or would result therefrom;
(iii) immediately after giving effect to any such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Debt Incurred or anticipated to be Incurred in connection with or in
respect of such transaction or series of transactions) as if such
transaction or series of transactions had occurred on the first day of the
determination period, the Company (or the Surviving Entity if the Company
is not continuing) could Incur $1.00 of additional Debt (other than
Permitted Debt) under the first paragraph of the "Limitation on Debt"
covenant;
(iv) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any Debt
Incurred or anticipated to be Incurred in connection with or in respect of
such transaction or series of transactions), the Company (or the Surviving
Entity if the Company is not continuing) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; and
(v) the Company delivers, or causes to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each stating that such
93
<PAGE>
consolidation, merger, sale, conveyance, assignment, transfer, lease or
other disposition comply with the requirements of the Indenture.
provided, however, that, if, in the good faith determination of the Board of
Directors of the Company, (I) the purpose of such transaction is (A) to continue
the Company as a corporation or (B) to change the state of organization of the
Company or a Restricted Subsidiary, and (II) no material adverse effect on the
creditworthiness of the Company (or the Surviving Entity if the Company is not
continuing) and its Restricted Subsidiaries, taken as a whole, shall result as a
consequence of the transaction, then clauses (iii) and (iv) above shall not
apply; it being recognized that such reorganization shall not be considered to
have a material adverse effect on the creditworthiness of the Company solely
because the Surviving Entity is subject to income taxation.
For all purposes of the Indenture and the Notes, Subsidiaries of any
Surviving Entity will, upon such transaction or series of transactions, become
Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to the
Indenture and all Debt, and all Liens on property or assets, of the Surviving
Entity and its Subsidiaries that was not Debt, or were not Liens on property or
assets, of the Company and its Subsidiaries immediately prior to such
transaction or series of transactions shall be deemed to have been Incurred upon
such transaction or series of transactions.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, conditions described in the
immediately preceding paragraphs, the Surviving Entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or PFC,
as the case may be, under the Indenture with the same effect as if such
Surviving Entity had been named as the Company or PFC therein; and when a
Surviving Person duly assumes all of the obligations and covenants of the
Company or PFC, as the case may be, pursuant to the Indenture and the Notes,
except in the case of a lease, the predecessor Person shall be relieved of all
such obligations.
Events of Default
Each of the following is an "Event of Default" under the Indenture:
(1) default in the payment in respect of the principal of (or premium,
if any, on) any Note at its maturity (whether at Stated Maturity or upon
repurchase, acceleration, optional redemption or otherwise);
(2) default in the payment of any interest upon any Note when it
becomes due and payable, and continuance of such default for a period of 30
days;
(3) default in the making of an Offer to Purchase as required by the
Indenture;
(4) failure to perform or comply with the Indenture provisions
described under "Consolidation, Merger, Conveyance, Lease or Transfer";
(5) except as permitted by the Indenture, any Guarantee shall for any
reason cease to be, or it shall be asserted by any Guarantor or the Company
or PFC not to be, in full force and effect and enforceable in accordance
with its terms;
(6) default in the performance, or breach, of any covenant or
agreement of an Issuer or any Guarantor in the Indenture (other than a
covenant or agreement a default in whose performance or whose breach is
specifically dealt with in (1), (2) (3), (4) or (5) above), and continuance
of such default or breach for a period of 30 days after written notice
thereof has been given to the Issuers by the Trustee or to the Issuers and
the Trustee by the Holders of at least 25% in aggregate principal amount of
the outstanding Notes;
94
<PAGE>
(7) a default or defaults under any bonds, debentures, notes or other
evidences of Debt (other than the Notes) by the Company or any Restricted
Subsidiary having, individually or in the aggregate, a principal or similar
amount outstanding of at least $5,000,000, whether such Debt now exists or
shall hereafter be created, which default or defaults shall have resulted
in the acceleration of the maturity of such Debt prior to its express
maturity or shall constitute a failure to pay such Debt when due and
payable after the expiration of any applicable grace period with respect
thereto;
(8) the entry against the Company or any Restricted Subsidiary of a
final judgment or final judgments for the payment of money in an aggregate
amount in excess of $5,000,000 by a court or courts of competent
jurisdiction, which judgments remain undischarged, unwaived, unstayed,
unbonded or unsatisfied for a period of 60 consecutive days; or
(9) certain events in bankruptcy, insolvency or reorganization
affecting any Issuer, any Significant Subsidiary or any Guarantor.
If an Event of Default (other than an Event of Default specified in clause
(9) above) occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in aggregate principal amount of the
outstanding Notes may declare the principal of the Notes and any accrued
interest on the Notes to be due and payable immediately by a notice in writing
to the Company (and to the Trustee if given by Holders); provided, however, that
after such acceleration, but before a judgment or decree based on acceleration,
the Holders of a majority in aggregate principal amount of the outstanding Notes
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the nonpayment of accelerated principal of or
interest on the Notes, have been cured or waived as provided in the Indenture.
If an Event of Default specified in clause (9) above occurs, the principal of
and any accrued interest on the Notes then outstanding shall ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. For further information as to waiver of defaults, see
"--Amendment, Supplement and Waiver". The Trustee may withhold from Holders
notice of any Default (except in payment of principal of, premium, if any, and
interest) if the Trustee determines that withholding notice is in the best
interest of the Holders to do so.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. Such limitations do not apply, however, to a suit instituted by a Holder
of a Note for enforcement of payment of the principal of (and premium, if any)
or interest on such Note on or after the respective due dates expressed in such
Note.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have had
to pay if the Issuers then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
February 1, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Issuers with the intention of avoiding the
prohibition on redemption of the Notes prior to February 1, 2002, then the
greatest premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Notes.
95
<PAGE>
The Issuers will be required to furnish to the Trustee annually a statement
as to the performance of certain obligations under the Indenture and as to any
default in such performance. The Issuers also are required to notify the Trustee
upon becoming aware of the occurrence of any Default or Event of Default.
Future Guarantees by Certain Subsidiaries
The Notes will be guaranteed, on a full, unconditional, joint and several
and senior unsecured basis as provided therein, by all future direct and
indirect Significant Subsidiaries, and each other Restricted Subsidiary of the
Company that executes a Guarantee in connection with any other Debt of the
Company or any Restricted Subsidiary or otherwise Incurs Debt (including
Permitted Debt) other than under the Credit Agreement for so long as such other
Debt is so guaranteed or outstanding. Such guarantees will be senior obligations
of each Guarantor and will rank pari passu with all existing and future senior
Debt of such Guarantor and senior to all subordinated Debt of such Guarantor.
Under the provisions of the "Limitation on Liens" covenant, if a Restricted
Subsidiary secures any Guarantee of other Debt, it will be required to secure
its Guarantee of the Notes equally and ratably, except that this requirement
will not apply to Liens to secure such Restricted Subsidiary's Guarantee of Debt
which is secured by Permitted Liens. The Indenture provides that the obligations
of a Guarantor under its Guarantee will be limited to the maximum amount as will
result in the obligations of such Guarantor under the Guarantee not to be deemed
to constitute a fraudulent conveyance or fraudulent transfer under federal or
state law.
The Indenture provides that in the event of a sale or other transfer or
disposition of all of the Capital Interests in any Guarantor to any Person that
is not an Affiliate of the Company in compliance with the terms of the
Indenture, or in the event all or substantially all the assets or Capital
Interests of a Guarantor are sold or otherwise transferred, by way of merger,
consolidation or otherwise, to a Person that is not an Affiliate of the Company
in compliance with the terms of the Indenture, then such Guarantor (or the
Person concurrently acquiring such assets of such Guarantor) shall be deemed
automatically and unconditionally released and discharged of any obligations
under its Guarantee, as evidenced by a supplemental indenture executed by the
Issuers, the Guarantors, if any, and the Trustee, without any further action on
the part of the Trustee or any Holder; provided that the Net Proceeds of such
sale or other disposition are applied in accordance with the "Limitation on
Asset Sales" covenant.
Any Guarantee by a Restricted Subsidiary (other than a Significant
Subsidiary) shall provide by its terms that it shall be automatically and
unconditionally released and discharged, as evidenced by a supplemental
indenture executed by the Issuers, the Guarantors, if any, and the Trustee, upon
the release or discharge of the guarantee which resulted in the creation of such
Restricted Subsidiary's Guarantee, except a discharge or release by, or as a
result of, payment under such Guarantee.
Amendment, Supplement and Waiver
Without the consent of any Holders, the Issuers, the Guarantors, if any,
and the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental to the Indenture for any of the following purposes: (1)
to evidence the succession of another Person to the Issuers and the assumption
by any such successor of the covenants of the Issuers in the Indenture and in
the Notes; or (2) to add to the covenants of the Issuers for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Issuers;
or (3) to add additional Events of Default; or (4) to provide for uncertificated
Notes in addition to or in place of the certificated Notes; or (5) to evidence
and provide for the acceptance of appointment under the Indenture by a successor
Trustee; or (6) to secure the Notes, to add a Guarantor or to release a
Guarantor in accordance with the Indenture,; or (7) to cure any ambiguity, to
correct or supplement any provision in the Indenture which may be defective or
inconsistent with any other provision in the Indenture, or to make any other
provisions with respect to matters or questions arising under the Indenture,
provided that such actions pursuant to this clause shall not adversely affect
the interests of the Holders in any material respect; or (8) to comply with any
requirements of the Commission in order to effect and maintain the qualification
of the Indenture under the Trust Indenture Act.
96
<PAGE>
With the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Notes, the Issuers, the Guarantors, if any,
and the Trustee may enter into an indenture or indentures supplemental to the
Indenture for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Indenture or of modifying in any
manner the rights of the Holders under the Indenture, including the definitions
therein; provided, however, that no such supplemental indenture shall, without
the consent of the Holder of each outstanding Note affected thereby, (1) change
the Stated Maturity of any Note or of any installment of interest on any Note,
or reduce the amount payable in respect of the principal thereof or the rate of
interest thereon or any premium payable thereon, or reduce the amount that would
be due and payable on acceleration of the maturity thereof, or change the place
of payment where, or the coin or currency in which, any Note or any premium or
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof, or (2)
reduce the percentage in aggregate principal amount of the outstanding Notes,
the consent of whose Holders if required for any such supplemental indenture, or
the consent of whose Holders is required for any waiver (of compliance with
certain provisions of the Indenture or certain defaults thereunder and their
consequences) provided for in the Indenture, or (3) modify the obligations of
the Issuers to make Offers to Purchase upon a Change of Control or from the
Excess Proceeds of Asset Sales, or (4) subordinate, in right of payment, the
Notes to any other Debt of the Issuers, or (5) modify any of the provisions of
this paragraph or provisions relating to waiver of defaults or certain
covenants, except to increase any such percentage required for such actions or
to provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding Note affected
thereby, or (6) release any Guarantees required to be maintained under the
Indenture.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the Holders of all the Notes waive any
past default under the Indenture and its consequences, except a default (1) in
any payment in respect of the principal of (or premium, if any) or interest on
any Notes (including any Note which is required to have been purchased pursuant
to an Offer to Purchase which has been made by the Issuers), or (2) in respect
of a covenant or provision hereof which under the Indenture cannot be modified
or amended without the consent of the Holder of each outstanding Note affected.
Satisfaction and Discharge of the Indenture; Defeasance
The Issuers and the Guarantors may terminate the obligations under the
Indenture, when (1) either: (A) all Notes theretofore authenticated and
delivered have been delivered to the Trustee for cancellation, or (B) all such
Notes not theretofore delivered to the Trustee for cancellation (i) have become
due and payable, or (ii) will become due and payable within 60 days or are to be
called for redemption within 60 days (a "Discharge") under irrevocable
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Issuers, and the Issuers
have irrevocably deposited or caused to be deposited with the Trustee funds in
an amount sufficient to pay and discharge the entire indebtedness on the Notes,
not theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, on and interest to the date of deposit or Stated Maturity or
date of redemption; (2) the Issuers have paid or caused to be paid all other
sums then due and payable hereunder by the Issuers; and (3) the Issuers have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
The Issuers may elect, at their option, to have their obligations
discharged with respect to the outstanding Notes ("defeasance"). Such defeasance
means that the Issuers will be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (1) the rights of
Holders of such Notes to receive payments in respect of the principal of and any
premium and interest on such Notes when payments are due, (2) the Issuers'
obligations with respect to such Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (3) the rights, powers, trusts, duties and immunities of the
Trustee, (4) the Issuers' right of optional redemption, and (5) the defeasance
provisions of the Indenture. In addition, the Issuers may elect,
97
<PAGE>
at their option, to have their obligations released with respect to certain
covenants, including without limitation their obligation to make Offers to
Purchase in connection with Asset Sales and any Change of Control, in the
Indenture ("covenant defeasance") and any omission to comply with such
obligation shall not constitute a Default or an Event of Default with respect to
the Notes. In the event covenant defeasance occurs, certain events (not
including non-payment, bankruptcy and insolvency events) described under "Events
of Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either defeasance or covenant defeasance with respect
to outstanding Notes: (1) the Issuers must irrevocably have deposited or caused
to be deposited with the Trustee as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to the benefits of the Holders of such Notes: (A) money in an
amount, or (B) U.S. government obligations which through the scheduled payment
of principal and interest in respect thereof in accordance with their terms will
provide, not later than the due date of any payment, money in an amount, or (C)
a combination thereof, in each case sufficient without reinvestment, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge, and which shall be applied by the Trustee to pay and discharge,
the entire indebtedness in respect of the principal of and premium, if any, and
interest on such Notes on the Stated Maturity thereof or (if the Issuers have
made irrevocable arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name and at the expense of the
Issuers) the redemption date thereof, as the case may be, in accordance with the
terms of the Indenture and such Notes; (2) in the case of defeasance, the
Issuers shall have delivered to the Trustee an opinion of counsel stating that
(A) the Issuers have received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case (A) or (B) to
the effect that, and based thereon such opinion shall confirm that, the Holders
of such Notes will not recognize gain or loss for federal income tax purposes as
a result of the deposit, defeasance and discharge to be effected with respect to
such Notes and will be subject to federal income tax on the same amount, in the
same manner and at the same times as would be the case if such deposit,
defeasance and discharge were not to occur; (3) in the case of covenant
defeasance, the Issuers shall have delivered to the Trustee an opinion of
counsel to the effect that the Holders of such outstanding Notes will not
recognize gain or loss for federal income tax purposes as a result of the
deposit and covenant defeasance to be effected with respect to such Notes and
will be subject to federal income tax on the same amount, in the same manner and
at the same times as would be the case if such deposit and covenant defeasance
were not to occur; (4) no Default or Event of Default with respect to the
outstanding Notes shall have occurred and be continuing at the time of such
deposit after giving effect thereto or, in the case of defeasance, either: (A)
the Issuers shall have delivered to the Trustee an opinion of counsel to the
effect that, based upon existing precedents, if the matter were properly
briefed, a court should hold that the deposit of moneys and/or U.S. government
obligations as provided in clause (1) would not constitute a preference voidable
under Section 547 or 548 of the federal bankruptcy laws; or (B) no Default or
Event of Default relating to bankruptcy or insolvency shall have occurred and be
continuing at any time on or prior to the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed satisfied
until after such 91st day); (5) such defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest within the meaning of the Trust
Indenture Act (assuming all Notes are in default within the meaning of such
Act); (6) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which either of the Issuers is a party or by which it is bound; (7) such
defeasance or covenant defeasance shall not result in the trust arising from
such deposit constituting an investment company within the meaning of the
Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; and (8) the
Issuers shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent with respect to
such defeasance or covenant defeasance have been complied with.
In the event of a defeasance or a Discharge, a Holder whose taxable year
straddles the deposit of funds and the distribution in redemption to such Holder
would be subject to tax on any gain (whether characterized as capital gain or
market discount) in the year of deposit rather than in the year of receipt. In
connection with a Discharge, in the event either Issuer becomes insolvent within
the applicable preference period after the date of
98
<PAGE>
deposit, monies held for the payment of the Notes may be part of the bankruptcy
estate of such Issuer, disbursement of such monies may be subject to the
automatic stay of the bankruptcy code and monies disbursed to Holders may be
subject to disgorgement in favor of the estate of the bankrupt Issuer. Similar
results may apply upon the insolvency of an Issuer during the applicable
preference period following the deposit of monies in connection with covenant
defeasance.
The Trustee
State Street Bank and Trust Company, the Trustee under the Indenture, will
be the initial paying agent and registrar for the Notes. The Trustee from time
to time may extend credit to the Issuers in the ordinary course of business. The
Trustee's current address is Two International Place, Fourth Floor, Boston,
Massachusetts 02110. Except during the continuance of an Event of Default, the
Trustee will perform only such duties as are specifically set forth in the
Indenture. During the existence of an Event of Default, the Trustee will
exercise such of the rights and powers vested in it by the Indenture and use the
same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
The Indenture and the Trust Indenture Act contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company or PFC, to
obtain payment of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
"conflicting interest" (as defined in the Trust Indenture Act) it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee, subject to certain exceptions. The Indenture provides
that in case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by the Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
Subject to such provisions, the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by the Indenture at the request or
direction of any of the Holders pursuant to the Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction.
No Personal Liability of Stockholders, Partners, Officers or Directors
No director, officer, employee, stockholder, general or limited partner or
incorporator, past, present or future, of the Company or any of its
Subsidiaries, as such or in such capacity, shall have any personal liability for
any obligations of either Issuer under the Notes, any Guarantee or the Indenture
by reason of his, her or its status as such director, officer, employee,
stockholder, general or limited partner or incorporator. This limitation of
liability does not apply to any claim under the Securities Act or the Exchange
Act, and, in purchasing the Notes, a Holder is not waiving any rights under such
laws. Likewise, this limitation of liability does not apply to any partner who
is a party to an indemnity and hold harmless agreement in favor of the Company
and the general and limited partners of the Company.
Governing Law
The Indenture and the Notes are governed by, and will be construed in
accordance with, the laws of the State of New York.
99
<PAGE>
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized term used herein for which no definition
is provided.
"Acquired Debt" means Debt of a Person (including an Unrestricted
Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or
assumed in connection with the acquisition of assets from such Person.
"Adjusted Interest Expense" means, for any period, without duplication, an
amount equal to the sum of: (i) the aggregate amount of interest charges
(excluding fees and expenses incurred at or prior to Closing in connection with
the Transactions), whether expensed or capitalized, incurred or accrued by the
Company and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP for such period (including non-cash interest payments);
plus (ii) to the extent not included in clause (i) above, an amount equal to the
sum of: (A) net costs associated with Interest Swap Obligations and Currency
Hedge Obligations (including any amortization of discounts); plus (B) all
commissions, discounts and other fees and charges owed with respect to letters
of credit, bankers' acceptances or similar facilities paid or accrued, or
scheduled to be paid or accrued, during such period; plus, (C) dividends on
Preferred Interests and Redeemable Capital Interests (if paid to a Person other
than the Company or one of its Restricted Subsidiaries) declared and payable in
cash; plus (D) the portion of any Attributable Debt in respect of any Sale and
Leaseback Transaction that is allocable to interest expense (determined as if
such Transaction were treated as a Capital Lease Obligation); plus (E) to the
extent any Debt of any other Person is Guaranteed or secured by the Company or a
Restricted Subsidiary in the manner described in clause (ix) of the definition
of "Debt", the aggregate amount of interest expense of such other Person during
such period attributable to any such Debt determined in accordance with GAAP;
minus (F) amortization or write-off of deferred financing costs during such
period and any charge related to any premium or penalty paid in connection with
redeeming or retiring any Debt of the Company and its Restricted Subsidiaries
prior to the Stated Maturity thereof. For purposes of calculating Adjusted
Interest Expense on a pro forma basis, the interest on Debt bearing a floating
rate of interest shall be the interest rate in effect at the time of
determination (taking into account on a pro forma basis any Interest Swap
Obligation applicable to such Debt if such Interest Swap Obligation has a
remaining term at the date of determination in excess of 12 months).
"Adjusted Net Income" means, for any period, the consolidated net income
(or net loss) of the Company and its Restricted Subsidiaries determined in
accordance with GAAP for such period minus (to the extent made or reserved)
Permitted Tax Distributions, plus any Permitted Tax Distributions repaid to the
Company; provided that there shall be excluded therefrom, without duplication:
(i) all items classified as extraordinary, unusual or nonrecurring (including
fees and expenses incurred at or prior to Closing and write-offs, in each case
in connection with the Transactions); (ii) any net loss or net income of any
Person that is not a Restricted Subsidiary, except to the extent of the amount
of dividends or other distributions actually paid to the Company or its
Restricted Subsidiaries by such other Person during such period; (iii) the net
income of any Person acquired by the Company or a Restricted Subsidiary thereof
in a pooling-of-interests transaction for any period prior to the date of such
acquisition; (iv) any gain or loss, net of taxes, realized on the termination of
any employee pension benefit plan; (v) gains (but not losses) in respect of
Asset Sales by the Company or its Restricted Subsidiaries; (vi) the net income
(but not the net loss) of any Restricted Subsidiary to the extent that the
payment of dividends or distributions to such Person is restricted, directly or
indirectly, except to the extent that such net income could be paid to the
Company or a Restricted Subsidiary thereof by loans, advances, intercompany
transfers, principal repayments or otherwise; and (vii) with regard to any
Restricted Subsidiary all of the Capital Interests which are not owned by the
Company or another Restricted Subsidiary, any aggregate net income (or loss) in
excess of the Company's or such other Restricted Subsidiary's pro rata share of
such Restricted Subsidiary's net income (or loss). In computing Adjusted Net
Income under clause (c) under the "Limitations on Restricted Payments" covenant,
the Company (i) shall use audited financial statements for the portion of the
relevant period for which such statements are available on the date of
determination and unaudited financial statements and other current financial
data based on the books and records
100
<PAGE>
of the Company for the remaining portion of such period and (ii) shall be
permitted to rely in good faith for the balance of the relevant period for which
audited financial statements are not available on the financial statements and
other financial data derived from the books and records of the Company that are
available on the date of determination.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings that correspond to the foregoing. For purposes of the
Indenture, the term "Affiliate", as it relates to the Company, shall include
Mobil Oil for so long as Mobil Oil is entitled to designate at least one member
of the Board of Directors of the Company.
"Asset Sale" means any transfer, conveyance, sale, lease or other
disposition (including, without limitation, dispositions pursuant to any
consolidation or merger) by the Company or any of its Restricted Subsidiaries to
any Person (other than to the Company or one or more of its Restricted
Subsidiaries) in any single transaction or series of transactions of: (i)
Capital Interests in another Person (other than directors' qualifying shares);
(ii) any other property or assets (other than in the ordinary course of
business, including any sale or other disposition of obsolete or permanently
retired equipment); provided, however, that the term "Asset Sale" shall exclude:
(a) any asset disposition permitted by the provisions described under
"Consolidation, Merger, Conveyance, Lease or Transfer" that constitutes a
disposition of all or substantially all of the assets of the Issuers and their
Restricted Subsidiaries taken as a whole; (b) any transfer, conveyance, sale,
lease or other disposition of property or assets, the gross proceeds of which
(exclusive of indemnities) do not exceed $500,000; (c) sales of Eligible Cash
Equivalents; (d) the Incurrence of any Lien, to the extent not prohibited by the
terms of the Indenture; and (e) sales of Unrestricted Subsidiaries. For purposes
of this definition, any series of related transactions that, if effected as a
single transaction, would constitute an Asset Sale, shall be deemed to be a
single Asset Sale effected when the last such transaction which is a part
thereof is effected.
"Asset Swap" means any exchange of property or assets of the Company or any
Restricted Subsidiary of the Company for property or assets of a third party
which consist of property or assets described in clause (d) of the definition of
"Permitted Investments."
"Attributable Debt" under the Indenture in respect of a Sale and Leaseback
Transaction means, as at the time of determination, the greater of (i) the fair
value of the property subject to such arrangement (as determined in good faith
by the Board of Directors) and (ii) the present value (discounted at the rate of
interest implicit in such transaction) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such Sale
and Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of any date of determination, with respect to any
Debt, the quotient obtained by dividing (i) the sum of the products of (x) the
number of years from the date of determination to the dates of each successive
scheduled principal payment (including any sinking fund or mandatory redemption
payment requirements) of such Debt multiplied by (y) the amount of such
principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means (i) with respect to the Company or any other
Restricted Subsidiary, its Board of Directors; (ii) with respect to a
corporation, the board of directors of such corporation or any duly authorized
committee thereof; and (iii) with respect to any other entity, the board of
directors or similar body of the general partner or managers of such entity or
any duly authorized committee thereof.
"Capital Interests" in any Person means any and all shares, interests
(including Preferred Interests), participations or other equivalents in the
equity interest (however designated) in such Person and any rights (other
101
<PAGE>
than Debt securities convertible into an equity interest), warrants or options
to acquire an equity interest in such Person.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangement conveying
the right to use) real or personal property of such Person, to the extent such
obligations are required to be classified and accounted for as a capital lease
or a liability on the face of a balance sheet of such Person in accordance with
GAAP. The Stated Maturity of any Capital Lease Obligation shall be the date of
the last payment of rent or any other amount due under such lease (or other Debt
arrangement) prior to the first date upon which such lease (or other Debt
arrangement) may be terminated by the user of such real or personal property
without payment of a penalty, and the amount of any Capital Lease Obligation
shall be the capitalized amount thereof determined in accordance with GAAP.
"Cardwell Group" means James A. Cardwell, Sr., James A. Cardwell, Jr. and
their Affiliates.
"Change of Control" means the occurrence of any of the following events:
(i) prior to a Public Equity Offering, either (A) any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as such term is used in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of a greater percentage of the
Common Interests in the Company than such percentage constituting the
"beneficial ownership" of the Permitted Holders in the aggregate or (B) any
"person" or "group" other than the Permitted Holders has the power or right to
designate a majority of the members of the Company's Board of Directors; (ii)
after the consummation of a Public Equity Offering, (A) the Permitted Holders
and the Cardwell Group, in the aggregate, cease to be the "beneficial owner,"
directly or indirectly, of at least 50% of the Common Interests in the Company
or any Successor Entity (on a fully-diluted basis) and (B) the Permitted Holders
in the aggregate cease to be the "beneficial owner", directly or indirectly, of
at least 30% of the Common Interests in the Company or any Successor Entity;
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute 66 2/3% of the Company's Board of Directors then in office; or (iv)
the Company sells, conveys, transfers or leases (either in one transaction or a
series of related transactions) all or substantially all of its assets to a
Person other than a Restricted Subsidiary of the Company or a Successor Entity
in which a majority or more of the voting power of the Voting Interests is held
by the Permitted Holders.
"Chartwell" means Chartwell Investments Inc. and its Affiliates.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Interests" of any Person means Capital Interests in such Person
that do not rank prior, as to the payment of dividends or as to the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to Capital Interests of any other class in such Person.
"Consolidated Net Worth" of the Company means, as of any date, the
aggregate of capital, surplus and retained earnings of the Company and
Restricted Subsidiaries as would be shown on a consolidated balance sheet of the
Company and its Restricted Subsidiaries prepared as of such date in accordance
with GAAP, less all amounts, if any, attributable to Redeemable Capital
Interests in such Person.
"Credit Agreement" means a secured or unsecured credit agreement providing,
inter alia, for revolving credit loans, term loans and/or letters of credit
between the Company and one or more lenders, together with all related notes,
letters of credit, collateral documents, guarantees, and any other related
agreements and instruments
102
<PAGE>
executed and delivered in connection therewith, in each case as amended,
modified, supplemented, refinanced, refunded or replaced in whole or in part
from time to time.
"Currency Hedge Obligations" means the obligations of a Person Incurred
pursuant to any foreign currency exchange agreement, option or futures contract
or other similar agreement or arrangement designed to protect against or manage
such Person's exposure to fluctuations in foreign currency exchange rates on
Debt permitted under the Indenture.
"Debt" means at any time (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person, or non-
recourse, and whether or not contingent, the following: (i) all indebtedness of
such Person for money borrowed, excluding any trade payables, other current
liabilities incurred in the ordinary course of business and any liability for
federal, state or local income taxes or other taxes owed by such Person; (ii)
all obligations (other than interest, premium and additional payments, if any)
of such Person evidenced by bonds, debentures, notes, or other similar
instruments; (iii) all obligations of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person; (iv) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property or assets acquired
by such Person (even if the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property or assets); (v) all Capital Lease Obligations of such Person; (vi)
the maximum fixed redemption or repurchase price of Redeemable Capital Interests
in such Person at the time of determination; (vii) any Interest Swap Obligations
and Currency Hedge Obligations of such Person at the time of determination;
(viii) Attributable Debt with respect to any Sale and Leaseback Transaction to
which such Person is a party; and (ix) all obligations of the types referred to
in clauses (i) through (viii) of this definition of another Person and all
dividends and other distributions of another Person, the payment of which, in
either case, (A) such Person has Guaranteed or (B) is secured by (or the holder
of such Debt or the recipient of such dividends or other distributions has an
existing right, whether contingent or otherwise, to be secured by) any Lien upon
the property or other assets of such Person, even though such Person has not
assumed or become liable for the payment of such Debt, dividends or other
distributions. For purposes of the foregoing: (a) the maximum fixed repurchase
price of any Redeemable Capital Interests that do not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable
Capital Interests as if such Redeemable Capital Interests were repurchased on
any date on which Debt shall be required to be determined pursuant to this
Indenture; provided, however, that, if such Redeemable Capital Interests are not
then permitted to be repurchased, the repurchase price shall be the book value
of such Redeemable Capital Interests; (b) the amount outstanding at any time of
any Debt issued with original issue discount is the principal amount of such
Debt less the remaining unamortized portion of the original issue discount of
such Debt at such time as determined in conformity with GAAP, but such Debt
shall be deemed Incurred only as of the date of original issuance thereof; (c)
the amount of any Debt described in clause (ix)(A) above shall be the maximum
liability under any such Guarantee; and (d) the amount of any Debt described in
clause (ix)(B) above shall be the lesser of (I) the maximum amount of the
obligations so secured and (II) the Fair Market Value of such property or other
assets. Debt of the Company shall include the Debt Warrants.
"Debt Warrants" means the exchangeable debt warrants of the Company and PFC
issued with the Old 12 1/2% Notes.
"Default" means any event that is, or after notice or passage of time, or
both, would be, any Event of Default.
"Disinterested Director" means, with respect to any proposed transaction
between (i) the Company or a Restricted Subsidiary, as applicable, and (ii) an
Affiliate thereof (other than the Company or a Restricted Subsidiary), a member
of the Board of Directors of the Company or such Restricted Subsidiary, as
applicable, who would not be a party to, or have a financial interest in, such
transaction and is not an officer, director or employee of, and does not have a
financial interest in, such Affiliate. For purposes of this definition, no
person would be deemed not to be a Disinterested Director solely because such
person holds Capital Interests in the Company.
103
<PAGE>
"EBITDA" means, with respect to the Company and its Restricted
Subsidiaries, for any period, the sum of Adjusted Net Income plus, to the extent
reflected in Adjusted Net Income for such period from which Adjusted Net Income
is determined, without duplication, (i) Adjusted Interest Expense, (ii) income
tax expense (or Permitted Tax Distributions in lieu thereof), (iii) depreciation
expense, (iv) amortization expense, (v) any charge related to any premium or
penalty paid in connection with redeeming or retiring any Debt prior to its
Stated Maturity and (vi) any other non-cash items reducing Adjusted Net Income;
minus any non-cash items increasing Adjusted Net Income.
"Eligible Bank" means a bank or trust company that (i) is organized and
existing under the laws of the United States of America or Canada, or any state,
territory, province or possession thereof and (ii) as of the time of the making
or acquisition of an Investment in such bank or trust company, has combined
capital and surplus in excess of $500,000,000, the senior Debt of which is rated
at least "A-2" by Moody's or at least "A" by Standard & Poor's.
"Eligible Cash Equivalents" means any of the following Investments: (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) maturing not more
than one year after the date of acquisition; (ii) time deposits in and
certificates of deposit of any Eligible Bank, provided that such Investments
have a maturity date not more than two years after date of acquisition and that
the Average Life of all such Investments is one year or less from the respective
dates of acquisition; (iii) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in clause (i) above
entered into with any Eligible Bank; (iv) direct obligations issued by any state
of the United States or any political subdivision or public instrumentality
thereof, provided that such Investments mature, or are subject to tender at the
option of the holder thereof, within 90 days after the date of acquisition and,
at the time of acquisition, have a rating of at least A from Standard & Poor's
or A-2 from Moody's (or an equivalent rating by any other nationally recognized
rating agency); (v) commercial paper of any Person other than an Affiliate of
the Company, provided that such Investments have one of the two highest ratings
obtainable from either Standard & Poor's or Moody's and mature within 90 days
after the date of acquisition; (vi) overnight and demand deposits in and
bankers' acceptances of any Eligible Bank and demand deposits in any bank or
trust company to the extent insured by the Federal Deposit Insurance Corporation
against the Bank Insurance Fund; and (vii) money market funds substantially all
of the assets of which comprise Investments of the types described in clauses
(i) through (vi).
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase."
"Fair Market Value" means, with respect to the consideration received or
paid in any transaction or series of transactions, the fair market value thereof
as determined in good faith by the Board of Directors.
"Franchisee Receivables" means fuel, lube, repair and other receivables
purchased by the Company or any Restricted Subsidiary from any of their
franchisees, licensees or third party contractors operating a Stopping Center
affiliated with the Company's network of Stopping Centers.
"Fuel Hedging Obligations" means the obligations of a Person pursuant to
fuel price swap, fuel price cap, fuel price collar and fuel price floor and
similar agreements and hedging obligations and arrangements, in the ordinary
course of business, designed to protect against or manage such Person's exposure
to fluctuations in fuel prices.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, that are applicable to the circumstances as of the date of
determination.
104
<PAGE>
"Guarantee" means, as applied to any Debt of another Person, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such Debt, (ii) any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the effect of guaranteeing the
Debt of any other Person in any manner and (iii) an agreement of a Person,
direct or indirect, contingent or otherwise, the practical effect of which is to
assure in any way the payment or performance (or payment of damages in the event
of non-performance) of all or any part of such Debt of another Person (and
"Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings that correspond
to the foregoing).
"Holder" means a Person in whose name a Note is registered in the security
register.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
other obligation on the balance sheet of such Person; provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time becoming Debt shall not be deemed an Incurrence of such Debt. Debt
otherwise Incurred by a Person before it becomes a Subsidiary of the Company
shall be deemed to be Incurred at the time at which such Person becomes a
Subsidiary of the Company. With respect to Debt the proceeds of which are to be
used solely to develop one or more Stopping Centers and to be borrowed pursuant
to a binding commitment previously entered into in good faith with a lending
institution, the Company or any Restricted Subsidiary shall, at its election, be
deemed to have Incurred Debt in a designated amount of up to the completion cost
of the project, based on the good faith estimate of management in accordance
with past practices and certified and so designated to the Trustee in an
officers' certificate, including a resolution of the Board of Directors, at the
time of such designation, but only to the extent such proceeds are actually
borrowed within 365 days after such delivery date, in which case the excess of
the committed amount over the amount actually borrowed shall not be deemed
Incurred for the purposes of this definition. "Incurrence", "Incurred",
"Incurrable" and "Incurring" shall have meanings that correspond to the
foregoing. A Guarantee by the Company or a Restricted Subsidiary of Debt
incurred by the Company or a Restricted Subsidiary, as applicable, shall not be
a separate incurrence of Debt.
"Interest Coverage Ratio" means, at any date of determination, the ratio
of: (i) EBITDA, as defined, to (ii) Adjusted Interest Expense, in both cases for
the Specified Period.
"Interest Swap Obligations" means the obligations of a Person pursuant to
any interest rate swap agreement, interest rate cap, collar or floor agreement
or other similar agreement or arrangement designed to protect against or manage
such Person's exposure to fluctuations in interest rates on Debt permitted under
the Indenture.
"Investment" by any Person means any direct or indirect loan, advance (or
other extension of credit) or capital contribution to (by means of any transfer
of cash or other property or assets to another Person or any other payments for
property or services for the account or use of another Person), including
without limitation the following: (i) the purchase or acquisition of any Capital
Interest or other evidence of beneficial ownership in another Person; (ii) the
purchase, acquisition or Guarantee of the Debt of another Person or the issuance
of a "keep well" with respect thereto; and (iii) the purchase or acquisition of
the business or assets of another Person; but shall exclude: (a) accounts
receivable and other extensions of trade credit on commercially reasonable terms
in accordance with normal trade practices; (b) the acquisition of property and
assets from suppliers and other vendors in the ordinary course of business; and
(c) prepaid expenses and workers' compensation, utility, lease and similar
deposits, in the ordinary course of business.
"Lien" means, with respect to any property or other asset any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or otherwise), charge, easement, encumbrance,
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such property or other asset
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
105
<PAGE>
"Mobil Oil" means Mobil Oil Corporation and its Affiliates.
"Net Cash Proceeds" means, with respect to Asset Sales of any Person, cash
and Eligible Cash Equivalents received net of: (i) all reasonable out-of-pocket
expenses of such Person incurred in connection with such a sale, including,
without limitation, all legal, title and recording tax expenses, commissions and
other fees and expenses incurred and all federal, state, foreign and local taxes
arising in connection with such an Asset Sale that are paid or required to be
accrued as a liability under GAAP by such Person, and Permitted Tax
Distributions attributable thereto; (ii) all payments made by such Person on any
Debt that is secured by such Properties or other assets in accordance with the
terms of any Lien upon or with respect to such Properties or other assets or
that must, by the terms of such Lien or such Debt, or in order to obtain a
necessary consent to such transaction or by applicable law, be repaid to any
other Person (other than the Company or a Restricted Subsidiary thereof) in
connection with such Asset Sale; and (iii) all contractually required
distributions and other payments made to minority interest holders in Restricted
Subsidiaries of such Person as a result of such transaction; provided, however,
that: (a) in the event that any consideration for an Asset Sale (which would
otherwise constitute Net Cash Proceeds) is required by (I) contract to be held
in escrow pending determination of whether a purchase price adjustment will be
made or (II) GAAP to be reserved against other liabilities in connection with
such Asset Sale, such consideration (or any portion thereof) shall become Net
Cash Proceeds only at such time as it is released to such Person from escrow or
otherwise; and (b) any non-cash consideration received in connection with any
transaction, which is subsequently converted to cash, shall become Net Cash
Proceeds only at such time as it is so converted.
"Offer" has the meaning set forth in the definition of "Offer to Purchase".
"Offer to Purchase" means a written offer (the "Offer") sent by the Issuers
by first class mail, postage prepaid, to each Holder at his address appearing in
the security register on the date of the Offer offering to purchase up to the
aggregate principal amount of Notes set forth in such Offer at the purchase
price set forth in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of mailing of such Offer and a settlement date (the
"Purchase Date") for purchase of Notes within five business days after the
Expiration Date. The Issuers shall notify the Trustee at least 15 days (or such
shorter period as is acceptable to the Trustee) prior to the mailing of the
Offer of the Issuer's obligation to make an Offer to Purchase, and the Offer
shall be mailed by the Issuers or, at the Issuers' request, by the Trustee in
the name and at the expense of the Issuers. The Offer shall contain all
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to
be purchased pursuant to the Offer to Purchase (including, if less than
100%, the manner by which such amount has been determined pursuant to
Indenture covenants requiring the Offer to Purchase) (the "Purchase
Amount");
(4) the purchase price to be paid by the Issuers for each $1,000
principal amount of Notes accepted for payment (as specified pursuant to
the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
106
<PAGE>
(7) that, unless the Issuers default in making such purchase, any Note
accepted for purchase pursuant to the Offer to Purchase will cease to
accrue interest after the Purchase Date, but that any Note not tendered or
tendered but not purchased by the Issuers pursuant to the Offer to Purchase
will continue to accrue interest at the same rate;
(8) that, on the Purchase Date, the Purchase Price will become due and
payable upon each Note accepted for payment pursuant to the Offer to
Purchase;
(9) that each Holder electing to tender a Note pursuant to the Offer
to Purchase will be required to surrender such note at the place or places
set forth in the Offer prior to the close of business on the Expiration
Date (such Note being, if the Issuers or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuers and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Issuers (or their paying agent) receive, not later
than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
aggregate principal amount of the Notes the Holder tendered, the
certificate number of the Note the Holder tendered and a statement that
such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes having an aggregate principal amount less than
or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Issuers shall purchase all such
Notes and (b) if Notes having an aggregate principal amount in excess of
the Purchase Amount are rendered and not withdrawn pursuant to the Offer to
Purchase, the Issuers shall purchase Notes having an aggregate principal
amount equal to the Purchase Amount on a pro rata basis (with such
adjustments as may be deemed appropriate so that only Notes in
denominations of $1,000 principal amount or integral multiples thereof
shall be purchased); and
(12) that, in the case of any Holder whose Note is purchased only in
part, the Issuers shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder, in the
aggregate principal amount equal to and in exchange for the unpurchased
portion of the aggregate principal amount of the Notes so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Permitted Affiliate Agreements" means the agreements between and among the
Company and each of the Cardwell Group, Mobil Oil and Chartwell, listed in the
Indenture in effect immediately after the initial issuance of the Old Notes and
as the same may be amended from time to time subject to the provisions of the
covenant described under "Transactions with Affiliates," provided that,
notwithstanding such covenant, such agreements may be extended from time to time
or otherwise amended, to the extent the Board of Directors of the Company has
determined in good faith that no material adverse effect on the creditworthiness
of the Company and its Restricted Subsidiaries, taken as a whole, shall result
as a consequence thereby. See "Certain Relationships and Related Transactions"
above.
"Permitted Debt" means (i) Debt Incurred pursuant to the Credit Agreement
(other than pursuant to the first paragraph of the Limitation on Debt covenant
or pursuant to clause (xiv) of this definition) in an aggregate principal amount
not to exceed $75,000,000 at any one time outstanding, less (x) the aggregate
amount of all Net Cash Proceeds from any Asset Sale that have been applied to
permanently reduce the outstanding amount of Debt
107
<PAGE>
under such Credit Agreement borrowed under this clause (i) and (y) the amount of
Old 12 1/2% Notes outstanding upon the closing of the Transactions, plus Debt
Incurred to redeem such Old 12 1/2% Notes; (ii) Debt outstanding under the Notes
and the Old 12 1/2% Notes and contribution, indemnification and reimbursement
obligations owed by any Issuer or any Guarantor to any of the other of them in
respect of amounts paid or payable on such Notes and Old 12 1/2% Notes; (iii)
Guarantees of the Notes; (iv) Debt of the Company or any Restricted Subsidiary
outstanding at the time of the initial issuance of the Old Notes; (v) Debt owed
to and held by the Company or a Wholly-Owned Restricted Subsidiary; (vi)
Guarantees Incurred by the Company in the ordinary course of business; (vii)
Guarantees by any Restricted Subsidiary of Debt of the Company or any Restricted
Subsidiary, including Guarantees by any Restricted Subsidiary of Debt under the
Credit Agreement, provided that (a) such Debt (other than Debt Incurred under
clauses (i) and (ii) of this definition) is Incurred in accordance with the
"Limitation on Debt" covenant and (b) such Guarantees are subordinated to the
Notes to the same extent as the Debt being guaranteed; (viii) Debt in respect of
performance, surety or appeal bonds provided in the ordinary course of business;
(ix) Debt under Interest Swap Obligations and Currency Hedge Obligations; (x)
Debt owed by the Company to any Restricted Subsidiary, provided that if for any
reason such Debt ceases to be held by a Restricted Subsidiary, such Debt shall
cease to be Permitted Debt and shall be deemed Incurred as Debt of the Company
for purposes of the Indenture; (xi) Debt Incurred to pay for Notes tendered
pursuant to an Offer to Purchase in connection with a Change of Control,
provided that (a) the principal amount of such Debt does not exceed the
principal of the Notes purchased (plus the amount of reasonable expenses
incurred in connection therewith, including the applicable purchase premium, but
excluding accrued interest, if any) and (b) such Debt (1) has an Average Life to
Stated Maturity at least equal to or greater than the remaining Average Life to
Stated Maturity of the Notes and (2) does not mature prior to the Stated
Maturity of the Notes; (xii) Debt of a Person (a) existing at the time such
Person becomes a Restricted Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person, other than Debt Incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary or
such acquisition, as the case may be, provided that the sum of the aggregate
principal amount of Debt under this clause (xii) plus the aggregate principal
amount of Debt under clauses (i), (xiii) and (xiv) shall not exceed $87,000,000;
(xiii) Debt of the Company or any Restricted Subsidiary pursuant to Capital
Lease Obligations and Purchase Money Debt Incurred in the ordinary course of
business, provided that the aggregate principal amount of such Debt outstanding
at any time may not exceed $2,000,000 in the aggregate; (xiv) Debt of the
Company or any Restricted Subsidiary not otherwise permitted pursuant to this
definition, in an aggregate principal amount not to exceed $10,000,000 at any
time outstanding; and (xv) Refinancing Debt.
"Permitted Holders" means (i) Chartwell and (ii) Mobil Oil.
"Permitted Investments" means:
(a) Investments in existence on the date of initial issuance of the
Old Notes;
(b) Investments required pursuant to any agreement or obligation of
the Company or a Restricted Subsidiary, in effect on the Issue Date, to
make such Investments;
(c) Eligible Cash Equivalents;
(d) Investments in property and other assets, including Stopping
Centers and Franchisee Receivables, owned or used by the Company or any
Restricted Subsidiary in the ordinary course of business;
(e) Investments by the Company or any of its Restricted Subsidiaries
in the Company or any Restricted Subsidiaries;
(f) Investments by the Company or any Restricted Subsidiary in a
Person, if as a result of such Investment (A) such Person becomes a
Restricted Subsidiary or (B) such Person is merged, consolidated
108
<PAGE>
or amalgamated with or into, or transfers or conveys substantially all of
its assets to, or is liquidated or wound-up into, the Company or a
Restricted Subsidiary;
(g) loans and advances to employees made in the ordinary course of
business in an amount not to exceed $750,000 in the aggregate at any time
outstanding;
(h) Interest Swap Obligations and Currency Hedge Obligations;
(i) non-cash consideration received in conjunction with an Asset Sale
that is otherwise permitted under the "Limitations on Asset Sales"
covenant;
(j) Fuel Hedging Obligations Incurred in the ordinary course of
business;
(k) Investments received in settlement of obligations owed to the
Company or any Restricted Subsidiary and as a result of bankruptcy or
insolvency proceedings or upon the foreclosure or enforcement of any Lien
in favor of the Company or any Restricted Subsidiary; and
(l) Investments by the Company or any Restricted Subsidiary not
otherwise permitted under this definition, in an aggregate amount not to
exceed $5,000,000 at any one time outstanding.
"Permitted Liens" means (a) Liens existing at the time of the initial
issuance of the Old Notes; (b) Liens to secure Debt under the Credit Agreement
or Debt Incurred under clause (xiv) of the definition of "Permitted Debt," in
the aggregate, of up to $125,000,000 aggregate principal amount, or Liens to
secure a Restricted Subsidiary's Guarantee of such Debt under the Credit
Agreement; (c) Liens on property or assets of the Company or a Restricted
Subsidiary securing Debt Incurred in compliance with clause (xiii) of the
definition of "Permitted Debt"; (d) any Lien for taxes or assessments or other
governmental charges or levies not then due and payable (or which, if due and
payable, are being contested in good faith and for which adequate reserves are
being maintained, to the extent required by GAAP); (e) any statutory
warehousemen's, materialmen's, landlord's or other similar Liens for sums not
then due and payable (or which, if due and payable, are being contested in good
faith and with respect to which adequate reserves are being maintained, to the
extent required by GAAP); (f) any title exception, easement, right-of-way,
lease, sub-lease or other similar Lien that does not materially impair the use
or value of the property subject thereto in its use in the business of the
Company or a Restricted Subsidiary thereof; (g) Liens on property or other
assets (i) in connection with workers' compensation, unemployment insurance and
other types of statutory obligations or the requirements of any official body,
or (ii) to secure the performance of tenders, bids, surety or performance bonds,
leases, purchase, construction, sales or servicing contracts and other similar
obligations Incurred in the ordinary course of business consistent with industry
practice; or (iii) to obtain or secure obligations with respect to letters of
credit, Guarantees, bonds or other sureties or assurances given in connection
with the activities described in clauses (i) and (ii) above, in each case not
Incurred or made in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of property or
services or imposed by ERISA or the Internal Revenue Code in connection with a
"plan" (as defined in ERISA) (other than any Lien imposed in connection with the
Company's 401(k) Plan) or (iv) arising in connection with any attachment or
judgment unless such Liens shall not be satisfied or discharged or stayed
pending appeal within 60 days after the entry thereof or the expiration of any
such stay; (h) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or a Restricted Subsidiary,
or becomes a Restricted Subsidiary (and not Incurred in anticipation of such
transaction), provided that such Liens are not extended to the property and
assets of the Company and its Restricted Subsidiaries other than the property or
assets acquired; (i) Liens securing Debt of a Restricted Subsidiary to the
Company or a Restricted Subsidiary thereof or a Guarantee of Debt of the Company
or a Restricted Subsidiary; (j) other Liens incidental to the conduct of the
business of the Company or any of its Restricted Subsidiaries, as the case may
be, or the ownership of their assets that do not materially impair the use or
value of the property subject thereto in its use in the business of the Company
or such Restricted Subsidiary; (k) Liens securing obligations under Interest
Swap Obligations, Currency
109
<PAGE>
Hedge Obligations and Fuel Hedging Obligations Incurred in connection with
managing interest or currency risk resulting from or related to a Credit
Agreement; and (l) Liens to secure any permitted extension, renewal, refinancing
or refunding (or successive extensions, renewals, refinancings or refundings),
in whole or in part, of any Debt secured by Liens referred to in the foregoing
clauses (a) through (l); provided that such Liens do not extend to any other
property or assets and the principal amount of the Debt secured by such Liens is
not increased.
"Permitted Secured Debt" means any Debt of the Company or any Restricted
Subsidiary (plus interest, premium, fees and other obligations associated
therewith), and any refinancing, refunding, replacement, renewal or extension
thereof, (a) under the Credit Agreement, (b) constituting Purchase Money Debt,
(c) constituting Capital Lease Obligations or (d) secured by Permitted Liens.
"Permitted Tax Distribution" means for any fiscal year or portion thereof
(the "Tax Year") of any Person in which period such Person is a partnership or
other substantially similar pass-through entity for federal income tax purposes,
distributions to enable the partners or members of such Person to make payments
of federal, state and local income taxes (including estimates thereof) in
respect of the Taxable Income of such partner or member with respect to each
such Tax Year in an aggregate amount equal to the product of (i) the excess of
(A) the sum of the highest marginal federal income tax rate applicable during
such Tax Year to either corporations or individuals and the State Income Tax
Rate over (B) the product of such federal rate and the State Income Tax Rate and
(ii) such partner's or member's Taxable Income for such Tax Year.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Interests," as applied to the Capital Interests in any Person,
means Capital Interests in such Person of any class or classes (however
designated) that rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Common Interests in such
Person.
"Public Equity Offering" means any underwritten public offering of Capital
Interests of the Company or a Successor Entity pursuant to an effective
registration statement (other than a registration statement on Form S-4 or Form
S-8 or any successor or similar form) under the Securities Act.
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase."
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase."
"Purchase Money Debt" means Debt (i) Incurred to finance the purchase or
construction of any assets of such Person or any Restricted Subsidiary and (ii)
that is secured by a Lien on such assets where the lender's sole security is to
the assets so purchased or constructed, in either case that does not exceed 100%
of the cost and to the extent the purchase or construction prices for such
assets are or should be included in "addition to property, plant or equipment"
in accordance with GAAP.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase."
"Qualified Capital Interests" in any Person means a class of Capital
Interests other than Redeemable Capital Interests.
"Redeemable Capital Interests" in any Person means any equity security of
such Person that by its terms (or by terms of any security into which it is
convertible or for which it is exchangeable), or otherwise (including the
passage of time or the happening of an event), is required to be redeemed, is
redeemable at the option of the holder thereof in whole or in part (including by
operation of a sinking fund), or is convertible or exchangeable for
110
<PAGE>
Debt of such Person at the option of the holder thereof, in whole or in part, at
any time prior to the Stated Maturity of the Notes; provided, however, that
Preferred Interests of the Company or any Restricted Subsidiary thereof that are
issued with the benefit of provisions requiring a change of control offer to be
made for such Preferred Interests in the event of a change of control of the
Company or any Restricted Subsidiary, which provisions have substantially the
same effect as the provisions of the Indenture described under "Change of
Control," shall not be deemed to be Redeemable Capital Interests solely by
virtue of such provisions.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to the Indenture.
"Refinancing Debt" means Debt that refunds, refinances, renews, replaces or
extends any Debt permitted to be incurred by the Company or any Restricted
Subsidiary pursuant to the terms of the Indenture, whether involving the same or
any other lender or creditor or group of lenders or creditors, but only to the
extent that (i) the Refinancing Debt is subordinated to the Notes to at least
the same extent as the Debt being refunded, refinanced or extended, if at all,
(ii) the Refinancing Debt is scheduled to mature either (a) no earlier than the
Debt being refunded, refinanced or extended, or (b) at least 91 days after the
maturity date of the Notes, (iii) the Refinancing Debt has a weighted average
life to maturity at the time such Refinancing Debt is incurred that is equal to
or greater than the weighted average life to maturity of the Debt being
refunded, refinanced, renewed, replaced or extended, (iv) such Refinancing Debt
is in an aggregate principal amount that is less than or equal to the sum of (a)
the aggregate principal or accreted amount (in the case of any Debt issued with
original issue discount, as such) then outstanding under the Debt being
refunded, refinanced, renewed, replaced or extended, (b) the amount of accrued
and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Debt being refunded, refinanced or
extended and (c) the amount of customary fees, expenses and costs related to the
incurrence of such Refinancing Debt, and (v) such Refinancing Debt is incurred
by the same Person (or its successor) that initially incurred the Debt being
refunded, refinanced, renewed, replaced or extended, except that the Company may
incur Refinancing Debt to refund, refinance, renew, replace or extend Debt of
any Wholly-Owned Restricted Subsidiary of the Company.
"Replacement Asset" means, with respect to any Asset Sale, a property or
asset that consists of a Stopping Center or that, as determined by the Board of
Directors as evidenced by a board resolution, is used or will be used in the
Stopping Center business of the Company or a Restricted Subsidiary or a business
reasonably related thereto.
"Restricted Payment" is defined to mean any of the following:
(a) any dividend or other distribution declared and paid on the
Capital Interests in the Company or on the Capital Interests in any
Restricted Subsidiary of the Company that are held by, or declared and paid
to, any Person other than the Company or a Wholly-Owned Restricted
Subsidiary of the Company (other than dividends, distributions or payments
made solely in Qualified Capital Interests in the Company);
(b) any payment made by the Company or any of its Restricted
Subsidiaries to purchase, redeem, acquire or retire any Capital Interests
in the Company (including the conversion into, or exchange for, Debt, of
any Capital Interests) other than the Debt Warrants;
(c) any payment made by any Restricted Subsidiary of the Company,
other than to the Company or another Restricted Subsidiary of the Company,
to purchase, redeem, acquire or retire any Capital Interests in a
Restricted Subsidiary;
(d) any payment made by the Company or any of its Restricted
Subsidiaries (other than a payment made solely in Qualified Capital
Interests in the Company) to redeem, repurchase, defease (including an in
substance or legal defeasance) or otherwise acquire or retire for value
(including pursuant to mandatory repurchase covenants), prior to any
scheduled maturity, scheduled sinking fund or mandatory redemption
111
<PAGE>
payment, Debt of either of the Issuers that is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to the
Notes and which was scheduled to mature on or after the maturity of the
Notes;
(e) any Investment by the Company or a Restricted Subsidiary in any
Person, other than a Permitted Investment;
(f) any designation of a Restricted Subsidiary as an Unrestricted
Subsidiary on the basis of the greater of the fair market or book value of
such Subsidiary; and
(g) any advisory fee paid to an Affiliate with respect to a specific
transaction (other than fees that were payable on the Closing Date upon
consummation of the Transactions).
"Restricted Subsidiary" means any Subsidiary, at least 75% of the
outstanding Common Interests of which are owned and controlled, directly or
indirectly, by the Company that has not been designated as an "Unrestricted
Subsidiary" in accordance with the Indenture.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
pursuant to which property is sold or transferred by the Company or a Restricted
Subsidiary and is thereafter leased back from the purchaser or transferee
thereof by the Company or a Restricted Subsidiary.
"Significant Subsidiary" has the meaning set forth in Rule 1-02 of
Regulation S-X under the Securities Act and Exchange Act but shall include any
direct or indirect Restricted Subsidiary of the Company owning one or more
Stopping Centers, but shall not include any Unrestricted Subsidiary.
"Stated Maturity," when used with respect to (i) any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal amount of such Note or such installment of
interest is due and payable and (ii) any other Debt or any installment of
interest thereon, the date specified in the instrument governing such Debt as
the fixed date on which the principal of such Debt or such installment of
interest is due and payable.
"State Income Tax Rate" means, with respect to any Person, the weighted
average highest marginal state and local income tax (inclusive of franchise or
other taxes in the nature of income taxes) rates applicable to corporations or
to individuals in any state in which such Person does business. The highest
applicable marginal state and local income tax rates of the states from which
the Person derives net income shall be weighted by the ratio of the Person's net
income apportioned to a state by that state to the sum of the Person's net
income apportioned to all states in which such Person is doing business.
"Stopping Centers" means multi-service truck stops or travel plaza
facilities, including "full-sized" and "Petro:2" units and Petro:Lube
maintenance facilities, which provide services and amenities to commercial truck
drivers as well as to other highway motorists and local residents, including
without limitation, facilities currently operated by the Company and its
Restricted Subsidiaries and businesses related or ancillary thereto.
"Subsidiary" means, with respect to any Person, any corporation, limited or
general partnership, trust, association or other business entity of which an
aggregate of at least a majority of the outstanding Capital Interests therein
is, at the time, directly or indirectly, owned by such Person and/or one or more
Subsidiaries of such Person.
"Successor Entity" means a corporation or other entity that succeeds to and
continues the business of Petro Stopping Centers, L.P.
112
<PAGE>
"Taxable Income" means, with respect to any partner or member of a Person
that is a partnership or substantially similar pass-through entity for federal
income tax purposes, such partner's allocation of taxable income from such
Person for federal income tax purposes inclusive of each item of taxable gain,
loss, income, and deduction required to be taken into account separately by the
partners or members of such Person and taking into account allocations pursuant
to Section 704(c) of the Code. The character of each separately stated item
shall be disregarded for purposes of determining Taxable Income; provided, that
net capital loss, as defined in Section 1222(10) of the Code, shall not be taken
into account in determining Taxable Income.
"Voting Interests" means, with respect to any Person, securities of any
class or classes of Capital Interests in such Person entitling the holders
thereof generally to vote on the election of members of the board of directors
or comparable body of such Person.
"Wholly-Owned" means, with respect to a Subsidiary, any Subsidiary, all of
the outstanding voting securities (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company.
Book-Entry; Delivery and Form
The Old Notes initially sold to qualified institutional buyers were
represented by one fully-registered global note (the "Book-Entry Old Note").
The Book-Entry Old Note was deposited upon issuance with DTC and registered in
the name of a nominee of DTC. The Book-Entry Old Note, to the extent directed by
holders thereof in their Letters of Transmittal, will be exchanged through book-
entry electronic transfer for one or more global New Notes in definitive, fully
registered form without coupons (collectively, the "Global Note") registered in
the name of DTC or a nominee of DTC (the "Global Note Registered Owner"). No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.
Notes which have been transferred, if any, to (i) persons outside the
United States pursuant to sales in accordance with Regulation S under the
Securities Act, (ii) any persons who are not "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act), or (iii) any qualified
institutional buyers who elected to take physical delivery of their certificates
(collectively referred to herein as the "Non-Global Transferors") were issued,
in registered form, without interest coupons ("Certificated Securities"). Upon
the transfer to a qualified institutional buyer of such Certificated Securities
issued to a Non-Global Transferor, such Certificated Securities will, unless the
Global Note has previously been exchanged in whole for such Certificated
Securities, be exchanged for an interest in the Global Note.
New Notes issued to non-qualified institutional buyers in exchange for Old
Notes held by such investors will be issued only in certificated, fully
registered definitive form. The Global Notes will, upon request, be
exchangeable for other New Notes in definitive, fully registered form without
coupons in denominations of $1,000 and integral multiples thereof, but only in
accordance with DTC's customary procedures. The Global Note will also be
exchangeable in certain other limited circumstances. The Issuers, the Trustee
and any other agent thereof will be entitled to treat DTC's nominee as the sole
owner and holder of the unexchanged portion of the Global Note for all purposes.
The Global Note. Upon deposit of the Global Note, the DTC will credit the
accounts of persons who have accounts with DTC ("participants") or persons who
hold interests through participants designated by such person with portions of
the Global Note. Ownership of the Notes is shown on, and the transfer of
ownership thereof is effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Qualified institutional buyers hold their interests in the Global Note directly
through DTC if they are participants in such system, or indirectly through
organizations which are participants in such system.
113
<PAGE>
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee will be considered the sole owner or holder of the
Notes represented by the Global Note for all purposes under the Indenture. No
beneficial owner of an interest in the Global Note will be able to transfer such
interest except in accordance with DTC's applicable procedures, in addition to
those provided for under the Indenture.
Payments of the principal of, premium (if any) and interest on the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Issuers, the Trustee or any paying agent will 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 or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuers expect that DTC or its nominee, upon receipt of any payment of
the principal of, premium (if any) and interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note, as
shown on the records of DTC or its nominee. The Issuers also expect that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell Notes to persons in states which require physical delivery of
such securities or to pledge such securities, such holder must transfer its
interest in the Global Note in accordance with the normal procedures of DTC and
including the procedures set forth in the Indenture.
DTC has advised the Issuers that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interest in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants have given such direction. However, if there is an
Event of Default under the Indenture, DTC will exchange the Global Note for
Certificated Securities, which it will distribute to its participants.
DTC has advised the Issuers as follows: DTC is a limited purpose trust
company 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
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuers nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
114
<PAGE>
Certified Securities. If DTC is at any time unwilling or unable to continue
as a depository for the Global Note and a successor depository is not appointed
by the Company within 90 days, the Issuers will issue Certificated Securities in
exchange for the Issuers' Global Note.
Exchange Offer; Registration Rights
In connection with the issuance of the Old Notes, the Issuers entered into
the Registration Rights Agreement pursuant to which they agreed for the benefit
of the holders of the Old Notes, that the Issuers would at their cost, (i)
within 75 days after the Closing Date, file the Exchange Offer Registration
Statement with the Commission with respect to a registered offer to exchange the
Old Notes for the New Notes, with terms substantially identical in all material
respects to the Old Notes except (a) that the New Notes have been registered
under the Securities Act, (b) that the New Notes are not entitled to certain
registration rights which are applicable to the Old Notes under the Registration
Rights Agreement, and (c) certain contingent interest rate provisions applicable
to the Old Notes are not applicable to the New Notes, and (ii) within 135 days
after the Closing Date, use their best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act. Upon
the Exchange Offer Registration Statement being declared effective, the Issuers
will offer the New Notes in exchange for surrender of the Old Notes. The Issuers
will keep the Exchange Offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Old Notes. For each Old Note surrendered to the
Issuers pursuant to the Exchange Offer, the holder of such Old Note will receive
a New Note having a principal amount at maturity equal to that of the Old Note.
Interest on the New Notes will accrue from January 30, 1997.
Based upon existing Commission interpretations set forth in SEC Staff no-
action letters to unrelated third parties, the Company believes that the New
Notes would in general be freely transferable after the Exchange Offer without
further registration under the Securities Act; provided, that in the case of
broker-dealers, a prospectus meeting the requirements of the Securities Act must
be delivered as required. Broker-dealers may not rely upon such interpretations
to resell New Notes received in exchange for Old Notes that represented an
unsold allotment from the original sale of Old Notes by the Company, nor may
affiliates of the Company rely on such interpretations. The SEC staff has taken
the position that broker-dealers receiving New Notes in the Exchange Offer may
fulfill their prospectus delivery requirements with respect to the New Notes
(other than a resale of an unsold allotment from the original sale of the Old
notes) by delivery of the prospectus contained in the Exchange Offer
Registration Statement. The Issuers have agreed for a period of 180 days after
consummation of the Exchange Offer to make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any such New Notes acquired as described below. A broker-
dealer which delivers such a prospectus to purchasers in connection with such
resales will be subject to certain of the civil liability provisions under the
Securities Act, and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
Each holder of Old Notes that wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the New Notes and (iii) it is
not an "affiliate," as defined in Rule 405 of the Act, of either of the Issuers,
or if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of market-
making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
115
<PAGE>
If on or before the date of consummation the applicable interpretations of
the staff of the Commission do not permit the Issuers to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
180 days of the date of the Registration Rights Agreement, the Issuers will, at
their own expense, (a) as promptly as practicable, file a Shelf Registration
Statement covering resales of the Old Notes, (b) use their respective best
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act and (c) use their respective best efforts to keep effective
the Shelf Registration Statement until three years after its effective date. The
Issuers will, in the event of the Shelf Registration Statement, 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 Old Notes. A holder of the
Old Notes that sells such Old Notes pursuant to the Shelf Registration Statement
generally will 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 Right
Agreement which are applicable to such a holder (including certain
indemnification rights and obligations).
If the Issuers failed to comply with the above provisions or if the
registration statement fails to become effective, then, as liquidated damages,
additional interest shall become payable in respect of the Old Notes as follows:
If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 75 days after the Closing Date;
(ii) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 135 days after the Closing Date;
and
(iii) either (A) the Issuers have not exchanged the New Notes for all
Old Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 45 days after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary of its effective date;
(each such event referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Old Notes
will be the immediate assessment of additional interest ("Additional Interest")
as follows: the per annum interest rate on the Old Notes will increase by 50
basis points; and the per annum interest rate will increase by an additional 25
basis points for each subsequent 90-day period during which the Registration
Default remains uncured, up to a maximum additional interest rate of 200 basis
points per annum in excess of 10 1/2%. All Additional Interest will be payable
to holders of the Old Notes in cash on the same original interest payment dates
as the Old Notes, commencing with the first such date occurring after any such
Additional Interest commences to accrue, until such Registration Default is
cured. After the date on which such Registration Default is cured, the interest
rate on the Old Notes will revert to 10 1/2%.
The summary herein of certain provisions of the Registration Rights
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 Rights
Agreement, a copy of which is available as set forth in "Available Information."
116
<PAGE>
DESCRIPTION OF RESTATED PARTNERSHIP AGREEMENT
On January 30, 1997, the Limited Partnership Agreement of the Company was
amended and restated to provide, among other matters, for the new capital and
ownership structure of the Company and revised governance provisions. The
Cardwell Group's mandatorily redeemable preferred partnership interests accrue
cumulative preferred returns at a rate of 8% per annum and the Mobil Long Haul
preferred return is 9 1/2%, which preferred returns will accrue, but are only
payable in cash if permitted by the Company's then existing debt instruments.
The Indenture and the New Credit Agreement restrict the payment of dividends on
mandatorily redeemable preferred partnership interests. Accrued but unpaid
interest compounds semiannually. The mandatorily redeemable preferred
partnership interests will be mandatorily redeemable by the Company 270 days
after the tenth anniversary of the date of the Closing, which is subsequent to
the maturity date of the Notes. The mandatorily redeemable preferred partnership
interests are not convertible into common partnership interests. The Restated
Partnership Agreement provides for the general partners of the Company to
delegate management of the Company to a Board of Directors (to be comprised of
two designees of each of the Cardwell Group, Mobil Long Haul and Chartwell), an
Executive Committee (to be comprised of one representative of each of the
Cardwell Group, Mobil Long Haul and Chartwell) and an Operating Committee (to be
comprised of executives of the Company). Chartwell representatives have the
right to nominate two independent directors, subject to the approval of the
Executive Committee. Each of the Cardwell Group, Mobil Long Haul and Chartwell
have partner veto rights over certain matters relating to the Company. If
certain EBITDA, as defined, thresholds are not met by the Company, Chartwell
representatives will have the right to cast a majority of the votes of the Board
of Directors, the Executive Committee and the Operating Committee, and to remove
and replace the Company's management team, including its Chairman, Chief
Executive Officer and President.
The Restated Partnership Agreement requires the Company to make
distributions to each of its partners in an amount sufficient to allow each
partner to pay federal, state and local income taxes with respect to allocations
of taxable income to such partner by the Company. Historically, aggregate tax
distributions to the Company's partners were based on the Company's taxable
income. For the fiscal years ended December 30, 1994, December 29, 1995 and
December 31, 1996, tax distributions made to the Company's partners were
$526,562, $326,236 and $0, respectively. Because tax distributions will in the
future be based on separate allocations of taxable income of the Company's
partners rather than the taxable income of the Company, the aggregate tax
distribution likely will increase by up to approximately $1.2 million per year.
Under certain circumstances, the Company's partners receiving tax distributions
with respect to allocations of taxable income under the Restated Partnership
Agreement will be obligated to repay the portion of such tax distribution that
exceeds the amount of a tax distribution that would have been made had tax
distributions been based on the Company's taxable income.
CERTAIN U.S. TAX CONSIDERATIONS
Subject to the qualifications set forth below, the following accurately
sets forth the anticipated material U.S. federal income tax consequences
applicable to the exchange of Old Notes for New Notes and the ownership and
disposition of the New Notes by holders who acquire the New Notes pursuant to
the Exchange Offer. The following is limited solely to U.S. federal income tax
matters and is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations (including proposed regulations), administrative
rulings and pronouncements of the Internal Revenue Service ("IRS"), and judicial
decisions, all as of the date hereof and all of which are subject to change at
any time, possibly with retroactive effect.
The following is limited to holders who hold the Notes as "capital assets"
for U.S. federal income tax purposes and does not cover all aspects of federal
income taxation that may be relevant to, or the actual tax effect that any of
the matters described herein will have on, particular holders. The following
does not address U.S. federal income tax consequences that may be applicable to
particular categories of shareholders, including insurance companies, tax-exempt
persons, financial institutions, dealers in securities, persons with significant
holdings of
117
<PAGE>
Company stock, and non-United States persons, including foreign corporations and
nonresident alien individuals. The following does not address any tax
considerations under the laws of any state, locality, or foreign country.
The Company has not sought, nor does it intend to seek, a ruling from the
IRS as to any of the matters covered by this discussion, and there can be no
assurance that the IRS will not successfully challenge the conclusions reached
in this discussion. BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED
BELOW DEPEND UPON EACH HOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON
U.S. FEDERAL INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE
SUBJECT TO CHANGE (WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW
NOTES.
Exchange
Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to the Company, has
opined that the exchange of Old Notes for New Notes pursuant to the Exchange
Offer will not be treated as an exchange or other tax event for federal income
tax purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Notes. Accordingly, there should be no material
federal income tax consequences to holders exchanging Old Notes for New Notes
pursuant to the Exchange Offer, and a holder should have the same adjusted tax
basis and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
Interest
A holder of New Notes will be required to report interest income for
federal income tax purposes for any interest earned on the Notes in accordance
with such holder's method of tax accounting.
Market Discount
Under the market discount rules of the Code, an exchanging holder (other
than a holder who made the election described below) who purchased an Old Note
with "market discount" (generally defined as the amount by which the stated
redemption price of the Old Note on the holder's date of purchase exceeded the
holder's purchase price) will be required to treat any gain recognized on the
redemption, sale or other disposition of the New Note received in the exchange
as ordinary income to the extent of the market discount that accrued during the
holder's holding period for such New Note (which period will include such
holder's holding period for the Old Note). In addition, a holder of a Note
acquired at market discount may be required to defer the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Note. A holder who has elected under applicable Code
provisions to include market discount in income annually as such discount
accrues will not be required to treat any gain recognized as ordinary income (or
defer interest deductions) under the market discount rules described above.
Holders should consult their tax advisors as to the portion of any gain that
would be taxable as ordinary income under these provisions.
Amortizable Bond Premium
In general, if a holder's initial tax basis in the Old Notes at acquisition
exceeded the amount payable at maturity, the excess will be treated as
"amortizable bond premium" (including after the exchange of such Old Notes for
New Notes). In such case, the holder may elect under section 171 of the Code to
amortize the bond premium annually under a constant yield method. The holder's
adjusted tax basis in the Note is decreased by the amount of the allowable
amortization. Because the Notes have early call provisions, holders must take
such call provisions into account to determine the amount of amortizable bond
premium. Amortizable bond premium is treated as an offset to interest received
on the obligation rather than as an interest deduction, except as may be
provided in Treasury regulations. An election to amortize bond premium would
apply to amortizable bond premium on all
118
<PAGE>
taxable bonds held on or acquired after the beginning of the holder's taxable
year for which the election is made, and may be revoked only with the consent of
the IRS. Holders who acquire their Notes with amortizable bond premium should
consult their own tax advisors.
Sale, Exchange, Redemption or Other Disposition of Notes
On sale, exchange, redemption or other disposition of the Notes, and except
to the extent that the cash received is attributable to accrued interest (which
generally represents ordinary interest income) or market discount (the tax
consequences of which are described above), a holder generally will recognize
capital gain or loss measured by the difference between the amount realized and
such holder's adjusted tax basis in the Notes redeemed.
Backup Withholding
Federal income tax backup withholding at a rate of 31 percent on dividends,
interest payments, and proceeds from a sale, exchange, or redemption of New
Notes will apply unless the holder (i) is a corporation or comes within certain
other exempt categories (and, when required, demonstrates this fact) or (ii)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. The amount of any backup withholding from a
payment to a holder will be allowed as a credit against the holder's federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS. A holder of Notes who does not
provide the Company with his correct taxpayer identification number may be
subject to penalties imposed by the IRS. The Company will report to the holders
of the Notes and the IRS the amount of any "reportable payments" and any amount
withheld with respect to the Notes during the calendar year.
ERISA CONSIDERATIONS
Sections 406 and 407 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the Code prohibit certain
employee benefit plans, individual retirement accounts, individual retirement
annuities, and employee annuity plans ("Plans") from engaging in certain
transactions with persons who, with respect to such Plan, are "parties in
interest" under ERISA or "disqualified persons" under the Code. A violation of
these "prohibited transactions" rules may generate excise taxes under the Code
and other liabilities under ERISA for such persons. Possible violations of the
prohibited transaction rules occur if the Notes are purchased with the assets of
any Plan if the Company or any of its affiliates is a party in interest or
disqualified person with respect to such Plan, unless such acquisition is
subject to a statutory or administrative exemption.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Any fiduciary of a Plan considering the purchase of the Notes
should consult its legal advisors regarding the consequences of such purchases
under ERISA and the Code. If the Plan is not subject to ERISA, the fiduciary
should consult its legal advisors regarding the consequences of any state law or
Code considerations.
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 Company has agreed that it will make this Prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such resale for a period until 180 days after the Exchange Offer has
been consummated, or such shorter period as will terminate when all Old Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for New Notes and
resold by such broker-dealers.
119
<PAGE>
The Company 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 until 180 days after the Exchange Offer has been consummated,
or such shorter period as will terminate when all Old Notes acquired by broker-
dealers for their own accounts as a result of market-making activities or other
trading activities have been exchanged for New Notes and resold by such broker-
dealers, the Company will promptly send additional copies of this Prospectus and
any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed to
pay all expenses incident to the Exchange Offer 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.
EXPERTS
The consolidated financial statements as of December 31, 1996 and December
29, 1995 and for each of three years in the period ended December 31, 1996
included in this Prospectus, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their reports appearing herein and are
included herein in reliance upon such reports given upon authority of said firm
as experts in accounting and auditing.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Issuers by Akin,
Gump, Strauss, Hauer & Feld, L.L.P., a limited liability partnership including
professional corporations, 1333 New Hampshire Avenue, N.W., Suite 400,
Washington, D.C. 20036, counsel to the Company.
120
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
PETRO STOPPING CENTERS, L.P.
Report of Independent Accountants.................................. F-2
Unaudited Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1997............................. F-3
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 29, 1996 and March 31, 1997............. F-4
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 29, 1996 and March 31, 1997............. F-5
Notes to Unaudited Consolidated Financial Statements............... F-6
Reports of Independent Accountants................................. F-9
Consolidated Balance Sheets as of December 29, 1995 and
December 31, 1996................................................ F-11
Consolidated Statements of Operations for the Fiscal Years Ended
December 30, 1994, December 29, 1995 and December 31, 1996....... F-12
Consolidated Statements of Changes in Partners' Capital for the
Fiscal Years Ended December 30, 1994, December 29, 1995 and
December 31, 1996................................................ F-13
Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 30, 1994, December 29, 1995 and December 31, 1996....... F-14
Notes to Consolidated Financial Statements......................... F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Partners
Petro Stopping Centers, L.P.
We have reviewed the accompanying consolidated balance sheet of Petro Stopping
Centers, L.P. as of March 31, 1997, and the related consolidated statements of
operations and cash flows for the three month periods ended March 29, 1996 and
March 31, 1997. These consolidated financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
El Paso, Texas
May 15, 1997
F-2
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
------------ ---------
1996 1997
---- ----
Assets
<S> <C> <C>
Current assets:
Cash $ 3,182 $ 18,304
Accounts receivable, net of allowance for uncollectible Accounts
of $321 in 1996 and $405 in 1997 10,401 12,577
Inventories 15,195 14,043
Other current assets 1,404 1,465
Due from affiliates 2,091 1,816
-------- --------
Total current assets 32,273 48,205
Property and equipment, net 159,539 158,134
Deferred debt issuance and organization costs, net of
accumulated amortization of $6,728 in 1996 and $3,668 in 1997 11,305 17,569
Other assets 5,983 5,676
-------- --------
Total assets $209,100 $229,584
======== ========
Liabilities and Partners' Capital
Current liabilities:
Current portion of long-term debt $ 6,928 $ 2,750
Trade accounts payable 15,723 18,181
Accrued expenses and other liabilities 21,160 23,878
Due to affiliates 2,325 2,233
-------- --------
Total current liabilities 46,136 47,042
Notes payable 21,639 -
Long-term debt, excluding current portion 138,160 182,465
-------- --------
Total liabilities 205,935 229,507
-------- --------
Mandatorily redeemable preferred partnership interests - 19,891
Commitments and contingencies
Partners' capital (deficit) 3,165 (19,814)
-------- --------
Total liabilities and partners' capital $209,100 $229,584
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-3
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 29, March 31,
1996 1997
----------- -----------
<S> <C> <C>
Net revenues (including motor fuel taxes)
Fuel $110,342 $123,739
Non-Fuel 25,677 27,098
Restaurant 11,906 11,728
-------- --------
Total net revenues 147,925 162,565
-------- --------
Costs and expenses:
Cost of sales (including motor fuel
taxes), exclusive of depreciation
and amortization 117,546 131,646
Operating expenses 19,698 20,256
General and administrative 3,068 3,988
Depreciation and amortization 2,958 2,995
-------- --------
Total costs and expenses 143,270 158,885
-------- --------
Operating income 4,655 3,680
Interest expense 5,330 5,070
-------- --------
Loss before extraordinary item (675) (1,390)
Extraordinary item - loss from
extinguishment of debt - 12,745
-------- --------
Net loss $ (675) $(14,135)
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-4
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 29, March 31,
1996 1997
<S> <C> <C>
Cash flows provided by operating activities:
Net Loss $ (675) $ (14,135)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss from extinguishment of debt - 12,745
Depreciation and amortization 2,958 2,995
Deferred debt issuance amortization 387 452
Accretion of original issue discount 235 72
Provision for losses on accounts
receivable 53 84
Increase (decrease) from changes in:
Accounts receivable (1,044) (2,260)
Inventories (133) 1,152
Other current assets (768) (61)
Due from affiliates 91 275
Due to affiliates 364 (92)
Trade accounts payable 1,434 2,458
Accrued expenses and other liabilities 4,289 2,718
Net cash provided by operating
activities 7,191 6,403
Cash flows used in investing activities:
Purchases of property and equipment (1,683) (746)
Increase (decrease) in other assets, net 147 (360)
Net cash used in investing
activities (1,536) (1,106)
Cash flows provided by (used in) financing
activities:
Repayments of notes payable (6,500) (23,639)
Proceeds from notes payable 6,000 2,000
Repayments of long-term debt (1,237) (150,450)
Proceeds of long-term debt - 185,000
Decrease in cash overdrafts (4,277) -
Capital Contribution - 11,047
Payment of debt issuance costs - (14,133)
Net cash provided by (used in)
financing activities (6,014) 9,825
Net increase (decrease) in cash (359) 15,122
Cash, beginning of period 5,688 3,182
Cash, end of period $ 5,329 $ 18,304
========= =========
- ------------------------------------------------------------------------------
Supplemental cash flow information -
Non-cash financing activity
Assignment of mandatorily redeemable
preferred partnership interests $ 19,600
=========
Accrual of preferred return $ 291
=========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-5
<PAGE>
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation
The interim consolidated financial statements of Petro Stopping Centers,
L.P. (the "Company") are unaudited, and certain information and footnote
disclosures normally included in the annual consolidated financial statements
have been omitted. While management of the Company believes that the
disclosures presented are adequate to make the information not misleading, it is
suggested that these statements be read in conjunction with the Company's 1996
annual report on Form 10-K. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all necessary adjustments
(consisting of only normal recurring adjustments) for 1996 and 1997. The
results of operations for the three-month period ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
On January 30, 1997 the Company completed a recapitalization (the
"Recapitalization"). As part of the recapitalization, affiliates of Chartwell
Investments Inc. ("Chartwell") became limited and general partners, an affiliate
of Mobil Oil Corporation ("Mobil Long Haul") became a limited partner and
Sequoia Ventures, Inc. and Roadside, Inc. (collectively, the "Fremont Partners")
sold all their partnership interests (See Note 2).
2) Recapitalization
On January 30, 1997, the Company consummated a transaction, in which
Chartwell and Mobil Long Haul invested $20.7 million and $15.0 million,
respectively (the "Equity Investment"), in order to directly acquire the
partnership interests of the Company owned by the Fremont Partners for
approximately $25.6 million and invested approximately $10.1 million in the
Company. James A. Cardwell, Sr., James A. Cardwell, Jr. and certain of their
affiliates (collectively, the "Cardwell Group") maintained their capital
investment in the Company. Kirschner Investments ("Kirschner"), a Company
franchisee, invested $1.0 million in the Company (the "Kirschner Investment").
Following the Equity Investment and the Kirschner Investment, the common
partnership interests of the Company are owned by Chartwell (approximately
50.8%), the Cardwell Group (approximately 39.9%), Mobil Long Haul (approximately
7.4%), and Kirschner (approximately 2.0%), and the preferred partnership
interests are owned by Mobil Long Haul ($12.0 million) and the Cardwell Group
($7.6 million). Chartwell and the Cardwell Group own both general and limited
partnership interests and Mobil Long Haul and Kirschner own only limited
partnership interests. Mobil Oil Company and the Company also entered into
certain supply and marketing agreements in connection with the Recapitalization.
As part of the Recapitalization, the Company issued $135 million of 10 1/2%
Senior Notes due 2007, (the "New Notes") and repurchased approximately 94% of
its Existing 12 1/2% Senior Notes due 2002 (the "Old Notes") and approximately
99% of its outstanding Debt Warrants.
The Company also amended its senior collateralized credit facility (the
"Old Credit Agreement" and, as amended the "New Credit Agreement"). The New
Credit Agreement consists of a $25.0 million revolving credit facility (the "New
Credit Facility"), a $14.0 million Term Loan A, a $30.0 million Term Loan B and
a $40.0 million expansion facility (the "Expansion Facility"). The New Credit
Agreement is collateralized by substantially all of the Company's assets and the
partnership interests of Mobil Long Haul and Chartwell and guaranteed by each of
the Company's subsidiaries, which guarantees in turn are collateralized by
substantially all of such subsidiaries' assets.
In the first quarter of 1997, the Company recognized an extraordinary
charge of $12.7 million relating to amendment of the Old Credit Agreement,
retirement of the Old Notes and Debt Warrants and the write-off of deferred debt
issuance costs.
F-6
<PAGE>
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Aggregate yearly term loan principal payments under the New Credit
Agreement will be as follows: (i) $2.0 million in 1997; (ii) $3.0 million in
1998; (iii) $4.5 million in 1999; (iv) $5.5 million in 2000; (v) $1.5 million in
2001; (vi) $13.5 million in 2002; and (vii) $14.0 million in 2003.
3) Environmental Liabilities and Expenditures
Accruals for environmental matters are recorded in operating expenses when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. The measurement of environmental
liabilities is based on an evaluation of currently available facts with respect
to each individual site and considers factors such as existing technology,
presently enacted laws and regulations and prior experience in remediation of
contaminated sites. Accrued liabilities are exclusive of claims against third
parties and are not discounted.
4) Inventories
The following is a summary of inventories at December 31, 1996 and March
31, 1997:
<TABLE>
<CAPTION>
1996 1997
---- ----
(in thousands)
<S> <C> <C>
Motor fuels and lubricants $ 5,074 $ 4,608
Tires and tubes 2,993 2,806
Merchandise and accessories 7,531 7,000
Restaurant and other 726 758
Less reserve for obsolescence (1,129) (1,129)
------- -------
Total inventories $15,195 $14,043
======= =======
</TABLE>
In connection with new systems implemented in 1996, the Company identified
items that were excess or obsolete inventory. The criteria established is
merchandise in excess of a one year supply. The Company has established a
reserve for obsolete and excess inventory amounting to approximately $1.1
million.
5) Property and Equipment
Property and equipment is summarized at December 31, 1996 and March 31,
1997 as follows:
<TABLE>
<CAPTION>
Estimated
Useful
Lives
(years) 1996 1997
------- ---- ----
(in thousands)
<S> <C> <C> <C>
Land -- $ 34,970 $ 34,970
Buildings and improvements 30 94,244 94,452
Furniture and equipment 3-10 40,396 40,937
Leasehold improvements 7-30 20,238 20,233
Facilities under development -- 141 141
-------- --------
189,989 190,733
Less accumulated depreciation and amortization 30,450 32,599
-------- --------
Net property and equipment $159,539 $158,134
======== ========
</TABLE>
Facilities under development include costs associated with new facilities
and major renovations of existing facilities. There were no future commitments
associated with new construction of facilities at March 31, 1997.
F-7
<PAGE>
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6) Notes Payable
Notes payable at December 31, 1996 consisted of a five-year revolving
credit facility under the Old Credit Agreement under which up to $35,000,000 was
available (the "Old Facility"). The Old Credit Facility was to mature in June
1999. Interest was paid monthly at 1.5% over the bank's prime rate or 2.75% over
the Eurodollar rate (the rate of which is determined by the Company at time of
borrowing). Borrowings under the Old Facility were collateralized by
substantially all of the Company's assets. The balance outstanding on the Old
Facility was $21,639,000 as of December 31, 1996, all of which was repaid in
connection with the amendment and restatement of the Old Credit Agreement in the
Recapitalization. There were no borrowings under the New Credit Facility as of
March 31, 1997.
In addition, also outstanding at December 31, 1996 under the Old Facility
and March 31, 1997 under the New Credit Facility were standby letters of credit
principally related to unfunded insurance claims in the amount of $3,500,000 and
other various standby letters of credit of approximately $500,000.
7) Commitments and Contingencies
The Company is involved in various litigation incidental to the business
for which estimates of losses have been accrued, when appropriate. In the
opinion of management, such proceedings will not have a material adverse effect
on financial position or results of operations.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Control and Partners
Petro Stopping Centers, L.P.
We have audited the accompanying consolidated balance sheets of Petro Stopping
Centers, L.P. as of December 29, 1995 and December 31, 1996 and the related
consolidated statements of operations, changes in partners' capital and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Petro
Stopping Centers, L.P. as of December 29, 1995 and December 31, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
El Paso, Texas
March 28, 1997
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Control and Partners
Petro Stopping Centers, L.P.
Our report on the consolidated financial statements of Petro Stopping Centers,
L.P. is included on page 39 of this Form 10-K. In connection with our audit of
such consolidated financial statements, we have also audited the related
financial statement schedule listed in the index on page 54 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
El Paso, Texas
March 28, 1997
F-10
<PAGE>
PETRO STOPPING CENTERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 29, December 31,
1995 1996
---- ----
<S> <C> <C>
Assets
Current assets: $ 5,688 $ 3,182
Cash
Accounts receivable, net of allowance for
uncollectible accounts of $608 in 1995
and $321 in 1996 11,468 10,401
Inventories 16,319 15,195
Other current assets 1,728 1,404
Due from affiliates 1,520 2,091
-------- --------
Total current assets 36,723 32,273
Property and equipment, net 162,348 159,539
Deferred debt issuance costs and Company
organization costs, net of accumulated
amortization of $4,546 in 1995 and
$6,728 in 1996 13,370 11,305
Other assets 9,258 5,983
-------- --------
Total assets $221,699 $209,100
======== ========
Liabilities and Partners' Capital
Current liabilities:
Current portion of long-term debt $ 4,948 $ 6,928
Trade accounts payable 14,188 15,723
Accrued expenses and other liabilities 25,166 21,160
Due to affiliates 2,028 2,325
-------- --------
Total current liabilities 46,330 46,136
Notes payable 20,578 21,639
Long-term debt, excluding current portion 142,866 138,160
-------- --------
Total liabilities 209,774 205,935
-------- --------
Commitments and contingencies
Partners' capital:
General partners (7,204) (8,477)
Limited partners 19,129 11,642
-------- --------
Total partners' capital 11,925 3,165
-------- --------
Total liabilities and partners' capital $221,699 $209,100
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-11
<PAGE>
PETRO STOPPING CENTERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 30, December 29, December 31,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Net revenues (including motor fuel
taxes):
Diesel fuel island $318,761 $351,136 $435,071
Restaurant 43,877 47,387 47,335
Petro:Lube 34,160 36,198 44,082
Travel and convenience stores 54,733 61,590 67,104
Petro:2 26,798 27,734 33,584
Other 9,564 8,970 9,881
-------- -------- --------
Total net revenues 487,893 533,015 637,057
-------- -------- --------
Costs and expenses:
Cost of sales (including motor
fuel taxes),
exclusive of depreciation and
amortization 373,436 411,894 511,431
Operating expenses 64,968 73,052 81,522
General and administrative 11,448 12,053 13,925
Employee severance, benefit and
placement expenses -- -- 2,534
Depreciation and amortization 8,851 11,144 12,204
-------- -------- --------
Total costs and expenses 458,703 508,142 621,616
-------- -------- --------
Operating income 29,190 24,873 15,441
Recapitalization costs -- -- 2,938
Interest expense 18,711 21,098 21,263
-------- -------- --------
Income (loss) before
extraordinary item and
minority interest 10,479 3,775 (8,760)
Extraordinary item - write-off of
debt restructuring costs associated
with retired debt 5,250 -- --
Minority interest 191 -- --
-------- -------- --------
Net income (loss) $ 5,038 $ 3,775 $ (8,760)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-12
<PAGE>
PETRO STOPPING CENTERS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
Years ended December 30, 1994, December 29, 1995 and December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
General Limited Total Partners'
Partners Partners Capital
--------- --------- ----------------
<S> <C> <C> <C>
Balances, December 31, 1993 $(8,890) $11,932 $ 3,042
Distributions (68) (44) (112)
Net income 718 4,320 5,038
------- ------- -------
Balances, December 30, 1994 (8,240) 16,208 7,968
Conversion of minority interest 506 -- 506
Distributions (15) (309) (324)
Net income 545 3,230 3,775
------- ------- -------
Balances, December 29, 1995 (7,204) 19,129 11,925
Net loss (1,273) (7,487) (8,760)
------- ------- -------
Balances, December 31, 1996 $(8,477) $11,642 $ 3,165
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-13
<PAGE>
PETRO STOPPING CENTERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 30, December 29, December 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss) $ 5,038 $ 3,775 $ (8,760)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 8,851 11,144 12,204
Extraordinary item-write off
of debt restructuring costs
associated with retired debt 5,250 -- --
Deferred debt issuance cost
amortization 1,107 1,056 1,485
Accretion of original issue
discount -- 845 978
Provision for losses on
accounts receivable (351) 297 215
Increase (decrease) from changes
in:
Accounts receivable (1,486) (2,361) 852
Inventories (1,563) (1,838) 1,124
Other current assets (962) (118) 324
Due from affiliates 1,559 (545) (571)
Due to affiliates (889) 436 297
Trade accounts payable (1,760) 270 1,535
Accrued expenses and other
liabilities (1,710) (195) 4,985
--------- -------- --------
Net cash provided by
operating activities 13,084 12,766 14,668
--------- -------- --------
Cash flows used in investing
activities:
Purchase of property and
equipment (8,428) (19,508) (5,523)
(Increase) decrease in other
assets, net (10,487) (1,622) 186
--------- -------- --------
Net cash used in investing
activities (18,915) (21,130) (5,337)
--------- -------- --------
Cash flows provided by
financing activities:
Repayments of notes payable (18,401) (59,422) (25,000)
Proceeds from notes payable 19,401 69,000 26,061
Repayments of long-term debt (133,843) (3,491) (3,704)
Proceeds from long-term debt 150,459 -- --
Distributions to partners (112) (324) --
Capital contributions -- -- --
Payment of debt issuance costs (12,180) (190) (203)
Increase (decrease) in cash
overdrafts (3,077) 4,656 (8,991)
Other, net 194 -- --
--------- -------- --------
Net cash provided by (used
in) financing activities 2,441 10,229 (11,837)
--------- -------- --------
Net increase (decrease) in cash (3,390) 1,865 (2,506)
Cash, beginning of period 7,213 3,823 5,688
--------- -------- --------
Cash, end of period $ 3,823 $ 5,688 $ 3,182
========= ======== ========
- -------------------------------------------------------------------------------
Supplemental cash flow
information--
Interest paid during the
period, net of capitalized
interest of $62, $515 and $80
in 1994, 1995 and 1996 $ 19,102 $ 19,785 $ 18,364
Non-cash transactions--
Minority interest converted to
equity -- 506 --
</TABLE>
See accompanying notes to consolidated financial statements
F-14
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(1) Company Formation and Description of Business
Company Formation
Petro PSC Properties, L.P. ("Petro Properties"), a Delaware limited
partnership, was formed effective April 30, 1992 for the ownership, operation,
management and development of the Petro Stopping Centers network. The partners
were as follows:
General Partners
Petro, Inc.
Roadside, Inc. ("Roadside"), an entity owned by Fremont Group, Inc.
Limited Partners
Various individuals and entities affiliated with Petro, Inc.
Fremont Group, Inc.
Petro, Inc. and the various individuals and entities affiliated with
Petro, Inc. are collectively referred to herein as the "Cardwell Group".
Roadside and the Fremont Group, Inc. are jointly referred to herein as the
"Fremont Group".
Petro PSC, L.P. ("Petro PSC"), a Delaware limited partnership, was also
formed effective April 30, 1992 to manage the day-to-day operations of the Petro
Stopping Centers network. At formation, Roadside and Petro, Inc. each received a
1% general partnership interest, and Petro Properties received a 98% limited
partner interest in exchange for certain net operating assets.
Effective December 31, 1994, an Agreement of Merger and Name Change was
executed whereby Petro PSC was merged into Petro Properties. The merger was
consummated pursuant to the Delaware Revised Uniform Limited Partnership Act.
As part of the merger, the name of Petro Properties was changed to "Petro
Stopping Centers, L.P." referred to herein as the "Company" or the
"Partnership." The following table reflects the Partnership ownership interest
immediately following the merger:
<TABLE>
<CAPTION>
Percentage
----------
Partner Type of Interest Interest
------- ---------------- ----------
<S> <C> <C>
Roadside, Inc. General Partner .92%
Petro, Inc. General Partner 13.53
Fremont Group, Inc. Limited Partner 44.25
James A. Cardwell, Sr. Limited Partner 35.77
James A. Cardwell, Jr. Limited Partner 1.92
JAJCO II, Inc. Limited Partner 3.61
------
100.00%
======
</TABLE>
There was no material financial statement impact resulting from the merger or
name change.
On January 30, 1997 the Company completed a recapitalization. As part of
the recapitalization, affiliates of Chartwell Investments Inc. became limited
and general partners and an affiliate of Mobil Oil Corporation became a limited
partner and the Fremont Group sold all their partnership interests (See Note
17).
Description of Business
The Company operates large, multi-service truck stops in the United
States. The Company's facilities, which are known as "Petro Stopping Centers"
(the "Stopping Centers"), are located along interstate highways and typically
offer diesel fuel, gasoline, home-style restaurants, truck preventative
maintenance centers, travel and convenience stores and a range of other
products, services and amenities to commercial truck drivers, as well as other
highway motorists and local residents. At December 31, 1996, the Company's
network consisted of 42 Stopping Centers located in 27 states, of which 26 were
operated by the Company and 16 were franchised.
F-15
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of the Company
include the consolidated balance sheets, statements of operations, changes in
partners' capital and cash flows of Petro Stopping Centers, L.P. and its wholly-
owned subsidiaries, Petro Financial Corporation and Petro Distributing, Inc..
All significant interCompany balances have been eliminated in consolidation.
Beginning in 1994, the Company adopted a 52/53 week fiscal year, which ends on
the Friday closest to December 31. Beginning in 1996, the Company adopted a
calendar year fiscal year, which ended on December 31.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. Accounts receivable are primarily due from national and regional
commercial trucking companies, and include accounts receivable purchased at a
discount from the Company's franchisees. The receivables are not collateralized,
however the risk is limited due to the large number of entities comprising the
Company's customer base and their dispersion across geographic regions. At
December 31, 1996, the Company had no significant concentrations of credit risk.
Cash and Cash Equivalents
The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.
Allowance for Doubtful Accounts
Accounts receivable are reviewed on a regular basis and the allowance
for doubtful accounts is established to reserve for specific accounts believed
to be uncollectible. In addition, the allowance provides a reserve for the
remaining accounts not specifically identified.
Inventories
Inventories are stated at the lower of cost or market as determined by
the first-in, first-out method.
Property and Equipment
Property and equipment is stated at amortized historical cost.
Depreciation and amortization are provided generally under the straight-line
method over the estimated useful lives of the respective assets or the lease
term, whichever is less. Repairs and maintenance are charged to expense as
incurred, and amounted to $2,898,000, $2,893,000 and $2,785,000 for the years
ended December 30, 1994, December 29, 1995 and December 31, 1996, respectively.
Renewals and betterments are capitalized. Gains or losses on disposal of
property and equipment are credited or charged to income.
Facilities under development are recorded at cost, and include
capitalized interest costs associated with the development of a project. These
costs are classified as facilities under development until the project is
completed, at which time the costs are transferred to the appropriate property
and equipment accounts.
Organization Costs
Costs incurred in connection with the formation of the Company, which
primarily include legal expenses, private placement fees and other due diligence
expenditures, are being amortized using the straight-line method over a ten-year
period.
F-16
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies (continued)
Debt Issuance Costs
Costs incurred in obtaining long-term financing are amortized over the
life of the related debt using a method which approximates the interest method.
Self Insurance
The Company is self-insured for general liability, workers'
compensation, and group health benefit claims, up to stop-loss amounts ranging
from $75,000 to $250,000 on a per-occurrence basis. Provisions for these self-
insurance programs are made for both estimated losses on known claims and claims
incurred but not reported, based on claims history.
Advertising and Promotion
Costs incurred in connection with advertising and promotion are expensed
as incurred, net of reimbursements from franchisees. Net advertising and
promotion expenses of $1,786,000, $1,688,000 and $2,156,000 were incurred for
the years ended December 30, 1994, December 29, 1995 and December 31, 1996,
respectively, and are included in operating expenses in the accompanying
consolidated statements of operations.
Motor Fuel Taxes
Certain motor fuel taxes are collected from consumers and remitted to
governmental agencies by the Company. Such taxes were $140,460,000, $150,360,000
and $175,873,000 for the years ended December 30, 1994, December 29, 1995 and
December 31, 1996, respectively, and are included in net revenues and cost of
sales in the accompanying consolidated statements of operations.
Environmental Liabilities and Expenditures
Accruals for environmental matters are recorded in operating expenses
when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. The measurement of environmental
liabilities is based on an evaluation of currently available facts with respect
to each individual site and considers factors such as existing technology,
presently enacted laws and regulations and prior experience in remediation of
contaminated sites. Accrued liabilities are exclusive of claims against third
parties and are not discounted.
Franchise Revenues
The Company recognizes net revenue from individual franchises and
initial training fees when substantially all significant services to be provided
by the Company have been performed. Continuing franchise fees, which are based
generally upon a percentage of the franchisees' sales, are recognized monthly as
earned. Fees earned from franchises aggregated $2,340,000, $2,926,000 and
$3,397,000 during the years ended December 30, 1994, December 29, 1995 and
December 31, 1996, respectively.
Financial Instruments with Off-Balance Sheet Risk
The Company occasionally utilizes futures and option contracts with the
objective of minimizing fuel cost risk due to market fluctuations. Gains and
losses resulting from changes in the market value of these contracts are
recognized when the related inventory is sold. The Company also enters into
futures and options contracts that are not specific hedges and gains or losses
resulting from changes in market value of these types of futures contracts are
recognized in income currently.
Interest rate swap agreements are utilized from time to time to manage
interest rate exposures. The amount to be paid or received on these agreements
is accrued as interest rates change and is recognized over the lives of the
respective agreements.
Income Taxes
The Company is not subject to federal and state income taxes. Results of
operations are allocated to the partners in accordance with the provisions of
the Company's Partnership Agreement and reported by each partner on their
respective federal and state income tax returns. The taxable income or loss
allocated to the partners in any one year generally varies substantially from
income or loss for financial reporting purposes due to differences between the
periods in which such items are reported for financial reporting and income tax
purposes.
F-17
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies (continued)
Development Costs/Preopening Costs
The Company incurs costs associated with the development and opening of
new sites which are separately identifiable and incremental to normal operating
expenses. The costs are capitalized as incurred and are amortized against income
over a 12 month period following the opening of the location.
(3) Inventories
The following is a summary of inventories at December 29, 1995 and
December 31, 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
(in thousands)
<S> <C> <C>
Motor fuels and lubricants $ 3,623 $ 5,074
Tires and tubes 3,568 2,993
Merchandise and accessories 7,783 7,531
Restaurant and other 1,345 726
Less reserve for obsolescence -- (1,129)
------- -------
Total inventories $16,319 $15,195
======= =======
</TABLE>
In connection with new systems implemented in 1996, the Company
identified items that were excess or obsolete inventory. The criteria
established is merchandise in excess of a one year supply. The Company has
established a reserve for obsolete and excess inventory amounting to
approximately $1.1 million. The related charge is included in cost of sales in
the accompanying 1996 statement of operations.
(4) Property and Equipment
Property and equipment is summarized at December 29, 1995 and December
31, 1996 as follows:
<TABLE>
<CAPTION>
Estimated
Useful Lives
(years) 1995 1996
------------- ---- ----
(in thousands)
<S> <C> <C> <C>
Land -- $ 34,872 $ 34,970
Buildings and improvements 30 91,644 94,244
Furniture and equipment 3-10 37,887 40,396
Leasehold improvements 7-30 20,066 20,238
Facilities under development -- 157 141
-------- --------
184,626 189,989
Less accumulated depreciation and
amortization 22,278 30,450
-------- --------
Net property and equipment $162,348 $159,539
======== ========
</TABLE>
Facilities under development include costs associated with new
facilities and major renovations of existing facilities. There were no future
construction commitments at December 31, 1996.
F-18
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(5) Operating Leases
The Company is party to various operating leases. The operating
leases are for the lease of a Stopping Center location, office building, truck
leases and various equipment leases. The leases contain renewal options varying
from automatic annual renewals to three five-year options.
A summary of future minimum rental payments on operating leases which
have initial or remaining noncancellable lease terms in excess of one year as of
December 31, 1996, follows:
<TABLE>
<CAPTION>
Related
Fiscal Year Ending Party Other Total
------------------ ----- ----- -----
(in thousands)
<S> <C> <C> <C>
1997 $ 1,494 $392 $ 1,886
1998 1,494 261 1,755
1999 1,422 41 1,463
2000 1,422 -- 1,422
2001 1,422 -- 1,422
Later Years 4,663 -- $ 4,663
------- ---- -------
Total minimum lease payments $11,917 $694 $12,611
======= ==== =======
</TABLE>
Rent expense under all operating leases was $2,368,000, $2,004,000 and
$2,201,000 for the years ended December 30, 1994, December 29, 1995 and December
31, 1996, respectively. Of these rentals, $1,633,000 for 1994, $1,488,000 for
1995 and $1,487,000 for 1996, were paid to related parties of the Company.
(6) Notes Payable
Notes payable at December 29, 1995 and December 31, 1996 consisted of a
five-year revolving credit facility (the "Credit Facility") under which up to
$35,000,000 is available. The Credit Facility matures in June 1999. Interest is
paid monthly at 1.5% over the bank's prime rate or 2.75% over the Eurodollar
rate (the rate is determined at time of borrowing at the borrower option). The
Credit Facility is collateralized by substantially all of the Company's assets.
The balance outstanding on the Credit Facility was $20,578,000 and $21,639,000
as of December 29, 1995 and December 31, 1996, respectively, at an average
interest rate of 8.65% for 1995 and 8.8% for 1996. The rate was 8.8% at
December 31, 1996 (See Note 7).
The notes payable were refinanced subsequent to December 31, 1996 (See
Note 17).
In addition, also outstanding at December 29, 1995 and December 31, 1996
under the Credit Facility were standby letters of credit principally related to
unfunded insurance claims in the amounts of $2,900,000 and $3,150,000
respectively, and various other standby letters of credit of approximately
$500,000.
F-19
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(7) Long-Term Debt
Long-term debt at December 29, 1995 and December 31, 1996 is presented
below.
<TABLE>
<CAPTION>
1995 1996
---- ----
(in thousands)
--------------
<S> <C> <C>
Five-year term note to a bank in an original amount of
$25,000,000 maturing June 30, 1999. The note is payable
in 16 consecutive quarterly installments varying from
$600,000 to $3,500,000 commencing June 30, 1995, which
aggregated $2,966,000 during 1996. Interest at either
the bank's prime rate plus 1.5% or the Eurodollar rate
plus 2.75% is payable monthly. The rate was 8.68% at
December 31, 1996. The note is collateralized by
substantially all of the Company's assets. The notes
were refinanced subsequent to December 31, 1996 (See
Note 17). $ 22,760 $ 19,794
Seven-year term note to a bank in an original amount of
$25,000,000 maturing June 30, 2001. The note is payable
in 24 consecutive quarterly installments varying from
$400,000 to $3,000,000 commencing June 30, 1995 which
aggregated $739,000 during 1996. Interest at either the
bank's prime rate plus 2% or the Eurodollar rate plus
3.25% is payable monthly. The effective rate was
9.1172% at December 31, 1996 as a result of an interest
swap agreement (the "Swap") with the lender as required
under the loan agreement. The Swap expires on June 30,
1999. The note is collateralized by substantially all
of the Company's assets. The notes were refinanced and
the swap extinguished subsequent to December 31, 1996
(See Note 17). 23,749 23,010
12 1/2% Senior Notes due 2002 (the "Notes") in an
original aggregate principal amount of $100,000,000, net
of original issue discount. Based on the issue price of
the Notes and assuming the Warrants will be exchanged
for additional Notes, the yield to maturity, determined
by semi-annual compounding of interest, is approximately
13.25% per year. Interest on the Notes is payable on
June 1 and December 1 of each year beginning December 1,
1994. The notes are not collateralized. Approximately
94% of the notes were repurchased subsequent to December
31, 1996 (See Note 17). 96,832 97,173
100,000 Exchangeable Debt Warrants, net of original issue
discount. The Warrants will become exchangeable during
a 30-business day exchange period following the first to
occur of (an "Exchange Event") (i) the completion of an
initial public offering of common stock of a corporation
that succeeds to and continues the business of the
Company (the "Successor Corporation"); (ii) a Change of
Control (as defined in the Indenture for the Notes) or
(iii) June 1, 1997. If the Exchange Event is a Change
of Control or June 1, 1997, the Warrants will be
exchangeable by the holders thereof, for no additional
consideration, for $5,538,000 aggregate principle amount
of additional Notes. If the Exchange Event is an
initial public offering, each Warrant will be
exchangeable into Notes as described above or into 3% of
the fully diluted shares of common stock of the
Successor Corporation. Approximately 99% of the warrants
were redeemed subsequent to December 31, 1996 (See Note
17). 4,473 5,111
-------- --------
Total long-term debt 147,814 145,088
Less current portion 4,948 6,928
-------- --------
Long-term debt, excluding current portion $142,866 $138,160
======== ========
</TABLE>
F-20
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(7) Long-Term Debt (continued)
The Indenture for the Notes and the Credit Facility agreement each contain
certain covenants, including without limitation, covenants with respect to the
following matters: (i) limitation on indebtedness; (ii) limitation on restricted
payments; (iii) limitation on sales of restricted subsidiary stock; (iv)
limitation on transactions with affiliates; (v) limitation on liens; (vi)
limitation on disposition of proceeds of asset sales; (vii) limitation on
distributions and other payment restrictions affecting restricted subsidiaries;
(viii) restrictions on mergers and certain transfers of assets and (ix) in the
case of the Credit Facility financial covenants covering leverage, cash flows,
capital expenditures, fixed charge coverage, ratio of loans to appraised value
of the Company's travel plaza facilities and cumulative net income.
Estimated principal payment requirements on long-term debt prior to the
Recapitalization were as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending (in thousands)
------ --------------
<S> <C>
1997 $ 6,928
1998 7,000
1999 7,917
2000 8,908
2001 10,809
Thereafter 103,526
--------
Total $145,088
========
</TABLE>
In 1994, the Company incurred an extraordinary charge of $5,250,000 for the
write off of (i) the unamortized debt issuance costs associated with the
Company's prior revolving credit facility and certain mortgage notes payable to
various lenders and (ii) the prepayment premium paid in connection with the
repayment of certain of these facilities.
(8) Accrued Expenses and Other Liabilities
The following is a summary of accrued expenses and other liabilities at
December 29, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
(in thousands)
--------------
<S> <C> <C>
Accrued expenses
Employee related expenses $ 5,174 $ 7,748
Taxes payable-sales, fuel and property 5,224 5,088
Other 2,306 4,497
Cash overdrafts 8,991 --
Due to franchisees 3,471 3,827
------- -------
$25,166 $21,160
======= =======
</TABLE>
(9) Related Party Transactions
Amounts due to and from affiliates as of December 29, 1995 and December 31,
1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
(in thousands)
--------------
<S> <C> <C>
Due from affiliates:
C&R Distributing, Inc. $ 719 $ 1,370
Bordentown Junction Truck Stop 87 51
El Paso Tire Center -- 10
Petro Truckstops, Inc. 378 336
Highway Service Ventures, Inc. -- 35
Other 336 289
------- -------
$ 1,520 $ 2,091
======= =======
Due to affiliates:
Bordentown Junction Truck Stop $ 365 $ 394
El Paso Amusement Company 128 194
Highway Service Ventures, Inc. 1,309 1,524
C&R Distributing, Inc. 226 213
------- -------
$ 2,028 $ 2,325
======= =======
</TABLE>
F-21
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(9) Related Party Transactions (continued)
Fuel and credit card receivable sales aggregating $4,301,000, $4,022,000 and
$4,567,000 for the years ended December 30, 1994, December 29, 1995 and December
31, 1996, respectively, were made to C&R Distributing, Inc. ("C&R") at the
Company's cost. C&R sales of fuel and lubricants and truck hauling fees,
aggregating $5,547,000, $7,857,000 and $11,432,000 for the years ended
December 30, 1994, December 29, 1995 and December 31, 1996, respectively, were
charged to the Company.
As part of the organization of the Company in 1992, the Cardwell Group
negotiated rights to receive revenues (the "Coinage Arrangement") from certain
specified activities at 14 Stopping Centers (such as video games, pay telephone
services and rental of retail space). In 1994, the Coinage Arrangement was
terminated pursuant to the terms of the contracts establishing such arrangements
by payment of approximately $9,440,000 to the Cardwell Group; subsequent
revenues belong to the Company. The Cardwell Group received approximately
$988,000 for the year ended December 30, 1994 under the Coinage Arrangement.
Since June 1993, the two Stopping Centers located in Louisiana have featured
video poker games housed in a separate on-site facility and operated by a third
party, Petro Truckstops, Inc., an affiliate who, under terms of a contract,
turns over a specified portion of the revenue generated from the machines.
Petro Truckstops, Inc. pays 95% of revenue collected to the Company and retains
5% for operating expenses in accordance with a lease agreement. Payments to the
Company under this arrangement aggregated $3,218,000 during 1994, $2,383,000
during 1995 and $1,979,000 during 1996. During 1996, Louisiana enacted a
statute requiring the cessation of video poker operations unless the parish in
which the operations were conducted voted to allow the continued operation of
video poker machines. On November 5, 1996, the parish in which the Shreveport
unit is located voted to continue to allow video poker operations, while the
parish in which the Hammond unit is located voted to disallow video poker
operations. The phase out period for the Hammond location is through June 1999.
During the year ended December 31, 1996, the Hammond location generated
approximately $841,000 of revenue from video poker.
Management fees of $250,000 were earned by the Fremont Group for each of the
years ended December 30, 1994, December 29, 1995 and December 31, 1996, in
accordance with terms of the Company's Partnership Agreement.
Each of the affiliates identified in the table above, is owned or controlled
to some degree by a member or members of the Cardwell Group. Related party
transactions, other than those specifically discussed above, generally arise in
the ordinary course of business as a result of the Company's purchase of trade
accounts receivable or receipt of franchisee fees from certain related parties
who own properties which are part of the Company's network. All significant
related party transactions have been appropriately reflected in the footnotes
and accompanying consolidated financial statements.
(10) Partners' Capital
Under the terms of the Company's Partnership Agreement, the Company is
required to distribute to the partners, on a pro rata basis in accordance with
ownership percentage interests, an amount calculated based upon allocated
taxable income using certain state and federal tax rates. The payments are to
be made on or before the estimated tax payment dates, which are April 15, June
15, September 15 and December 15. Debt agreements restrict distributions upon
certain debt covenant violations.
As of December 31, 1996, the historical net book value of assets and
liabilities was approximately $32,000,000 greater than the associated net tax
basis of those assets and liabilities.
(11) Employee Benefits
The Company sponsors a defined contribution retirement plan under Internal
Revenue Code Section 401(k) covering substantially all of its employees.
Company contributions equal 50% of the participants' contributions up to 2% of
the participants' annual salary and aggregated $115,484, $132,593 and $138,000
for the years ended December 30, 1994, December 29, 1995 and December 31, 1996,
respectively.
F-22
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(12) Employee Equity Plan
The Company will establish an equity incentive plan to attract and retain
key personnel, including senior management, and to enhance their interest in the
Company's continued success. The Company anticipates that the aggregate equity
issued pursuant to such plans and any future plans will be between 5% and 10% of
the fully diluted equity of the Company.
(13) Contingencies
The Company is involved in various litigation incidental to the business
for which estimates of losses have been accrued, when appropriate. In the
opinion of management, such proceedings will not have a material adverse effect
on the consolidated financial position or results of operations.
(14) Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the requirements of SFAS No. 107.
The estimated fair value amounts have been determined by the Company using
available market information and valuation methodologies.
As of December 29, 1995 and December 31, 1996, the carrying amounts of
certain financial instruments employed by the Company, including cash, accounts
receivable, trade accounts payable and amounts due from/to affiliates are
representative of fair value because of the short-term maturity of these
instruments. The carrying amount of notes payable approximate fair value due to
the floating nature of the interest rate. The fair value of the long-term debt
has been estimated based on quoted market prices for the same or similar issues
or by discounting the future cash flows using rates currently available for debt
of similar terms and maturity. The fair value of all derivative financial
instruments is the amount at which they could be settled, based on quoted market
prices or estimates obtained from dealers. The following table reflects the
carrying amount and estimated fair value of the Company's financial instruments:
<TABLE>
<CAPTION>
Year Ended,
1995 1996
----------------- ------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Balance sheet financial instruments
Long-term debt $147,814 $145,509 $145,088 $142,825
Other financial instruments
Interest rate swap agreements -- (1,220) -- (535)
</TABLE>
Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company uses
derivatives to manage well-defined interest rate and commodity price risks.
1. Interest Rate Swap Agreements
At December 31, 1996, the Company was party to an interest rate swap
agreement with an aggregate notional principal amount of $25,000,000.
Under the agreement, the Company pays a fixed rate of 7.07% and receives a
floating rate based on LIBOR on the aggregate principal amount as
determined in three month intervals. The transaction effectively changes
a portion of the Company's interest rate exposure from a floating rate to
a fixed rate basis. The effect of the swap was to increase the rate by
1.07% which resulted in additional interest expense of approximately
$249,000. The swap was extinguished subsequent to December 31, 1996.
The primary risks associated with swaps are the exposure to movements
in interest rates and the ability of the counterparties to meet the terms
of the contracts. Based on review and assessment of counterparty risk, the
Company does not anticipate non-performance by the other party. The
Company does not obtain collateral or other security to support financial
instruments subject to credit risk, but monitors the credit standing of
counterparties.
F-23
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(14) Financial Instruments (continued)
2. Futures Contracts
The Company occasionally utilizes futures and option contracts with the
objective of minimizing fuel cost risk due to market fluctuations. During
1994, the Company realized gains of approximately $94,000 pertaining to
futures contracts. There were no contracts outstanding at December 29,
1995 and December 31, 1996.
(15) Environmental Matters
The Company is subject to contingencies pursuant to environmental laws and
regulations that in the future may require the Company to take action to correct
the effects on the environment of prior disposal practices or releases of
chemical or petroleum substances by the Company or other parties. The Company
has accrued for certain environmental remediation activities consistent with the
policy set forth in Note 2. At December 31, 1996, such accrual amounted to
approximately $217,000 and, in management's opinion, was appropriate based on
existing facts and circumstances. Under the most adverse circumstances,
however, this potential liability could be significantly higher. In the event
that future remediation expenditures are in excess of amounts accrued,
management does not anticipate that they will have a material adverse effect on
the consolidated financial position or results of operations of the Company. At
December 31, 1996 the Company has recognized approximately $256,000 in the
consolidated balance sheet related to recoveries of certain remediation costs
from third parties.
(16) Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
(in thousands)
--------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Net revenues $125,948 $131,562 $137,384 $138,121
Operating income 6,711 6,817 7,184 4,161
Net income 1,554 1,446 1,908 (1,133)
</TABLE>
F-24
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(16) Selected Quarterly Financial Data (unaudited)(continued)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter(a)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
1996
Net revenues $147,925 $156,077 $160,530 $172,525
Operating income 4,655 5,924 6,216 (1,354)
Net income (loss) (675) 626 969 (9,680)
</TABLE>
________________
(a) Fourth quarter of 1996 decline in operating income and net income is due
principally to the following items: (1) Earnings reflect the impact due to
lack of management direction and focus on the business during the change in
management structure that was in process as a result of the
Recapitalization and sale of the Partnership interests involving the sale
of the partnership interest. (2) In addition to the decline in performance
in the fourth quarter, the quarter also reflects adjustments relating to
establishment of inventory reserves, insurance reserves, employee
severance, benefit and placement expenses as well as recapitalization costs
amounting to approximately $1,400,000, $500,000, $2,534,000, and $2,938,000
respectively. (See further discussion at Note 17).
(17) Recapitalization
On January 30, 1997, the Company consummated a transaction entered into in
October 1996, in which Chartwell, Mobil Long Haul and the Cardwell Group entered
into an agreement under which Chartwell and Mobil Long Haul invested $20.7
million and $15.0 million, respectively (the "Equity Investment"), in order to
directly acquire the partnership interests of the Company owned by the Fremont
Partners for approximately $25.6 million and invested approximately $10.1
million in the Company. The Cardwell Group maintained its capital investment in
the Company. Kirschner Investments ("Kirschner"), a Company franchisee,
invested $1.0 million in the Company (the "Kirschner Investment"). Following
the Equity Investment and the Kirschner Investment, the common partnership
interests of the Company are owned by Chartwell (approximately 50.8%), the
Cardwell Group (approximately 39.9%), Mobil Long Haul (approximately 7.4%), and
Kirschner (2.0%), and the mandatorily redeemable preferred partnership interests
are owned by Mobil Long Haul ($12.0 million) and the Cardwell Group ($7.6
million). Chartwell and the Cardwell Group own both general and limited
partnership interests and Mobil Long Haul and Kirschner own only limited
partnership interests. Mobil Oil Company and the Company also entered into
certain supply and marketing agreements.
As part of the Recapitalization, the Company issued $135 million of 10 1/2%
Senior unsecured notes due 2007, (the "New Notes") and repurchased approximately
94% of the Existing 12 1/2% Senior Notes due 2002 and approximately 99% of
outstanding Debt Warrants.
The Company also replaced its senior collateralized credit facility (the
"Existing Credit Agreement") with a new senior collateralized credit facility
(the "New Credit Agreement"). The New Credit Agreement consists of a $25.0
million revolving credit facility (the "Revolving Credit Facility"), a $14.0
million Term Loan A, a $30.0 million Term Loan B and a $40.0 million expansion
facility (the "Expansion Facility"). The New Credit Agreement is collateralized
by substantially all of the Company's assets and the partnership interests of
Mobil Long Haul and Chartwell and guaranteed by each of the Company's
subsidiaries, which guarantees in turn are collateralized by substantially all
of such subsidiaries' assets.
In the first quarter of 1997, the Company will recognize an extraordinary
charge of $13.5 million relating to amendment of the Existing Credit Agreement,
retirement of the Existing Notes and Debt Warrants and the write-off of deferred
financing costs.
Aggregate yearly term loan principal payments under the New Credit
Agreement will be as follows: (i) $2.0 million in 1997; (ii) $3.0 million in
1998; (iii) $4.5 million in 1999; (iv) $5.5 million in 2000; (v) $7.5 million in
2001; (vi) $13.5 million in 2002; and (vii) $14.0 million in 2003.
F-25
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(17) Recapitalization (continued)
During 1996, the Company recognized recapitalization costs of approximately
$2.9 million relating to professional fees associated with the Recapitalization.
The following Unaudited Condensed Pro Forma Consolidated Balance Sheet of the
Company as of December 31, 1996 is prepared to present the capitalization of the
Company as if the Recapitalization had occurred on that date (in thousands).
<TABLE>
<CAPTION>
December 31, December 31,
1996 Pro Forma 1996
Historical Adjustments Pro Forma(a)
------------ ----------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
------
Current assets:
Cash $ 3,182 $ 15,592 (e) $ 18,774
Other 29,091 -- 29,091
-------- ----------- --------
Total current assets 32,273 15,592 47,865
Property and equipment, net 159,539 -- 159,539
Deferred debt issuance and
Company organization
costs, net 11,305 5,373 (c) 16,678
Other assets 5,983 -- 5,983
-------- ----------- --------
Total assets $209,100 $ 20,965 $230,065
======== =========== ========
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Total current liabilities $ 46,136 $ (5,934)(b) $ 40,202
Notes payable 21,639 (21,639)(b) --
Long-term debt, excluding
current portion 138,160 50,879 (b) 189,039
-------- ----------- --------
Total liabilities 205,935 23,306 229,241
Preferred partnership interest -- 19,600 (d) 19,600
Partners' capital 3,165 (21,941) (18,776)
-------- ----------- --------
Total liabilities and
partners' capital $209,100 $ 20,965 $230,065
======== =========== ========
</TABLE>
Notes to Unaudited Condensed Pro Forma Consolidated Balance Sheet:
(a) Pro forma as if the Recapitalization had occurred on December 31, 1996.
(b) To reflect (i) the sale of the New Notes, net of repurchase of the Existing
Notes and Debt Warrants, including accretion to face amounts and premiums
and payment of accrued interest; (ii) replacement of the Existing Credit
Agreement with the New Credit Agreement and (iii) termination of the
existing interest rate swap agreement.
(c) To reflect payment of new debt issuance costs reduced by write-off of
existing debt issuance costs.
(d) To reflect assignment of mandatorily redeemable preferred partnership
interests of $19.6 million.
F-26
<PAGE>
Petro Stopping, L.P.
Notes to Consolidated Financial Statements
(17) Recapitalization (continued)
(e) To reflect (in millions):
Sale of New Notes $ 135.0
Repurchase of Existing Notes and Debt
Warrants, Swap termination costs and
accrued interest (117.9)
Payment of debt issuance costs ( 12.6)
Capital contribution 11.1
---------
$ 15.6
=========
F-27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 17-108 of the Delaware Uniform Partnership Law (the "UPL") provides,
in substance, that Delaware limited partnerships shall have the power to
indemnify and hold harmless any partner or other person from and against any and
all claims and demands whatsoever, subject to such standards and restrictions as
are set forth in its partnership agreement.
Pursuant to Section 17-108 of the UPL, Article 7 of the Company's Third
Amended and Restated Limited Partnership Agreement (the "Partnership Agreement")
(filed as Exhibit 3.2 to this Registration Statement) provides that the Company
shall indemnify any current or former partner, member of the board of directors
or officer to the fullest extent permitted by law with respect to any liability,
damage, loss, injury, expense and cost to any person for any act or omission
performed or omitted: (a) in good faith on behalf of the Company; (b) in a
manner reasonably believed by such partner, officer or director to be within the
scope of the authority granted to such partner, officer or director by the
Partnership Agreement or the board of directors; and (c) in a manner not
constituting willful misconduct, fraud, gross negligence, or breach of such
partner's, officer's or director's fiduciary duty of loyalty.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL"), Paragraph Seven of PFC's Certificate of Incorporation (the "Certificate
of Incorporation") (filed as Exhibit 3.3 to this Registration Statement)
eliminates the liability of PFC's directors to PFC or its stockholders, except
for liabilities related to breach of duty of loyalty, actions not in good faith
and certain other liabilities.
Section 7 of Article V of PFC's Bylaws (filed as Exhibit 3.4 to this
Registration Statement) provides that PFC shall indemnify to the fullest extent
permitted by the DGCL its current and former directors and officers and persons
serving as directors and officers of any corporation at the request of the
Company. The Company also maintains officers' and directors' liability
insurance which insures against liabilities that officers and directors of the
Company may incur in such capacities.
Section 145 of the DGCL provides, in substance, that Delaware corporations
shall have the power, under specified circumstances, to indemnify their
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding. The DGCL also provides that Delaware corporations may
purchase insurance on behalf of any such director, officer, employee or agent.
Reference is made to the Note Registration Rights Agreement (incorporated by
reference as Exhibit 4.8 to this Registration Statement), which provides for
indemnification for the directors and officers of the Company signing a
Registration Statement and certain control persons of the Company against
certain liabilities, including those arising under the Securities Act in certain
circumstances by selling Holders and participating broker-dealers.
Reference is made to the Financial Advisory Agreement (incorporated by
reference as Exhibit 10.40 to this Registration Statement), which provides that
the Company shall indemnify and hold Chartwell Investments Inc. ("Chartwell
Investments"), its officers, employees and agents (each an "Indemnified Party")
harmless against liability, claim, loss or expenses to which an Indemnified
Party may become subject as a result of the performance of the financial
advisory services described in such agreement, except liabilities arising from
an Indemnified Party's bad faith, gross negligence or willful misconduct. Mr.
Berman and Mr. Shein, directors of the Company, are also officers and directors
of Chartwell Investments and, therefore, are covered by such indemnification
provisions.
Reference is made to the Management Consulting Agreement (incorporated by
reference as Exhibit 10.41 to this Registration Statement), which provides that
the Company shall indemnify and hold the Indemnified Parties harmless against
any liability, claim, loss or expenses to which an Indemnified Party may
II-1
<PAGE>
become subject as a result of the performance of the consulting services
described in such agreement, except liabilities arising from an Indemnified
Party's bad faith, gross negligence or willful misconduct. Mr. Berman and Mr.
Shein, directors of the Company, are also officers and directors of Chartwell
Investments and, therefore, are covered by such indemnification provisions.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1(aa) Amended and Restated Certificate of Limited Partnership of the
Company dated as of January 30, 1997.
3.2(aa) Third Amended and Restated Limited Partnership Agreement of the
Company, dated as of January 30, 1997, by and among the Petro,
Inc., James A. Cardwell, Sr., James A. Cardwell, Jr., JAJCO II,
Inc., Petro Holdings GP Corp, Petro Holdings LP Corp., Mobil Long
Haul Inc. and Kirschner Investments.
3.3(bb) Certificate of Incorporation of Petro Financial Corporation.
3.4(bb) Bylaws of Petro Financial Corporation.
4.1(ee) Indenture, dated as of May 24, 1994, among the Company, Petro
Financial Corporation and First Trust National Association, as
trustee, for the Company's $100,000,000 principal amount 12 1/2%
Senior Notes due 2002.
4.2(ee) Form of 12 1/2% Senior Note due 2002.
4.3(ee) Guarantee Agreement, dated as of May 24, 1994, between the
Company and First Trust National Association.
4.4(ee) Warrant Agreement, dated as of May 24, 1994, among the Company,
Petro Financial Corporation and First Trust National Association.
4.5(ee) Specimen of Exchangeable Debt Warrant
4.6(aa) Indenture dated as of January 30, 1997 among the Company, Petro
Financial Corporation and State Street Bank and Trust Company, as
trustee, relating to the Company's $135,000,000 principal amount
10 1/2% Senior Notes due 2007.
4.7(aa) Form of 10 1/2% Senior Note due 2007.
4.8(aa) Note Registration Rights Agreement, dated as of January 30, 1997,
by and among the Company, Petro Financial Corporation and CIBC
Wood Gundy Securities Corp. and Morgan Stanley Incorporated.
4.9(aa) Amended and Restated Revolving Credit and Term Loan Agreement,
dated as of January 30, 1997, among the Company, the Lenders
party thereto, and The First National Bank of Boston, as Agent.
4.10(aa) First Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement and Limited Waiver, dated as of February 12, 1997,
among the Company, the Lenders party thereto, and The First
National Bank of Boston, as Agent.
5.1* Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning the legality of the 10 1/2% Senior Notes.
8.1* Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning certain tax matters.
II-2
<PAGE>
10.1(bb) Form of the Company's Franchise Agreement.
10.2(aa) Schedule of Existing Franchise Agreements (including franchises
in which James A. Cardwell has an interest: Florence, SC; Elkton,
MD; Ruther Glen, VA; and Carnesville, GA).
10.3(bb) Surety Drive Lease Agreement, dated April 30, 1992, between James
A. Cardwell and the Company.
10.4(bb) Agreement relating to trademark license for Bordentown, New
Jersey, dated April 30, 1992, between the Company and Petro, Inc.
10.5(bb) Petro:Tread Lease Agreement, dated April 30, 1992, between James
Arthur Lyle and the Company.
10.6(bb) Lease Agreement relating to Louisiana liquor sales, dated April
30, 1992, between the Company and Petro, Inc.
10.7(bb) Servicing Agreement relating to Louisiana liquor sales, dated
April 30, 1992, between the Company and Petro, Inc.
10.8(bb) Lease Agreement relating to Arlington, Texas liquor sales, dated
April 30, 1992, between the Company and CYMA Development
Corporation.
10.9(bb) Servicing Agreement relating to Arlington, Texas liquor sales,
dated April 30, 1992, between the Company and CYMA Development
Corporation.
10.10(bb) Lease Agreement relating to Texas convenience store liquor sales,
dated April 30, 1992, between the Company and C and PPR, Inc.
10.11(bb) Servicing Agreement relating to Texas convenience store liquor
sales, dated April 30, 1992, between the Company and C and PPR,
Inc.
10.12(dd) Sublease and Services Agreement relating to Shreveport, Louisiana
liquor sales, dated April 8, 1994, between the Company and Petro
Truckstops, Inc.
10.13(dd) Sublease and Services Agreement relating to Shorter, Alabama
liquor sales, dated April 13, 1994, between the Company and
Petro, Inc.
10.14(bb) Lease relating to the Effingham, Illinois Stopping Center, dated
May 23, 1990, between Truck Stop Property Owners, Inc. and Petro,
Inc.
10.15(bb) Lease with Option to Purchase, dated September 9, 1983, among
Vaugn O. Seale, Francine S. Dodson, Hazel S. Darouse and Metro
Hammond, Inc.
10.16(bb) Profit Participation Agreement, dated March 1, 1993, between
Pelican Gaming, Inc. and Petro Truckstops, Inc.
10.17(dd) Amended and Restated Sublease and Services Agreement dated to be
effective as of February 26, 1993, between the Company and Petro
Truckstops, Inc.
10.18(bb) Agreement and General Release, dated February 22, 1993, among the
Company, Petro PSC Properties, L.P., Petro, Inc., Arcadian
Management Corporation and William J. La Croix.
10.19(cc) Agreement relating to the purchase of Chevron brand and other
petroleum products of
II-3
<PAGE>
Chevron U.S.A. Products Company for the Shorter, Alabama
convenience store (facility no. 13929), between the Company and
C&R Distributing, Inc.
10.20(cc) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the
Bucksville, Alabama convenience store (facility no.13817),
between the Company and C&R Distributing, Inc.
10.21(cc) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the
Kingston springs, Tennessee convenience store (facility no.
13928), between the Company and C&R Distributing, Inc.
10.22(cc) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the
Vinton, Texas convenience store (facility no. 7-5661), between
the Company and C&R Distributing, Inc.
10.23(cc) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the El
Paso, Texas convenience store (facility no. 20-1602), between the
Company and C&R Distributing, Inc.
10.24(aa) Distributor Sales Agreement (Branded) Renewal Offer dated
November 1, 1996, between Exxon Company, U.S.A. and the Company.
10.25(bb) Split Dollar Life Insurance Agreement, dated May 7, 1993, among
the Company and James A. Cardwell, Jr. and Ellis O. Mayfield, Co-
Trustees of the Jack and Evonne Cardwell Trust Number Two dated
March 16, 1987.
10.26(aa) Amended Split Dollar Life Insurance Agreement, dated as of May 1,
1995, among the Company, James A. Cardwell, Jr., Trustee of the
James A. and Evonne Cardwell Trust Number Two and James A.
Cardwell, Jr., Trustee of the James A. Cardwell Trust No. Three.
10.27(ff) Lease and Services Agreement, dated January 26, 1995, between the
Company and Petro Truckstops, Inc.
10.28(ff) Lease and Services Agreement, dated February 10, 1995, between
the Company and Petro Beverage, Inc.
10.29(aa) Omnibus Agreement by and among James A. Cardwell, Sr., James A.
Cardwell, Jr., JAJCO II, Petro Inc., Mobil Long Haul Inc., Petro
Holdings GP Corp., Petro Holdings LP Corp., the Company and
Kirschner Investments Company dated as of October 18, 1996 (the
"Omnibus Agreement").
10.30(aa) Amendment No. 1 to the Omnibus Agreement, dated as of January 30,
1997.
10.31(aa) Subscription Agreement, dated as of January 30, 1997, by and
between Kirschner Investments and the Company.
10.32(aa) Employment Agreement, dated January 30, 1997, by and between
James A. Cardwell, Sr. and the Company.
10.33(aa) Employment Agreement, dated January 30, 1997, by and between
James A. Cardwell, Jr. and the Company.
10.34(aa) Employment Agreement, dated December 16, 1996, by and between
Larry Zine and the Company.
10.35(aa) PMPA Distributor Motor Fuels Franchise Agreement, dated January
30, 1997, by and between Mobil Oil and the Company.
II-4
<PAGE>
10.36(aa) Marketing Services Agreement, dated January 30, 1997, by and
between Mobil Oil and the Company.
10.37(aa) Memorandum of Understanding - Joint Project Development, dated
January 30, 1997, by and between Mobil Oil and the Company.
10.38(aa) Secondment Agreement, dated January 30, 1997, by and between
Mobil Oil and the Company.
10.39(aa) Master Supply Contract for Resale of Oils and Greases, dated
January 30, 1997, by and between Mobil Oil and the Company.
10.40(aa) Financial Advisory Agreement, dated January 30, 1997, by and
between Chartwell Investment and the Company.
10.41(aa) Management Consulting Agreement, dated January 30, 1997, by and
between Chartwell Investment and the Company.
10.42(aa) Product Services Agreement, dated January 30, 1997, by and
between C&R Distributing, Inc., a Texas corporation,and the
Company.
10.43(aa) Petro/El Paso Amusement Services Agreement, dated January 30,
1997, by and between El Paso Vending and Amusement Company, a
Texas general partnership, and the Company.
10.44(aa) Display Space Agreement, dated January 30, 1997, by and between
Motor Media, Inc., a Texas corporation, and the Company.
10.45(aa) Second Amended and Restated Indemnity and Hold Harmless
Agreement, dated January 30, 1997, by James A. Cardwell, Sr. for
the benefit of Petro Holdings GP Corp., Petro, Inc., the Company
and Petro Financial Corporation.
10.46(aa) Second Amended and Restated Indemnity and Hold Harmless
Agreement, dated January 30, 1997, by James A. Cardwell, Jr. and
for the benefit of Petro Holdings GP Corp., Petro, Inc., the
Company and Petro Financial Corporation.
10.47(aa) Second Amended and Restated Indemnity and Hold Harmless
Agreement, dated January 30, 1997, by JAJCO II for the benefit of
Petro Holdings GP Corp., Petro, Inc., the Company and Petro
Financial Corporation.
10.48(aa) Indemnity and Hold Harmless Agreement, dated January 30, 1997, by
Petro, Inc. for the benefit of Petro Holdings GP Corp., Petro,
Inc., the Company and Petro Financial Corporation.
10.49(aa) Second Amended and Restated Indemnity and Hold Harmless
Agreement, dated January 30, 1997, by Arcadian Management
Corporation, a Colorado corporation, for the benefit of Petro
Holdings GP Corp., Petro, Inc., the Company and Petro Financial
Corporation.
10.50(aa) Interest Purchase Agreement among Sequoia Ventures Inc.,
Roadside, Inc., Chartwell, Mobil Long Haul and the Company dated
as of October 18, 1997.
10.51(bb) Southwestern Bell Telephone Company Multi-State License Agreement
for placement of Public Telephone Equipment, dated April 1, 1993,
between the Company and Southwestern Bell Telephone Company.
10.52(bb) Southwestern Bell Telephone Company Public Telephone License
Agreement, dated May 16, 1990, between Southwestern Bell
Telephone Company and Petro, Inc.
II-5
<PAGE>
10.53(gg) Form of Key Employee Incentive Compensation Plan.
10.54(aa) 1996 Management Incentive Plan
12.(hh) Statement of Computation of Financial Ratios.
21.(aa) Subsidiaries of the Company.
23.1* Consent of Independent Auditors (Coopers & Lybrand L.L.P.).
23.2* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5.1).
24.(hh) Power of Attorney of the Company and PFC (included as part of the
signature page).
25.(hh) Statement of Eligibility of Trustee.
27.(hh) Financial Data Schedule.
99.1* Letter of Transmittal.
99.2* Notice of Guaranteed Delivery.
- -------------------------
(aa) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(bb) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-76154).
(cc) Incorporated by reference to the Company's Amendment No. 1 to the
Registration Statement on Form S-1 (Registration No. 33-76514).
(dd) Incorporated by reference to the Company's Amendment No. 2 to the
Registration Statement on Form S-1 (Registration No. 33-76154).
(ee) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended March 30, 1994.
(ff) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended March 31, 1995.
(gg) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1995.
(hh) Incorporated by reference to the Company's Registration Statement on Form
S-4 (Registration No. 333-25189) filed with the Commission on
April 15, 1997.
* Filed herewith.
II-6
<PAGE>
(b) Financial Statement Schedules
PETRO STOPPING CENTERS, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at charged to Amount
beginning costs charged Balance at
of period and expenses off end of period
---------- ------------- -------- -------------
(in thousands)
------------
<S> <C> <C> <C> <C>
Year ended December 30, 1994
Allowance for doubtful
accounts $1,020 $(351) $216 $453
====== ===== ==== ====
Year ended December 29, 1995
Allowance for doubtful
accounts $ 453 $ 297 $142 $608
====== ===== ==== ====
Year ended December 31, 1996
Allowance for doubtful
accounts $ 608 $ 215 $502 $321
====== ===== ==== ====
</TABLE>
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the UPL, the DGCL, the Amended and Restated Partnership
Agreement, the Certificate of Incorporation and the Bylaws, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrants
of expenses incurred or paid by a director, officer or controlling person of the
Registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrants will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that are incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such requests, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of El Paso, State of
Texas, on the 30th day of May, 1997.
PETRO STOPPING CENTERS, L.P.
By: /s/ James A. Cardwell, Sr.
--------------------------------------
James A. Cardwell, Sr.
President and Chairman of the
Board of Directors
PETRO FINANCIAL CORPORATION
By: /s/ James A. Cardwell, Sr.
--------------------------------------
James A. Cardwell, Sr.
President and Chairman of the
Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PETRO STOPPING CENTERS L.P.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------------------------------------------------
<S> <C> <C>
/s/ James A. Cardwell, Sr. President (Principal Executive May 30th, 1997
- --------------------------- Officer) and Chairman of the
James A. Cardwell, Sr. Board of Directors
Larry Zine* Chief Financial Officer May 30th, 1997
- --------------------------- (Principal Financial Officer)
Larry Zine
David A. Haug* Chief Accounting Officer May 30th, 1997
- --------------------------- (Principal Accounting Officer)
David A. Haug
Evan Brudahl* Director May 30th, 1997
- ---------------------------
Evan Brudahl
James A. Cardwell, Jr.* Director May 30th, 1997
- ---------------------------
James A. Cardwell, Jr.
Todd R. Berman* Director May 30th, 1997
- ---------------------------
Todd R. Berman
- --------------------------- Director May 30th, 1997
Lynne M. Lachenmyer
Michael S. Shein* Director May 30th, 1997
- ---------------------------
Michael S. Shein
</TABLE>
II-8
<PAGE>
PETRO FINANCIAL CORPORATION
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James A. Cardwell, Sr. President (Principal Executive
- --------------------------- Officer) and Director May 30, 1997
James A. Cardwell, Sr.
Larry Zine* Chief Financial Officer (Principal
- --------------------------- Financial Officer and Principal
Larry Zine Accounting Officer) and Director May 30, 1997
James A. Cardwell, Jr.* Director May 30, 1997
- ---------------------------
James A. Cardwell, Jr.
</TABLE>
*By: /s/ James A. Cardwell, Sr.
---------------------------
James A. Cardwell, Sr.
Attorney-in-Fact
II-9
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page(s)
- ------ ------- ------------
<S> <C> <C>
5.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning the legality of the 10 1/2% Senior Notes.
8.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning certain tax matters.
23.1 Consent of Independent Auditors (Coopers & Lybrand L.L.P.)
23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in Exhibit 5.1).
99.1 Letter of Transmittal.
99.2 Notice of Guaranteed Delivery.
</TABLE>
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.]
May __, 1997
Petro Stopping Centers, L.P.
6080 Surety Drive
El Paso, Texas 79905
Ladies and Gentlemen:
We have acted as counsel to Petro Stopping Centers, L.P., a Delaware
limited partnership ("PSC"), and Petro Financial Corporation, a Delaware
corporation and wholly-owned subsidiary of PSC (together with PSC, the
"Issuers") in connection with the proposed exchange by the Issuers of an
aggregate of $135,000,000 principal amount of the Issuers' 10 1/2% Senior
Notes due February 1, 2007 (the "New Notes") for an aggregate of $135,000,000
principal amount of the Issuer's 10 1/2% Senior Notes due February 1, 2007
(the "Old Notes"). The Old Notes were, and the New Notes will be, issued
pursuant to the Indenture, dated as of January 30, 1997 (the "Indenture"),
between the Issuers, as co-obligor, and State Street Bank and Trust Company,
as trustee (the "Trustee"). In connection with the exchange offer, the
Issuers have filed with the Securities and Exchange Commission a registration
statement on Form S-4, File No. 333-25189 (the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Securities Act"). Unless
otherwise defined herein, capitalized terms used in this opinion shall have
the meanings set forth in the Indenture or the Accord identified in the
following paragraph.
This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this
opinion letter should be read in conjunction therewith. The law covered by
the opinions expressed herein is limited to the Federal laws of the United
States and the laws of the State of New York. This firm is a registered
limited liability partnership organized under the laws of the State of Texas.
In preparing this opinion letter, we have examined the Indenture and
the form of the New Notes, which have been filed as exhibits to the
Registration Statement. In addition, we have examined originals or
photostatic, certified or conformed copies of all such agreements, documents,
instruments, corporate records, certificates of public officials, public
records and certificates of officers of the Issuers as we have deemed
necessary or
<PAGE>
Petro Stopping Centers, L.P.
May 28, 1997
Page 2
appropriate in the circumstances. In addition to the assumptions set forth in
Section 4 of the Accord, we have relied upon factual representations made to
us by the Issuers.
Based upon such examination and review, we are of the opinion that
the New Notes proposed to be exchanged for Old Notes by the Issuers have been
duly authorized for issuance and, subject to the Registration Statement
becoming effective under the Securities Act and to compliance with any
applicable state securities laws, the New Notes, when executed by the Issuers,
authenticated by the Trustee and delivered in exchange for Old Notes in
accordance with the provisions of the Indenture and the Registration
Statement, will be valid and legally binding obligations of the Issuers
enforceable in accordance with their terms.
The foregoing opinion is subject to all of the qualifications,
exceptions, assumptions and limitations set forth herein, including the
following:
The General Qualifications apply to the opinion set forth above. In
addition to the General Qualifications, we express no opinion as to the
enforceability of any provisions contained in the New Notes or the Indenture
purporting to: (i) allow the acceleration of the maturity of any indebtedness
or the exercise of any other rights without notice to the person or entity
signatory thereto or bound thereby; (ii) restrict access to legal or equitable
remedies (including, without limitation, proper jurisdiction and venue); (iii)
establish evidentiary standards; or (iv) waive the benefits of any statute of
limitation or any applicable bankruptcy, insolvency or usury law or stay or
extension law or waive any rights under any applicable statutes or rules
hereafter enacted or promulgated. In addition, the enforceability of the
rights to indemnification contained in the Indenture may be limited by Federal
or New York State laws or the policies underlying such laws. We note that the
Trust Indenture Act provides that certain provisions of the Trust Indenture
Act are automatically included in the Indenture unless expressly excluded. To
the extent that the Indenture does not expressly exclude or waive such
provisions of the Trust Indenture Act, such provisions may supersede or
override similar provisions in the Indenture.
<PAGE>
Petro Stopping Centers, L.P.
May 28, 1997
Page 3
We hereby consent to the filing of this opinion as Exhibit 5.1 to
Amendment No. 1 to the Registration Statement and to the reference to this
firm under the caption "Legal Matters" in the prospectus forming a part of the
Registration Statement.
Very truly yours,
AKIN, GUMP, STRAUSS, HAUER & FELD,
L.L.P.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.]
May 30, 1997
Petro Stopping Centers, L.P.
6080 Surety Drive
El Paso, Texas 79905
Re: Petro Stopping Centers, L.P./Petro Financial Corporation
10 1/2% Senior Notes Due 2007
-----------------------------------------------------------
Dear Sirs:
We have acted as counsel for Petro Stopping Centers, L.P., a Delaware
limited partnership (the "Company") and Petro Financial Corporation, a Delaware
corporation ("PFC"), in connection with the preparation and filing of the
Registration Statement of the Company and PFC on Form S-4, as amended (File No.
333-25189) (the "Registration Statement"), under the Securities Act of 1933, as
amended. All capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Registration Statement.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purpose of rendering
the opinion set forth below. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to authentic originals of all documents
submitted to us as certified or photostatic copies.
Based upon and subject to the foregoing, and subject to the qualifications
and limitations set forth therein, we are of the opinions that: (i) the exchange
of Old Notes for New Notes pursuant to the Exchange Offer will not be treated as
an exchange or other tax event for federal income tax purposes because the New
Notes will not be considered to differ materially in kind or extent from the Old
Notes; and (ii) the discussion in the Registration Statement entitled "Certain
U.S. Tax Considerations" fairly presents the material
<PAGE>
Petro Stopping Centers, L.P.
May __, 1997
Page 2
Federal income tax considerations relevant to the exchange of Old Notes for New
Notes pursuant to the Exchange Offer and to the ownership of the New Notes.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an Exhibit to the Registration Statement on Form S-4, and
to the reference to this opinion under the heading "Certain U.S. Tax
Considerations." In giving such consent, we do not hereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ AKIN, GUMP, STRAUSS, HAUER &
FELD, L.L.P.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. 333-25189) of our reports dated March 28, 1997 and May 15, 1997, on
our audits of the consolidated financial statements and financial statement
schedules and review of the consolidated financial statements, respectively, of
Petro Stopping Centers, L.P. We also consent to the reference to our firm under
the caption "Experts".
COOPERS & LYBRAND L.L.P.
El Paso, Texas
May 28, 1997
<PAGE>
EXHIBIT 99.1
PETRO STOPPING CENTERS, L.P.
PETRO FINANCIAL CORPORATION
LETTER OF TRANSMITTAL
================================================================================
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON ____________, 1997,
UNLESS EXTENDED (THE "EXPIRATION DATE").
================================================================================
To Tender For Exchange In Respect of
10 1/2% Senior Notes due 2007
--------------------------
Pursuant to the Prospectus dated ____________, 1997
To: State Street Bank and Trust Company, The Exchange Agent
By Registered or Certified Mail: By Overnight Courier:
State Street Bank and State Street Bank and
Trust Company Trust Company
Corporate Trust Department Corporate Trust Department
P. O. Box 778 Two International Place
Boston, MA 02102 Boston, MA 02110
Attn: Sandra Szczsponik Attn: Sandra Szczsponik
By Hand Delivery: By Facsimile:
(Eligible Institutions and Withdrawal
Notices Only)
State Street Bank and (617) 664-5371
Trust Company Confirm: (617) 664-5344
Corporate Trust Department For Information Call: (800) 531-0368
Fourth Floor
Two International Place
Boston, MA 02110
Attn: Sandra Szczsponik
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned acknowledges that he or she has received the Prospectus
dated __________, 1997(the "Prospectus") of Petro Stopping Centers, L.P. (the
"Company") and Petro Financial Corporation ("PFC," and together with the
Company, the "Issuers") and this Letter of Transmittal (the "Letter of
Transmittal"), which constitutes the Company's offer (the "Exchange Offer") to
exchange $1,000 principal amount of its 10 1/2% Senior Notes Due 2007 (the "New
Notes") which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which
- 1 -
<PAGE>
the Prospectus is a part, for each $1,000 principal amount of their outstanding
10 1/2% Senior Notes due 2007 (the "Old Notes"). Other capitalized terms used
but not defined herein have the meaning given to them in the Prospectus.
The Letter of Transmittal is to be used by Holders of Old Notes if (i)
certificates representing the Old Notes are to be physically delivered herewith
or if the guaranteed delivery procedures described in the Prospectus are to be
utilized or (ii) delivery of the Old Notes is to be made by book-entry transfer
to the Exchange Agent's account at the Depository Trust Company pursuant to the
procedures set forth in "The Exchange Offer--Procedure for Tendering" in the
Prospectus.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
================================================================================
DESCRIPTION OF 10 1/2% SENIOR NOTES DUE 2007
- --------------------------------------------------------------------------------
Principal
Amount
Tendered (must
be in
Aggregate denominations
Principal of $1,000 and
Name(s) and Address(es) of Amount integral
Registered Holder(s) Certificate Represented by multiples of
(Please fill in, if blank) Number(s) Certificate(s) $1,000*)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Old Notes will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
If less than all Old Notes are tendered, the aggregate principal amount of
Old Notes not tendered must be $1,000 and integral multiples of $1,000 in
excess thereof.
If the space provided above is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
================================================================================
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
---------------------------------------------
Book-Entry Account Number:
-------------------------------------------------
Transaction Code Number:
---------------------------------------------------
- 2 -
<PAGE>
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Securityholder(s):
-----------------------------------
Date of Execution of Notice of Guaranteed Delivery:
------------------------
Name of Institution which Guaranteed Delivery:
-----------------------------
If delivery is by book-entry transfer:
Name of Tendering Institution:
---------------------------------------------
Book-Entry Account Number:
-------------------------------------------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 5 ADDITIONAL
COPIES OF THE PROSPECTUS AND 5 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
- 3 -
<PAGE>
================================================================================
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 4, 5 and 6)
- --------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered, or New Notes issued in exchange for Old Notes accepted for exchange,
are to be issued in the name of someone other than the undersigned.
Issue certificate(s) to:
Name
--------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
Credit untendered Old Notes delivered by book-entry to The Depository Trust
Company account set forth below:
- --------------------------------------------------------------------------------
(Account Number)
================================================================================
================================================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5 and 6)
- --------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered, or New Notes issued in exchange for Old Notes accepted for exchange,
are to be sent to someone other than the undersigned, or to the undersigned at
an address other than that shown above.
Mail to:
Name
--------------------------------------------------------------------------
(Please Print)
Address
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
================================================================================
Under the federal income tax laws, the Exchange Agent may be required to
withhold 31% of the amount of any payments made to certain Holders pursuant to
the Exchange Offer. In order to avoid such backup withholding, each tendering
Holder must provide the Exchange Agent with such Holder's correct taxpayer
identification number by completing the Substitute Form W-9 set forth on the
following page. In general, if a Holder is an individual, the taxpayer
identification number is the Social Security number of such individual. If the
Exchange Agent is not provided with the correct taxpayer identification number,
the Holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. Certain Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such Holder must submit a statement, signed
under penalties of perjury, attesting to that individual's exempt status. A form
for such statements can be obtained from the Exchange Agent. For further
information concerning backup withholding and instructions for completing the
Substitute Form W-9 (including how to obtain a taxpayer identification number if
you do not have one and how to complete the Substitute Form W-9 if Old Notes are
held in more than one name), consult the Guidelines of the Internal Revenue
Service for Certification of Taxpayer Identification Number on Substitute Form
W-9.
- 4 -
<PAGE>
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Exchange Agent to
withhold 31% of the amount of any payments made pursuant to the Exchange Offer.
Backup withholding is not an additional federal income tax. Rather, the federal
income tax liability of a person, subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained.
PAYER'S NAME: STATE STREET BANK AND TRUST COMPANY
================================================================================
SUBSTITUTE
Form W-9 Part 1 -- Please -----------------------
Department of the Treasury provide your TIN in Social Security Number
Internal Revenue Service the box at the right OR
and certify by Employer Identification
signing and dating number
below.
-------------------------------------------------------------------------------
Payer's Request for Part 2 -- Please check the box at the right if you
Taxpayer have applied for, and are awaiting receipt of,
Identification No. your TIN. -- [_]
-------------------------------------------------------------------------------
Certification -- under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
Certification instructions. -- You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding
you receive another notification from IRS that you are no longer subject to
backup withholding you receive another notification from IRS that you are no
longer subject to backup withholding, do not cross out item (2). (Also see
Certification under Specific Instructions in the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.)
SIGNATURE DATE
------------------------------- -------------
================================================================================
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN AND
DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
================================================================================
I certify, under penalties of perjury, that a Taxpayer Identification Number
has not been issued to me, and that I mailed or delivered an application to
receive a Taxpayer Identification Number to the appropriate IRS Center or
Social Security Administration Office (or I intend to mail or deliver an
application in the near future). I understand that if I do not provide a
Taxpayer Identification Number within sixty (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
SIGNATURE DATE
------------------------------- -------------
================================================================================
- 5 -
<PAGE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO THE HOLDER OF NEW NOTES. PLEASE REVIEW THE
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
- 6 -
<PAGE>
Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Issuers the principal amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Issuers
all right, title and interest in and to the Old Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuers and Trustee under the Indenture for the Old
Notes and the New Notes) with respect to the tendered Old Notes with full power
of substitution to (i) deliver certificates for such Old Notes to the Issuers,
or transfer ownership of such Old Notes on the account books maintained by the
Book-Entry Transfer Facilities, together in either such case, with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Issuers and (ii) present such Old Notes for transfer on the books of the
Issuers and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Issuers will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Issuers. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the Holder receiving such New Notes, whether or not the undersigned,
that such Holder is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes, that such Holder is not an "affiliate" (as defined under Rule
405 of the Securities Act) of either of the Issuers, and that such Holder is not
a broker-dealer who purchased the Old Notes directly from the Issuers to resell
pursuant to Rule 144A or any other available exemption under the Securities Act.
If the undersigned is a broker-dealer holding Old Notes acquired for its own
account as a result of market-making activities or other trading activities, the
undersigned acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the New
Notes; provided, however, 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. The undersigned will
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Issuers to be necessary or desirable to complete the
assignment and transfer of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Issuers shall be deemed to have
accepted validly tendered Old Notes when, as and if the Issuers has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned (except as noted below with respect to tenders through the
Book-Entry Transfer Facility), without expense, to the undersigned at the
address shown below or at a different address as may be indicated herein under
"Special Issuance Instructions" as promptly as practicable after the Expiration
Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedure for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Issuers upon the terms and
subject to the conditions of the Exchange Offer.
- 7 -
<PAGE>
Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by Book-Entry Transfer Facility designated above, by
credit to the account at the Book Entry Transfer Facility). Similarly, unless
otherwise indicated under "Special Delivery Instructions," please send the
certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and any certificates for Old Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned's signatures, unless, in either event,
tender is being made through the Book-Entry Transfer Facility. In the event that
both "Special Issuance Instructions" and "Special Delivery Instructions" are
completed, please issue the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange and return any Old Notes not
tendered or not exchanged in the name(s) of, and send said certificates to, the
person(s) so indicated. The undersigned recognizes that the Issuers have no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
holder(s) thereof if the Issuers do not accept for exchange any of the Old Notes
so tendered.
- 8 -
<PAGE>
Holders of Old Notes who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available, or (ii) who cannot deliver their Old Notes,
this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date, may tender their Old Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction l regarding the completion of this Letter of Transmittal printed
below.
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X
- ------------------------------------------- ---------------
Date
X
- ------------------------------------------- ---------------
Signature(s) of Registered Holder(s) Date
or Authorized Signatory
Area Code and Telephone Number
---------------------
The above lines must be signed by the registered Holder(s) of Old Notes as
their name(s) appear(s) on the Old Notes or by person(s) authorized to become
registered Holder(s). If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below. See Instruction 3 regarding the completion of this Letter of
Transmittal printed below.
Name(s):
---------------------------------------------
---------------------------------------------
(Please Print)
Capacity:
---------------------------------------------
Address:
---------------------------------------------
---------------------------------------------
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 3)
---------------------------------------------------
(Authorized Signature)
---------------------------------------------------
(Title)
---------------------------------------------------
(Name of Firm)
Date: _______________________, 1997
- 9 -
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes. The certificates for
the tendered Old Notes (or a confirmation of a book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility of all Old Notes
delivered electronically), as well as a properly completed and duly executed
copy of this Letter of Transmittal or facsimile hereof and any other documents
required by this Letter of Transmittal must be received by the Exchange Agent at
its address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date. The exchange of New Notes for Old Notes will be made (i) with
respect to all Old Notes properly tendered and not withdrawn on or prior to 5:00
p.m., New York City time, on __________, 1997 (the "Early Exchange Date"),
within two business days following the Early Exchange Date, and (ii) with
respect to all Old Notes properly tendered and not withdrawn after the Early
Exchange Date but on or prior to the Expiration Date, within two business days
following the Expiration Date. The method of delivery of the tendered Old Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent is at the election and risk of the Holder and, except as otherwise
provided below, the delivery will be deemed made only when actually received by
the Exchange Agent. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Old
Notes should be sent to the Issuers.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date must tender their Old Notes and follow the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent must have received from
the Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the Holder of the Old Notes, the certificate
number or numbers of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within three business days after the date of execution of the Notice of
Guaranteed Delivery, this Letter of Transmittal (or facsimile hereof) together
with the certificate(s) representing the Old Notes (or a confirmation of
electronic delivery of book-entry delivery into the Exchange Agent's account at
the Book-Entry Transfer Facility) and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed Letter of Transmittal (or facsimile hereof), as
well as all other documents required by this Letter of Transmittal and the
certificate(s) representing all tendered Old Notes in proper form for transfer
(or a confirmation of electronic delivery of book-entry delivery into the
Exchange Agent's account at the Book-Entry Transfer Facility), must be received
by the Exchange Agent within three business days after the date of execution of
the Notice of Guaranteed Delivery, all as provided in the Prospectus under the
caption "The Exchange Offer --Guaranteed Delivery Procedures." Any Holder of Old
Notes who wishes to tender his Old Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery prior to 5:00 P.M., New York City time, on the
Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination will be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not validly tendered or any Old Notes the Issuers acceptance of which would, in
the opinion of counsel for the Issuers, be unlawful. The Issuers' also reserve
the right to waive any irregularities or conditions of tender as to particular
Old Notes. The Issuers' interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
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 defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without
- 10 -
<PAGE>
cost by the Exchange Agent to the tendering Holders of Old Notes, unless
otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
2. Partial Tenders. Tenders of Old Notes will be accepted in denominations
of $1,000 and integral multiples of $1,000 in excess thereof. If less than the
entire principal amount of any Old Notes is tendered, the tendering Holder
should fill in the principal amount tendered in the fourth column of the chart
entitled "Description of 10 1/2% Senior Notes due 2007" on page 2 hereof. If
less than all Old Notes are tendered, the aggregate principal amount of Old
Notes not tendered must be $ l ,000 or integral multiples of $1,000 in excess
thereof. The entire principal amount of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount of all Old Notes is not tendered, Old Notes for the
principal amount of Old Notes not tendered and a certificate or certificates
representing New Notes issued in exchange of any Old Notes accepted will be sent
to the Holder at his or her registered address, unless a different address is
provided in the appropriate box on this Letter of Transmittal or unless tender
is made through the Book-Entry Transfer Facility, promptly after the Old Notes
are accepted for exchange.
3. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Old Notes tendered and the certificate(s) for New Notes
issued in exchange therefor is to be issued (or any untendered principal amount
of Old Notes is to be reissued) to the registered Holder, such Holder need not
and should not endorse any tendered Old Notes, nor provide a separate bond
power. In any other case, such holder must either properly endorse the Old
Notes tendered or transmit a properly completed separate bond power with this
Letter of Transmittal, with the signatures on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder(s) of any Old Notes listed, such Old Notes must
be endorsed or accompanied by appropriate bond powers signed as the name of the
registered Holder(s) appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians, attorneys-
in-fact, or 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, evidence satisfactory to the Issuers of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered Holder (including any participant in
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes) who has not completed the box set forth
herein entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" or (ii) for the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the Old
Notes through the Book-Entry Transfer Facility, if different from such
facility). In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
5. Transfer Taxes. The Issuers will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal
- 11 -
<PAGE>
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
Holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
6. Waiver of Conditions. The Issuers reserve the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
7. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering Holder whose
Old Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instruction.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
================================================================================
Certificate Surrendered Old Notes Tendered Old Notes Accepted
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Delivery Prepared by __________ Checked by ___________ Date _______________
================================================================================
- 12 -
<PAGE>
EXHIBIT 99.2
PETRO STOPPING CENTERS, L.P.
PETRO FINANCIAL CORPORATION
NOTICE OF GUARANTEED DELIVERY
This form or one substantially equivalent hereto must be used to
accept the Exchange Offer (as defined below) if Notes are not lost but are not
immediately available or time will not permit all required documents to reach
the Exchange Agent by, as the case may be, the Early Exchange Date or the
Expiration Date (as such terms are defined in the Prospectus). Such form may be
delivered by hand or sent by facsimile transmission or mail to the Exchange
Agent. See "The Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus.
To: State Street Bank and Trust Company, Exchange Agent
<TABLE>
<S> <C>
By Hand Delivery: By Facsimile:
(Eligible Institutions and Withdrawal Notices Only)
State Street Bank and (617) 664-5371
Trust Company Confirm: (617) 664-5344
Corporate Trust Department For Information Call: (800) 531-0368
Fourth Floor
Two International Place
Boston, MA 02102
Attn: Sandra Szczsponik
By Registered or Certified Mail: By: Overnight Courier:
State Street Bank and State Street Bank and
Trust Company Trust Company
Corporate Trust Department Corporate Trust Department
P. O. Box 778 Two International Place
Boston, MA 02102 Boston, MA 02102
Attn: Sandra Szczsponik Attn: Sandra Szczsponik
</TABLE>
Delivery of this instrument to an address or transmission of instructions
to a facsimile number other than as set forth above does not constitute a valid
delivery.
Gentlemen:
The undersigned hereby represents that it "owns" the Notes tendered hereby
within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as
amended, and hereby tenders to Petro Stopping Centers, L.P., a Delaware Limited
Partnership and Petro Financial Corporation, a Delaware corporation, upon the
terms and subject to the conditions set forth in the Prospectus dated
__________, 1997 and the Letter of Transmittal (which together constitute the
Exchange Offer), receipt of which is hereby acknowledged, the principal amount
of the Notes specified below, pursuant to the guaranteed delivery procedure set
forth in "The Exchange Offer --- Guaranteed Delivery Procedures" in the
Prospectus.
<TABLE>
Securities Tendered Security Numbers Principal Amount
(if available) Tendered
<S> <C> <C>
10 1/2% Senior
Notes due 2007
--------------
---------------- ----------------
</TABLE>
If Securities will be tendered by book-entry transfer at
The Depository Trust Company:
Account No.___________________
SIGN HERE
<PAGE>
--------------------------------------------------
Signature(s) of registered holder(s)
--------------------------------------------------
Name(s) (Please Print)
--------------------------------------------------
Address
--------------------------------------------------
Zip Code
--------------------------------------------------
Area Code and Telephone Number
Dated:
--------------------------------------------
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc., or
a commercial bank or trust company having an office in the United States,
guarantees (a) that the above named person(s) "own(s)" the Notes tendered hereby
within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as
amended, (b) that such tender of Notes complies with Rule 14e-4 (or any
successor rule thereto) and (c) to deliver to the Exchange Agent the Notes
tendered hereby in proper form for transfer, together with a properly completed
and duly executed Letter of Transmittal (or facsimile thereof) and any other
required documents, all by 5:00 P.M., New York City time, on the third business
day following the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Notes tendered hereby to the Exchange Agent within the time period set forth
above and that failure to do so could result in a financial loss to the
undersigned.
SIGN HERE
--------------------------------------------------
Name of Firm
--------------------------------------------------
Authorized Signature
--------------------------------------------------
Name (Please Print)
--------------------------------------------------
Address
--------------------------------------------------
Area Code and Telephone Number
Dated:
--------------------------------------------
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, THE LETTER OF TRANSMITTAL.
- 2 -
