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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___ to ___
Commission file number 0-23808
METROTRANS CORPORATION
(Exact name of Registrant as specified in its charter)
Georgia 58-1393777
(State of incorporation) (I.R.S. Employer Identification Number)
777 Greenbelt Parkway, Griffin, Georgia 30223
(Address of principal executive offices, including zip code)
(770) 229-5995
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant on March 24, 1997 was $41,793,176. There were
4,077,383 shares of Common Stock outstanding as of March 24, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference in Parts I and III hereof.
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METROTRANS CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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ITEM PAGE
NUMBER NUMBER
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PART I
1. Business........................................... 3
2. Properties......................................... 10
3. Legal Proceedings.................................. 11
4. Submission of Matters to a Vote of Security Holders 11
4A. Executive Officers of the Company.................. 12
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................. 13
6. Selected Financial Data............................. 14
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 15
8. Financial Statements and Supplementary Data......... 21
9. Changes in and Disagreements with Accountants
on Accounting and Financial
Disclosure.......................................... 21
PART III
10. Directors and Executive Officers of the Registrant.. 21
11. Executive Compensation.............................. 21
12. Security Ownership of Certain Beneficial Owners
and Management ..................................... 22
13. Certain Relationships and Related Transactions...... 22
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ................................ 23
SIGNATURES................................................. 27
INDEX OF FINANCIAL STATEMENTS.............................. F-1
INDEX OF EXHIBITS..........................................
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PART I
ITEM 1. BUSINESS
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OVERVIEW
Metrotrans Corporation (the "Company") is a manufacturer of shuttle and
mid-size touring buses designed for use primarily by image conscious commercial
enterprises. The Company's principal products are its Classic(R) line of shuttle
and mid-size touring buses, its Eurotrans(R) line of mid-size coaches that are
moderately priced in comparison to full-size motorcoaches, and its Legacy(R)
line of mid-size coaches which bridges between the Company's other two lines.
See "Products" below. The Company's products are targeted at distinct markets,
including hotels, automobile rental companies, airport ground transportation
companies, parking lot operators, medical and retirement facilities, tour and
charter companies, intracity and rural transit operators, colleges and
universities, and churches. The Company's customers include ATE Management and
Service Company, Inc. (a wholly-owned subsidiary of Ryder Systems, Inc.), Budget
Rent-A-Car Corp., Alamo Rent-A-Car, Inc., Hyatt Hotels Corp., Life Care Centers
of America, Marriott Hotels Inc., and Dollar Rent-A-Car.
The Company markets its products in the United States primarily through 13
Company operated sales centers located in 11 states and, to a lesser extent,
through seven independent dealers located in three states, Canada, Switzerland
and Puerto Rico. The Company also markets its products internationally primarily
from its headquarters in Griffin, Georgia. See "Sales and Marketing" below.
Since the introduction of the Classic in 1986, the Company has experienced
continuous growth in its unit sales, revenues and earnings. The Company's growth
has been enhanced by the introduction of the Eurotrans line in 1990, the
Eurotrans XLT(tm) and the Classic II(tm) in late 1992, the Classic Commuter(tm)
in late 1993 and the Legacy LJ in 1996. See "Products" Below.
In order to sustain its growth and increase its manufacturing capacity, the
Company moved its manufacturing and administrative offices to the current
location in Griffin, Georgia during 1992. During 1996, the Company manufactured
an average of approximately 23 Classics and Classic IIs, one to two Eurotrans
and Eurotrans XLTs per week, and less than one Legacy per week since its
production began at mid-year. The Company estimates existing capacity in its
present facilities to manufacture up to 35 Classic and Classic IIs, 10 Eurotrans
and Eurotrans XLTs per week, and 5 Legacys per week while maintaining its
current one shift operation. Substantially all of the buses and coaches
manufactured by the Company are based on firm customer orders received in
advance of production.
The Company was incorporated in 1982. During the period from 1982 until the
introduction of the Classic in 1986, the Company marketed the Metrotrans, a mid-
size bus designed by the Company but manufactured on a private label basis by a
third party manufacturer, as well as another mid-size bus product manufactured
by a large manufacturer of recreational vehicles.
The Company incorporated a wholly-owned subsidiary, BUS PRO, INC. ("BUS
PRO"), in February 1997 for the purpose of operating its used coach division.
BUS PRO refurbishes and remarkets to various secondary markets used buses
received by the Company through trade-ins related to new bus sales and purchased
under terminating lease agreements. In March 1996, the Company liquidated three
wholly-owned subsidiaries - Spalding Molded Products, Inc., Eurotrans Corp., and
Metrotrans Overseas, Inc. and consolidated the operations of those entities with
the operations of the Company.
PRODUCTS
HISTORY. The Company originally marketed buses manufactured by third
parties. These buses were designed and built based on recreational vehicle
principles and standards using electrical and mechanical systems that overlapped
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and were dependent upon the chassis manufacturer's system. Additionally, the
buses were equipped with light duty components designed for occasional
recreational use. In 1984 and 1985, the Company designed a mid-size bus
utilizing a "cutaway" cab chassis as well as electrical and mechanical
engineering techniques that the Company believes had not been used in small and
mid-size bus manufacturing. The Company began manufacturing its Classic line in
1986 based on its new designs.
DESIGN. During the Company's design process, the Company's design team
emphasizes safety and quality over all other features. The Company's Classic
and Legacy LJ designs include 16-gauge steel tubing welded into a roll cage
completely surrounding the passenger seating area. In addition there is a roll
cage constructed in the cab of the Classic over the driver's head. The floor of
the Classic and Legacy LJ is constructed of 11 and 14-gauge steel cross-members
and is gusseted full length on each side by 11-gauge steel tubing. The Company's
Eurotrans product is built using similar engineering standards, including a 14-
gauge steel roll cage surrounding the sides and top of the entire bus, modified
to accommodate the larger size of the Eurotrans.
Despite the fact that there are few safety standards specific to the mid-
size bus industry, the Company's Classic line is designed and has been tested to
exceed the strict safety standards established for school buses. The Company has
certified the crash-worthiness of its vehicles and components with Atlanta
Testing & Engineering Inc., an independent testing laboratory. The Classic line
has been certified to withstand 200% of the vehicle's weight on the roof and
sides without catastrophic failure in a roll-over. Federal standards require
that a school bus withstand 150% of the vehicle's weight in a roll-over test.
The Company has met the requirements of the Ford Motor Home and Transit Bus
Qualified Vehicle Modifier Program to attain "FM-Fully Meets" status. In
addition, certain of the Company's products have been tested at the Alatoona Bus
Testing Center in order to qualify the vehicles for government funded
purchasing.
DESCRIPTION The Company manufactures and markets shuttle and mid-size
touring buses and mid-size coaches that can accommodate varying numbers of
passengers at prices ranging from $30,000 to $200,000. The Company currently
manufactures the basic models set forth below, each of which has distinct
features and attributes designed to meet the variety of needs of the Company's
customers.
BUS MAXIMUM
CURRENT SUGGESTED LENGTH PASSENGER ENGINE
MODEL RETAIL PRICE RANGE (FT.) SEATING SIZES
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Classic........... $45,000 to $75,000 20,22 31 6.8L Gas
24,28 6.5-7.3L Diesel
Classic II........ $36,000 to $50,000 20 17 5.4L Gas
7.3L Diesel
Classic Commuter.. $30,000 to $40,000 20 17 5.4L Gas
7.3L Diesel
Eurotrans......... $120,000 to $165,000 29,35 41 160/275 hp
Eurotrans XLT..... $140,000 to $200,000 35 41 230/275 hp
Legacy LJ......... $75,000 to $85,000 26,30 33 175/210 hp
The interior configuration of the Company's buses may be custom designed to
accommodate the needs of the specific customer. For example, car rental agencies
typically require that the bus or coach contain large, open racks for luggage
storage while medical and retirement facilities often require a configuration
that will accommodate one or more wheelchairs and a paratransit lift and door.
Set forth below is information regarding each of the Company's current
models.
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THE CLASSIC LINE
THE CLASSIC. The Company introduced the Classic bus in 1986. The Classic
was the Company's initial entry into mid-size bus manufacturing and continues to
be the Company's leading seller. The Classic utilizes a dual rear wheel cutaway
cab, engine, chassis and transmission manufactured by Ford or General Motors.
During the period from the introduction of the Classic in 1986 to date, the
Company made and continues to make modifications to the Classic in response to
customer suggestions. For example, the Classic has been modified to include
optional aircraft style positive closing interior overhead luggage compartments
and a gull-wing type rear luggage and paratransit lift door which provides
weather protection while open.
THE CLASSIC II. The Company introduced the Classic II in 1992. The Classic
II utilizes a single rear wheel cutaway chassis manufactured by Ford or General
Motors and is a smaller and less expensive alternative to the Classic seating up
to 17 passengers. The Classic II is marketed primarily to parking lot operators,
rental car agencies, churches and schools. The Classic II has virtually all of
the standard features incorporated in the Classic and is available with similar
options. The Classic II may be operated without a commercial operator's
license.
THE CLASSIC COMMUTER. The Company introduced the Classic Commuter in late
1993. The Classic Commuter, like the Classic II, utilizes a single rear wheel
Ford or General Motors cutaway chassis and can accommodate up to 17 passengers.
The Classic Commuter is not as tall as the Classic II and is intended to provide
an alternative to passenger vans by offering the interior comfort, styling and
safety features of a mid-size bus, including a welded steel roll cage not
available in passenger vans, at a price that is generally $5,000 to $8,000
higher than an average passenger van.
THE EUROTRANS LINE
THE EUROTRANS. The Company first introduced the Eurotrans in 1990. The
Eurotrans seats up to 41 passengers and utilizes a rear mount turbo diesel
engine manufactured by Cummins Engine Company, a four-speed automatic
transmission manufactured by Allison Transmission Company and a chassis
manufactured by Spartan. The Eurotrans superstructure is supported by a 14-gauge
welded steel roll cage manufactured by the Company. The Eurotrans also utilizes
a one-piece windshield which offers the driver and passengers the safety and
convenience of unobstructed visibility.
THE EUROTRANS XLT. In late 1992, the Company introduced the Eurotrans XLT.
The Eurotrans XLT features a raised platform chassis manufactured exclusively
for the Company by Spartan allowing for full undercarriage luggage storage
similar to that found in full-size motorcoaches. The Eurotrans XLT seats up to
41 passengers and utilizes a more powerful Cummins turbo diesel engine than that
used in the standard Eurotrans and a six-speed electronic transmission
manufactured by Allison Transmission Company.
THE LEGACY LINE
THE LEGACY LJ. In 1995, the Company introduced the Legacy LJ, a down-sized
rear engine coach accommodating up to 33 passiengers and built on a Spartan
chassis designed exclusively for the Company. A product that fills a gap
between a cutaway chassis shuttle bus and a full-size motor coach, the Legacy LJ
offers the image and reliability of a coach with the maneuverability of a
shuttle bus featuring a 16 foot, 4 inch turning radius which allows operation in
narrow streets or compact parking lots.
SALES AND MARKETING
The Company markets its buses and coaches primarily through 13 Company
operated sales centers in the United States. The Company's direct sales force
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only markets the Company's product. The Company advertises in industry trade
journals and showcases vehicles in industry trade shows. The Company also has
implemented a direct mail program targeted at specific markets identified by the
Company. The Company markets its products domestically through sales centers in
the following cities:
Boston, Massachusetts
Collingswood, New Jersey (Philadelphia)
Columbia, Maryland (Washington, D.C.)
Lakewood, Colorado (Denver)
Lewisville, Texas
Fort Lauderdale, Florida
Inglewood, California (Los Angeles)
Monee, Illinois (Chicago)
Nashville, Tennessee
Norwich, New York (Syracuse)
Orlando, Florida
San Mateo, California (San Francisco)
Spartanburg, South Carolina
The Company currently utilizes 28 full time sales personnel operating out
of the Company's sales and service centers. The Company's direct sales personnel
are responsible for the performance of their respective sales centers and
receive all of their compensation on a commission basis. The commission earned
on each sale is based on a percentage of the amount by which the actual sales
price exceeds the "dealer" invoice price established by the Company. The Company
also markets its products through six independent distributors located in the
following cities: Batavia, Ohio (Cincinnati); Honolulu, Hawaii; Dallas, Oregon
(Salem); San Juan, Puerto Rico; Vancouver, British Columbia and Zurich,
Switzerland.
CUSTOMERS
The Company has a customer base comprised of companies in a number of
different industries, including hotels, automobile rental companies, airport
parking companies, medical and retirement facilities, tour companies, limousine
companies, intracity and rural transit companies, colleges and universities, and
churches. During 1996, the Company's customers included ATE Management and
Service Company, Inc. (a wholly owned subsidiary of Ryder Systems, Inc.) which
operates public transportation systems in a number of areas in the United
States, Budget Rent-A-Car Corp., Alamo Rent-A-Car, Inc., Hyatt Hotels Corp.,
Life Care Centers of America, Marriott Hotels Inc., and Dollar Rent-A-Car.
PRODUCT SUPPORT AND CUSTOMER SERVICE
The Company offers a free two-day service education program designed to
teach the customer's mechanics and other service personnel about the mechanical
and electrical systems used in the Company's buses and coaches. The Company also
provides technical assistance on an as needed basis. The Company's buses and
coaches are covered by a 13-month unlimited mileage warranty (excluding the
chassis, engine, drivetrain, tires and certain other items that are covered by
the manufacturer's standard warranty). The Company currently provides
maintenance and service facilities at six of its sales centers and has 39
authorized independent full-service centers. Additionally, the manufacturers of
certain components of the Company's buses and coaches, including the chassis,
engine and drivetrain, have service centers authorized to service their specific
components in large population centers throughout the United States. Customers
may choose to operate as an authorized service center (many fleet customers have
these capabilities) and may recommend local facilities to become authorized
service centers. In either case, the centers must be qualified and approved by
the Company. All warranty repairs must be made at an authorized service center.
The Company's customers may call the METROCARE toll free number to receive
repair authorization and/or guidance on service and maintenance.
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During 1995, the Company entered into a three year administration agreement
with Automobile Protection Corporation ("APCO") whereby the Company offers
extended service contracts to its bus customers. APCO administers and adjusts
claims by working directly with the customer and the repair facility chosen by
the customer once the initial Company or chassis manufacturer warranty has
expired.
MANUFACTURING AND PURCHASING
The Company is a vertically integrated manufacturer that constructs the
body framing and coach work, molds its own plastic and fiberglass, constructs
the cabinets and assembles the electrical circuitry for each of its buses and
coaches. By manufacturing these items, the Company is able to maintain
substantial control over product safety and quality, supply and scheduling. The
vertical integration also allows the Company greater flexibility in its design
and allows the customer to choose the design features and options that best meet
the customer's needs. The Company also controls costs by purchasing most of its
parts and supplies on an as needed basis and manufacturing substantially all of
its buses based on firm customer orders. The Company purchases pre-assembled
chassis, including engines, transmission drivetrain and axle assemblies, for use
in its buses and coaches. By purchasing the chassis from third party suppliers,
the Company is able to offer to its customers the warranty programs of the
suppliers. The Company is a participant in the Ford Motor Home and Transit Bus
Qualified Vehicle Modifier Program and has attained "FM-Fully Meets" status.
Ford established this program to assist manufacturers, such as the Company, in
complying with Ford's strict engineering guidelines. As a participant in the
program, the Company is able to make certain modifications to the Ford chassis
used in most of its Classic line of buses, including lengthening the chassis
without affecting the standard warranty covering the chassis.
During 1996, substantially all of the Company's manufacturing of its buses
and coaches was conducted in a 100,000 square foot manufacturing facility in
Griffin, Georgia, using two production lines. Subsequent to December 31, 1996,
the Company began producing the Legacy LJ on a third production line located in
an area of the Griffin facility vacated by the used coach division. The
production capacity for each of the lines could increase further with the
addition of more work shifts. The Company's manufacturing facility has primary
assembly lines with designated areas for body manufacturing, electrical harness
installation, interior installation and finishing. Sub-assemblies (electrical
harness, cabinet making, seating, upholstery and coachwork) occur adjacent to
the assembly lines allowing for sub-assembled components to feed the lines at an
optimum location minimizing line time on each unit. The Company contracts with a
third party for the exterior painting of its vehicles. Currently, it takes
approximately eight days to build a Classic, Classic II or Classic Commuter and
approximately 25 days to build a Eurotrans or Eurotrans XLT coach or a Legacy LJ
bus..
The Company maintains a strict quality control program providing for a
quality control inspection at each stage of the manufacturing process for each
vehicle manufactured. Additionally, each vehicle undergoes a leak test,
electrical testing, a complete systems test and two heating and cooling tests.
Each vehicle also undergoes a complete road test by at least two inspectors so
that problems can be identified and corrected prior to delivery of the vehicle
to the customer.
The Company purchases raw materials, supplies, parts and subcomponents from
approximately 500 vendors. The Company attempts to minimize its level of
inventory by ordering most parts on an as needed basis with "just in time"
delivery. As a result, the Company does not maintain substantial inventories of
any of its parts and supplies. All of the chassis utilized in the Classic,
Classic II and Classic Commuter buses are purchased fully assembled from Ford or
General Motors Corporation. All of the chassis utilized in the Eurotran,
Eurotrans XLT, and Legacy LJ coaches are manufactured for the Company by Spartan
and are shipped to the Company with the engine and drivetrain in place. The
Eurotrans and Eurotrans XLT chassis were designed in cooperation with the
Company, and are manufactured for the Company, by Spartan. The Company believes
that it has excellent relationships with these suppliers.
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COMPANY WARRANTY
The Company provides a 13-month, unlimited mileage, limited warranty on all
of its buses and coaches that covers all parts of the vehicle except the
chassis, engine, drivetrain, tires and certain other items that are covered
under separate warranties by their manufacturers. The Company also provides an
extended service agreement for an additional price. The service agreement is
administered by APCO. See "Product Support and Customer Service"for additional
information.
RESEARCH AND DEVELOPMENT
The Company is engaged in ongoing research and development devoted to
enhancing its current product line as well as to the development of new
products. The Company currently employs five engineers who continuously seek to
improve upon the Company's products and to quickly respond to customer needs and
comments. The Company also works closely with its strategic suppliers in the
development process to maximize the economy and effectiveness of new products.
The chassis for the Legacy LJ was developed jointly between the Company and
Spartan Motors, Inc.
The Company's research and development has been driven by pro-active
relationships with its customers as well as suppliers. The direct sales method
of distribution provided by the Company's sales force gives management and
engineering immediate feedback on product areas that need improvement and on
opportunities for new products. The Company's contact with its customers
resulted in the development of the original Classic in 1986, the Eurotrans in
1990, the Eurotrans XLT and the Classic II in late 1992, the Classic Commuter in
late 1993, and the Legacy LJ in 1996.
USED VEHICLE SALES
Many of the Company's fleet customers and potential customers rotate their
fleet every two to four years. These fleet rotations, as well as lease
maturities, have resulted in the development of an active market for previously-
owned buses and coaches. The Company constructed a new 24,000 square foot
facility during 1996 situated along Interstate 75 in McDonough, Georgia for the
purpose of expanding its capabilities in the used coach refurbishing and resale
markets. In connection with fleet sales in its direct distribution territories,
the Company accepts "trade-in" vehicles of its own and other brands. The "trade-
in" vehicles may be sold by the Company "as is", typically at approximately 15%
to 35% of original value after four years use with average maintenance, or
refurbished at the Company's manufacturing facility and sold for a greater
percentage of their original value. Based on its marketing experience, the
Company believes its "trade-in" policy increases new bus and coach purchases by
fleet customers. The Company's sales personnel sell the used buses and coaches
primarily to churches, start-up tour and charter operators and wholesalers who
resell the buses and coaches to a variety of end-users.
BACKLOG
The Company's customers typically place orders for the Classic line for
delivery within six to twelve weeks after the order and orders for the
Eurotrans line for delivery within two to six months after the order. Orders
for the Legacy LJ have experienced longer lead times as the Company has been
working to establish a smooth production flow for the new product. As of
December 31, 1996 and 1995, the Company's backlog of orders was approximately
$22,000,000 and $24,000,000, respectively. At March 15, 1997, the Company's
backlog of orders was approximately $26,000,000.
COMPETITION
The market for each of the Company's products is highly competitive.
Competition in the markets for the Company's products is based on a number of
factors, including product quality and reliability, safety, product features,
driving performance, quality of product support and customer service, loyalty of
customers and price.
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The Company primarily competes with eight competitors for the Classic line
and several competitors for its Eurotrans and Legacy LJ lines. Some of the
Company's competitors have greater financial resources than the Company. The
Company believes that it must continue its research and development efforts to
further enhance its products and to lower the cost of its products through
manufacturing efficiencies and other cost saving measures in order to remain
competitive. These efforts, together with the Company's continuing sales and
marketing efforts, will be critical to the Company's future success. There can
be no assurance that the Company will be able to maintain or improve its
competitive position in the mid-size bus and coach market. The Company
currently competes in the market for its shuttle and mid-size buses primarily
with Champion Motorcoach Incorporated and Eldorado National (a division of Thor
Industries, Inc.). These competitors and some other existing and potential
competitors are owned by substantially larger entities than the Company.
GOVERNMENT REGULATIONS
The manufacture and operation of passenger buses are subject to a variety
of federal, state and local regulations, including the National Traffic and
Motor Vehicle Safety Act, administered by the National Highway Traffic Safety
Administration ("NHTSA"), and safety standards for passenger vehicles and their
components that have been promulgated by the Department of Transportation. These
standards permit NHTSA to require a manufacturer to repair or recall vehicles
with safety defects or vehicles that fail to conform to applicable safety
standards. The Company's products meet or exceed all applicable vehicle safety
regulations and standards imposed by NHTSA. Many states regulate the sale,
transportation and marketing of passenger buses. Some states also legislate
additional safety and construction standard for passenger buses.
In the future, governmental laws and regulations may be adopted that impose
stricter safety, environmental or operational standards on the Company's
products. The Company is committed to meet or exceed all current and future
applicable regulatory requirements.
PROPRIETARY RIGHTS
The names "Classic", "Eurotrans" and "Legacy LJ" are registered trademarks
of the Company. The Company also claims rights to a number of unregistered
trademarks. Management believes, however, that the Company's competitive
success will not depend on the ownership of intellectual property rights.
EMPLOYEES
As of December 31, 1996, the Company had 310 full-time employees. Of the
Company's total employees, 29 were in sales and marketing, 10 were in research
and development, 252 were in manufacturing, and 19 were in administration. The
Company's employees are not represented by a collective bargaining agreement and
the Company has never experienced a work stoppage. Management believes the
Company's relationship with its employees is good.
ITEM 2. PROPERTIES
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The Company's corporate headquarters and primary manufacturing,
distribution and research and development facilities are located in
approximately 113,000 square feet of leased space in Griffin, Georgia. The
Company leases the facility from the Griffin-Spalding County Development
Authority which financed the purchase of the land and construction of the
facility through the sale of tax exempt Industrial Revenue Bonds. The Company is
obligated to purchase the land and facility from the Authority upon payment of
nominal additional consideration upon the maturity of the Bonds in 2011. See
"Item 13. Certain Relationships and Related Transactions." The Griffin
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facility is comprised of approximately 13,000 square feet of office space and
approximately 100,000 square feet of manufacturing space. The Company's current
manufacturing facility has the capacity to produce and provide inventory for
approximately 50 buses and coaches per week.
The Company owns a 22,000 square foot facility located in Ellenwood,
Georgia, in which the Company manufactures the fiberglass and plastic molded
products used by the Company in its buses and coaches.
The Company constructed a 24,000 square foot facility during 1996 for its
used coach subsidiary, BUS PRO, INC., in McDonough, Georgia which is used for
refurbishment and sale of used buses and coaches. The facility is comprised of
approximately 21,000 square feet of shop area and 3,000 square feet of office
space. The facility is bordered by a parking area capable of accommodating over
230 buses.
The Company's sales centers are located in leased facilities ranging in
size from 300 to 3,600 square feet. The Company primarily leases these
facilities under short-term leases. See "Item 1. Business - Sales and
Marketing."
The Company believes that its current facilities are suitable for and
adequate to support its present level of operations.
ITEM 3. LEGAL PROCEEDINGS.
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The Company, from time to time is a party to legal proceedings arising out
of and incidental to the operations of the Company. On November 22, 1995,
Triangle Transit Authority ("Triangle") filed a Complaint against the Company in
the United States District Court for the Middle District of North Carolina,
Greensboro Division. Research Triangle Regional Public Transportation Authority
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(dba Triangle Transit Authority) v. Metrotrans Corporation, Civil Action No.
- ----------------------------------------------------------
1:95CV00903 alleges that Triangle purchased twenty Classic model buses from the
Company in 1993 and alleges that those buses are defective. The Plaintiff also
alleges that the Company has committed an unfair trade practice by failing to
cure the alleged defects in a timely fashion. While Triangle has continuously
used the buses in its transit system for almost four years and anticipates using
those buses at least one additional year, it claims the right to recover
virtually the entire purchase price of the twenty buses or $1.2 million as well
as treble damages based upon its claim of unfair trade practice. Although
discovery in the case has not been completed, the Company has filed a Motion for
Summary Judgement on February 28, 1997, seeking dismissal of the unfair trade
practice claim and eliminating a substantial portion of the claim of Triangle
for compensatory damages. Triangle has not yet filed its Response to the Motion
for Summary Judgement.
The Company is a party to certain other legal proceedings, however
management does not anticipate that any of such proceedings will have a material
adverse effect on its financial condition or results of operation. The Company
may be subject to product liability claims arising from the use of its products;
the Company maintains product liability insurance which it currently considers
adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matter was submitted by the Company to a vote of security holders during
the fiscal quarter ended December 31, 1996.
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ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
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Information relating to the directors and executive officers of the Company
is set forth in the Company's definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders. Such information is incorporated herein by reference.
Set forth below is certain information as of December 31, 1996 regarding
the executive officers of the Company.
D. MICHAEL WALDEN, age 46, has served as Chairman, President and Chief
Executive Officer of the Company since its incorporation in 1982.
TERRI B. HOBBS, age 40, has served as Executive Vice President of the
Company since July 1990. From 1987 until July 1990, Ms. Hobbs served as
Director of Marketing for the Company and, from 1985 through 1987, Ms. Hobbs was
engaged in sales and administration for the Company.
RICHARD M. BRUNO, age 44, joined the Company in May 1995 and has served as
Vice President, Chief Financial Officer, Treasurer and Secretary since that
time. From January 1994 to May 1995, Mr. Bruno was Treasurer of Mohawk
Industries, Inc., a carpet manufacturing company. From October 1983 to January
1994, Mr. Bruno was with Engraph, Inc., a packaging manufacturing company, and
served as its Treasurer for more than five years.
Set forth below is certain information as of December 31, 1996 regarding
certain significant employees of the Company who are not executive officers.
O. G. SIMS, age 53, has served as Vice President-Engineering of the Company
since 1985. From November 1979 to October 1985, Mr. Sims was Vice President,
Manufacturing and Engineering of First Response, Inc. Mr. Sims' prior
experience was with Lockheed Aircraft Corporation, Flight Test Division on the
Hummingbird project and Lockheed Marietta Corporation on the development and
testing of the C-5A transport aircraft.
MELVIN ROYSTER, age 43, has served as Vice President of Manufacturing since
January 1997. Prior to that time, he served as General Manager-Manufacturing
Operations of the Company since April 1993. From April 1990 to April 1993, Mr.
Royster was General Manager of the Douglas, Georgia manufacturing facility of
InterMetro Industries, Inc., a manufacturer of metal shelving. From September
1987 to April 1990, Mr. Royster served as Director of Manufacturing of Alcatel
Network Systems, Inc., a manufacturer of telecommunication switching equipment.
THOMAS HOLLENBECK, age 48, has served as Vice President - Sales and
Marketing since March 1997. From February 1991 to March 1997, Mr. Hollenbeck
was associated with MJM International, Inc. which served as a sales
representative of the Company for California and Hawaii. From 1988 to 1991, Mr.
Hollenbeck was Senior Vice President of General Rent-a-Car of Fort Lauderdale,
Florida, a rental car company, and from 1975 to 1988 served as Vice President -
Sales and Marketing of National Coach Corp., a shuttle bus manufacturer.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- --------------------------------------------------------------------------
MATTERS
- -------
The Company's Common Stock has been traded on The Nasdaq National Market
under the symbol "MTRN" since the Company's initial public offering in June
1994. Prior to the initial public offering, there was no established trading
market for the Company's Common Stock. The Company did not issue or sell any
shares of its Common Stock that were not registered under the Securities Act of
1933, as amended. As of March 21, 1997, the number of stockholders of record of
the Company's Common Stock was approximately 201. The following table sets
forth, by fiscal quarter, the high and low closing sale prices of the Common
Stock as reported by The Nasdaq National Market from June 9, 1994 (the first day
of trading in the Company's Common Stock) through December 31, 1996.
PERIOD HIGH LOW
- -------------------------------------------------------------------------------
Fourth Quarter 1996 $14.75 $12.25
Third Quarter 1996 $14.50 $12.50
Second Quarter 1996 $14.75 $12.00
First Quarter 1996 $12.50 $8.25
===============================================================================
Fourth Quarter 1995 $9.00 $7.00
Third Quarter 1995 $8.50 $6.25
Second Quarter 1995 $8.00 $5.25
First Quarter 1995 $6.00 $5.25
===============================================================================
Fourth Quarter 1994 $9.50 $5.50
Third Quarter 1994 $9.50 $7.75
Second Quarter 1994
(from June 9, 1994) $9.00 $8.00
===============================================================================
The Company operated from January 1, 1989 through May 31, 1994 as an S
Corporation under Subchapter S of the Internal Revenue Code and comparable state
tax laws and was not subject to state or federal corporate income taxes. Prior
to the termination of its S Corporation status, the Company made cash
distributions to its stockholders in the aggregate amounts of approximately $1.0
million and $6.4 million during the years ended December 31, 1993 and 1994,
respectively. A substantial portion of these distributions were used to fund
the federal and state tax obligations of the stockholders attributable to the
Company's Subchapter S income for such periods. Additionally, on June 16, 1994,
the Company made a Subchapter S distribution of $4.5 million to its S
Corporation stockholders using a portion of the proceeds from the Company's
initial public offering. The Company intends to retain all future earnings for
the expansion and development of the Company's business and does not anticipate
paying cash dividends in the foreseeable future. Future dividend policy and the
payment of dividends, if any, will be determined by the Board of Directors in
light of circumstances then existing including the Company's earnings, financial
condition, and other factors deemed relevant by the Board.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
The following selected financial data for and as of the end of each of the
years ended December 31, 1996, 1995, 1994, 1993 and 1992 are derived from the
financial statements of the Company, which financial statements have been
audited by Arthur Andersen LLP, independent public accountants. The selected
financial data is qualified in its entirety by the more detailed information and
financial statements, including the notes thereto, included elsewhere in this
report. The financial statements of the Company as of December 31, 1996 and
1995 and for each of the years in the three year period ended December 31, 1996,
and the report of Arthur Andersen LLP thereon, are included elsewhere in Item 8
of this report.
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994 1993 1992
-------- ------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net Revenue.......... $77,482 $64,027 $52,271 $39,033 $26,652
Cost of Sales....... 62,814 50,914 42,494 30,177 20,840
------- ------- ------- ------- -------
Gross Profit........ 14,668 13,113 9,777 8,856 5,812
Selling, general, and
adminstrative expenses. 8,477 7,458 6,900 5,320 3,512
------- ------- ------- ------- -------
Operating Income...... 6,191 5,655 2,877 3,536 2,300
Interest expense, net. 736 711 498 583 335
------- ------- ------- ------- -------
Income before
income taxes.......... 5,455 4,944 2,379 2,953 1,965
Income tax provision (1) 2,136 1,914 920 1,122 747
------- ------- ------- ------- -------
Net income.......... $3,319 $3,030 $1,459 $1,831 $1,218
======= ======= ======= ======= =======
Weighted average
number of shares (2) 4,107 3,993 3,698 3,335 3,335
======= ======= ======= ======= =======
Net income per share.. $0.81 $0.76 $0.39 $0.55 $0.37
======= ======= ======= ======= =======
DECEMBER 31,
---------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
(IN THOUSANDS EXCEPT OTHER DATA)
BALANCE SHEET DATA:
Working capital
(deficit).......... $13,508 $11,214 $ 6,723 $ (1,495) $ 2,404
Total assets........ 36,564 29,667 25,521 20,848 16,370
Long-term debt...... 2,719 3,727 4,122 4,062 4,613
Stockholders'
equity............. 17,096 13,663 9,637 436 4,002
OTHER DATA:
Total units sold
or leased.......... 1,284 1,117 982 835 608
____________
/(1)/ The Company elected S Corporation status effective January 1, 1989. On
May 31, 1994, the Company converted its status to a C Corporation and,
accordingly, from June 1, 1994 has been subject to federal and state
income taxes. Net income prior to June 1, 1994, includes federal and
state income taxes as if the Company had been a C Corporation, based on
the effective tax rates that would have been in effect during the periods
reported.
/(2)/ The weighted average number of shares outstanding prior to the third
quarter of 1994 gives effect to the estimated number of shares of Common
Stock that would be required to be sold (at the initial public offering
price of $8.50 per share) to fund a $4.5 million S Corporation
distribution to the S Corporation stockholders.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
OVERVIEW
The Company was incorporated in 1982 for the purpose of designing,
manufacturing and marketing shuttle and mid-size buses. During the period from
its incorporation in 1982 to the introduction in 1986 of its initial
manufactured product, the Classic, the Company focused its efforts on marketing
buses manufactured by other companies. Since the introduction of the Classic,
the Company has experienced continuous growth in unit sales and revenues. The
market for the Company's products is diverse and broad based. Set forth below
are the principal markets identified by the Company together with the
approximate number of units sold or leased in each market during the periods
indicated.
NUMBER OF UNITS SOLD OR LEASED
------------------------------
Market 1996 1995 1994
- ------ ------ ------ ------
Automobile Rental Companies 246 264 202
Intracity and Rural Transit Operators 226 204 127
Tour and Charter Companies 217 188 206
Retirement/Long-Term Care Facilities 127 44 105
Hotels/Motels 124 121 111
Limousine Operators 94 43 44
Airport Ground Transportation Companies 71 26 28
Parking Lot Operators 38 67 42
Churchs 36 42 38
Other 105 118 79
------ ------ ------
Total 1,284 1,117 982
====== ====== ======
The diversity of the customer base from which the Company derives its
revenue has made the Company less vulnerable to economic downturns in a
particular market. This cushioning effect is evidenced by the Company's five-
year compound annual growth rate in net revenues of 30.4% through 1996 even as
unit sales within certain markets has been volatile. Additionally, several of
the Company's larger customers typically rotate their fleets every two to four
years which can result in significant orders to the Company during their
respective purchasing cycles.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected financial information derived from
the Company's income statements expressed as a percentage of total revenue for
the periods indicated.
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
Net revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 81.1 79.5 81.3 77.3 78.2
----- ----- ----- ----- -----
Gross profit 18.9 20.5 18.7 22.7 21.8
Selling, general
and administrative
expenses 10.9 11.7 13.2 13.7 13.1
----- ----- ----- ----- -----
Operating income 8.0 8.8 5.5 9.0 8.7
Other income, net 0.0 0.0 0.2 0.4 0.4
Interest expense 1.0 1.1 1.2 1.8 1.7
----- ----- ----- ----- -----
Income before income
taxes 7.0 7.7 4.5 7.6 7.4
Income tax provision 2.7 3.0 1.7 2.9 2.8
----- ----- ----- ----- -----
Net income 4.3% 4.7% 2.8% 4.7% 4.6%
===== ===== ===== ===== =====
_______________
The following table sets forth total unit sales and average revenue per unit
for 1996, 1995, and 1994.
1996 1995 1994
----------------- --------------- -----------------
AVERAGE AVERAGE AVERAGE
REVENUE/ REVENUE/ REVENGE/
UNITS UNIT UNITS UNIT UNITS UNIT
------ -------- ----- -------- ----- --------
Classic 1,192 $ 48,000 1,050 $ 47,000 920 $ 41,000
Eurotrans 77 $ 147,000 67 $ 134,000 62 $ 119,000
Legacy LJ /(1)/ 15 $ 79,000 - $ - - $ -
----- ----- -----
Total 1,284 1,117 982
===== ===== =====
/(1)/ The Company first introduced the Legacy LJ in 1996.
14
<PAGE>
1996 COMPARED TO 1995
NET REVENUE. Net revenue increased $13.5 million or 21.0% from $64.0
million in 1995 to $77.5 million in 1996. This increase reflects an increase in
the number of units sold and the sales of higher priced units. The number of
units sold in the Classic line increased 13.5% to 1,192 in 1996 from 1,050 in
1995. Average revenue per Classic unit increased to $48,000 in 1996 from
$47,000 in 1995. Unit sales of Eurotrans coaches increased 14.9% to 77 units in
1996 from 67 units in 1995 while average revenue per Eurotrans unit increased to
$147,000 in 1996 from $134,000 in 1995. The Company began selling the Legacy LJ
in 1996.
Net revenue from sales of used buses acquired by the Company from trade-ins
and lease maturities increased $2.5 million or 71.6% to $6.0 million in 1996
from $3.5 million in 1995. The increase in sales of used buses resulted from an
increase in the used coach selling effort and the increased capability to
perform refurbishment on used coaches available for sale. The Company completed
construction of a new facility for its used coach operation at yearend and has
incorporated a wholly-owned subsidiary, BUS PRO, INC., to continue the expansion
of its used coach activities. The Company's investment in the new facility is
approximately $1.2 million.
COST OF SALES AND GROSS PROFIT. Gross profit increased 11.8% to $14.7
million in 1996 from $13.1 million in 1995. As a percentage of net revenue,
gross profit declined from 20.5% in 1995 to 18.9% in 1996. The reduced gross
margin was largely the result of factors affecting the fourth quarter of 1996
during which the gross margin of 15.5% was impacted primarily by a) lower
margins on sales of Eurotrans units to transit customers in spite of record
Eurotrans unit volume, b) inefficiencies in existing production lines causing
increases in material, labor and plant overhead costs as well as reduced
production volume of the Classic line and resulting from the significant unit
volume increase in both the Eurotrans and Legacy LJ rear engine product lines as
well as from engineering issues related to the newly-designed General Motors
cutaway chassis models, and c) uneven production flow of the newly introduced
Legacy LJ resulting from the need to resolve design issues in the custom
chassis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND OPERATING INCOME.
Operating income increased to $6.2 million in 1996 from $5.7 million in 1995.
Selling, general and administrative expenses ("SG&A") were $8.5 million in 1996,
an increase of 13.7% over $7.5 million in 1995. As a percentage of net revenue,
SG&A improved to 10.9% in 1996 from 11.7% in 1995. The increase in SG&A resulted
primarily from the increase in unit sales and net revenue.
INTEREST EXPENSE. Net interest expense increased 3.5% to $736,000 in 1996
from $711,000 in 1995. The relative consistency of interest expense from 1995 to
1996 is largely the result of average borrowings and interest rates remaining
stable during the years.
1995 COMPARED TO 1994
NET REVENUE. Net revenue increased $11.8 million or 22.5% from $52.3
million in 1994 to $64.0 million in 1995. This increase reflects an increase in
the number of units sold, price increases that were instituted in early 1995 and
sales of higher priced units with more optional features. The number of units
sold in the Classic line increased 14.1% to 1,050 in 1995 from 920 units in
1994. Average revenue per unit increased to $46,914 in 1995 from $41,459 in
1994. Unit sales of Eurotrans coaches increased 8.1% to 67 units in 1995 from
62 units in 1994 while average revenue per unit increased 12.3% to $134,136 in
1995 from $119,468 in 1994. Eurotrans sales during 1995 were affected by the
availability of chassis that matched customer needs.
Net revenue from sales of used buses acquired by the Company from trade-ins
and lease maturities increased $1.1 million or 45.8% to $3.5 million in 1995
15
<PAGE>
from $2.4 million in 1994. The increase in new buses resulted from an increase
in the used coach selling effort and the increased capability to perform
refurbishment on used coaches available for sale.
COST OF SALES AND GROSS PROFIT. Gross profit increased 34.1% to $13.1
million in 1995 from $9.8 million in 1994. As a percent of net revenue, gross
profit improved to 20.5% in 1995 from 18.7% in 1994. The improvement in gross
profit margin was attributable to a combination of factors, including the
stabilization of material costs through alternate supplier sourcing as well as
price and terms negotiation, the improved efficiency in the manufacturing
process, and the higher level of net revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND OPERATING INCOME.
Operating income increased significantly to $5.7 million in 1995 from $2.9
million in 1994. SG&A was $7.5 million in 1995, an increase of 8.0% over $6.9
million in 1994, a much lower percentage increase than the 34.1% increase in
gross profit. While most components of SG&A grew during 1995, SG&A, as a
percent of net revenue declined from 13.2% to 11.6% largely as a result of cost
containment efforts instituted in the fourth quarter of 1994.
INTEREST EXPENSE. Interest expense increased to $711,000 in 1995 from
$498,000 in 1994. The higher interest expense in 1995 was primarily due to
interest incurred under its pool arrangement with a chassis manufacturer for
non-owned chassis held beyond the allowable interest-free period largely as a
result of the timing of the completion of certain large contracts.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The following table presents certain unaudited quarterly results prepared
by the Company on a basis consistent with its audited financial statements and
includes all adjustments, consisting only of normal recurring adjustments, that
the Company considered necessary for a fair presentation of the data. Such
quarterly results are not necessarily indicative of future results of
operations. This information should be read in conjunction with the financial
statements and the notes thereto included elsewhere in this report.
16
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------------------------- ---------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
--------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Net revenue $17,20 $20,614 $19,881 $19,787 $15,186 $16,303 $15,531 $17,007
Cost of sales 14,144 16,463 15,482 16,725 12,526 12,925 12,304 13,159
--------- ------- ------- ------- ------- ------- ------- -------
Gross profit $ 3,056 $ 4,151 $ 4,399 $ 3,062 $ 2,660 $ 3,378 $ 3,227 $ 3,848
========= ======= ======= ======= ======= ======= ======= =======
Operating income $ 1,286 $ 1,903 $ 1,959 $ 1,043 $ 1,039 $ 1,459 $ 1,392 $ 1,766
========= ======= ======= ======= ======= ======= ======= =======
Income before
income taxes $ 1,100 $ 1,717 $ 1,819 $ 819 $ 826 $ 1,307 $ 1,224 $ 1,587
========= ======= ======= ======= ======= ======= ======= =======
Net income $ 674 $ 1,052 $ 1,116 $ 477 $ 512 $ 811 $ 759 $ 948
========= ======= ======= ======= ======= ======= ======= =======
Weighted average
shares
outstanding 4,068 4,117 4,115 4,116 3,985 4,007 4,007 4,009
========= ======= ======= ======= ======= ======= ======= =======
Net income
per share $ 0.17 $ 0.26 $ 0.27 $ 0.12 $ 0.13 $ 0.20 $ 0.19 $ 0.24
========= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company historically has experienced significant fluctuations in its
financial results from quarter to quarter due to factors such as availability of
cutaway chassis, the mix of buses and coaches sold, the timing of orders and
delivery dates, the purchasing cycles of certain large customers that typically
rotate their fleets every two to four years and the state of the economy.
Furthermore, because of the relatively high selling prices of buses and coaches
such as those manufactured by the Company, a small variation in the number and
mix of buses and coaches sold in any quarter can have a significant effect on
sales and operating results for that quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through cash flow from
operations, bank borrowings and financing arrangements with Ford Motor Credit
Corporation ("Ford Credit").
Net cash of $939,000 was used in operating activities during 1996 with the
increases in accounts receivable of $1.2 million and inventories of $5.1 million
more than offsetting the funds provided by net income, depreciation and
amortization. The increase in accounts receivable results primarily from the
significant volume of bus shipments near the end of the year, including the
increased activity of yearend sales by the used coach division. Capital
expenditures of $1.9 million, most significant of which is the new facility
developed for the used coach division's refurbishment and sales activities, were
primarily responsible for the net cash used in investing activities of $1.2
million. The increased capital expenditures, however, were partially offset by
the declining investment in sales-type leases as the Company has reduced the
volume of sales via leases requiring capital lease treatment. Net cash provided
by financing activities of $2.2 million came primarily from increased borrowings
under the Company's line of credit of $3.1 million offset by repayments of long-
term debt of $1.0 million.
Net cash provided by operations during 1995 was $600,000, reflecting in
part, an increase in accounts receivable of over $4.6 million more than
offsetting $4.0 million provided by net income, depreciation and amortization.
The increase in accounts receivable was largely the result of the significant
volume of bus shipments near the end of the year. Investing activities during
the year used $164,000 and resulted from capital expenditures of $277,000 offset
by sales-type lease investment activity, both of which were lower than in the
prior year. Debt repayments and reductions in collateralized borrowings
totalling $502,000 were partially funded by $891,000 of cash repayments from
17
<PAGE>
majority stockholders in connection with the Company's 1994 initial public
offering.
Net cash used in operations during 1994 was $920,000 reflecting in part,
lower earnings levels, higher inventory balances, and a $1.5 million increase in
accounts receivable, offset, in part, by a $2.8 million increase in accounts
payable and accrued expenses. Investing activities during 1994 provided
$681,000, resulting from the repayment of $2.5 million in affiliate advances
offset by an increase of $423,000 in leased property and $610,000 in capital
expenditures. Included in these capital expenditures were funds used in the
acquisition of a manufacturing facility from an affiliate. Financing activities
provided $208,000 million which reflects the use of the proceeds of the initial
public offering to reduce short-term debt and fund a S Corporation distribution
to S Corporation shareholders.
At December 31, 1996, the Company had a $8.0 million revolving credit
facility with a commercial bank. In January 1997, the Company increased the
amount of the facility to $10.0 million. The effective interest rate under the
facility is equal to the bank's prime rate (8.25% as of March 21, 1997). The
agreement also allows the Company to convert portions of its outstanding line to
Eurodollar advances with an interest rate based on LIBOR plus 2.0%. This
facility is available for working capital and is secured by substantially all of
the Company's assets. At December 31, 1996 and 1995, the Company had
approximately $7.3 million and $4.2 million, respectively, of short-term debt
outstanding under this facility.
The Company has a pooled chassis agreement with Ford Credit pursuant to
which Ford Credit maintains an inventory of Ford chassis at the Company's
manufacturing facility in Griffin, Georgia. Ford Credit retains title to each
chassis until the date the chassis enters the production line at which time the
Company becomes obligated to purchase the chassis from Ford Credit. The time
between delivery of the chassis at the Company's facility, and the time the
chassis enters production is termed the consignment period. The Company is
obligated to pay interest at the prime rate plus 1% charged on consigned chassis
during any portion of the consignment period that extends beyond 90 days.
The Company believes that cash flow from operations and funds available
under the Company's credit facilities are sufficient to meet the Company's
funding needs for its present operations for fiscal 1996.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements of the Company as of December 31, 1996 and 1995
and for each of the years in the three year period ended December 31, 1996 and
the report of Arthur Andersen LLP required to be included in this report are set
forth in the Index to Financial Statements on page F-1 of this report. No
financial statement schedules are required to be included in this report under
the related instructions or because the information required is included in the
consolidated financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
- --------------------------------------------------------
Information relating to the directors of the Company, including directors
who are executive officers of the Company is set forth in the Company's
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
Pursuant to Instruction 3 of Item 401(b) of Regulation S-K and General
Instruction G(3) of Form 10-K, information relating to the executive officers of
the company who are not directors and certain other significant employees of the
Company is set forth in Item 4A of this report under the caption "Item 4A.
Executive Officers of the Company." Such information is incorporated herein by
reference.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Securities and Exchange Commission thereunder require the
Company's directors and executive officers and any persons who own more than 10%
of the Company's Common Stock, as well as certain affiliates of such persons, to
file initial reports with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Directors, executive officers
and persons owning more than 10% of the Company's Common Stock are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file. Based solely on its review of
the copies of such reports received by it and written representations that no
other reports were required of those persons, the Company believes that during
1996, all filing requirements applicable to its directors and executive officers
were complied with in a timely manner except that Forms 5 for each of D. Michael
Walden, Terri B. Hobbs and Richard M. Bruno were filed not on a timely basis.
The Company is not aware of any other persons other than directors and executive
officers who own more than 10% of the Company's Common Stock.
ITEM 11. EXECUTIVE COMPENSATION
- ---------------------------------
Information required by this item is set forth under the captions "Election
of Directors - Director Compensation" and "Executive Compensation" in the
Company's definitive Proxy Statement for the 1997 Annual Meeting of Stockholders
of the Company. Such information is incorporated herein by reference.
19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information required by this item is set forth under the caption "Voting -
Principal Stockholders" in the Company's definitive Proxy Statement for the 1997
Annual Meeting of Stockholders of the Company. Such information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information required by this item is set forth under the caption "Certain
Transactions" in the Company's definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders of the Company. Such information is incorporated herein
by reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
- ----------------------------------------------------------------------
8-K
---
(a) Documents Filed as Part of This Report
1. Financial Statements
The following financial statements of the Company and the related
report of independent public accountants thereon are set forth immediately
following the Index of Financial Statements and Financial Statement
Schedules which appears on page F-1 of this Report.
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
No financial statement schedules are required to be included in this
report under the related instructions or because the information required
is included in the consolidated financial statements or notes thereto.
3. Exhibits
The following exhibits are filed with or incorporated by reference in
this report. Where such filing is made by incorporation by reference to a
previously filed registration statement or report, such registration
statement or report is identified in parentheses. The Company will furnish
any exhibit upon request to Richard M. Bruno, Chief Financial Officer, 777
Greenbelt Parkway, Griffin, Georgia 30223. There is a charge of $.50 per
page to cover expense for copying and mailing.
21
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Articles of Incorporation of the Company (Exhibit
3.1 to the Company's Registration Statement on Form S-1, No. 33-76492).
3.2 Amended and Restated Bylaws of the Company (Exhibit 3.2 to the Company's
Registration Statement on Form S-1, No. 33-76492).
10.1 (a) Authorized Converter Pool Agreement dated July 10, 1990 by and
between the Company and Ford Motor Company with respect to chassis
purchases. (Exhibit 10.1(a) to the Company's Registration Statement
on Form S-1, No. 33-76492).
(b) FMCC Pool Company Wholesale Finance Plan - Application for Wholesale
Financing and Security Agreement, dated June 26, 1990, by and
between the Company and Ford Motor Credit Company with respect to
Ford chassis financing (Exhibit 10.1(b) to the Company's
Registration Statement on Form S-1, No. 33-76492).
(c) Intercreditor Agreement dated June 26, 1990, by and between the
Company, Ford Motor Credit Company and NationsBank of Georgia, N.A.
(formerly known as The Citizens and Southern National Bank)
("NationsBank"), granting to FMCC a first priority lien on Ford
chassis with respect to Ford chassis financing (Exhibit 10.1(c) to
the Company's Registration Statement on Form S-1, No. 33-76492).
10.2 Financing Agreement dated November 29, 1994 by and between the
Company and NationsBank (Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended December 31, 1994).
10.3 (a) Indenture of Trust dated as of December 1, 1991, between the Griffin
-Spalding County Development Authority (the "Authority") and the
First National Bank of Chicago, as trustee, with respect to the bond
financing on the Company's manufacturing facility (Exhibit 10.5(a)
to the Company's Registration Statement on Form S-1, No. 33-76492).
(b) Lease Agreement dated December 1, 1991, between the Authority and
EMS Properties, Inc., with respect to the Company's manufacturing
facility (Exhibit 10.5(b) to the Company's Registration Statement on
Form S-1, No. 33-76492).
(c) Assignment and Assumption of Lease dated as of January 1, 1994, by
and between EMS Properties, Inc. and the Company with respect to the
assignment of EMS Properties' leasehold interest to the Company
(Exhibit 10.5(c) to the Company's Registration Statement on Form
S-1, No. 33-76492).
(d) Remarketing Agreement dated as of December 1, 1991, among the
Authority, EMS Properties, Inc. and NationsBank, as Remarketing
Agent, with respect to the industrial revenue bonds (Exhibit 10.5(d)
to the Company's Registration Statement on Form S-1, No. 33-76492).
10.4 Lease Agreement dated November 11, 1992, by and between Windsor
Leasing, Ltd., the Company and First Response, Inc. with respect to
the use of an aircraft (Exhibit 10.6 to the Company's Registration
Statement on Form S-1, No. 33-76492).
22
<PAGE>
10.5** Employment Agreement dated March 15, 1994 between D. Michael Walden
and the Company (Exhibit 10.7 to the Company's Registration
Statement on Form S-1, No. 33-76492).
10.6 1994 Employee Stock Incentive Plan (Exhibit 10.8 to the Company's
Registration Statement on Form S-1, No. 33-76492).
10.7 1994 Directors Stock Incentive Plan (Exhibit 10.9 to the Company's
Registration Statement on Form S-1, No. 33-76492).
10.8* Aircraft Lease Agreement dated December 20, 1996, between General
Electric Credit Corporation and the Company.
11* Computation of Earnings Per Share.
23* Consent of Arthur Andersen LLP.
_______________
* Filed herewith
** The indicated exhibit is a management contract or compensatory plan.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed by the
Registrant during the quarter ended December 31, 1996.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 28, 1997.
METROTRANS CORPORATION
(Registrant)
By /s/ D. Michael Walden
---------------------
D. Michael Walden
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 28, 1997.
/s/ D. Michael Walden Chairman of the Board,
- --------------------- President and Chief Executive
D. Michael Walden Officer
/s/ Patrick L. Flinn Director
- -------------------------
Patrick L. Flinn
/s/ George W. Mathews, Jr. Director
- --------------------------
George W. Mathews, Jr.
/s/ M. Earl Meck Director
- ----------------
M. Earl Meck
/s/ William C. Pitt III Director
- -----------------------
William C. Pitt III
/s/ Randy B. Stanley Director
- --------------------
Randy B. Stanley
/s/ Richard M. Bruno Chief Financial Officer,
- -------------------- Vice President, Treasurer,
Richard M. Bruno and Secretary
(Principal Financial and
Accounting Officer)
24
<PAGE>
METROTRANS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995, AND 1994
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
FORM 10-K -- ITEM 14(a)(1) and (2)
METROTRANS CORPORATION AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Metrotrans
Corporation and subsidiaries are included in Item 8:
Page No.
--------
Report of Independent Public Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1994..... F-3
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994............................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994............................... F-6
Notes to Consolidated Financial Statements....................... F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Metrotrans Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of METROTRANS
CORPORATION (a Georgia corporation) AND SUBSIDIARIES as of December 31, 1996 and
1995 and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metrotrans Corporation and
subsidiaries as of December 31, 1996 and 1995 and the 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.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 26, 1997
F-2
<PAGE>
METROTRANS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
ASSETS 1996 1995
==============================================================================
<S> <C> <C>
CURRENT ASSETS:
Cash $ 22 $ 23
Accounts receivable, net of allowance for
doubtful accounts of $282 and $260 in
1996 and 1995, respectively 10,109 8,878
Current portion of net investment in
sales-type leases 810 626
Inventories 17,903 12,771
Prepaid expenses and other 784 943
------- -------
Total current assets 29,628 23,241
------- -------
PROPERTY, PLANT, AND EQUIPMENT, net 5,447 4,323
NET INVESTMENT IN SALES-TYPE LEASES 1,098 1,827
DEPOSITS AND OTHER 391 276
$36,564 $29,667
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
==============================================================================
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,139 $ 6,086
Borrowings under line of credit 7,297 4,169
Current portion of long-term debt 1,132 1,168
Customer deposits 552 604
------- -------
Total current liabilities 16,120 12,027
------- -------
LONG-TERM DEBT, net of current portion 2,719 3,727
------- -------
DEFERRED INCOME TAXES 629 250
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value;
10,000,000 shares authorized 0 0
Common stock, $.01 par value; 20,000,000
shares authorized, 4,077,383 and 4,076,275
shares issued and outstanding in 1996 and
1995, respectively 41 41
Additional paid-in capital 10,466 10,457
Deferred compensation (315) (420)
Retained earnings 6,904 3,585
------- -------
17,096 13,663
$36,564 $29,667
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
METROTRANS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
NET REVENUE $77,482 $64,027 $52,271
COST OF SALES 62,814 50,914 42,494
------- ------ ------
Gross profit 14,668 13,113 9,777
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 8,477 7,458 6,900
------- ------- ------
Operating income 6,191 5,655 2,877
INTEREST EXPENSE, net 736 711 498
------- ------- ------
INCOME BEFORE INCOME TAXES 5,455 4,944 2,379
PRO FORMA INCOME TAX PROVISION 0 0 192
------- ------- ------
INCOME TAX PROVISION 2,136 1,914 728
NET INCOME $ 3,319 $ 3,030 $ 1,459
======= ======= =======
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $0.81 $0.76 $0.39
======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,107 3,993 3,698
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
METROTRANS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Due From
------------------ Paid-In Majority Deferred Retained
Shares Amount Capital Stockholders Compensation Earnings Total
--------- ------ ---------- ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993....................... 2,805,600 $ 28 $ 0 $ 0 $ 0 $ 408 $ 436
Pro forma net income........................... 0 0 0 0 0 1,459 1,459
Pro forma tax provision........................ 0 0 0 0 0 192 192
Transactions with majority stockholders:
Cash distributions........................... 0 0 0 0 0 (724) (724)
Repayment of distributions................... 0 0 0 (695) 0 (695) 0
Issuance of common stock....................... 1,170,000 12 8,452 (196) 0 0 8,268
Reclassification of S corporation retained
earnings..................................... 0 0 1,475 0 0 (1,475) 0
Issuance of restricted stock to employees...... 675 0 6 0 0 0 6
--------- --- ------- ---- -- ------ -------
BALANCE, December 31, 1994....................... 3,976,275 40 9,933 (891) 0 555 9,637
Net income..................................... 0 0 0 0 0 3,030 3,030
Repayment of distributions to majority
stockholders................................. 0 0 0 891 0 0 891
Issuance of restricted stock to employees...... 100,000 1 524 0 (525) 0 0
Compensation under restricted stock award...... 0 0 0 0 105 0 0
--------- --- ------- --- --- ----- -------
BALANCE, December 31, 1995....................... 4,076,275 41 10,457 0 (420) 3,585 13,663
Net income..................................... 0 0 0 0 0 3,319 3,319
Compensation under restricted stock award...... 0 0 0 0 105 0 105
Issuance of stock grants to employees.......... 108 0 2 0 0 0 2
Exercise of stock options and related tax
benefit...................................... 1,000 0 7 0 0 0 7
--------- --- ------- --------- --- ------- -------
BALANCE, December 31, 1996....................... 4,077,383 $ 41 $10,466 $ 0 $(315) $ 6,904 $17,096
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
METROTRANS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,319 $3,030 $1,459
-------- -------- --------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 575 944 ??
Pro forma tax provision 0 0 192
Deferred taxes 532 (307) (128)
Compensation under restricted stock award 105 105 0
Changes in assets and liabilities:
Accounts receivable (1,231) (4,635) (1,460)
Inventories (5,132) 97 (4,051)
Other assets (108) 37 (387)
Accounts payable and accrued expenses 1,053 1,057 2,800
Customer deposits (52) 272 (238)
-------- -------- --------
Total adjustments (4,258) (2,430) (2,379)
-------- -------- --------
Net cash (used in) provided by operating activities (939) 600 (920)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayments from affiliate 0 0 2,481
Capital expenditures (1,908) (277) (610)
Net decrease (increase) in property held for lease (56) 9 (423)
Net decrease (increase) in investment in sales-type leases 728 104 (767)
-------- -------- --------
Net cash (used in) provided by investing activities (1,236) (164) 681
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit 3,128 (323) (2,128)
Net increase (decrease) in collateralized borrowings 45 (985) 357
Payments of long-term debt (1,008) (85) (60)
Net proceeds from issuance of common stock 9 0 8,274
Cash repayments from (distributions to) majority stockholders 0 891 (6,235)
-------- -------- --------
Net cash provided (used in) by financing activities 2,174 (502) 208
-------- -------- --------
DECREASE IN CASH (1) (66) (31)
CASH AT BEGINNING OF YEAR 23 89 120
-------- -------- --------
CASH AT END OF YEAR $ 22 $ 23 $ 89
-------- -------- --------
CASH PAID FOR INTEREST $ 749 $ 714 $ 606
-------- -------- --------
CASH PAID FOR INCOME TAXES $ 2,670 $ 2,206 $ 541
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
METROTRANS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Metrotrans Corporation and its wholly owned subsidiaries (the
"Company"). All significant intercompany transactions and accounts have
been eliminated in consolidation.
The Company manufactures and sells shuttle and midsize touring buses. The
Company markets its products in the United States primarily through
Company operated sales centers located in 11 states and, to a lesser
extent, through 7 independent dealers located in 4 states, Canada,
Switzerland, and Puerto Rico. Additionally, the Company accepts trade-in
vehicles of its own and other brands.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
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 the 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.
Revenue Recognition
Revenue from bus sales is recognized upon shipment to the customer.
Customer deposits for partial payment of vehicles are deferred and
treated as current liabilities until the vehicles are shipped and
recognized as revenue.
Warranties
The Company offers a 13-month (unlimited mileage) limited warranty on all
new vehicles and service plans which extend limited coverage for longer
periods. The Company accrues a liability for its warranty coverage based
on historical experience.
F-7
<PAGE>
Inventories
Chassis inventories are valued at cost. Units taken in trade are valued
on a specific identification basis and do not exceed estimated realizable
value. Inventories of conversion materials and supplies and work in
process are valued at the lower of average cost or market on a first-in,
first-out ("FIFO") basis.
Inventories as of December 31, 1996 and 1995 consist of the following (in
thousands):
1996 1995
------- -------
Chassis awaiting conversion $ 3,044 $ 341
Raw materials 4,482 3,245
Work in process 2,328 1,581
Finished goods 2,758 3,033
Used vehicles 5,291 4,571
$17,903 $12,771
======= =======
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method
over the assets' estimated useful lives of 3 to 7 years, except for
buildings, which have estimated useful lives of 30 years.
The detail of property, plant, and equipment as of December 31, 1996 and
1995 is as follows (in thousands):
1996 1995
------- -------
Land $ 693 $ 417
Buildings 2,800 2,678
Property held for lease 2,565 2,694
Machinery and equipment 1,348 1,086
Furniture and fixtures 520 226
Construction in progress 935 0
------- -------
8,861 7,101
Less accumulated depreciation (3,414) (2,778)
------- -------
$ 5,447 $ 4,323
======= =======
Accounts Payable
Accounts payable include book overdrafts created by outstanding checks.
At December 31, 1996 and 1995, the book overdraft totaled $969,000 and
$1,025,000, respectively.
F-8
<PAGE>
Net Income Per Common and Common Equivalent Share
Net income per common share is calculated by dividing net income by the
number of weighted average common and common equivalent shares
outstanding for the periods presented.
Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables are
limited due to the wide variety of customers and markets for which the
Company's products are provided as well as their dispersion across many
different geographic areas. As a result, as of December 31, 1996, the
Company does not consider itself to have any significant concentrations
of credit risk.
Fair Value of Financial Instruments
The book values of cash, trade accounts receivable, and trade accounts
payable approximate their fair values principally because of the
short-term maturities of these instruments. The fair value of the
Company's long-term debt is estimated based on the current rates offered
to the Company for debt of similar terms and maturities. Under this
method, the Company's fair value of long-term debt was not significantly
different than the stated value as of December 31, 1996.
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived
assets, such as property and equipment and other assets, to determine
whether any impairments are other than temporary. Management believes
that the long-lived assets in the accompanying balance sheets are
appropriately valued.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. PRODUCT LEASES
The Company leases its products to customers under various arrangements,
with the leases recorded as either operating or sales-type leases,
depending on the terms of the lease.
For operating leases, rental revenue is recognized over the life of the
lease and the related equipment is depreciated over its estimated useful
life. Net revenues recognized under operating leases during 1996, 1995,
and 1994 were $232,000, $882,000, and $905,000, respectively. For
sales-type leases, the discounted present value of lease revenues is
recorded as sales, with related equipment cost (net of the discounted
present value of any residual value) recorded as cost of sales. Financing
income applicable to these leases is recognized over the life of the
F-9
<PAGE>
lease using the effective interest method. Net revenues recognized under
sales-type leases during 1996, 1995, and 1994 were $343,000, $3,729,000,
and $4,219,000, respectively.
The components of the investment in sales-type leases as of December 31,
1996 and 1995 are as follows (in thousands):
1996 1995
------ -----
Total minimum lease payments receivable $2,041 $2,673
Less unearned income 133 220
------ ------
Net investment 1,908 2,453
Less current portion 810 626
------ ------
$1,098 $1,827
------ ------
Minimum lease payments receivable as of December 31, 1996 are as follows:
Sales-Type Operating
Leases Leases
---------- ---------
1997 $ 849 $106
1998 888 0
1999 291 0
2000 13 0
------ ----
$2,041 $106
====== ====
4. SHORT-TERM BORROWINGS
The Company has a revolving line of credit for working capital, payable
on demand to a bank, which as of December 31, 1996 provided for maximum
borrowings of $8,000,000. At December 31, 1996, $7,297,000 was
outstanding and $703,000 was available. In January 1997, the line of
credit was increased to $10,000,000. Amounts outstanding are secured by
substantially all of the Company's assets and bear interest payable
monthly at the bank's prime rate (8.25% as of December 31, 1996) or LIBOR
plus 2% (7.6% at December 31, 1996), at the Company's option.
The agreement contains restrictive covenants which, among other things,
require certain liquidity and leverage ratios be maintained, require
maintenance of certain levels of net worth, and limit levels of capital
expenditures. The agreement renews automatically for one year from the
anniversary date unless terminated on such anniversary date by either
party giving a minimum of 60 days notice. The weighted average interest
rates for the Company's short-term borrowings was 7.5%, 9.0%, and 8.0% in
1996, 1995, and 1994, respectively.
F-10
<PAGE>
5. LONG-TERM DEBT
The Company's long-term debt as of December 31, 1996 and 1995 consists of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Industrial development revenue ("IDR") bonds, payable through
quarterly mandatory sinking fund redemption payments varying
from $15 to $40 from June 1992 through 2011; interest payable
monthly at variable rates, as defined in the agreement,
secured by the real estate $1,700 $1,775
Notes payable to leasing companies for property held for
operating leases, collateralized by the leased equipment and
customer lease payments receivable, payable in varying monthly
installments, bearing interest at rates approximating 8%
through 1997 98 506
Notes payable to leasing companies for products sold under
sales-type leases, secured by the leased equipment and
customer notes receivable, payable in varying monthly
installments, bearing interest at rates approximating 8%
through 1999 679 1,074
Notes payable to a leasing company for products sold under
sales-type leases, secured by the leased equipment, payable at
the end of each lease through 2000, including interest at
various rates approximating 8% 1,239 1,379
Note payable to a bank, bearing interest at 7.5%, payable in
monthly installments of $3 through March 1997, secured by
property located in Ellenwood, Georgia; unpaid interest and
principal due on April 1, 1997 135 161
----- -----
3,851 4,895
Less amount due within one year 1,132 1,168
------ ------
$2,719 $3,727
====== ======
</TABLE>
The IDR bonds were issued in December 1991, with a face value of
$2,000,000. The proceeds were used in 1991 and 1992 to fund the
construction of a new manufacturing facility. The rate on the IDR bonds
(average rate of 4% in 1996) may vary as frequently as every seven days
to maintain a rate on the IDR bonds necessary to retain a market value
approximating par value. At the Company's option, the interest rate on
the IDR bonds can be fixed at the minimum rate necessary to retain a
F-11
<PAGE>
market value approximating par value. To enhance the initial
marketability of the IDR bonds, the bank/remarketing agent has issued its
letter of credit through December 1996 to guarantee payment of the IDR
bonds on the Company's behalf.
Future maturities of long-term debt as of December 31, 1996 are as
follows (in thousands):
1997 $1,132
1998 912
1999 335
2000 97
2001 and thereafter 1,375
------
$3,851
======
6. INCOME TAXES
Prior to the Offering (Note 9), the Company elected to be treated as an S
corporation for federal and state income tax purposes. Accordingly, all
income or losses of the Company were recognized by company stockholders
on their individual tax returns. The Company made cash distributions
prior to the Offering to the majority stockholders to fund their federal
and state tax liabilities resulting from this income. These distributions
exceeded the tax liabilities by $695,000, and a receivable from the
majority stockholders in this amount was reflected as a component of
stockholders' equity. The majority stockholders repaid the excess
distribution in January 1995.
In connection with the Offering, the Company converted from an S
corporation to a C corporation. Upon conversion to C corporation status,
the Company recorded a deferred tax liability as a result of its change
in tax status in the amount of $215,000. A corresponding charge was made
to the income tax provision to reflect the impact of this change in tax
status.
For all periods presented, the accompanying financial statements reflect
provisions for income taxes computed in accordance with the requirements
of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." For the period prior to the Offering, the
provision has been presented on a pro forma basis as if the Company had
been liable for federal and state income taxes during that period.
F-12
<PAGE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1994
-----------------------------------
Five Months Seven Months
Ended Ended
Actual Actual May 31 December 31
1996 1995 Pro Forma Actual Total
------ ------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Current taxes:
Federal $1,417 $1,987 $ 280 $ 721 $1,001
State 187 234 53 135 188
Deferred 532 (307) (141) (128) (269)
------ ------ ----- ----- ------
$2,136 $1,914 $ 192 $ 728 $ 920
====== ====== ===== ===== ======
</TABLE>
The differences between the federal statutory income tax rate and the
Company's effective tax rate were:
1996 1995 1994
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes,
net of federal tax benefit 4.5 4.0 4.0
Other, net 0.7 0.7 0.7
----- ---- ----
39.2% 38.7% 38.7%
==== ==== ====
Components of the net deferred tax (liability) asset as of December 31,
1996 and 1995 are as follows (in thousands):
1996 1995
----- -----
Deferred tax liabilities:
Revenue recognition $(596) $(157)
Leasing activities (106) (93)
----- -----
Total deferred tax liabilities (702) (250)
----- -----
Deferred tax assets:
Inventories 147 362
Liabilities not currently
deductible 292 220
Allowance for doubtful
accounts 93 103
Other 73 0
----- -----
Total deferred tax assets 605 685
----- -----
Net deferred (liability)
tax asset $ (97) $ 435
===== =====
As of December 31, 1996 and 1995, current income taxes (receivable)
payable amounted to $(448,000) and $310,000, respectively.
F-13
<PAGE>
7. RELATED-PARTY TRANSACTIONS
In connection with the Offering, the founders of the Company sold 330,000
shares of common stock. The Company paid the $196,350 underwriters'
discount related to these shares on behalf of the majority stockholders.
During 1995, the majority stockholders reimbursed the Company.
Prior to the Offering, the Company provided advances to an entity
controlled by the majority stockholders. All amounts receivable from the
affiliate were repaid in June 1994. Interest income earned on these
advances was $94,000 in 1994.
During 1994, the Company purchased various raw materials used in the
production of its buses in the aggregate amounts of approximately
$369,000 from companies owned by the Company's majority stockholders. The
companies providing the raw materials were sold during 1994 and are no
longer affiliated entities.
During December 1994, the Company acquired a manufacturing facility and
related land through an exchange of property from an entity controlled by
the majority stockholders. The purchase price was $395,000, including the
assumption of a mortgage on the property totaling $186,715. The Company
leases space from another entity also controlled by the majority
stockholders. Lease costs during 1996 and 1995 were $7,000 and $12,700,
respectively. There were no charges for the leased space by the related
entity during 1994.
In November 1992, the Company and an affiliate of the majority
stockholders of the Company entered into a lease agreement with the
affiliate which owned an airplane. The lease agreement provided that the
Company lease the airplane on an as-needed basis at fair market hourly
rental rates. Rental costs for use of the airplane were $363,000,
$447,000, and $425,000 in 1996, 1995, and 1994, respectively. All
commitments by the Company in connection with this agreement were
terminated in October 1996.
8. COMMITMENTS AND CONTINGENCIES
Suppliers
The Company has a supply agreement with a major motor vehicle chassis
manufacturer. Under the agreement, the Company is shipped chassis on
consignment and is obligated to pay interest at prime on consigned
chassis during any portion of the consignment period which extends beyond
90 days. The consignment period is the period from delivery of the
chassis to the date the chassis is placed in production by the Company.
During the consignment period, the vehicle manufacturer retains title to
the chassis and has the right to redistribute the chassis to its other
customers. Similarly, the Company has the right to return the chassis
within the consignment period and must make full payment at the end of
the consignment period if it desires to retain the chassis. At December
31, 1996, chassis on hand accounted for as consigned inventory was
approximately $11,071,000. Interest paid on consigned chassis amounted to
$339,000, $327,000, and $136,000 in 1996, 1995, and 1994, respectively.
The Company currently purchases all of its chassis, including the engine
and drivetrain, from three major suppliers. Although the Company believes
F-14
<PAGE>
other sources for these components are available, any significant
interruption or delay in the supply of chassis from the three suppliers
could have a material adverse effect on the financial condition and
results of operations of the Company.
Leases
As discussed in Note 3, the Company enters into various leasing
arrangements with customers and leasing companies. Certain leases
contingently obligate the Company to indemnify the leasing company for
any losses it incurs up to a specified amount on the lease in the event
the lessee defaults. In addition, the Company enters into agreements with
a financial institution whereby the Company guarantees varying amounts of
customers' purchase debt obligations. The Company's obligation under
these guarantees becomes effective in the case of default in payments by
the customers or certain other defined conditions. The Company's
aggregate potential liability under these arrangements as of December 31,
1996 was $8,884,000; however, no significant payments have been required
under these arrangements as of December 31, 1996.
In January 1997, the Company was notified of a lessee default on ten
buses, aggregating $1,900,000, of which the Company's guarantee to the
financial institution was $456,000. The Company expects to sell the buses
to third parties at amounts approximating the debt obligations.
Accordingly, in the opinion of management, the Company's obligation under
the default will not have a material adverse impact on the Company's
financial condition or results of operations.
The Company leases certain office space, equipment, and an airplane under
operating leases. Future minimum lease payments under these agreements as
of December 31, 1996 are as follows (in thousands):
1997 $ 497
1998 465
1999 447
2000 447
2001 369
Thereafter 2,844
Rental expense for 1996, 1995, and 1994 totaled $287,000, $256,000, and
$250,000, respectively.
Litigation
The Company is involved in certain legal matters primarily arising in the
normal course of business. In the opinion of management, the Company's
liability in any of these matters will not have a material adverse effect
on its financial condition or results of operations.
F-15
<PAGE>
9. STOCKHOLDERS' EQUITY
Stock Offering
In June 1994, the Company completed an initial public offering (the
"Offering")of 1,500,000 shares of common stock, of which 1,170,000 shares
were sold by the Company and 330,000 shares were sold by stockholders of
the Company at an initial public offering price of $8.50 per share. The
net proceeds to the Company were used to reduce outstanding debt,
including the revolving line of credit, and for a $4,500,000 distribution
to the majority stockholders for previously undistributed S corporation
earnings on which the stockholders had paid income taxes.
Preferred Stock
The board of directors has authorized 10,000,000 shares of preferred
stock with no par value. The board of directors has the authority to
issue these preferred shares and to fix dividends, voting and conversion
rights, redemption provisions, liquidation preferences, and other rights
and restrictions.
Incentive Stock Plans
In March 1994, the Company adopted long-term incentive plans which allow
the issuance of grants or awards of incentive stock options, nonqualified
stock options, and restricted stock to employees and directors of the
Company to acquire up to 601,500 shares of the Company's common stock.
Options become exercisable as determined at the date of grant by a
committee of the board of directors. Options expire ten years after the
date of grant unless an earlier expiration date is set at the time of
grant. To date, the exercise prices of all issuances of options have been
at fair market value at the date of grant.
During 1996 and 1995, the Company issued 20,000 and 80,000, respectively,
nonqualified stock options outside of the above incentive plans. All
options were issued at fair market value at the date of grant. Options
become exercisable as determined by the board of directors, generally 3
to 4 years.
F-16
<PAGE>
Stock option activity during each of the two years ended December 31,
1996 is summarized as follows:
Number
of
Shares Option Price
------ ------------
Outstanding at December 31, 1994 10,000 $8.50
Granted 187,000 $6.75-$7.50
Exercised 0
Canceled 0
-------
Outstanding at December 31, 1995 197,000 $6.75-$8.50
Granted 141,000 $12.00-$14.00
Exercised (1,000) $7.25
Canceled (16,000) $7.25-$13.50
-------
Outstanding at December 31, 1996 321,000 $6.75-$14.00
=======
Exercisable at December 31, 1996 49,666 $6.75-$8.50
=======
On February 21, 1995, the Company awarded 50,000 shares of restricted
stock under the plans to each of two employees. Each of these grants
vests 2,500 shares upon grant with the remaining 47,500 shares vesting
2,500 per quarter through 1999. Unearned compensation of $525,000 was
charged on the date of the grant, which represented the market value on
such date, and is being amortized to expense over the vesting period.
At December 31, 1996, 269,500 shares were reserved for future grants
under the above incentive plans.
During 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which defines a fair
value-based method of accounting for an employee stock option plan or
similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation
cost for those plans using the method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities electing to remain with the accounting in
APB Opinion No. 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value-based method of
accounting defined in the statement had been applied.
The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25; however, the Company has computed for pro forma
disclosure purposes the value of all options granted during 1996 and 1995
using the Black-Scholes option pricing model as prescribed by SFAS No.
123 using the following weighted average assumptions used for grants in
1996 and 1995:
F-17
<PAGE>
1996 1995
----- -----
Risk-free interest rate 6.4% 6.0%
Expected dividend yield 0.0% 0.0%
Expected lives 6 years 6 years
Expected volatility 45.0% 45.0%
The total values of the options granted during the years ended December
31, 1996 and 1995 were computed as approximately $808,000 and $563,000,
respectively, which would be amortized over the vesting period of the
options. If the Company had accounted for these plans in accordance with
SFAS No. 123, the Company's net income and net income per share would
have been reduced to the following pro forma amounts:
1996 1995
----- -----
Net income:
As reported $3,319 $3,030
Pro forma 3,167 3,003
Net income per share:
As reported $0.81 $0.76
Pro forma 0.77 0.75
F-18
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT, dated as of December 20, 1996 (together with
all supplements, annexes, exhibits and schedules hereto hereinafter referred to
as the "Lease"), between General Electric Capital Corporation, with an office at
3379 Peachtree Rd., N.E., #400, Atlanta, GA 30326 (hereinafter called, together
with its successors and assigns, if any, "Lessor") and Metrotrans Corporation, a
corporation organized and existing under the laws of the State of Georgia with
its mailing address and chief place of business at 777 Greenbelt Parkway,
Griffin, GA 80223 (hereinafter called "Lessee").
WITNESSETH:
----------
1. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees to
lease to Lessee, and Lessee agrees to lease from Lessor, the aircraft, including
the airframe, engines and all appurtenant equipment (together hereinafter the
"Aircraft") described in Annex A.
(b) The obligation of Lessor to purchase the Aircraft from the
manufacturer or supplier thereof ("Supplier") and to lease the same to Lessee
hereunder shall be subject to the Commencement Date of the Lease, as that term
is hereinafter defined in Section II, occurring on or prior to the Last Delivery
Date specified in Annex B, on the representations and warranties of Lessee
contained herein being true and accurate as of the Commencement Date and
further conditioned on receipt by Lessor, on or prior to the Commencement Date,
of each of the following documents in form and substance satisfactory to Lessor:
(i) a copy of this Lease executed by Lessee,; (ii) copies of insurance policies
or, at Lessor's option, such other evidence of insurance which complies with the
requirements of Section IX, (iii) evidence of Lessee's reservation of an N
number for the Aircraft together with an assignment of the rights thereto to
Lessor; (iv) evidence that the Aircraft has been duly certified as to type and
airworthiness by the Federal Aviation Administration ("FAA"); (v) evidence that
FAA counsel has received in escrow the executed bill of sale and AC Form 8050-1
Aircraft Registration Form (except for the pink copy which shall be available to
be placed on the Aircraft upon acceptance thereof), and an executed duplicate of
this Lease all in proper form for filing with the FAA; (vi) a completed
inspection and/or survey with respect to the Aircraft in accordance with the
requirements set forth in the Certificate of Acceptance; and (vii) such other
documents as Lessor may reasonably request including a Purchase Document
Assignment and Consent in the form of Annex C. Lessor's obligation to lease
<PAGE>
the Aircraft hereunder is further conditioned upon (aa) the cost to Lessor of
the acquisition of the Aircraft not exceeding the Original Funding Amount stated
on Annex A; (bb) upon delivery of the Aircraft. Lessee's execution and delivery
to Lessor of a Certificate of Acceptance in the form of Annex D; and (cc)
filing of all necessary documents with, and the acceptance thereof by, the FAA.
(c) Subject to the aforestated conditions, upon execution by Lessee of the
Certificate of Acceptance, the Aircraft described thereon shall be deemed to
have been delivered to, and irrevocably accepted by, Lessee for lease hereunder.
II. TERM, RENT AND PAYMENT:
(a) The rent ("Rent") payable hereunder and Lessee's right to use the
Aircraft shall commence on the date of execution by Lessee of the Certificate of
Acceptance ("Commencement Date"). The term ("Term") of this Lease shall commence
on the Commencement Date and shall continue, unless earlier terminated pursuant
to the provisions hereof, until and including the Expiration Date stated in
Annex B. If any term is extended or renewed, the word "Term" shall be deemed to
refer to all extended or renewal terms, and all provisions of this Lease shall
apply during any extension or renewal terms, except as may be otherwise
specifically provided in writing.
(b) Rent shall be paid to Lessor at its address stated above, except as
otherwise directed by Lessor. Payments of Rent shall be in the amount, payable
at such intervals and shall be due in accordance with the provisions of Annex B.
(Each payment of Rent is hereinafter referred to as a "Rent Payment".) If one or
more Advance Rent is payable, such Advance Rent shall be (i) set forth on Annex
B and due in accordance with the provisions of Annex B, and (ii) when received
by Lessor, applied to the first Basic Term Rent Payment as set forth on Annex B
and the balance, if any, to the final Rent Payment(s), in inverse order of
maturity. In no event shall any Advance Rent or any other Rent Payment be
refunded to Lessee. If Rent is not paid within ten (10) days of its due date,
Lessee agrees to pay a late charge of five cents ($.05) per dollar on, and in
addition to, the amount of such Rent but not exceeding the lawful maximum, if
any.
(c) For the period from and including the Commencement Date to the Basic
Term Commencement Date ("Interim Period") stated in Annex B, Lessee shall pay as
Rent ("Interim Rent") for the Aircraft, the product of the Daily Lease Rate
Factor stated in Annex B times the Original Funding Amount of same stated in
Annex B times the number of days in the Interim Period. Interim Rent shall be
due on the date stated in Annex B.
<PAGE>
(d) Commencing on the First Basic Term Rent Date stated in Annex B and
thereafter as stated in Annex B (each, a "Rent Payment Date") during the Basic
Term, Lessee shall pay as Rent ("Basic Term Rent") the product of the Basic Term
Lease Rate Factor stated in Annex B times the Original Funding Amount stated in
Annex B. Said rent consists of principal and interest components as provided in
Annex B attached hereto.
III. TAXES: Lessee shall have no liability for taxes imposed by the United
States of America or any State or political subdivision thereof which are on or
measured by the net income of Lessor. Lessee shall report (to the extent that it
is legally permissible) and pay promptly all other taxes, fees and assessments
due, imposed, assessed or levied against the Aircraft (or the purchase,
ownership, delivery, leasing, possession, use or operation thereof), this Lease
(or any rentals or receipts hereunder), Lessor or Lessee by any foreign,
federal, state or local government or taxing authority during or related to the
Term of this Lease, including, without limitation, all license and registration
fees, and all sales, use, personal property, excise, gross receipts, franchise,
stamp, value added, customs duties, landing fees, airport charges, navigation
service charges, route navigation charges or other taxes, imposts, duties and
charges, together with any penalties, fines or interest thereon (all hereinafter
called "Taxes"). Lessee shall (a) reimburse Lessor upon receipt of written
request (which, if applicable, shall include an itemization of Taxes) for
reimbursement for any Taxes charged to or assessed against Lessor, (b) on
request of Lessor, submit to Lessor written evidence of Lessee's payment of
Taxes, and (c) on all reports or returns show the ownership of the Aircraft by
Lessor, and send a copy thereof to lessor.
IV. REPORTS: Lessee will provide Lessor with the following in writing within
the time periods specified: (a) notice of tax or other lien which attaches to
the Aircraft within ten (10) days of Lessee's obtaining knowledge of such
attachment and such additional information with respect to the tax or lien
forthwith upon request of Lessor; (b) Lessee's balance sheet and profit and loss
statement (or Lessee's 10-K report if Lessee is, at that time, required to file
such a report with the Securities and Exchange Commission) within ninety (90)
days of the close of each fiscal year of Lessee, and any further financial
information or reports, upon request; (c) notice to Lessor of the Aircraft's
location, and the location of all information, logs, documents and records
regarding or in respect to the Aircraft and its use, maintenance and/or
condition, immediately upon request; (d) notice to Lessor of the relocation of
the Aircraft's primary hangar location, ten (10) days prior to any relocation;
(e) notice of loss or damage to the Aircraft (where the estimated repair costs
would exceed 10% of the Aircraft's then fair market value) within ten (10) days
of such loss or damage; (f) notice of any accident involving the Aircraft
causing personal injury or property damage within ten (10) days of such
accident; (g) copies of the insurance policies or other evidence of insurance
required by the terms hereof, promptly upon request by Lessor; (h) copies of all
<PAGE>
information, logs, documents and records regarding or in respect to the Aircraft
and its use, maintenance and/or condition, within ten (10) days of such request;
(i) beginning on the first anniversary of the commencement of this Lease and
continuing annually thereafter, a certificate of the authorized officer of
Lessee stating that he has reviewed the activities of Lessee and that, to the
best of his knowledge, there exists no default (as described in Section XI) or
event which with notice or lapse of time (or both) would become such a default;
(j) such information as may be required to enable Lessor to file any reports
required by any governmental authority as a result of Lessor's ownership of the
Aircraft, promptly upon request of Lessor; (k) copies of any manufacturer's
maintenance service program contract for the airframe or engines, promptly upon
request; (l) evidence of Lessee's compliance with FAA airworthiness directives
and advisory circulars and of compliance with other maintenance provisions of
Section VI hereof and the return provisions of Section X, upon request of
Lessor; and (m) such other reports as Lessor may reasonably request.
V. DELIVERY, REGISTRATION, USE AND OPERATION:
(a) Lessee, at its own cost and expense, shall cause the Aircraft to be
duly registered in the name of Lessor under the U.S. Federal Aviation Act and
shall not register the Aircraft under the laws of any other country.
(b) The possession, use and operation of the Aircraft shall be at the sole
risk and expense of Lessee. Lessee acknowledges that it accepts full operational
control of the Aircraft. Lessee agrees that the Aircraft will be used and
operated in material compliance with any and all statutes, laws, ordinances,
regulations and standards or directives issued by any governmental agency
applicable to the use or operation thereof, in material compliance with any
airworthiness certificate, license or registration relating to the Aircraft
issued by any agency and in a manner that does not modify or impair any existing
warranties on the Aircraft or any part thereof. Lessee will operate the Aircraft
primarily in the conduct of its business and will not operate or permit the
Aircraft to be operated (i) in a manner wherein the predominance of use during
any consecutive twelve month period would be for a purpose other than
transportation for Lessee, or in a manner, for any time period, such that Lessor
or a third party shall be deemed to have "operational control" of the Aircraft,
or (ii) for the carriage of persons or property for hire or the transport of
mail or contraband. The Aircraft will, at all times be operated by duly
qualified pilots holding at least a valid airline commercial pilot certificate
and instrument rating and any other certificate, rating, type rating or
endorsement appropriate to the Aircraft, purpose of flight, condition of flight
or as otherwise required by the Federal Aviation Regulations ("FAR"). Pilots
shall be employed and/or paid and contracted for by Lessee, shall meet all
recency of flight requirements and shall meet the requirements established and
specified by the insurance policies required hereunder and the FAA. The primary
hangar location of the Aircraft
<PAGE>
shall be as stated in Annex B. Lessee shall not relocate the primary hangar
location to a hangar location outside the United States.
(c) AT ALL TIMES DURING THE TERM OF THE LEASE, LESSEE AGREES NOT TO
OPERATE OR LOCATE THE AIRCRAFT, OR SUFFER OR PERMIT THE AIRCRAFT TO BE OPERATED,
LOCATED, OR OTHERWISE PERMITTED TO GO INTO OR OVER ANY COUNTRY OR JURISDICTION
THAT DOES NOT MAINTAIN FULL DIPLOMATIC RELATIONS WITH THE UNITED STATES, ANY
AREA OF HOSTILITIES, ANY GEOGRAPHIC AREA WHICH IS NOT COVERED BY THE INSURANCE
POLICIES REQUIRED BY THIS LEASE, OR ANY COUNTRY OF JURISDICTION FOR WHICH
EXPORTS OR TRANSACTIONS ARE SUBJECT TO SPECIFIC RESTRICTIONS UNDER ANY UNITED
STATES EXPORT OR OTHER LAW OR UNITED NATIONS SECURITY COUNSEL DIRECTIVE,
INCLUDING WITHOUT LIMITATION: THE TRADING WITH THE ENEMY ACT, 50 U.S.C. APP.
SECTION 1 ET SEQ., THE INTERNATIONAL EMERGENCY ECONOMIC POWERS ACT, 50 U.S.C
APP. SECTIONS 1701 ET SEQ., THE EXPORT ADMINISTRATION ACT, 50 U.S.C APP.
SECTIONS 2401 ET SEQ. AND THE GENERAL LICENSE GATS, AIRCRAFT ON TEMPORARY
SOJOURN, 15 C.F.R. 771.19 OR TO OTHERWISE VIOLATE, OR SUFFER OR PERMIT THE
VIOLATION OF, SUCH LAWS OR DIRECTIVES. LESSEE ALSO AGREES TO PROHIBIT ANY
NATIONAL OF SUCH RESTRICTED NATIONS FROM OPERATING THE AIRCRAFT. Lessee
represents and warrants that it does not on this date hold a contract or other
obligation to operate the Aircraft in any of the following countries: Cuba,
Iraq, Libya, North Korea, and the Federal Republic of Yugoslavia (Serbia and
Montenegro) and Angola. The engines set forth on Annex A shall be used only on
the airframe described in Annex A and shall only be removed for maintenance in
accordance with the provisions hereof.
VI. MAINTENANCE:
(a) Lessee agrees that the Aircraft will be maintained in compliance with
any and all statutes, laws, ordinances, regulations and standards or directives
issued by any governmental agency applicable to the maintenance thereof, in
compliance with any airworthiness certificate, license or registration relating
to the Aircraft issued by any agency and in a manner that does not modify or
impair any existing warranties on the Aircraft or any part thereof, except where
such failure to comply will not have a material adverse effect on the value of
the Aircraft or the rights or remedies of the Lessor hereunder.
(b) Lessee shall maintain, inspect, service, repair, overhaul and test the
Aircraft (including each engine of same) in accordance with (i) all maintenance
manuals initially furnished with the Aircraft, including any subsequent
amendments or supplements to such manuals issued by the manufacturer from time
to time, (ii) all mandatory or otherwise required or
<PAGE>
recommended "Service Bulletins" issued, supplied, or available by or through
the manufacturer of the airframe and/or the manufacturer of any engine or part
with respect to the Aircraft, (iii) all airworthiness directives issued by the
FAA or similar regulatory agency having jurisdictional authority, and causing
compliance to such directives or circulars to be completed through corrective
modification in lieu of operating manual restrictions, and (iv) all maintenance
requirements set forth in Annex F hereto. Lessee shall maintain all records,
logs and other materials required by the manufacturer thereof for enforcement of
any warranties or by the FAA. All maintenance procedures required hereby shall
be undertaken and completed in accordance with the manufacturer's recommended
procedures, and by properly trained, licensed, and certificated maintenance
sources and maintenance personnel, so as to keep the Aircraft and each engine in
as good operating condition as when delivered to Lessee hereunder, ordinary wear
and tear excepted, and so as to keep the Aircraft in such operating condition as
may be necessary to enable the airworthiness certification of such Aircraft to
be maintained in good standing at all times under the FAA.
(c) Lessee agrees, at its own cost and expense, to (i) cause the Aircraft
and each engine thereon to be kept numbered with the identification or serial
number therefor as specified Annex A; (ii) prominently display on the Aircraft
that N number, and only that N number, specified in Annex A; (iii) notify Lessor
in writing thirty (30) days prior to making any change in the configuration
(other than changes in configuration mandated by the FAA), appearance and
coloring of the Aircraft from that in effect at the time the Aircraft is
accepted by Lessee hereunder, and in the event of such change or modification of
configuration, coloring or appearance, to restore, upon request of Lessor, the
Aircraft to the configuration, coloring or appearance in effect on the
Commencement Date or, at Lessor's option to pay to Lessor an amount equal to the
reasonable cost of such restoration, (iv) affix and maintain inside the Aircraft
adjacent to the airworthiness certificate and on each engine a metal nameplate
bearing the Aircraft marking specified in Annex A and such other markings or
writings as from time to time may be required by law or otherwise deemed
necessary by Lessor in order to protect its title to the Aircraft and its rights
hereunder. Lessee will not place the Aircraft in operation or exercise any
control or dominion over the same until such Aircraft marking has been placed
thereon. Lessee will replace promptly any such Aircraft marking which may be
removed, defaced or destroyed.
(d) Lessee shall be entitled from time to time during the Term of this
Lease to acquire and install on the Aircraft at Lessee's expense, any additional
accessory, device or equipment as Lessee may desire (each such accessory, device
or equipment, an "Addition"), but only so long as such Addition (i) is ancillary
to the Aircraft; (ii) is not required to render the Aircraft complete for its
intended use by Lessee; (iii) does not alter or impair the originally intended
function or use of the Aircraft; and (iv) can be readily removed without causing
<PAGE>
material damage. Title to each Addition which is not removed by Lessee prior to
the return of the Aircraft to Lessor shall vest in Lessor upon such return.
Lessee shall repair all damage to the Aircraft resulting from the installation
or removal of any Addition so as to restore the Aircraft to its condition prior
to installation, ordinary wear and tear excepted.
(e) Any alteration or modification (each an "Alteration") with respect to
the Aircraft that may at any time during the Term of this Lease be required to
comply with any applicable law or any governmental rule or regulation shall be
made at the expense of Lessee. Any repair made by Lessee of or upon the Aircraft
or replacement parts, including any replacement engine, installed thereon in the
course of repairing or maintaining the Aircraft, or any Alteration required by
law or any governmental rule or regulation, shall be deemed an accession, and
title thereto shall be immediately vested in Lessor without cost or expense to
Lessor.
(f) Except as permitted under this Section VI, Lessee will not modify the
Aircraft or affix or remove any accessory to the Aircraft leased hereunder.
VII. LIENS, SUBLEASE AND ASSIGNMENT:
(a) LESSEE SHALL NOT SELL, TRANSFER, ASSIGN OR ENCUMBER THE AIRCRAFT, ANY
ENGINE OR ANY PART THEREOF OR ITS RIGHTS UNDER THIS LEASE AND SHALL NOT SUBLET,
CHARTER OF PART WITH POSSESSION OF THE AIRCRAFT OR ANY ENGINE OR PART THEREOF OR
ENTER INTO ANY INTERCHANGE AGREEMENT. Lessee shall not permit any engine to be
used on any other Aircraft. Lessee shall keep the Aircraft, each engine and any
part thereof free and clear of all liens and encumbrances other than those which
result from (i) the respective rights of Lessor and Lessee as herein provided;
(ii) liens arising from the acts of Lessor; (iii) liens for taxes not yet due;
and (iv) inchoate materialmen's, mechanics', workmen's, repairmen's, employees'
or other like liens arising in the ordinary course of business of Lessee for
sums not yet delinquent or being contested in good faith (and for the payment of
which adequate assurances in Lessor's judgment have been provided Lessor).
(b) Lessor and any assignee of Lessor may assign this Lease, or any part
hereof and/or the Aircraft subject hereto. Lessee hereby waives and agrees not
to assert against any such assignee, or assignee's assigns, any defense,
set-off, recoupment claim or counterclaim which Lessee has or may at any time
have against Lessor for any reason whatsoever.
VIII. LOSS, DAMAGE AND STIPULATED LOSS VALUE: Lessee hereby assumes and
shall bear the entire risk of any loss, theft, confiscation, expropriation,
requisition, damage to, or destruction of, the Aircraft, any engine
<PAGE>
or part thereof from any cause whatsoever. Lessee shall promptly and fully
notify Lessor in writing if the Aircraft, or any engine(s) thereto shall be or
become worn out, lost, stolen, confiscated, expropriated, requisitioned,
destroyed, irreparably damaged or permanently rendered unfit for use from any
cause whatsoever (such occurrences being hereinafter called "Casualty
Occurrences"). In the event that, in the opinion of Lessor, a Casualty
Occurrence has occurred which affects only the engine(s) of the Aircraft, then
Lessee, at its own cost and expense, shall replace such engine(s) with an
engine(s) acceptable to Lessor and shall cause title to such engine(s) to be
transferred to Lessor for lease to Lessee hereunder. Upon transfer of title to
Lessor of such engine(s), such engine(s) shall be subject to the terms and
conditions of this Lease, and Lessee shall execute whatever documents or filings
Lessor deems necessary and appropriate in connection with the substitution of
such replacement engine(s) for the original engine(s). In the event that, in the
opinion of Lessor, a Casualty Occurrence has occurred in respect to the Aircraft
in its entirety, on the Rent Payment Date next succeeding a Casualty Occurrence
(the "Payment Date"), Lessee shall pay Lessor the sum of (a) the Stipulated Loss
Value as set forth in Annex E calculated as of the Rent Payment Date immediately
preceding such Casualty Occurrence; and (b) all Rent and other amounts which are
due hereunder as of the Payment Date. Upon payment of all sums due hereunder,
the Term of this Lease as to the Aircraft shall terminate and Lessee shall be
entitled to recover possession of the salvage thereof.
IX. INSURANCE: Lessee shall secure and maintain in effect at its own expense
throughout the Term hereof insurance against such hazards and for such risks as
Lessor may reasonably direct in accordance with customary industry practice. All
such insurance shall be with companies reasonably satisfactory to Lessor.
Without limiting the generality of the foregoing, Lessee shall maintain (a)
breach of warranty insurance, (b) liability insurance covering public liability
and property, cargo and environmental damage, in amounts not less than twenty
(20) million U.S. dollars for any single occurrence, (c) all-risk aircraft hull
and engine insurance (including, without limitation, foreign object damage
insurance) in an amount which is not less than the then Stipulated Loss Value,
and (d) confiscation and war risk insurance. All insurance shall name the Lessor
as owner of the Aircraft and as loss payee and additional insured (without
responsibility for premiums) and shall provide that any cancellation or
substantial change in coverage shall not be effective as to the Lessor for
thirty (30) days after receipt by Lessor of written notice from such insurer(s)
of such cancellation or change, shall insure Lessor's interest regardless of any
breach or violation by Lessee of any warranties, declarations or conditions in
such policies, shall include a severability of interest clause providing that
such policy shall operate in the same manner as if there were a separate policy
covering each insured, shall waive any right of set-off against Lessee or
Lessor, and shall waive any rights of subrogation against Lessor. Such insurance
shall be primary and not be subject to any offset by any other insurance carried
by Lessor or Lessee. Lessee
<PAGE>
hereby appoints Lessor as Lessee's attorney-in-fact to make proof of loss and
claim for and to receive payment of and to execute or endorse all documents,
checks or drafts in connection with all policies of insurance in respect of the
Aircraft. Any expense of adjusting or collecting insurance proceeds shall be
borne by Lessee. So long as Lessee has not exercised any option to purchase the
Aircraft, Lessor may, at its option, apply proceeds of insurance, in whole or in
part, to (i) repair or replace the Aircraft or any part thereof or (ii) satisfy
any obligation of Lessee to Lessor hereunder. Any balance remaining shall be
paid to Lessee.
X. RETURN OF AIRCRAFT:
(a) On the date of expiration or termination of this Lease (the "Return
Date"), Lessee, at its own expense, will return the Aircraft and shall deliver
all logs, loose equipment, manuals and data associated with the Aircraft,
including without limitation inspection, modification and overhaul records
required to be maintained with respect thereto under this Lease or under the
applicable rules and regulations of the FAA and under the manufacturer's
recommended maintenance program, along with a currently effective FAA
airworthiness certificate to Lessor to any location within the continental
United States as Lessor shall direct. Lessee shall, upon request, assign to
Lessor its rights under any manufacturer's maintenance service contract or
extended warranty for the Aircraft, any engine or part thereof. All expenses for
return of the Aircraft and delivery of the aforementioned logs, manuals and data
shall be borne by Lessee. The Aircraft shall be returned in the condition in
which the Aircraft is required to be maintained pursuant to Section VI hereof,
but with all logos or other identifying marks of Lessee removed. Additionally,
Lessee shall assure that the Aircraft complies in all material respects with all
requirements and conditions set forth on Annex F hereto.
(b) Lessor shall arrange for the inspection by an independent inspector
mutually agreeable to Lessor and Lessee of Aircraft on the Return Date to
determine if the Aircraft has been maintained and returned in accordance with
the provisions hereof. Lessee shall be responsible for the reasonable and
customary cost of such inspection and shall pay Lessor such amount as additional
Rent within ten (10) days of demand for same. In the event that the results of
such inspection indicate that the Aircraft, any engine thereto or part thereof,
has not been maintained or returned in accordance with the provisions hereof,
Lessee shall pay to Lessor within ten (10) days of demand, as liquidated
damages, the estimated cost ("Estimated Cost") of servicing or repairing the
Aircraft, engine or part. The Estimated Cost shall be determined by Lessor by
obtaining two quotes for such service or repair work and taking the average of
same. Lessee shall bear the reasonable cost, if any, incurred by Lessor in
obtaining such quotes.
<PAGE>
(c) If Lessee fails to return the Aircraft on termination or expiration
of the Term, Lessor shall be entitled to damages equal to the higher of (i) the
Rent for the Aircraft, pro-rated on a per diem basis, for each day the Aircraft
is retained in violation of the provisions hereof; or (ii) the daily fair market
rental for the Aircraft at termination or expiration, as applicable. Such
damages for retention of Aircraft after termination or expiration of the Term
shall not be interpreted as an extension or reinstatement of the Term.
(d) All of Lessor's rights contained in this Section shall survive the
expiration or other termination of this Lease.
XI. EVENTS OF DEFAULT: The term "Event of Default", wherever used herein, shall
mean any of the following events under this Lease, whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary, or come about
or be effected by operation of law, or be pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body: (a) Lessee shall fail to make any payment
of Rent or any other sum payable hereunder within ten (10) days after the same
shall become due; or (b) Lessee shall fail to keep in full force and effect
insurance required under this Lease; or (c) Lessee shall or shall attempt to
(except as expressly permitted by the provisions of this Lease) remove, sell,
transfer, encumber, part with possession of, assign or sublet the Aircraft, any
engine or any part thereof, use the Aircraft for an illegal purpose, or permit
the same to occur; or (d) Lessee shall fail to perform or observe any covenant,
condition or agreement not included within (a), (b) or (c) above which is
required to be performed or observed by it under this Lease or any agreement,
document or certificate delivered by Lessee in condition herewith, and such
failure shall continue for twenty (20) days after written notice thereof from
Lessor to Lessee; or (e) any representation or warranty made by Lessee in this
Lease or any agreement, document or certificate delivered by Lessee in
connection herewith or pursuant hereto shall prove to have been incorrect in any
material respect when any such representation or warranty was made or given (or,
if a continuing representation or warranty, at any material time); or (f) Lessee
or any guarantor shall generally fail to pay its debts as they become due or
shall file a voluntary petition in bankruptcy or voluntary petition or an answer
seeking reorganization in a proceeding under any bankruptcy laws (as now or
hereafter in effect) or an answer admitting the material allegations of a
petition filed against Lessee or any guarantor hereof in any such proceeding, or
Lessee or any guarantor shall, by voluntary petition, answer or consent, seek
relief under the provisions of any other now existing or future bankruptcy or
other similar law (other than a law which does not provide for or permit the
readjustment or alteration of Lessee's obligations hereunder or any guarantor
hereof's obligations) providing for the reorganization or liquidation of
corporations, or providing for an agreement, composition, extension or
adjustment with its creditors; or (g) a petition is filed against Lessee or any
guarantor in a
<PAGE>
proceeding under applicable bankruptcy laws or other insolvency laws (other than
any law which does not provide for or permit any readjustment or alteration of
Lessee's obligations hereunder or any guarantor hereof's obligations in each
case), as now or hereafter in effect, and is not withdrawn or dismissed within
sixty (60) days thereafter, or if, under the provisions of any law (other than
any law which does not provide for or permit any readjustment or alteration of
Lessee's obligations hereunder or any guarantor hereof's obligations in each
case) providing for reorganization or liquidation of corporations which may
apply to Lessee or any guarantor hereof, any court of competent jurisdiction
shall assume jurisdiction, custody or control of Lessee or any guarantor hereof
or of any substantial part of such party's property and such jurisdiction,
custody or control shall remain in force unrelinquished, unstayed or
unterminated for a period of sixty (60) days; or (h) Lessee breaches or is in
default under any other agreement by and between Lessor and Lessee; or (i) there
is a material adverse change in the financial condition of Lessee or any
guarantor hereof from the time of execution hereof.
XII. REMEDIES:
(a) Upon the occurrence of any Event of Default and so long as the same
shall be continuing, Lessor may, at its option, at any time thereafter, exercise
one or more of the following remedies, as Lessor in its sole discretion shall
lawfully elect: (i) demand that Lessee forthwith pay as liquidated damages, for
loss of a bargain and not as a penalty, an amount equal to the Stipulated Loss
Value of the Aircraft, computed as of the Basic Rent Date immediately preceding
such demand together with all Rent and other amounts due and payable for all
periods up to and including the Basic Term Rent Date following the date on which
Lessor made its demand for liquidated damages (Upon receipt by Lessor of all
such sums, including applicable taxes, this Lease shall terminate and Lessor
will assign, and transfer all of its rights, title and interest in the Aircraft
AS-IS, WHERE-IS, without any warranty or representation to Lessee); (ii) demand
that Lessee pay all amounts due for failure to maintain or return the Aircraft
as provided herein and cause Lessee to assign to Lessor Lessee's rights under
any manufacturer's service program contract or any extended warranty contract in
force for the Aircraft; (iii) proceed by appropriate court action, either at law
or in equity, to enforce the performance by Lessee of the applicable covenants
of this Lease or to recover damages for breach hereof; (iv) by notice in writing
terminate this Lease, whereupon all rights of Lessee to use of the Aircraft or
any part thereof shall absolutely cease and terminate, and Lessee shall
forthwith return the Aircraft in accordance with Section X, but Lessee shall
remain liable as provided in Section X; (v) request Lessee to return the
Aircraft to a designated location in accordance with Section X; (vi) enter the
premises, with or without legal process, where the Aircraft is believed to be
and take possession thereof; (vii) sell or otherwise dispose of the Aircraft at
private or public sale, in bulk or in parcels, with or without notice, and
without having the Aircraft present
<PAGE>
at the place of sale; (viii) lease or keep idle all or part of the Aircraft;
(ix) use Lessee's premises for storage pending lease or sale or for holding a
sale without liability for rent or costs; (x) collect from Lessee all costs,
charges and expenses, including reasonable legal fees and disbursements,
incurred by Lessor by reason of the occurrence of any Event of Default or the
exercise of Lessor's remedies with respect thereto; (xi) in the case of a
failure of Lessee to comply with any provision of this Lease, Lessor may effect
such compliance, in whole or in part, and collect from Lessee as additional
Rent, all monies spent and expenses incurred or assumed by Lessor in effecting
such compliance; and/or (xii) declare any Event of Default under the terms of
this Lease to be a default under any agreement between Lessor and Lessee.
(b) The foregoing remedies are cumulative, and any or all thereof may be
exercised in lieu of or in addition to each other or any remedies at law, in
equity, or under statute.
(c) Lessor shall have the right to any proceeds of sale, lease or other
disposition of the Aircraft, if any, and shall have the right to apply same in
the following order of priorities: (i) to pay all of Lessor's costs, charges and
expenses incurred in enforcing its rights hereunder or in taking, removing,
holding, repairing, selling, leasing or otherwise disposing of the Aircraft;
then, (ii) to the extent not previously paid by Lessee, to pay Lessor all sums
due from Lessee hereunder; then (iii) to reimburse to Lessee any sums previously
paid by Lessee as liquidated damages hereunder; and (iv) any surplus shall be
retained by Lessee. Lessee shall pay any deficiency in (i) and (ii) forthwith.
(d) Waiver of any Event of Default shall not be a waiver of any other or
subsequent Event of Default. Lessor's effecting compliance in accordance with
subsection (a)(xi) hereof shall not constitute a waiver of an Event of Default.
The failure or delay of Lessor in exercising any rights granted it hereunder
upon any occurrence of any of the contingencies set forth herein shall not
constitute a waiver of any such right upon the continuation or recurrence of any
such contingencies or similar contingencies and any single or partial exercise
of any particular right by Lessor shall not exhaust the same or constitute a
waiver of any other right provided for in this Lease.
XIII. NET LEASE; NO SET-OFF, ETC: This Lease is a net lease. Lessee's
obligation to pay Rent and other amounts due hereunder shall be absolute and
unconditional. Lessee shall not be entitled to any abatement or reduction of, or
set-offs against, said Rent or other amounts, including, without limitation,
those arising or allegedly arising out of claims (present or future, alleged or
actual, and including claims arising out of strict tort of negligence of Lessor)
of Lessee against Lessor under this Lease or otherwise. Nor shall this Lease
terminate or the obligations of Lessee be affected by reason of any defect in or
damage to, or loss of possession, use or destruction of, the Aircraft from
whatsoever cause. It
<PAGE>
is the intention of the parties that Rent and other amounts due hereunder shall
continue to be payable in all events in the manner and at the times set forth
herein unless the obligation to do so shall have been terminated pursuant to the
express terms hereof.
XIV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor,
its agents, employees, successors and assigns from and against any and all
losses, damages, penalties, injuries, claims, actions and suits, including
reasonable legal expenses or outside counsel actually incurred, of whatsoever
kind and nature, in contract or tort, whether caused by the active or passive
negligence of Lessor or otherwise (except for gross negligence or willful
misconduct), and including, but not limited to, Lessor's strict liability in
tort, arising out of (i) the selection, manufacture, purchase, acceptance or
rejection of the Aircraft, the ownership of Aircraft during the Term of this
Lease, and the delivery, lease, possession, maintenance, use, condition, return
or operation of the Aircraft (including, without limitation, latent and other
defects, whether or not discoverable by Lessor or Lessee and any claim for
patent, trademark or copyright infringement), or (ii) the condition of the
Aircraft sold or disposed of after use by Lessee, any sublessee or employees of
Lessee. Lessee shall, upon request, defend any actions based on, or arising out
of, any of the foregoing.
(b) All of Lessor's rights, privileges and indemnities contained in this
Section shall survive the expiration or other termination of this Lease and the
rights, privileges and indemnities contained herein are expressly made for the
benefit of, and shall be enforceable by Lessor, its successors and assigns.
XV. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE AIRCRAFT
WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND THAT LESSOR IS
LEASING THE AIRCRAFT IN AN "AS IS" CONDITION. LESSOR DOES NOT MAKE, HAS NOT
MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION,
EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE AIRCRAFT LEASED
HEREUNDER OR ANY COMPONENT THEREOF, OR ANY ENGINE INSTALLED THEREON, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY AS TO CONDITION, AIRWORTHINESS, DESIGN,
COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP,
MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between
Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing.
Lessor shall have no responsibility or liability to Lessee or any other person
with respect to any of the following, regardless of any negligence of Lessor (i)
any liability, loss or damage caused or alleged to be caused directly or
<PAGE>
indirectly by any Aircraft, any inadequacy thereof, any deficiency or defect
(latent or otherwise) therein, or any other circumstance in connection
therewith; (ii) the use, operation or performance of any Aircraft or any risks
relating thereto; (iii) any interruption of service, loss of business or
anticipated profits or consequential damages; or (iv) the delivery, operation,
servicing, maintenance, repair, improvement or replacement of any Aircraft. If,
and so long as, no default exists under this Lease, Lessee shall be, and hereby
is, authorized during the Term to assert and enforce, at Lessee's sole cost and
expense, from time to time, in the name of and for the account of Lessor and/or
Lessee, as their interests may appear, whatever claims and rights Lessor may
have against any Supplier of the Aircraft.
XVI. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and
warrants to Lessor that on the date hereof and at all times during the Term
hereof:
(a) Lessee has adequate power and capacity to enter into, and perform
under, this Lease and all related documents (together, the "Documents") and is
duly qualified to do business wherever necessary to carry on its present
business and operations, including the jurisdiction(s) where the Aircraft is or
is to have its primary hangar location, except where failure to so qualify would
not have a material adverse effect on the value of the Aircraft or the rights
and remedies of Lessor hereunder.
(b) The Documents have been duly authorized, executed and delivered by
Lessee and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies therein provided may be limited under applicable bankruptcy insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by general principles or equity.
(c) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into or
performance by Lessee of the Documents except such as have already been
obtained.
(d) The entry into and performance by Lessee of the Documents will not:
(i) to Lessee's knowledge, violate any judgment, order, law or regulation
applicable to Lessee or any provision of Lessee's Certificate of Incorporation
or By-Laws; or (ii) result in any breach of, constitute a default under or
result in the creation of any lien, charge, security interest or other
encumbrance upon any Aircraft pursuant to any indenture, mortgage, deed of
trust, bank loan or credit agreement or other instrument (other than this Lease)
to which Lessee is a party.
<PAGE>
(e) There are no suits or proceedings pending or threatened in court or,
to Lessee's before any commission, board or other administrative agency against
or affecting Lessee, which will have a material adverse effect on the ability of
Lessee to fulfil its obligations under this Lease.
(f) The Aircraft is and will remain tangible personal property,
(g) Lessee has received a copy of the inspection/survey completed in
accordance with Section I hereof. Since the date thereof, there has not
occurred any material change in the configuration or condition of the Aircraft
(except such modifications or repairs specified in such inspection/survey as
being necessary to undertake) and neither engine has accrued more than fifty
(50) operating hours since the date of such inspection/survey.
(h) Each Balance Sheet and Statement of Income delivered to Lessor has
been prepared in accordance with generally accepted accounting principles, and
since the date of the most recent such Balance Sheet and Statement of Income,
there has been no material adverse change.
(i) Lessee is and will be at all times validly existing and in good
standing under the laws of the State of its incorporation (specified in the
first sentence of this Lease) and Lessee is and will continue to be a "Citizen
of the United States" within the meaning of Section 101(16) of the Federal
Aviation Act. Lessee shall not consolidate, reorganize or merge with any other
corporation or entity or sell, convey, transfer or lease all or substantially
all of its property during the Term hereof.
(j) The chief executive office or chief place of business (as either of
such terms is used in Article 9 of the Uniform Commercial Code) of Lessee is
located at the address set forth above, and Lessee agrees to give Lessor prior
written notice of any relocation of said chief executive office or chief place
of business from its present location.
(k) A copy of this Lease, and a current and valid AC Form 8050-I will be
kept on the Aircraft at all times during the Term of this Lease.
(l) Lessee has selected the Aircraft, manufacturer and vendor thereof, and
all maintained facilities required hereby.
(m) Lessee shall maintain all logs, books and records (including any
computerized maintenance records) pertaining to the Aircraft and engines and
their maintenance during the Term in accordance with FAA rules and regulations.
<PAGE>
(n) Lessee shall not operate the Aircraft under Part 135 of the Federal
Aviation Regulations without the prior written approval of Lessor.
(o) Lessee shall notify the FAA forth-eight (48) hours prior to the first
flight of the Aircraft under this Lease.
XVII. EARLY TERMINATION:
On or after the Basic Term Commencement Date (specified in the applicable
Schedule), Lessee may terminate this Agreement as of a rent payment date
("Termination Date") upon at least 90 days prior written notice to Lessor. On
the Termination Date, Lessee shall pay to Lessor (A) the Termination Value
(calculated as of the Termination Date) for the Aircraft, and (B) all rent and
other sums due and unpaid as of the Termination Date. Upon satisfaction of the
requirements specified in this Section XVIII, Lessor will sell the Aircraft to
Lessee, on an "AS IS, WHERE IS BASIS" without recourse or warranty from Lessor,
express or implied ("AS IS BASIS").
XVIII. END OF LEASE OPTIONS.
So long as the Lease has not been earlier terminated, Lessee shall, at
least ninety (90) days and not more than one hundred and eighty (180) days prior
to the scheduled expiration of the term of this Lease, by written notice to
Lessor, elect to exercise one of the below options:
(a) Purchase the Aircraft on an AS IS WHERE IS BASIS without recourse to
or warranty from Lessor, express or implied ("AS IS BASIS"), for cash for a
purchase price equal to the End Of Lease Purchase Price (specified in Annex B),
together with all rent and other sums then due and unpaid on such date, plus all
taxes and charges upon such sale (Lessor hereby agrees that if Lessee shall
exercise this purchase option, Lessor shall reassign all rights to the N number
to Lessee, and if Lessee does not exercise this option, Lessor shall reassign
all rights to the N number to Lessee provided that Lessee obtains, at its sole
expense, a new N number for the Aircraft); or
(b) Return the Aircraft in accordance with the terms of Section X hereof
and Annex F hereof. If Lessee desires to exercise this option it shall (i) pay
to Lessor on the last day of the term of this Lease in addition to all other
sums then due hereunder, an amount in cash equal to the Contingent Rental Amount
(as specified in Annex B) and (ii) return the Aircraft to Lessor. Thereafter,
Lessor will arrange for the commercially reasonable sale, scrap or other
disposition of the Aircraft. Upon the sale, scrap or other disposition of the
Aircraft, Lessor shall thereafter pay to Lessee in cash an amount equal to the
sum of:
<PAGE>
(i) the Reciprocal Amount (as specified in Annex B) (less any taxes and
charges paid on the disposition of such Aircraft and all reasonable
and documented costs, expenses and fees, including storage,
maintenance and remarketing fees incurred in connection with the
dale, scrap or disposition of such Aircraft); plus
(ii) 100% of the net proceeds of such sale or disposition that are in
excess of the Reciprocal Amount.
XX. OWNERSHIP FOR TAX PURPOSES: GRANT OF SECURITY INTEREST.
(a) For federal, state, local and other jurisdictional tax purposes, the
parties hereto agree that it is their mutual intention that Lessee shall be
considered the owner of the Aircraft. Accordingly, Lessor agrees (i) to treat
Lessee as the owner of the Aircraft on its federal income tax return, (ii) not
to take actions or positions inconsistent with such treatment on or with respect
to its federal income tax return, and (iii) not to claim any tax benefits
available to an owner of the Aircraft on or with respect to its federal income
tax return. The foregoing undertakings by Lessor shall not be violated by
Lessor's taking a tax position inconsistent with the foregoing sentence to the
extent such position is required by law or is taken through inadvertence so long
as such inadvertent tax position is reversed by Lessor promptly upon its
discovery. Lessor shall in no event be liable to Lessee if Lessee fails to
secure any of the tax benefits available to the owner of the Aircraft.
(b) The parties hereto agree that the transactions contemplated herein are
intended as a lease; provided, however, to provide for the contingency of a
determination for other reasons that the lease so intended nonetheless creates a
security interest, Lessee grants to Lessor.
(i) to secure the prompt payment and performance as and when due of
all obligations and indebtedness of Lessee, now existing or hereafter created,
to Lessor pursuant to this Lease, the documents executed and delivered by the
Lessee in connection herewith or otherwise, a first priority security interest
in all right, title and interest Lessee may now have or may hereafter acquire
in, to and under the Aircraft and all accessions, substitutions and replacements
thereto and therefor, and proceeds (cash and non-cash), including insurance
proceeds thereof and in furtherance of the foregoing, Lessee shall (A) execute
and deliver to Lessor, to be recorded at Lessee's expense, Uniform Commercial
Code financing statements, statements of amendment and statements of
continuation as reasonably may be required by Lessor to perfect and maintain
perfected the first priority security interest granted by Lessee herein and (B)
execute and deliver, to be recorded at Lessee's expense, any such forms and
documents as reasonably may be required by Lessor to evidence
<PAGE>
Lessor's title to and security interest in any item of Aircraft which is covered
by a certificate of title issued under a statute of any applicable jurisdiction.
(c) To the extent that this Lease and/or Annex B would constitute chattel
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest herein or therein may be
created through the transfer or possession of this Lease in and of itself
without the transfer or possession of the original of an Annex B executed
pursuant to this Lease and incorporating the Lease by reference; and no security
interest in this Lease and an Annex B may be created by the transfer or
possession of any counterpart of Annex B other than the original thereof, which
shall be identified as the document marked "Original" and all other counterparts
shall be marked "Duplicate" or "Copy".
(d) It is the intention of the parties hereto to comply with any
applicable usury laws to the extent that the Lease is determined to be subject
to such laws; accordingly, it is agreed that, notwithstanding any provision to
the contrary in this Lease, in no event shall this Lease require the payment or
permit the collection of interest in excess of the maximum amount permitted by
applicable law. If any such excess interest is contracted for, charged or
received under this Lease, or in the event that all of the principal balance
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received this Lease shall exceed the maximum amount
of interest permitted by applicable law, then in such event (A) the provisions
of this paragraph shall govern and control, (B) neither Lessee nor any other
person or entity now or hereafter liable for the payment hereof shall be
obligated to pay the amount of such interest to the extent that it is in excess
of the maximum amount of interest permitted by applicable law, (C) any such
excess which may have been collected shall be either applied as a credit against
the then unpaid principal balance or refunded to Lessee, at the option of the
Lessor, and (D) the effective rate of interest shall be automatically reduced to
the maximum lawful contract rate allowed under applicable law as now or
hereafter construed by the courts having jurisdiction thereof. It is further
agreed that without limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under this Lease which are made for
the purpose of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by applicable law, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the Lease, all interest at any time contracted for, charged or
received from Lessee or otherwise by Lessor during such term; provided, however,
that if any applicable state law is amended or the law of the United States of
America preempts any applicable state law, so that it becomes lawful for Lessor
to receive a greater interest per annum rate than is presently allowed, the
Lessee agrees that, on the effective date of such amendment or preemption, as
the case may be, the lawful maximum hereunder
<PAGE>
shall be increased to the maximum interest per annum rate allowed by the amended
state law or the law of the United States of America.
XXI. MISCELLANEOUS:
(a) Unless and until Lessee exercises its rights under Section XVII above,
nothing herein contained shall give or convey to Lessee any right, title or
interest in and to the Aircraft except as a lessee under this Lease. Any
cancellation or termination by Lessor, pursuant to the provisions of this Lease,
or any supplement or amendment hereto, or the lease of any Aircraft hereunder,
shall not release Lessee from any then outstanding obligations to Lessor
hereunder. All Aircraft shall at all times remain personal property of Lessor
regardless of the degree of its annexation to any real property and shall not by
reason of any installation in, or affixation to, real or personal property
become a part thereof.
(b) Time is of the essence of this Lease. Lessor's failure at any time to
require strict performance by Lessee of any of the provisions hereof shall not
waive or diminish Lessor's right thereafter to demand strict compliance
therewith. Lessee agrees, upon Lessor's request, to execute any instrument
necessary or expedient for filing, recording or perfecting the interest of
Lessor. All notices required to be given hereunder shall be deemed adequately
given if delivered in hand or sent by registered or certified mail to the
addressee at its address stated herein, or at such other place as such
addressee may have designated in writing. This Lease and any Annexes hereto
constitute the entire agreement of the parties with respect to the subject
matter hereof, and all Annexes referenced herein are incorporated herein by
reference. NO VARIATION OR MODIFICATION OF THIS LEASE OF ANY WAIVER OR ANY OF
ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF EACH PARTY HERETO.
/s/ J. G
---------
Initials
(c) LESSEE AND LESSOR HEREBY UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN
LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY
RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN
LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT
<PAGE>
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS).
THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS LEASE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
(d) Any Rent or other amount not paid to Lessor when due hereunder shall
bear interest, both before and after any judgment or termination hereof, at the
lesser of the implicit interest rate stated in Annex B plus five percent (5%)
per annum or the maximum rate allowed by law. Any provisions in this Lease which
are in conflict with any statute, law or applicable rule shall be deemed
omitted, modified or altered to conform thereto.
(e) In case of a failure of Lessee to comply with any provision of this
Lease, Lessor shall have the right, but shall not be obligated to, effect such
compliance, in whole or in part; and all moneys spent and expenses and
obligations incurred or assumed by Lessor in effecting such compliance shall
constitute additional rent due to Lessor within five (5) days after the date
Lessor sends notice to Lessee requesting payment. Lessor's effecting such
compliance shall not be a waiver of Lessee's default.
(f) Lessee shall, on or prior to the Commencement Date, pay to Lessor the
Administrative Fee, if any, specified on Annex B.
XXI. TRUTH-IN-LEASING:
(a) LESSEE HAS REVIEWED THE AIRCRAFT'S MAINTENANCE AND OPERATING LOGS
SINCE ITS DATE OF MANUFACTURE AND HAS FOUND THAT THE AIRCRAFT HAS BEEN
MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS.
LESSEE CERTIFIES THAT THE AIRCRAFT PRESENTLY COMPLIES WITH THE APPLICABLE
MAINTENANCE AND INSPECTION REQUIREMENTS OF PART 91 OF THE FEDERAL AVIATION
REGULATIONS.
(b) LESSEE CERTIFIES THAT LESSEE, AND NOT LESSOR, IS RESPONSIBLE FOR
OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF.
LESSEE FURTHER CERTIFIES THAT LESSEE UNDERSTANDS ITS RESPONSIBILITY FOR
COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
<PAGE>
(c) LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED
UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO BE CONDUCTED
UNDER THIS LEASE. LESSEE UNDERSTANDS THAT AN EXPLANATION OF FACTORS BEARING ON
OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED
FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION DISTRICT
OFFICE, OR AIR CARRIER DISTRICT OFFICE.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Lease to be executed
by their duly authorized representatives as of the date first above written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION METROTRANS
CORPORATION
By: /s/ John W. Gamber By: /s/ Michael Walden
-------------------- -------------------
Title: REGION MANAGER Title: President
----------------- -----------------
<PAGE>
ANNEX A
-------
Description of Aircraft, Lessor's Cost, and Aircraft Markings
- -------------------------------------------------------------
I. Description Cost
----------- ----
1979 Hawker Sidley, Model HS125-700 Aircraft which consists of the
following components:
(a) Airframe bearing FAA Registration Mark N746TS and Manufacturer's Serial
No. 257046;
(b) Garrett TFE-731-3R-1H engines bearing Manufacturer's Serial Nos. 84147
and 78143, respectively (each of which has 750 or more rated takeoff horsepower
or the equivalent of such horsepower);
(c) Standard accessories and optional equipment and such other items fitted
or installed on the Aircraft and set forth on Exhibit 1 to this Annex A.
(d) Those items of Lessee Furnished Aircraft described in a bill of sale or
bills of sale therefor (copies of which are appended hereto), delivered by
Lessee to Lessor which constitute appliances and equipment which will be
installed on the Aircraft;
(e) Sales Tax
(f) Other
Original Funding Amount $ 3,050,000.00
II. Aircraft Markings (referenced in Section VII of Lease)
(a) Four-by-six inch plaque to be maintained in cockpit and affixed in
conspicuous position stating:
GENERAL ELECTRIC CAPITAL CORPORATION Owner and Lessor. Metrotrans
Corporation Lessee under a certain Lease dated as of Dec. 20, 1996, has
operational control of this aircraft.
(b) Similar markings shall be permanently affixed to each engine.
Initials:
Lessee: /s/ M.W
--------
Lessor: /s/ J.G
--------
<PAGE>
ANNEX B
FINANCIAL TERMS
DATED THIS DEC. 20, 1996
TO MASTER LEASE AGREEMENT
DATED AS OF DEC. 20, 1996
Lessor & Mailing Address : Lessee & Mailing Address:
General Electric Capital Corporation Metrotrans Corporation
3379 Peachtree Rd., N.E., #400 777 Greenbelt Parkway
Atlanta, Georgia 30326 Griffin, Georgia 30223
Capitalized terms not defined herein shall have the meanings assigned to them in
the Master Lease Agreement identified above ("Agreement" said Agreement and this
Annex being collectively referred to as "Lease").
A. Aircraft. Pursuant to the terms of the Lease, Lessor agrees to acquire and
lease to Lessee the Aircraft listed on Annex A attached hereto and made a part
hereof.
B. Financial Terms.
1. Basic Term Commencement Date: DECEMBER 20, 1996.
2. Basic Term: 120 MONTHS.
3. Advance Rent:
(a) Amount: N/A
(b) Due Date: N/A
4. Interim Rent: Due Date: DECEMBER 20, 1996.
5. First Basic Rent Date: JANUARY 1, 1997.
6. Basic Rent Dates: FIRST OF THE MONTH
7. Early Purchase Date: N/A
8. Last Basic Rent Date: NOVEMBER 1, 2006.
9. Expiration Date: NOVEMBER 30, 2006.
10. Daily Lease Rate Factor: .00033585.
11. Basic Term Lease Rate Factor(s): .01007548.
12. Primary Hanger Location: GRIFFIN AIRPORT, GRIFFIN, GA
13. Last Delivery Date: DECEMBER 20, 1996.
14. Supplier/Vendor: AERO TOY STORE.
15. Lessee Federal Tax ID No.: 58-1393777.
<PAGE>
ANNEX B
FINANCIAL TERMS
DATED THIS DEC. 20, 1996
TO MASTER LEASE AGREEMENT
DATED AS OF DEC. 20, 1996
16. Base Index Rate: N/A
17. Reciprocal Amount: $329,000.00.
18. Contingent Rental Amount: $1,000,000.00.
19. End of Lease Purchase Price: $1,000.000.00.
20. Administrative Fee: $1,000.00.
21. Principal and Interest Amortization Schedule: See Exhibit A to Annex B
22. The implicit interest rate for this lease is: 7.68%
Except as expressly modified hereby, all terms and provisions of the Agreement
shall remain in full force and effect. This Annex B is not binding or effective
with respect to the Agreement or the Aircraft until executed on behalf of Lessor
and Lessee by authorized representatives of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Annex B to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL
CORPORATION METROTRANS CORPORATION
By: /s/ John W. Gamber By: /s/ Michael Walden
-------------------------- --------------------------
Name: JOHN W. GAMBER Name: MICHAEL WALDEN
------------------------- -------------------------
Title: REGION MANAGER Title: President
------------------------ ------------------------
ATTEST:
By: /s/ Gary G. Brigham
--------------------------
Name: GARY G. BRIGHAM
-------------------------
Initials:/s/ J.G /s/ M.W
---------- ---------
Lessor Lessee
Counterpart No. 1 of 1 Serially Numbered Manually Executed Counterparts. To the
extent, if any, that this document constitutes Chattel Paper under the Uniform
Commercial Code, no security interest may be created through the transfer and
possession of any counterpart other than Counterpart No. 1.
<PAGE>
EXHIBIT 11
METROTRANS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
NET INCOME $ 3,319 $ 3,030 $ 1,459
======= ======= =======
PRIMARY EARNINGS PER SHARE
Weighted average common and common equivalent
shares outstanding 4,014 3,985 3,698
Add - Dilutive effect of outstanding options (as
determined by the application of the treasury
stock method) 93 8 -
------- ------- -------
Weighted average common and common equivalent
shares outstanding 4,107 3,993 3,698
======= ======= =======
Primary earnings per share $0.81 $0.76 $0.39
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE
Weighted average common and common equivalent
shares outstanding 4,014 3,985 3,698
Add - Dilutive effect of outstanding options (as
determined by the application of the treasury
stock method) 110 18 -
------- ------- -------
Weighted average common and common equivalent
shares outstanding 4,124 4,003 3,698
======= ======= =======
Fully diluted earnings per share $0.80 $0.76 $0.39
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 23
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement Form S-8 (File No. 33-83678).
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 10,391
<ALLOWANCES> 282
<INVENTORY> 17,903
<CURRENT-ASSETS> 29,628
<PP&E> 8,861
<DEPRECIATION> 3,333
<TOTAL-ASSETS> 36,645
<CURRENT-LIABILITIES> 16,202
<BONDS> 0
0
0
<COMMON> 41
<OTHER-SE> 17,055
<TOTAL-LIABILITY-AND-EQUITY> 36,645
<SALES> 0
<TOTAL-REVENUES> 77,482
<CGS> 62,814
<TOTAL-COSTS> 71,291
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 736
<INCOME-PRETAX> 5,455
<INCOME-TAX> 2,136
<INCOME-CONTINUING> 3,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,319
<EPS-PRIMARY> .81
<EPS-DILUTED> 0
</TABLE>
