<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended July 4, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ______ to ______
Commission File Number 0-23808
METROTRANS CORPORATION
(Exact name of Registrant as specified in its charter)
Georgia 58-1393777
(State of Incorporation) (I.R.S. Employer
Identification No.)
777 Greenbelt Parkway, Griffin, Georgia 30223
(Address of principal executive offices, including zip code)
(770) 229-5995
(Registrant's telephone number, including area code)
_______________
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 twelve 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class Outstanding at August 18, 1999
Common Stock, $.01 Par Value 4,129,737 shares
</PAGE>
<PAGE>
METROTRANS CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended July 4, 1999
Table of Contents
Item Page
Number Number
______ ______
PART I. FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheets as of July 4, 1999 and
December 31, 1998 3
Consolidated Statements of Income for the three and six months
ended July 4, 1999 and July 5, 1998 4
Consolidated Statements of Cash Flows for the six months ended
July 4, 1999 and July 5, 1998 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
1. Legal Proceedings 16
3. Default Under Senior Securities 18
4. Submission of Matters to a Vote of Security Holders 19
5. Other Information 19
6. Exhibits and Reports on Form 8-K 20
Signature 21
Index of Exhibits 22
</PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
METROTRANS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, Except Share Data)
<TABLE>
<CAPTION>
July 4, December 31,
1999 1998
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 0 $ 0
Accounts Receivable, net of allowance for
doubtful accounts of $490 and $134 in 1999
and 1998, respectively 4,610 6,047
Current portion of net investment in
sales-type leases 71 256
Inventories 27,855 39,628
Refundable income taxes 214 2,229
Prepaid expenses and other 1,932 1,192
________ ________
Total current assets 34,682 49,352
PROPERTY, PLANT AND EQUIPMENT, net 8,252 8,902
NET INVESTMENT IN SALES-TYPE LEASES 115 130
INTANGIBLES 485 502
DEPOSITS AND OTHER 438 415
________ ________
$ 43,972 $ 59,301
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 15,224 $ 24,587
Current portion of long-term debt 21,831 2,236
Customer deposits 1,374 1,211
________ ________
Total current liabilities 38,429 28,034
________ ________
LONG-TERM DEBT, net of current portion 1,534 16,076
________ ________
OTHER NONCURRENT LIABILITIES 150 300
________ ________
STOCHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000
shares authorized 0 0
Common stock, $.01 par value; 20,000,000
shares authorized, 4,129,737 and 4,098,244
shares issued and outstanding in
1999 and 1998, respectively 41 41
Additional paid-in capital 10,824 10,673
Deferred compensation (53) (105)
Retained earnings (deficit) (6,953) 4,282
________ ________
3,859 14,891
________ ________
$ 43,972 $ 59,301
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
</PAGE>
<PAGE>
METROTRANS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
__________________ ________________
July 4, July 5, July 4, July 5,
1999 1998 1999 1998
_______ _______ ______ ______
<S> <C> <C> <C> <C>
NET REVENUE $ 19,755 $ 22,899 $ 37,222 $ 38,917
COST OF SALES 19,131 18,528 38,188 32,324
_________ _________ _________ _________
Gross Profit (Loss) 624 4,371 (966) 6,593
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,006 2,857 9,356 5,765
_________ _________ _________ _________
Operating Income (Loss) (4,382) 1,514 (10,322) 828
INTEREST EXPENSE, net 472 275 913 554
_________ _________ _________ _________
INCOME (LOSS) BEFORE
INCOME TAXES (4,854) 1,239 (11,235) 274
INCOME TAX
PROVISION (BENEFIT) 0 486 0 107
_________ _________ _________ _________
NET INCOME (LOSS) $ (4,854) $ 753 $ (11,235) $ 167
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ (1.18) $ 0.18 $ (2.73) $ 0.04
========= ========= ========= =========
Diluted $ (1.18) $ 0.18 $ (2.73) $ 0.04
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 4,130 4,084 4,117 4,084
========= ========= ========= =========
Diluted 4,130 4,121 4,117 4,121
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
</PAGE>
<PAGE>
METROTRANS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
__________________
July 4, July 5,
1999 1998
_______ _______
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (11,235) $ 167
_________ _________
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 883 351
Compensation under restricted stock award 52 52
Changes in assets and liabilities:
Accounts receivable 1,437 (4,140)
Inventories 11,773 (5,778)
Other assets 1,269 (91)
Accounts payable and accrued expenses (9,212) 4,494
Customer deposits 163 884
_________ _________
Total adjustments 6,365 (4,228)
_________ _________
Net cash (used in) provided by
operating activities (4,870) (4,061)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (233) (930)
Net decrease (increase) in property held for lease 0 214
Net decrease in investment in sales-type leases 200 349
_________ _________
Net cash (used in) investing activities (33) (367)
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) under line of credit (185) 0
Net increase (decrease) in collateralized borrowings 0 355
Net borrowings (repayments) of long-term debt 5,088 4,073
_________ _________
Net cash provided by (used in)
financing activities 4,903 4,428
_________ _________
INCREASE IN CASH 0 0
CASH AT BEGINNING OF PERIOD 0 50
_________ _________
CASH AT END OF PERIOD $ 0 $ 50
========= =========
CASH PAID FOR INTEREST $ 912 $ 260
========= =========
CASH PAID FOR TAXES $ 0 $ 0
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
</PAGE>
<PAGE>
METROTRANS CORPORATION
Notes to Consolidated Financial Statements
July 4, 1999
1. Basis of Presentation
The financial statements include the accounts of Metrotrans Corporation
and its Subsidiary (the "Company"). The financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and, therefore, omit certain information and
footnotes required by generally accepted accounting principles for complete
financial statements. Accordingly, these statements should be read in
conjunction with the Company's audited financial statements included in its
Annual Report on Form 10-K for the year ended December 31, 1998, filed with
the Securities and Exchange Commission.
In the opinion of management, the financial statements contain all
adjustments necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented. The
adjustments were of a normal recurring nature. Results presented for the six
months ended July 4, 1999 are not necessarily indicative of results that may
be expected for the full fiscal year.
2. Inventories
Inventories consist of (in thousands):
July 4, 1999 December 31, 1998
Chassis awaiting conversion $ 2,455 $ 3,958
Raw materials 5,476 6,061
Work in process 1,220 2,937
Finished goods 3,254 19,888
Used vehicles 5,450 6,784
_______ _______
$27,855 $39,628
6
</PAGE>
<PAGE>
3. Commitments and Contingencies
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 certain agreements with financial institutions 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 or certain other defined
conditions. The Company's aggregate potential liability under these
arrangements as of July 4, 1999 and December 31, 1998 was $17 million and $15
million, respectively. During the six months ended July 4, 1999, the Company
purchased buses totaling approximately $90,000 related to lease defaults and
litigation settlements on sales from prior periods. Purchases to date have
been or are expected to be sold to third parties at or above amounts
approximating the purchase price.
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. The Company is also
involved in other litigation that is discussed in Item 1 of Part II of this
Quarterly Report on Form 10-Q.
4. New Accounting Pronouncements
The Company has no Other Comprehensive Income Items as defined by SFAS
No. 130.
In July 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133 "Accounting for Derivative Instruments and for Hedging
Activities". The Company does not presently have any hedging operations.
7
</PAGE>
<PAGE>
5. Long-Term Debt
Effective April 12, 1999, the Company entered into an amended secured
revolving credit facility (the "Amended Facility"). Under the Amended
Facility, the Company obtained a waiver of all defaults which existed under
the unsecured credit facility. The Amended Facility provides a commitment of
up to $23 million, an increase of $3 million. Interest under the Amended
Facility is at prime. In connection with the Amended Facility, the Company
has pledged a security interest in substantially all of its assets. The $23
million commitment is subject to certain automatic reductions, including
reductions related to decreases in the Company's level of inventory and an
automatic reduction on December 31, 1999 to $20 million. Under the Amended
Facility, the Company is subject to certain financial covenants, including a
restriction on total capital expenditures of $500,000 in any calendar year, a
prohibition on the payment of any cash dividends, as well as restrictions on
maximum inventory levels and other covenants related to net income and
tangible net worth.
As a result of the second quarter loss, as of July 4, 1999, the Company
was not in compliance with certain financial covenants contained in the
Amended Facility, including financial covenants related to the maintenance of
specified levels of tangible net worth and net income. As of August 18,
1999, the Company has entered into a forbearance agreement with the lender
(the "Forbearance Agreement"), under which the lender has agreed to forbear
until September 30, 1999 from exercising its rights and remedies under the
Amended Facility with respect to the non-compliance. Upon the expiration of
the Forbearance Agreement, unless the Company obtains a waiver of the
noncompliance, or is able to negotiate amended terms to the Amended Facility,
the lender will be entitled to exercise its rights and remedies under the
Amended Facility which include ceasing additional advances under the Amended
Facility and/or demanding payment in full of the outstanding borrowings under
the Amended Facility. If the lender were to take any of these actions, the
Company's operations and financial condition will be materially and adversely
affected unless it is able to secure new third party financing under terms
and conditions reasonably satisfactory to the Company. The Company is
currently in discussions with the lender regarding an amendment to the terms
of the Amended Facility.
Additionally, pursuant to the terms of the Amended Facility, in August
1999, the total commitment under the Amended Facility was automatically
reduced by approximately $670,000. The Company has entered into a Fifth
Amendment to the Company's credit facility (the "Fifth Amendment") which
contains a technical correction to the method used to determine the amount of
the August 1999 commitment reduction.
The foregoing is not a complete description of the terms of the
Forbearance Agreement or the Fifth Amendment or the transactions contemplated
thereby and is subject to and qualified in its entirety by reference to the
Forbearance Agreement and the Fifth Amendment, which are filed as Exhibits
10.2 and 10.3 hereto respectively.
8
</PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
In addition to historical information, this Quarterly Report on Form 10-
Q contains "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 (the "Securities Act"), as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
When used in this report, the words "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan" and similar
expressions or statements regarding future periods are intended to identify
forward-looking statements. All forward-looking statements are inherently
uncertain as they are based on various expectations and assumptions
concerning future events, which by their nature involve substantial risks and
uncertainties beyond Metrotrans Corporation's control. Among other things,
these risks and uncertainties include: the availability of third party lending
on terms favorable to the Company; changes in price and demand for the
Company's products; the ability of the Company to attract and retain qualified
management, manufacturing and sales personnel; the ability to control
manufacturing costs, overhead and Selling, General and Administrative expenses;
the effects of competition; changes in accounting policies and practices; the
ability of the
Company, its vendors, suppliers and customers to be Year 2000 compliant; the
ability to complete the implementation of a manufacturing cost accounting
system; the ability to obtain chassis and other materials on a timely basis on
terms acceptable to the Company; and the ability to satisfactorily resolve
litigation and vendor claims. Forward-looking statements may also be made in
Metrotrans Corporation's other reports filed under the Exchange Act, press
releases, and other documents; as well as by management in oral statements.
Metrotrans Corporation undertakes no obligation to update or revise any
forward-looking statements for events or
circumstances after the date on which such statement is made. New factors
emerge from time to time, and it is not possible for Metrotrans Corporation
to predict all of such factors. Further, Metrotrans Corporation cannot
assess the impact of each such factor on its business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Overview
The Company was incorporated in 1982 for the purpose of designing,
manufacturing and marketing shuttle and mid-size buses. After the
introduction of the Classic( in 1986, the Company experienced significant
growth in unit sales and revenues but total unit sales have decreased over
the past three years, primarily due to a decrease in sales of Classic models
for transit use offset somewhat by the introduction of new products. The
Company's product development strategy is to design and introduce new
products after clearly identifying a market need based, in large part, on
suggestions made by existing and potential customers. This approach resulted
in the introduction of the Eurotrans( in 1990, the Eurotrans XLT( and the
Classic II( in 1992, the Classic Commuter( in 1993, the Legacy LJ by
Metrotrans( in 1996, the Anthem( in 1997, and the Classic XLT ( in 1998.
The Anthem (tm) product line is still under development and no sales have been
made. Metrotrans began exclusive marketing of the Irizar Century for North
America in 1997 with the first deliveries occurring in the second quarter of
1998.
9
</PAGE>
<PAGE>
Results of Operations
The Company's results for the first quarter and first six months of
operations were adversely affected by a number of factors, including a change
in management personnel involving The Mayflower Corporation plc ("Mayflower")
representatives who occupied key management positions in the Company from
November 1998 to February 1999 and the medical leave of D. Michael Walden,
Chairman and CEO. Mayflower also was obligated under its loan agreement with
the Company to lend it up to $15 million. As of December 31, 1998, the
Company had borrowed $1.9 million under this agreement and in January 1999
requested additional advances under the agreement. Mayflower refused to make
advances as required under the loan agreement and their personnel, who
occupied key management positions, left the Company. These two occurrences
caused significant problems for the Company, including liquidity problems.
The liquidity problems caused concern to customers, vendors and the financing
institutions, which provide financing for the Company's new bus sales. In
some cases, vendors slowed or stopped deliveries of parts and customers
deferred or cancelled orders. Accordingly, production schedules could not be
met, buses could not be delivered as planned, and production levels had to be
curtailed. As a result, the Company's margins and net income have decreased
significantly. The Company entered into an amended secured revolving credit
arrangement with its primary lender on April 12, 1999. In addition, due to
the illness of the Chairman of the Board and Chief Executive Officer, as well
as the departure of the Mayflower management team, it was necessary for the
Company to employ an interim Chief Executive Officer in March 1999. The
Company named a new permanent Chief Executive Officer in July 1999.
During the second quarter of 1999, plans for significant reductions in
ongoing costs (manufacturing overhead, selling, general and administrative
costs) were implemented. In addition, reductions in direct labor personnel
were accomplished and reorganization of the manufacturing process was
initiated and is expected to be completed in the third quarter. The total
number of employees at July 4, 1999 was 332 as compared to 374 at December
31, 1998. A review of cash, inventory and accounts payable management has
taken place during the second quarter and inventories and accounts payable
have been reduced significantly since year end ($11.8 million and $9.4
million respectively). The changes referred to above were necessary and were
facilitated by additional borrowings of $3.0 million and required the use of
outside consultants as well as legal advisors to deal with the numerous legal
(including Mayflower) and other operational matters which required immediate
and significant attention. See "Part II, Item I - Legal Proceedings" for
further information regarding litigation.
A review of the sales and internal organization was completed in late
July 1999 and a corporate-wide internal reorganization of Senior Management
was implemented at that time, as was the hiring of a new Chief Financial
Officer, Mr. David Brewer in August, 1999.
10
</PAGE>
<PAGE>
Irizar sales in the first six months were less than originally planned,
and sales for the third and fourth quarter are also expected to be below the
prior year primarily because of the Company's cash constraints. Management
is currently discussing with Irizar future production and sales issues. In
addition, the Company has met with Irizar representatives and our chassis
supplier (Spartan) and it's suppliers to determine the need for and type of
corrective action on various mechanical problems which have occurred on
certain Irizar buses previously sold. Customers have been notified of these
steps and corrective action will be taken on the buses beginning in the third
quarter.
Ford Motor Company (the Company's primary supplier for chassis) notified
the Company on May 21, 1999 that they were reviewing their payment terms with
the Company. The Company has satisfactorily concluded those discussions and
continues to receive all chassis ordered (but with some delays as a result of
Ford's production schedules), paying Ford dealers as agreed upon for current
as well as prior chassis deliveries. In addition, the Company is now
negotiating a new credit facility with Ford Motor Credit Corp which is
expected to result in more favorable repayment terms than were previously
granted to the Company.
In order to continue to reduce the existing inventory of used buses (406
units at December 31, 1998 compared with 341 units at July 4, 1999), and in
recognition of the increased competition, the Company has initiated a new
marketing plan for used buses. More used bus inventory will be moved out of
the Bus Pro location in McDonough, Georgia to various sales office locations
throughout the United States for direct selling from these regional offices.
Inventory carrying values were reduced to facilitate faster inventory
turnover of the used and demonstrator buses.
11
</PAGE>
<PAGE>
The following table sets forth, as a percentage of net revenue, the
relationship of selected items included in the Company's income statement for
the periods indicated.
Three Months Ended Six Months Ended
July 4, July 5, July 4, July 5,
1999 1998 1999 1998
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 96.8 80.9 102.6 83.1
Gross profit (loss) 3.2 19.1 (2.6) 16.9
Selling, general and
administrative expenses 25.3 12.5 25.1 14.8
Operating Income (Loss) (22.1) 6.6 (27.7) 2.1
Interest expense 2.4 1.2 2.5 1.4
Income (Loss)
before income taxes (24.5) 5.4 (30.2) 0.7
Income tax provision 0 2.1 0 0.3
Net Income (24.5)% 3.3 % (30.2)% 0.4%
Net Revenue. Net revenue decreased 13.7% to $19.8 million for the
quarter ended July 4, 1999 from $22.9 million for the comparable prior year
period and decreased 4.4% to $37.2 million during the first six months of
1999 from $38.9 million over the same six-month period in 1998.
The decrease in revenue in the second quarter of 1999 is primarily due
to the decrease in Irizar sales in that quarter. In the second quarter of
1998 (when the Irizar was first introduced), 11 units were sold for $3.6
million, while in the second quarter of 1999, only 2 Irizars were sold and
were higher than in the first quarter of 1999 when total manufactured sales
were 209 units.
Unit sales in the second quarter of 1999 of 263 Classics, 14 Eurotrans
and 12 Legacy LJ by Metrotrans were virtually the same as the second quarter
of the prior year.
Irizar sales for the second quarter and the first six months decreased
as a result of financing issues caused by Mayflower's refusal to fund it's
commitments which began during the last quarter of 1998 and continued through
the current quarter. As a result the sales backlog for Irizars existing as
of December 31, 1998 was dissipated and sales efforts were limited.
Used bus sales decreased in the second quarter from $2.9 million in 1998
to $2.2 million in 1999 or a decrease of 24.2% and for the first six months
decreased from $5.9 million to $3.4 million or 42.4%. The sales results of
1999 were lower in both quarters of 1999 because of more competitive used bus
markets in 1999.
12
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<PAGE>
Production backlog at the end of the second quarter of 1999 was
approximately $29 million for buses to be manufactured in the U.S. This
compares with a backlog of approximately $30 million at the end of the second
quarter of 1998, exclusive of Irizar backlog at July 5, 1998 of $13 million.
There is no current firm backlog for Irizar sales but the Company is meeting
with certain key customers regarding future orders.
Cost of Sales and Gross Profit. Gross profit declined to $624 thousand
in the second quarter of 1999 from $4.371 million in the second quarter of
1998. For the first six months of 1999, gross loss was $966 thousand
compared to a profit of $6.593 million for the same period in 1998.
The decrease in gross profit in the second quarter was due to a number
of factors including a decrease of approximately $700,000 on margin earned on
the Irizar sales in the second quarter of 1998 versus the second quarter of
1999 and the related decrease in finance income of $400,000 in 1999 on
financing fees earned on Irizar and other lease transactions in 1998. In
addition, approximately $3.6 million of manufactured buses sold in the second
quarter of 1999 were units manufactured in the fourth quarter of 1998 or in
some cases the first quarter of 1999 with virtually no gross profit. If
these 1999 second quarter sales had a margin similar to the margin realized
in the second quarter of 1998 (19%), the gross margin in the second quarter
of 1999 would have been increased by approximately $775,000. The reasons
these units carried no margin in the second quarter of 1999 were as a result
of the losses incurred in the prior two quarters.
During the second quarter, efforts were made to reduce manufacturing
costs, including direct labor and overhead and improving production
throughput. As a result, the gross profit for the second quarter (3.2%)
offset some of the loss reported in the first quarter resulting in a 2.6%
loss on the margin line for the six months ended July 4, 1999 as compared to
the profit for the six months ended July 5, 1998 of 16.9%. The decrease
between years was caused by the factors mentioned above for the second
quarter, and also because of the manufacturing issues discussed previously
under "Results of Operations." The total amount of new bus sales for the six
month period with little or no margin (as described above) was approximately
$10 million (approximately $1.9 million in lost margin).
In addition, because of the Company's need for liquidity and conversion
of receivables and inventory into cash, the Company has reduced its carrying
value of its used bus and demonstrator inventory by approximately $1.1
million in 1999 to facilitate more timely sales.
13
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<PAGE>
Selling, General and Administrative Expenses and Operating Income.
Selling, general and administrative expenses for the second quarter of 1999
were approximately $5.0 million or an increase of $2.1 million over the
corresponding quarter in 1998. Substantially all of the increases are due
to: (1) significant professional fees for counsel and "management turnaround"
consultants incurred because of significant litigation and operating and
financial issues ($0.9 million), (2) write-off of old receivables and other
assets, providing for lease guarantees from prior years sales where lessees
have or are expected to default on obligations the Company has guaranteed or
adjusting carrying values of assets ($1.3 million) and (3) severance pay and
contractual payments to employees no longer active with the Company ($0.2
million). These increases have been partially offset by other selling
expense reductions.
Selling, general and administrative expenses for the first six months of
1999 were approximately $9.4 million or an increase of $3.6 million over the
prior year for the reasons described above. For the six months ended July 4,
1999, the total adjustments to carrying values of assets and provisions for
losses were $2.6 million and professional fees totaled $1.5 million.
Interest Expense. Interest expense of $475,000 in the second quarter of
1999 increased 70.0% from $275,000 for the prior year's comparable quarter
and increased from $554,000 to $911,000 through the six months ending July 4,
1999 as compared to the same time period in 1998. The increase for the
quarter primarily was the net result of a reduction in the amount of interest
paid to Ford Motor Credit Corporation ("FMCC") for chassis held under its
consignment pool agreement in excess of an initial 90-day non-interest
bearing period, an increase in the overall rate of interest paid on
borrowings under terms of the revised revolving credit facility, and an
increase in the average balance outstanding under the facility during the
quarter.
Liquidity and Capital Resources
Net cash used in operating activities during the six months ended July
4, 1999 totaled $4.9 million compared with cash used in operating activities
of $4.1 million in the comparable 1998 period. Decreases in accounts
receivable and inventory of $11.8 million and $1.4 million, respectively, and
a reduction by a $9.2 million in accounts payable, were primarily responsible
for the cash used in operating activities during the period. The decrease in
inventory resulted primarily from the sales of finished goods inventory, a
reduction of raw materials and work in process inventory and net reductions
in the used bus and demonstrator inventory.
Under the Amended Facility, the Company is limited in Capital
Expenditures and will be required to use substantially all cash flow to fund
future operations and reduce outstanding debt.
The Company does not anticipate receiving any additional funding under
the Mayflower Agreement nor does the Company intend to repay the existing
$1.9 million advance made under the Mayflower Loan Agreement pending
resolution of the pending litigation between the parties.
14
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<PAGE>
Effective April 12, 1999, the Company entered into an amended secured
revolving credit facility (the "Amended Facility"). Under the Amended
Facility, the Company obtained a waiver of all defaults which existed under
the unsecured credit facility. The Amended Facility provides a commitment of
up to $23 million, an increase of $3 million. Interest under the Amended
Facility is at prime. In connection with the Amended Facility, the Company
has pledged a security interest in substantially all of its assets. The $23
million commitment is subject to certain automatic reductions, including
reductions related to decreases in the Company's level of inventory and an
automatic reduction on December 31, 1999 to $20 million. Under the Amended
Facility, the Company is subject to certain financial covenants, including a
restriction on total capital expenditures of $500,000 in any calendar year, a
prohibition on the payment of any cash dividends, as well as restrictions on
maximum inventory levels and other covenants related to net income and
tangible net worth.
As a result of the second quarter loss, as of July 4, 1999, the Company
was not in compliance with certain financial covenants contained in the
Amended Facility, including financial covenants related to the maintenance of
specified levels of tangible net worth and net income. As of August 18,
1999, the Company has entered into a forbearance agreement with the lender
(the "Forbearance Agreement"), under which the lender has agreed to forbear
until September 30, 1999 from exercising its rights and remedies under the
Amended Facility with respect to the non-compliance. Upon the expiration of
the Forbearance Agreement, unless the Company obtains a waiver of the
noncompliance, or is able to negotiate amended terms to the Amended Facility,
the lender will be entitled to exercise its rights and remedies under the
Amended Facility which include ceasing additional advances under the Amended
Facility and/or demanding payment in full of the outstanding borrowings under
the Amended Facility. If the lender were to take any of these actions, the
Company's operations and financial condition will be materially and adversely
affected unless it is able to secure new third party financing under terms
and conditions reasonably satisfactory to the Company. The Company is
currently in discussions with the lender regarding an amendment to the terms
of the Amended Facility.
Additionally, pursuant to the terms of the Amended Facility, in August
1999, the total commitment under the Amended Facility was automatically
reduced by approximately $670,000. The Company has entered into a Fifth
Amendment to the Company's credit facility (the "Fifth Amendment") which
contains a technical correction to the method used to determine the amount of
the August 1999 commitment reduction.
15
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<PAGE>
Year 2000 Issues. Like many other companies, the year 2000 computer
issue creates risks for the Company. If internal systems do not correctly
recognize and process date information beyond the year 1999, there could be
an adverse impact on the Company's operations. There are two other related
issues, which could also lead to incorrect calculations or failures; (i) some
systems' programming assigns special meaning to certain dates, such as
9/9/99, and (ii) the fact that the year 2000 is a leap year. The Company's
manufacturing and distribution operations are not critically dependent on any
mainframe, mini-computer or personal computer-based systems or software
applications. The Company is implementing a plan to modify its information
technology for the year 2000. During the past two years, the Company has
implemented a program designed to update its information systems. Although
the implementation of the program primarily is intended to provide better
operating systems and accounting, inventory and production controls, the
Company has been aware of the year 2000 issues in its selection of hardware
and software. The third party vendors that have supplied new hardware and
software have informed the Company that the new systems and software are year
2000 compliant. The Company has experienced some delays in the
implementation and integration of the new systems; although the Company has
completed and tested substantially all of the major systems which have been
made Y2K compliant and anticipates that the balance of existing systems will
made Y2K compliant and be operational prior to December 31, 1999. The cost
to complete this process is expected to be less than $25,000. As of July 4,
1999, the Company has incurred approximately $27,000 in year 2000 expenses.
The amount may increase as additional information is obtained to complete the
replacement and conversion process.
The Company is also assessing the impact of the year 2000 issue on its
major vendors and suppliers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own year 2000
issues. Based on information presently available, the Company does not
anticipate any material impact on its financial condition or results of
operations from the effect of the year 2000 issue or the Company's internal
systems or those of its major suppliers and customers. However, there can be
no guarantee that the systems of other companies on which the Company's
system rely will be brought to compliance, or that a failure to convert by
another company would not have a material adverse impact on the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Jerry J. Schweiner v. Metrotrans Corporation, Superior Court for
Spalding, State of Georgia, Civil Action File No. 98-CV-1994. In November,
1998, the Company gave notice of termination of Jerry J. Schweiner's
employment with the Company. Mr. Schweiner had served as President and Chief
Operating Officer of the Company since April 1998. On December 29, 1998, Mr.
Schweiner filed a Complaint against the Company alleging that the Company
wrongfully terminated him in violation of his employment contract with the
Company. In July 1999, Mr. Schweiner and the Company, without either party
admitting liability, reached an agreement settling the lawsuit. In
connection with the settlement, the Company has agreed to pay Mr. Schweiner
$87,500.00 in six installments.
16
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<PAGE>
Metrotrans Corporation v. The Mayflower Corporation, plc, and Mayflower
(U.S. Holdings), Inc., United States District Court for the Northern District
of Georgia, Atlanta Division, Case No. 1:99-CV-0681-WBH. On March 15, 1999,
the Company filed a Complaint against Defendants Mayflower, and its
subsidiary, Mayflower (U.S. Holdings), Inc. In its Complaint, the Company
seeks compensatory damages in excess of $4,682,000, punitive damages, and
specific performance of the Mayflower Agreement and the Loan Agreement
between the Company and the Defendants based on theories of breach of
contract, quantum meruit, promissory estoppel, breach of fiduciary duty, and
fraudulent misrepresentation and concealment. The Company's Complaint is
based in part on the fact that Mayflower has refused to fund additional loans
to the Company under the Loan Agreement or to pay a fee for the Company's
provision of material assistance, at Mayflower's request, in connection with
Mayflower's acquisition of Dennis Group, plc. On April 14, 1999, the
Mayflower Defendants filed their Answer and Counterclaim, as well as a Motion
to Join Indispensable Parties seeking to add seven of the Company's current
or former officers or directors. The Company has opposed the Mayflower
Defendants' Motion to Join Indispensable Parties, but, before the Company was
able to respond to the Mayflower Defendants' Counterclaim, the Mayflower
Defendants filed an Amended Counterclaim. In the Amended Counterclaim, filed
May 3, 1999, the Mayflower Defendants seek either rescission of the Mayflower
Agreement and the Loan Agreement, or compensatory and punitive damages, based
on seven causes of action: securities fraud under Federal and Georgia law,
common law fraud, negligent misrepresentation, breach of contract and a
derivative claim for breach of fiduciary duties. On May 27, 1999, the
Company filed its Motion to Dismiss the Mayflower Defendants' Amended
Counterclaim. The Company's Motion is fully briefed, and the parties are
awaiting the Court's decision. In light of the Company's pending Motion to
Dismiss, the Court has entered into an order staying all discovery in the
case.
Demand Under O.C.G.A. 14-2-742. On July 29, 1999, Michael Stucchio,
one of the Company's shareholders, demanded through his counsel that the
Company file a lawsuit against certain individual officers and directors for
their alleged breaches of fiduciary duty and usurpation of corporate
opportunities. On August 10, 1999, the Board considered Mr. Stuccio's demand
and determined that it was in the best interests of the Company to constitute
a special litigation committee to investigate and evaluate the demand. The
special litigation committee will shortly begin its investigation.
17
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<PAGE>
The Company from time to time is a party to other legal proceedings
arising out of and incidental to the operations of the Company. However,
management does not anticipate that any of such other proceedings will have a
material adverse effect on its financial condition or results of operations.
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. 3. Default Upon Senior Securities
Effective April 12, 1999, the Company entered into an amended secured
revolving credit facility (the "Amended Facility"). Under the Amended
Facility, the Company obtained a waiver of all defaults which existed under
the unsecured credit facility. The Amended Facility provides a commitment of
up to $23 million, an increase of $3 million. Interest under the Amended
Facility is at prime. In connection with the Amended Facility, the Company
has pledged a security interest in substantially all of its assets. The $23
million commitment is subject to certain automatic reductions, including
reductions related to decreases in the Company's level of inventory and an
automatic reduction on December 31, 1999 to $20 million. Under the Amended
Facility, the Company is subject to certain financial covenants, including a
restriction on total capital expenditures of $500,000 in any calendar year, a
prohibition on the payment of any cash dividends, as well as restrictions on
maximum inventory levels and other covenants related to net income and
tangible net worth.
As a result of the second quarter loss, as of July 4, 1999, the Company
was not in compliance with certain financial covenants contained in the
Amended Facility, including financial covenants related to the maintenance of
specified levels of tangible net worth and net income. As of August 18,
1999, the Company has entered into a forbearance agreement with the lender
(the "Forbearance Agreement"), under which the lender has agreed to forbear
until September 30, 1999 from exercising its rights and remedies under the
Amended Facility with respect to the non-compliance. Upon the expiration of
the Forbearance Agreement, unless the Company obtains a waiver of the
noncompliance, or is able to negotiate amended terms to the Amended Facility,
the lender will be entitled to exercise its rights and remedies under the
Amended Facility which include ceasing additional advances under the Amended
Facility and/or demanding payment in full of the outstanding borrowings under
the Amended Facility. If the lender were to take any of these actions, the
Company's operations and financial condition will be materially and adversely
affected unless it is able to secure new third party financing under terms
and conditions reasonably satisfactory to the Company. The Company is
currently in discussions with the lender regarding an amendment to the terms
of the Amended Facility.
Additionally, pursuant to the terms of the Amended Facility, in August
1999, the total commitment under the Amended Facility was automatically
reduced by approximately $670,000. The Company has entered into a Fifth
Amendment to the Company's credit facility (the "Fifth Amendment") which
contains a technical correction to the method used to determine the amount of
the August 1999 commitment reduction.
18
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The 1999 Annual Meeting of Stockholders of the Company was held on June
8, 1999. Proxies were solicited under Regulation 14A of the Securities
Exchange Act of 1934, as amended, with regard to the election of directors
named below to serve until the 2000 Annual Meeting of Stockholders. There
was no solicitation in opposition to any of the nominees listed in the proxy
statement, and all of the nominees were elected. Set forth below are the
results of the voting.
NOMINEES VOTES
For Withheld
Patrick L. Flinn 2,277,110 80,275
William C. Pitt III 2,277,110 80,275
D. Michael Walden 2,316,567 40,818
Item 5. Other Information
Recent Events
Effects of Continued Listing on NASDAQ. On May 14, 1999, the Company was
notified by the administrative staff of NASDAQ AMEX that the Company's Common
Stock has failed to maintain the minimum market value of public float in
accordance with NASDAQ Marketplace Rule 4450(a)(2). The Company was afforded
90 calendar days (up to August 16, 1999) in which to regain compliance with
Marketplace Rule 4450(a)(2). If the Company was unable to demonstrate
compliance by that date, the Company's securities may be delisted from
trading on the NASDAQ National Market. The Company has requested a hearing
with NASDAQ representatives to review the Company's continued listing and a
hearing is currently scheduled for September 16, 1999. In the event that the
Company's stock is delisted from the NASDAQ National Market, the Company
would apply to list the Common Stock on the NASDAQ SmallCap Market, the
American Stock Exchange, the OTC Bulletin Board or other quotation system or
exchange on which the Common Stock would qualify, until such time that the
Company is able to again qualify for listing on the NASDAQ National Market.
It is possible, however, that investors might react negatively to a delisting
from the NASDAQ National Market, which could adversely affect trading in the
Common Stock.
Employment of D. Michael Walden. The Company's founder, Chairman and
Chief Executive Officer, D. Michael Walden, has been on a medical leave since
March 3, 1999. As a result of the leave continuing for an indefinite period,
the Amended Employment Agreement between the Company and Mr. Walden and the
employment of Mr. Walden has terminated. Mr. Walden continues to serve as a
director of the Company, although he is no longer Chairman of the Board. As
previously announced, Henry J. Murphy served as interim Chief Executive
Officer through the end of the second quarter of 1999 when John G. Wallace
was hired as President and Chief Executive Officer.
19
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<PAGE>
Employment of John G. Wallace. On July 8, 1999, the Company hired John
G. Wallace as President and Chief Executive Officer under an employment
contract dated July 9, 1999.
Employment of David E. Brewer. On August 5, 1999, David E. Brewer was
hired as Vice President of Finance and Administration and Chief Financial
Officer.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report:
10.1 Employment Agreement, dated July 9, 1999, effective July 9, 1999,
between the Registrant and John G. Wallace. Mr. Wallace replaces Henry J.
Murphy who served as Interim Chief Executive Officer.
10.2 Forbearance Agreement dated August 23, 1999, between the Registrant and
Bank of America, N.A., successor to NationsBank, N.A.
10.3 Fifth Amendment to Loan Agreement dated August 18, 1999 between the
Registrant and NationsBank, N.A.
27 Financial Data Schedule
(b) No Current Reports on Form 8-K were filed by the Company during the
Quarter ended April 4, 1999:
20
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METROTRANS CORPORATION
(Registrant)
Date: August 23, 1999 By: /s/ Henry J. Murphy
Henry J. Murphy
Principal Executive Officer
and Principal Financial
and Accounting Officer during the
reporting period)
By: /s/ John G. Wallace
John G. Wallace
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ David E. Brewer
David E. Brewer
Vice-President/Finance & Administration and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
21
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<PAGE>
INDEX OF EXHIBITS
Exhibit No.
10.1 Employment Agreement, dated July 9, 1999, effective July 9, 1999,
between the Registrant and John G. Wallace. Mr. Wallace replaces Henry J.
Murphy who served as Interim Chief Executive Officer.
10.2 Forbearance Agreement dated August 23, 1999, between the Registrant and
Bank of America, N.A., successor to NationsBank, N.A.
10.3 Fifth Amendment to Loan Agreement dated August 18, 1999 between the
Registrant and NationsBank, N.A.
27 Financial Data Schedule
22
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10
<PAGE>
FIFTH AMENDMENT TO LOAN AGREEMENT
This FIFTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into as of the18th day of August, 1999, between BANK OF AMERICA, N.A.
successor to NATIONSBANK, N.A., a
national banking association (the "Lender"), and METROTRANS CORPORATION, a
Georgia corporation (the "Borrower").
W I T N E S S E T H
WHEREAS, the Lender and the Borrower have entered into that certain Loan
Agreement dated as of September 5, 1997 (as amended to date, the "Loan
Agreement"); and
WHEREAS, the Borrower and the Lender have agreed to a further amendment
of the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and legal sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise expressly
defined herein shall have the respective meanings given to such terms in the
Loan Agreement.
2. The Loan Agreement is hereby amended as follows: Insert the
following sentence at the end of Section 2.5 (a): Notwithstanding the
foregoing, for purposes of the automatic reduction in the Commitment on
August 18, 1999 only,"Inventory Value" shall not include any of the value
attributable to work in process or finished goods consisting of new buses.
3. The Borrower hereby restates, ratifies, and reaffirms each and
every term, condition, representation and warranty heretofore made by it
under or in connection with the execution and delivery of the Loan Agreement,
as amended hereby, and the other Loan Documents, as fully as though such
representations and warranties had been made on the date hereof and with
specific reference to this Amendment and the Loan Documents.
4. Except as expressly set forth herein, the Loan Agreement and the
other Loan Documents shall be and remain in full force and effect as
originally written, and shall constitute the legal, valid, binding and
enforceable obligations of the Borrower to the Lender.
5. The Borrower agrees to pay on demand all reasonable costs and
expenses of the Lender in connection with the preparation, execution,
delivery and enforcement of this Amendment and all other Loan Documents and
any other transactions contemplated hereby, including, without limitation,
the reasonable fees and out of pocket expenses of legal counsel to the
Lender.
6. The Borrower represents and warrants that: (a) the Borrower has no
present intent to file any voluntary petition under any chapter of the
Bankruptcy Code, Title 11, U.S.C.
</PAGE>
<PAGE>
("Bankruptcy Code"), or in any manner to seek any relief
under any other state, federal, or insolvency laws or laws providing for
relief f debtors, or directly or indirectly to cause others to file such
petition or to seek any such relief, either at the present time or at any
time hereafter; (b) the Borrower has no present intent to directly or
indirectly cause any involuntary petition under any chapter of the Bankruptcy
Code to be filed against the Borrower or directly or indirectly cause the
Borrower to become the subject of any proceeding pursuant to any other state,
federal or other insolvency law or laws providing for the relief of debtors,
either at the present time or at any
time hereafter; and (c) the Borrower has no present intent to directly or
indirectly cause the property of the Borrower to become the property of any
bankrupt estate or the subject of any state, federal or other bankruptcy,
dissolution, liquidation, or insolvency proceedings, either at the present
time or at any time hereafter.
7. The Borrower agrees to take such further action as the Lender shall
reasonably request in connection herewith to evidence the amendment herein
contained to the Loan Agreement and the other Loan Documents.
8. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same
instrument.
9. This Amendment shall be binding upon and inure to the benefit of
the successors and permitted assigns of the parties hereto.
10. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of Georgia.
(Signatures on next page)
2
</PAGE>
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Fifth
Amendment to Loan Agreement to be duly executed under seal, all as of the
date first above written.
METROTRANS CORPORATION
BY: /s/ John G. Wallace
Name: John G. Wallace
Title: President and Chief Executive
Officer
[CORPORATE SEAL]
BANK OF AMERICA, N.A.
BY: _____________________
Name:
Title:
3
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<PAGE>
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT ("Agreement") is made as of the 23rd day of
August, 1999, (the "Effective Date") among METROTRANS CORPORATION, a Georgia
corporation, ("Borrower"), BUS PRO, INC., a Georgia corporation,
("Guarantor") and BANK OF AMERICA, N.A., successor to NationsBank, N.A.
("Bank").
R E C I T A L S:
A. Borrower is indebted to Bank (the "Loan") as evidenced by that
certain Amended and Restated Note (the "Note"), dated as of April 12, 1999,
in the original principal amount of $23,000,000.00 and made payable to Bank
and that certain Loan Agreement Between Metrotrans Corporation and
NationsBank, N.A. (the "Loan Agreement"), dated as of September 5, 1997, as
amended.
B. The Note is secured by, among other things, three Deeds to Secure
Debt and one Mortgage and Security Agreement executed by Borrower, related to
certain real property more particularly described therein (the "Property"),
recorded as follows:
(i) on April 14, 1999 in Book 3848, Page 013, public records of
Clayton County, Georgia ("Clayton Co. Deed to Secure Debt");
(ii) on April 16, 1999 in Book 1645, Page 259, public records of
Spalding County, Georgia ("Spalding Co. Deed to Secure Debt");
(iii) on April 15, 1999 in Book 3266, Page 322, public records of
Henry County, Georgia ("Henry Co. Deed to Secure Debt");
(iv) on April 15, 1999 in Book 5728, Page 3282, public records of
Orange County, Florida ("Orange Co. Mortgage")
(collectively, the "Mortgages").
C. The Note is further secured by those certain Security Agreements
dated April 12, 1999, executed by Borrower and Guarantor, covering certain
property more particularly described therein ("Security Agreements").
D. The Note is further secured by that certain Stock Pledge
Agreement ("Stock Pledge") executed by Borrower pledging to Bank certain
shares ("Pledged Securities") of capital stock described more fully therein.
1
</PAGE>
<PAGE>
E. The Note is further secured by those certain UCC-1 Financing
Statements executed by Borrower and recorded as follows:
(i) In the Superior Court, Spalding County, Georgia, on April 13,
1999, file no. 126-1999-778;
(ii) Secretary of State for the State of Illinois on April 13,
1999, file no. 4019583;
(iii) Secretary of State on April 13, 1999, file no. APO133614;
(iv) Hamilton County, Ohio on May 3, 1999, file no. 99-88091;
(v) Texas Secretary of State on April 13, 1999, file no. 99-
073700;
(vi) Secretary of State for California on April 13, 1999 file no.
9911160423;
(vii) Secretary of State for Colorado on April 13, 1999 file no.
19992020867;
(viii) Tennessee Secretary of State on April 13, 1999, file no. 991-
001553;
(ix) Department of Treasury, State of New Jersey on April 20, 1999,
file no. 1900718;
(x) State of Maryland Dept. of Assessments and Taxation on April
13, 1999, file no. 1000007852000000;
(xi) Florida Secretary of State on April 13, 1999, file no.
990000080981;
F. The Note is further secured by those certain UCC-1 Financing
Statements executed by Guarantor and recorded as follows:
(i) In the Superior Court, Spalding County, Georgia, on April 13,
1999, file no. 126-1999-779;
(ii) Secretary of State for the State of Illinois on April 13, 1999,
file no. 4019582;
(iii) Ohio Secretary of State on April 13, 1999, file no. APO133613;
(iv) Hamilton County, Ohio on May 3, 1999, file no. 99-88092;
(v) Texas Secretary of State on April 13, 1999, file no. 99-
073701;
(vi) Secretary of State for California on April 13, 1999 file no.
9911160426;
(vii) Secretary of State for Colorado on April 13, 1999 file no.
19992020868;
2
</PAGE>
<PAGE>
(viii) Tennessee Secretary of State on April 13, 1999, file no. 991-
001554;
(ix) Department of Treasury, State of New Jersey on April 20, 1999,
file no. 1900720;
(x) State of Maryland Dept. of Assessments and Taxation on April
13, 1999, file no. 1000007851000000;
(xi) Florida Secretary of State on April 13, 1999, file no.
990000080982;
G. The Loan is guaranteed by Guarantor pursuant to that certain
Guaranty dated as of April 12, 1999 ("Guaranty").
H. The Note, the Loan Agreement, the Mortgages, the Security Agreements
and all other written documents executed in connection therewith, together
with any written renewals, modifications or extensions thereof are
collectively referred to as the "Loan Documents."
I. Borrower is in default under the Loan Documents. Borrower and
Guarantor have requested that Bank forebear from exercising its rights and
remedies under the Loan Documents for a period of time as specified herein in
reliance upon the covenants, representations, and warranties of Borrower and
Guarantor herein and for other consideration.
A G R E E M E N T:
For and in consideration of the mutual covenants herein, Ten Dollars
($10.00), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Bank agree as
follows:
1. Recitals. The foregoing recitals are confirmed by the parties as true
and correct and are incorporated herein by reference. The recitals are a
substantive, contractual part of this Agreement.
2. No Waiver. The execution, delivery and performance of this Agreement
by Bank and the acceptance by Bank of performance of Borrower and Guarantor
hereunder (a) shall not constitute a waiver or release by Bank of any default
that may now or hereafter exist under the Loan Documents, (b) shall not
constitute a novation of the Loan Documents as it is the intent of the
parties to modify the Loan Documents as expressly set out herein and (c)
except as expressly provided in this Agreement, shall be without prejudice
to, and is not a waiver or release of, Bank's rights at any time in the
future to exercise any and all rights conferred upon Bank by the Loan
Documents or otherwise at law or in equity, including but not limited to the
right to institute foreclosure proceedings against the Property and/or
institute collection or arbitration proceedings against Borrower and/or
Guarantor and/or to exercise any right against any other person or entity not
a party to this Agreement.
3
</PAGE>
<PAGE>
3. Forbearance. So long as this Agreement is not terminated earlier as
provided herein, Bank agrees not to foreclose or attempt to foreclose any
collateral securing the Note, institute suit or arbitration proceedings for
collection of the Note against Borrower, or exercise any other remedies
available to it under the Loan Documents or under applicable law from the
Effective Date ntil September 30, 1999 (the "Termination Date"). The period
of time from the Effective Date through the Termination Date shall be
referred to as the Forbearance Period. If all defaults under the Note and
Loan Documents are not cured on or before the Termination Period or the
earlier termination of this Agreement, then Bank may seek to foreclose upon
any collateral for the Note and to exercise any other remedies to which Bank
may be entitled under the Loan Documents or applicable law to collect amounts
due under the Note or other Loan Documents. Borrower and Guarantor agree
that neither Borrower nor Guarantor will, during the Forbearance Period,
initiate any action of any kind against Bank with respect to the Note,
exercise any remedy available under the Loan Documents
or otherwise, or make any type of demand upon Bank with respect to the
indebtedness evidenced by the Note.
4. Contemporaneously with the execution of the Agreement, Borrower agrees
to pay to Bank $3500.00 of Banks' attorneys' fees and expenses incurred
related to the Agreement and the Loan Documents, plus $12,950.00 of the costs
incurred to date related to conducting appraisals of the Property and other
collateral. Borrower further agrees to pay to Bank on or before September
15, 1999 an additional $12,950.00 of the costs incurred to date related to
conducting appraisals of the Property and other collateral. Further Borrower
covenants and agrees to make payments as provided under the Note and Loan
Documents subsequent to the date hereof.
5. Acknowledgment of Default, Amounts Due and Maturity Date. Bank and
Borrower acknowledge that as of the Effective Date the outstanding unpaid
principal balance of the Note is $22,088,242.70 and the accrued, unpaid
interest under the Note as of the Effective Date is $83,319.47. Borrower and
Guarantor also acknowledge that costs and expenses, including without
limitation attorneys' fees and appraisal fees, are owed under the Note in
addition to principal and accrued interest. The maturity date for the Note is
May 31, 2000. Borrower and Guarantor waive any and all rights to other
notice of payment default or any other default, protest and notice of
protest, dishonor, diligence in collecting and the bringing of suit or
arbitration proceedings against any party, notice of
intention to accelerate, notice of acceleration, demand for payment and any
other notices whatsoever regarding the Note or the other Loan Documents, and
further waive any claims that any notices previously given are insufficient
for any reason.
6. Limitation on Interest. No provision of this Agreement, the Note, any
of the other Loan Documents, or any instrument evidencing or securing the
Note, or otherwise relating to the indebtedness evidenced by the Note, shall
require the payment or permit the collection, application or receipt of
interest in excess of the maximum rate permitted by applicable state or
federal law. If any excess of interest in such respect is herein or in any
such other instrument provided for, or shall be adjudicated to be so provided
for herein or in any such instrument, the provisions of this paragraph shall
govern, and neither Borrower nor any endorsers of the Note nor their respective
heirs, personal representatives, successors or assigns shall be
obligated to pay the amount of such interest to the extent it is in excess of
the amount permitted by applicable law. It is expressly stipulated and
agreed to be the intent of Borrower and Bank at all
times to comply with the usury and other laws relating to the Note
4
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<PAGE>
and the other
Loan Documents and any subsequent revisions, repeals or judicial
nterpretations thereof, to the extent applicable to the Note or the other
Loan Documents. In the event Bank ever receives, collects or applies as
interest any such excess, such amount which would be excessive interest shall
be applied to the reduction of the unpaid principal balance of the Note, and,
if upon such application the principal balance of the Note is paid in full,
any remaining excess shall be paid forthwith to Borrower and the provisions
of the Note, the other Loan Documents and any demand or other charging
document shall immediately be deemed reformed
and the amounts thereafter collectible thereunder reduced, without the
necessity of execution of any new document, so as to comply with the then
applicable law, but so as otherwise to permit the recovery of the fullest
amount called for thereunder. In determining whether or not the interest
paid or payable under any specific contingency exceeds the maximum rate of
interest allowed to be charged by applicable law, Borrower and Bank shall, to
the maximum extent permitted under applicable law, amortize, prorate,
allocate and spread the total amount of
interest throughout the entire term of the respective Note so that the amount
or rate of interest charged for any and all periods of time during the term
of the Note is to the greatest extent possible less than the maximum amount
or rate of interest allowed to be charged by law during the relevant period
of time. Notwithstanding any of the foregoing, if at any time applicable
laws shall be changed so as to permit a higher rate or amount of interest to
be charged than that permitted prior to such change, then unless prohibited
by law, references in the Note to "applicable law" for purposes of determining
the maximum interest or rate of interest that can be charged
shall be deemed to refer to such applicable law as so amended to allow the
greater amount or rate of interest.
7. Representations and Warranties. In order to induce Bank to execute,
deliver, and perform this Agreement, Borrower and Guarantor warrant and
represent to Bank that:
(a) this Agreement is not being made or entered into with the
actual intent to hinder, delay, or defraud any entity or person, and the
Borrower and Guarantor are each solvent and not bankrupt;
(b) this Agreement is not intended by the parties to be a
novation of the Loan Documents and, except as expressly modified herein, all
terms, conditions, rights and obligations as set out in the Loan Documents
are hereby reaffirmed and shall otherwise remain in full force and effect as
originally written and agreed;
(c) other than as those previously disclosed to Bank by
Borrower, no action or proceeding, including, without limitation, a voluntary
or involuntary petition for bankruptcy under any chapter of the Federal
Bankruptcy Code, has been instituted or threatened by or against Borrower or
any Guarantor;
(d) the execution of this Agreement by Borrower and Guarantor
and the performance by Borrower and Guarantor of their obligations hereunder
will not violate or result in a breach or constitute a default under any
agreements to which any of them is a party;
(e) all information provided by Borrower and Guarantor to Bank
prior to the date hereof, including, without limitation, all financial
statements, balance sheets, and cash flow statements, was, at the date of
delivery, and is, as of the date hereof, true and correct in all
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material respects. Borrower and
Guarantor recognize and acknowledge that Bank is entering into this Agreement
based in part on the financial information provided to Bank by each of them
and that the truth and correctness of that financial information is a
material inducement to Bank in entering into this Agreement. During the term
of this Agreement, Borrower and Guarantor agree to advise Bank promptly in
writing of any and all new information, facts, or occurrences which would in
any way materially supplement, contradict, or affect any financial
statements, balance sheets, cash
flow statements, or similar items furnished to Bank; and
(f) This Agreement and the Loan Documents constitute the entire
agreement among Bank, Guarantor and Borrower with respect to this matter.
8. Termination of this Agreement. This Agreement will terminate upon the
expiration of the Forbearance Period unless terminated earlier by Bank, at
Bank's sole option, upon written notice to Borrower and Guarantor of the
occurrence of any of the following:
(a) Borrower or Guarantor files a petition for bankruptcy under
any chapter of the Federal Bankruptcy Code or takes advantage of any other
debtor relief law, or an involuntary petition for bankruptcy under any
chapter of the Federal Bankruptcy Code is filed against Borrower and/or any
Guarantor, or any other judicial action is taken with respect to Borrower or
Guarantor by any creditor;
(b) Bank discovers that any representation or warranty made
herein by Borrower or Guarantor was or is untrue, incorrect or misleading in
any material respect;
(c) An Event of Default occurs under the Loan Documents, other
than any Event of Default known to exist as of the date hereof (and the Bank
hereby acknowledges that it knows of the following:
(i) Events of Default presently existing under the following
Sections of the Loan Agreement: 7.9 (a) (regarding Tangible Net Worth), 7.9
(c) (regarding Net Income), 5.8 (regarding payment of all debts as they come
due), and
(ii) Any Event of Default which may arise under Section 8.1 (I)
of the Loan Agreement in connection with certain litigation or financial
circumstances which the Borrower has made the Bank aware of prior to the date
hereof:
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<PAGE>
(d) Borrower or Guarantor breaches or defaults in performance of
any covenant or agreement contained in this Agreement.
9. Waiver of Claims. Borrower and Guarantor warrant and represent to
Bank that the Note is not subject to any credits, charges, claims, or rights
of offset or deduction of any kind or character whatsoever; and Borrower and
Guarantor release and discharge Bank from any and all claims and causes of
action, whether known or unknown and whether now existing or hereafter
arising, including without limitation, any usury claims, that have at any
time been owned, or that are hereafter owned, in tort or in contract by
Borrower or Guarantor and that arise out of any one or more circumstances or
events that occurred prior to the date of this Agreement. Moreover, Borrower
and Guarantor, jointly and severally, waive any and all claims now or
hereafter arising from or related to any delay by Bank
in exercising any rights or remedies under the Loan Documents, including,
without limitation, any delay in foreclosing any collateral securing the
Note.
10. ARBITRATION. THE LOAN DOCUMENTS ARE HEREBY AMENDED TO INCLUDE AND
THIS AGREEMENT SHALL BE SUBJECT TO THE FOLLOWING PROVISION:
ARBITRATION. EXCEPT AS SET OUT BELOW, ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS DOCUMENT OR ANY RELATED DOCUMENTS, INCLUDING ANY CLAIM BASED
ON OR ARISING FROM AN ALLEGED TORT (COLLECTIVELY, "CLAIM"), SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE
AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS DOCUMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,
TO COMPEL ARBITRATION OF ANY CLAIM IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR ANY JUDICIAL RELIEF
SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
PLAINTIFF, TO SUBMIT THE CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS
SUCH ACTION FOR JUDICIAL RELIEF.
a. SPECIAL RULES. ANY ARBITRATION SHALL BE CONDUCTED IN THE COUNTY
OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS DOCUMENT, OR
IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH
REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S. WHO WILL
APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL
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<PAGE>
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS. ANY DISPUTE CONCERNING THIS ARBITRATION PROVISION OR WHETHER A
CLAIM IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR. THE ARBITRATOR
SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS
DOCUMENT.
b. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS DOCUMENT;
OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC.
91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT
OF ANY PARTY HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST OR SELL ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION
OR THE APPOINTMENT OF A RECEIVER. ANY PARTY MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE OR SELL COLLATERAL OR OBTAIN
SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY
OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS DOCUMENT. NONE OF
THESE ACTIONS SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING
THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CLAIM
OCCASIONING RESORT TO SUCH REMEDIES OR PROCEDURES.
c. WAIVER OF CERTAIN DAMAGES. THE PARTIES HERETO WAIVE ANY RIGHT OR
REMEDY EITHER MAY HAVE AGAINST THE OTHER TO RECOVER PUNITIVE OR EXEMPLARY
DAMAGES ARISING OUT OF ANY CLAIM WHETHER THE CLAIM IS RESOLVED BY ARBITRATION
OR BY JUDICIAL ACTION.
11. Miscellaneous.
(a) This Agreement may be executed in a number of identical
counterparts which, taken together, shall constitute collectively one (1)
agreement; but in making proof of this Agreement, it shall not be necessary
to produce or account for more than one such counterpart executed by the
party to be charged.
(b) Any future waiver, alteration, amendment or modification of any
of the provisions of the Loan Documents or this Agreement shall not be valid
or enforceable unless in writing and signed by all parties, it being
expressly agreed that neither the Loan Documents, or this Agreement can be
modified orally, by course of dealing or by implied agreement. Moreover, any
delay by Bank in enforcing its rights after an event of default shall not be
a
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<PAGE>
release or waiver of the event of default and shall not be relied upon by the
Borrower or Guarantor as a release or waiver of the default.
(c) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, their heirs, executors, administrators,
successors, legal representatives, and assigns.
(d) The headings of paragraphs in this Agreement are for convenience
of reference only and shall not in any way affect the interpretation or
construction of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
GEORGIA AND FEDERAL LAW, AS APPLICABLE.
(f) The warranties and representations of the parties in this
Agreement shall survive the termination of this Agreement.
(g) The terms and conditions set forth in this Agreement are the
product of joint draftsmanship by all parties, each being represented by
counsel, and any ambiguities in this Agreement or any documentation prepared
pursuant to or in connection with this Agreement shall not be construed against
any of the parties because of draftsmanship.
12. FINAL AGREEMENT. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR ORAL OR WRITTEN, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS AMONG THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
(SIGNATURES ON NEXT PAGE)
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<PAGE>
EXECUTED under seal as of the Effective Date.
BORROWER ATTEST: (SEAL)
METROTRANS CORPORATION ________________________
BY: /s/ John G. Wallace (SEAL) NAME: David E. Brewer
NAME: John G. Wallace TITLE: Chief Financial Officer
TITLE: President/Chief Executive Offier
DATE: August 23, 1999
[CORPORATE SEAL]
GUARANTOR ATTEST: (SEAL)
BUS PRO, INC. ________________________
BY: _____________________________(SEAL) NAME: __________________
NAME:__________________________________ TITLE:__________________
TITLE:_________________________________
DATE: _________________________________
[CORPORATE SEAL]
BANK ATTEST: (SEAL)
BANK OF AMERICA, N.A. /s/ Linda J. Frixson
BY: /s/ Kimberly D. Stamey (SEAL) NAME: Linda J. Frixson
NAME: Kimberly D. Stamey TITLE: Assistant Secretary
TITLE: Senior Vice President
DATE:
August 23, 1999
[CORPORATE SEAL]
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into by and between JOHN G. WALLACE the
"Executive") and METROTRANS CORPORATION (the "Company").
WHEREAS, the Company desires to employ the Executive upon certain terms
and conditions, and the Executive desires to accept such employment upon such
terms and conditions; and
WHEREAS, the Company and the Executive desire to further set forth in a
written agreement the complete terms and conditions pursuant to which the
Executive shall be employed by the Company;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1.
DEFINITIONS
As used in this Agreement, the following words and/or phrases shall have
the meanings set forth below unless a different meaning plainly is required by
the context:
1.1 Agreement shall mean this Employment Agreement between the Company and
the Executive.
1.2 Board shall mean the Board of Directors of the Company.
1.3 Cause shall mean (i) any act of fraud by the Executive (whether or not
against or involving the Company); (ii) the Executive's competing with the
Company, either directly or indirectly; (iii) the Executive's breach of any
provision of this Agreement; (iv) the Executive's failure to discharge his
duty of loyalty to the Company; (v) the Executive's indictment or conviction
of any felony or misdemeanor (other than minor traffic violations); (vi) any
willful act by the Executive that adversely affects the Company or its
financial condition or business reputation; (vii) the Executive's willful
failure to perform the duties of his position (other than any such failure
resulting from incapacity due to Disability), within fifteen (15) days after
notice from the Board identifying the specific duties which are not being
performed; and (viii) any other action or inaction by the Executive which
constitutes "good cause" under the laws of the State of Georgia.
1.4 Company shall mean Metrotrans Corporation its successors and assigns,
and any other corporation, partnership, sole proprietorship or other type of
business entity into which the Company may be merged, consolidated or
otherwise combined.
1.5 Disability shall mean a physical or mental impairment that prohibits
the Executive from performing the essential duties of his position, is
expected to be of a long and continued duration, and for which he becomes
eligible to receive benefits under the Company's long-term disability plan.
1.6 Effective Date shall mean July 9, 1999.
1.7 Executive shall mean John G. Wallace.
1.8 Proprietary Information shall mean information that meets the
definition of "trade secret" under the laws of the State of Georgia (i.e., the
Uniform Trade Secrets Act, O.C.G.A. ?10-1-760, et seq.), as well as any
scientific or technical information, design, process, procedure, formula or
improvement that is secret and of value, information that the Company takes
reasonable efforts to protect from disclosure and from which the Company
derives actual or potential economic value due to its confidential nature,
including, but not limited to, technical or nontechnical data, formulas,
complications, programs, devices, methods, techniques, drawings, processes,
financial data, lists of actual or potential customers, price lists, business
plans, customer and vendor records, training and operations materials and
memoranda, personnel records, financial information relating to the business
of the Company, accounts, customers, vendors, employees and affairs of the
Company, and any information marked "confidential" by the Company.
1.9 Restricted Territory shall mean the geographic area described as
follows: [territory needed]
1.10 Business of the Company shall mean all operations reasonably related
to effecting the manufacture, distribution and sale of buses of all sizes.
1.11 Termination Date shall mean the date specified as the Executive's
official termination of employment date.
1.12 Term shall mean the period during which this Agreement is wholly
effective, which shall be the period commencing on the Effective Date and
ending on the Termination Date.
ARTICLE 2.
DUTIES AND AUTHORITY
2.1 Duties and Authority. The Executive is engaged and agrees to perform
services for and on behalf of the Company as its President and Chief Executive
Officer and shall report directly to the Board. The Executive shall have such
duties and authority as may be assigned to him by the Company's bylaws or by
the Board. The Executive agrees to perform such duties diligently and
efficiently and in accordance with the reasonable directions of the Board.
The Executive shall conduct himself at all times in a business-like and
professional manner as appropriate for his position and shall represent the
Company in all respects in compliance with good business and ethical
practices. In addition, the Executive shall be subject to and abide by the
policies and procedures of the Company applicable to personnel of the Company,
as may be adopted from time to time.
2.2 Best Efforts. During the term of this Agreement, the Executive shall
devote his full attention, energies and best efforts to rendering services on
behalf of the Company and shall not engage in any outside employment without
the express written consent of the Board.
Notwithstanding the foregoing, the Executive may pursue personal
interests as he may have so long as such participation does not interfere with
the Executive's performance of his duties hereunder, and the Executive may
participate in industry, civic and charitable activities so long as such
activities do not materially interfere with the performance of his duties
hereunder. The Executive may also participate in any interest or activity
which is approved in writing by the Board.
2.3 Term. The initial term of this Agreement shall commence on the
effective date hereof and shall continue until the close of business at the
end of two (2) years from the effective date, subject to earlier termination
as provided in this Agreement. At least ninety (90) days prior to the end of
the initial term hereof and each subsequent year thereafter, this Agreement
shall be deemed to be extended automatically for an additional one-year term
on the same terms and conditions unless either the Company or the Executive
gives contrary written notice to the other party no less that ninety (90) days
prior to the date on which this Agreement would otherwise be extended.
ARTICLE 3.
COMPENSATION AND BENEFITS
3.1 Annual Base Salary. The Company shall pay to the Executive as
compensation for his services provided hereunder a base salary of $250,000 per
year ("Base Salary"), unless increased in such amount as may be determined by
the Board. Executive's base salary shall be payable in accordance with the
Company's normal payroll procedures.
3.2 Annual Bonus. At the expiration of one (1) year from the effective
date of this Agreement (the "bonus date"), the Company shall pay to the
Executive a bonus in the amount of $100,000 provided that on the bonus date
the Executive continues to be employed as the President and Chief Executive
Officer of the Company and the Company continues to exist as a going concern.
3.3 Long-Term Cash Incentive Compensation. For the last six months of the
year 2000, the Company agrees to enter into a revised Management Incentive
Compensation Plan with the Executive and other key management employees of the
Company based upon budgets and goals established by the Board during the first
quarter of the year 2000.
3.4 Stock Option. On the effective date of this Agreement, the Executive
shall be entitled to a grant of Incentive Stock Options in the amount of
100,000 shares of Company common stock at its then fair market value. To the
extent that there are insufficient shares in the Company's option plan to
allow for the issuance of Incentive Stock Options, the Company will issue
nonqualified stock options and will provide a cash bonus to the Executive in
the amount of the tax due upon exercise of the nonqualified stock options.
3.5 Employee Benefit Plans and Policies. The Executive shall be entitled
to participate in each employee benefit plan, policy or arrangement which is
sponsored, maintained or contributed to by the Company from time to time and
in which current executive officers of the Company may participate, in
accordance with the terms and provisions of such plans. Contributions by the
Executive to such plans shall be required only to the extent required of other
executive officers of the Company.
3.6 Disability Insurance. The Executive shall be entitled to obtain, at
the Company's expense, a disability insurance policy covering 100% of the
Executive's base salary not inclusive of bonuses provided that the premiums
are reasonable as determined by the Company.
3.7 Automobile Allowance. The Company shall provide the Executive with a
monthly allowance of [$____] for his use in owning or leasing an automobile
for business purposes.
3.8 Vacation. The Executive shall be entitled to such paid vacation time
as is generally provided to the Company's executive officers subject to the
rules in effect regarding such leave.
3.9 Expense Reimbursement. The Company shall reimburse the Executive for
reasonable and necessary travel and other business related expenses, including
entertainment expenses, incurred by him in performance of the business of the
Company in accordance with the Company's standard expense reimbursement
practices and policies in existence from time to time, subject to such dollar
limitations and verification and record keeping requirements as may be
established from time to time by the Company.
3.10 Legal Fees Reimbursement. The Company shall reimburse the Executive
up to $2500 for the legal fees he incurs in connection with his execution of
this Agreement.
3.11 Modification of Compensation and Benefits. By written amendment, the
Executive and the Company may agree to reform provisions contained in this
Article, particularly the provisions pertaining to bonuses and benefits.
ARTICLE 4.
RESTRICTIVE COVENANTS
4.1 Use and Return of Documents and Property. Executive acknowledges that
in the course of his employment with the Company, he will have the opportunity
to inspect and use certain property, both tangible and intangible, of the
Company. All such property shall remain the exclusive property of the
Company, and Executive has and shall have no right or interest in such
property. Executive shall use Company property only during employment and
only in the performance of his job and to further the Company's interests, and
he will not remove Company property from the Company's premises except to the
extent necessary to perform his duties and to the extent approved by the
Company, either expressly or generally under its policies. Promptly upon the
Executive's Termination Date, Executive shall return to the Company all of the
Company's memoranda, notes, records, data, books, sketches, computer programs,
audio-visual materials, correspondence, lists, every piece of information
recorded in any form, and all other tangible property.
4.2 New Developments. Any discovery, invention, process or improvement
made or discovered by the Executive during the term of this Agreement in
connection with or in any way affecting or relating to the Business of the
Company (as then carried on or under active consideration) shall forthwith be
disclosed to the Company and shall belong to and be the absolute property of
the Company. The preceding sentence does not apply to any invention for which
no equipment, supplies, facility, trade secret information of the Company was
used and which was developed entirely on the Executive's own time, unless the
invention relates directly to the business of the Company or to its actual or
demonstrably anticipated research or development, or the invention results
from any work performed by the Executive for the Company.
4.3 Covenant Not to Compete. Executive agrees that, during the term of
his employment under this Agreement and for a period of one (1) year following
the Termination Date, regardless of the reasons for the Executive's
termination of employment, Executive will not, directly or indirectly,
expressly or tacitly, for himself or on behalf of any entity anywhere in the
Restricted Territory, (i) act as an officer, manager, advisor, executive,
controlling shareholder, or consultant to any business in which his duties at
or for such business include oversight of or actual involvement in providing
services which are competitive with the Business of the Company, (ii) recruit
investors on behalf of an entity which engages in activities which are
competitive with the Business of the Company, or (iii) become employed by such
an entity in any capacity which would require Executive to carry out, in whole
or in part, the duties Executive has performed for the Company which are
competitive with the Business of the Company. This covenant shall apply to
any services or products under investigation by the Company on the Termination
Date to the extent that the Executive initiated, promoted, participated in, or
otherwise had knowledge of such investigation. Executive acknowledges that
because of the nature of the Company's business, this restriction will prevent
the Executive from acting in any of the foregoing capacities for any competing
entity wherever located within the Restricted Territory and that this scope is
reasonable in light of the business of the Company.
4.4 Nonsolicitation of Customers, Clients and Suppliers. Executive
agrees that during the term of his employment with the Company, he will not,
directly or indirectly, without the Company's prior written consent, contact
any customer, client or supplier of the Company for business purposes
unrelated to furthering the Business of the Company. Executive further agrees
that for a period of one (1) year following his Termination Date, he will not
directly or indirectly, (i) contact, solicit or divert, or attempt to
contact, solicit, divert or take away, any customer, client or supplier of the
Company for purposes of, or with respect to, providing a customer, client or
supplier to a competing business; or (ii) take any affirmative action with a
customer, client or supplier of the Company for purposes of providing a
customer, client or supplier to a business competing with the Company. The
prohibitions of the preceding sentence shall apply only to customers, clients
and suppliers of the Company with whom the Executive had Material Contact on
the Company's behalf during the twelve months immediately preceding the
Termination Date. For purposes of this Agreement, the Executive had "Material
Contact" with a customer, client or supplier if (a) he had business dealings
with the customer, client or supplier on the Company's behalf; (b) he was
responsible for supervising or coordinating the dealings between the Company
and the customer, client or supplier; or (c) he obtained Proprietary
Information about the customer, client or supplier as a result of his
association with the Company.
4.5 Nonsolicitation of Employees. The Executive agrees that during his
employment with the Company and for one (1) year after his Termination Date,
the Executive will not, directly or indirectly, solicit or attempt to recruit
or hire any employees of the Company who were employed by the Company at any
time during the last year of the Executive's employment with the Company and
who are actively employed by the Company at the time of the solicitation or
attempted solicitation, to provide services similar to those performed by the
employee for the Company on behalf of, or for the purpose of engaging in
employment with, a competitor of the Company.
4.6 Nondisclosure of Trade Secrets and Proprietary Information. Except
to the extent reasonably necessary for Executive to perform his duties for the
Company, the Executive shall not, directly or indirectly, furnish or disclose
to any person, or use in any way, any trade secrets of the Company, for so
long as such trade secrets remain "trade secrets" under applicable state law.
Except to the extent reasonably necessary for Executive to perform his duties
for the Company, Executive shall not, during the term of his employment with
the Company and for a period of one (1) year following the Executive's
Termination Date, directly or indirectly, furnish or disclose to any person,
or use in any way, for personal benefit or the benefit of others, any
Proprietary Information of the Company.
4.7 Reasonableness. Executive has carefully considered the nature and
extent of the restrictions upon his and the rights and remedies conferred on
the Company under this Agreement, and Executive hereby acknowledges and agrees
that:
(a) the restrictions and covenants contained herein, and the rights and
remedies conferred upon the Company, are necessary to protect the goodwill and
other value of the business of the Company;
(b) the restrictions placed upon Executive hereunder are fair and
reasonable in time and territory, will not prevent him from earning a
livelihood, and place no greater restraint upon the Executive than is
reasonably necessary to secure the business and goodwill of the Company;
(c) the Company is relying upon the restrictions and covenants contained
herein in continuing to make available to Executive information concerning the
business of the Company;
(d) Executive's employment hereunder places him in a position of confidence
and trust with the Company and its employees, customers and suppliers; and
(e) the provisions of this section shall be interpreted so as to protect
the Proprietary Information, and to secure for the Company the exclusive
benefits of the work performed on behalf of the Company by the Executive under
this Agreement, and not to unreasonably limit his ability to engage in
employment and consulting activities in noncompetitive areas which do not
endanger the Company's legitimate interests expressed in this Agreement.
4.8 Remedy for Breach. Executive acknowledges and agrees that his breach
of any of the covenants contained in this Article of this Agreement will cause
irreparable injury to the Company and that remedies at law available to the
Company for any actual or threatened breach by the Executive of such covenants
will be inadequate and that the Company shall be entitled to specific
performance of the covenants in this Article or injunctive relief against
activities in violation of this Article by temporary or permanent injunction
or other appropriate judicial remedy, writ or order, without the necessity or
proving actual damages. This provision with respect to injunctive relief
shall not diminish the right of the Company to claim and recover monetary
damages against the Executive for any breach of this Agreement, in addition to
injunctive relief. The Executive acknowledges and agrees that the covenants
contained in this Article shall be construed as agreements independent of any
other provision of this or any other contract between the parties hereto, and
that the existence of any claim or cause of action by the Executive against
the Company, whether predicated upon this or any other contract, shall not
constitute a defense to the enforcement by the Company of said covenants.
ARTICLE 5.
TERMINATION OF EMPLOYMENT
5.1 Termination by Company.
(a) For Cause. During the two (2) year term of this Agreement, the Company
may terminate the Executive for "Cause" as defined in section 1.3 of this
Agreement effective immediately upon written notice to Executive. Upon such a
termination for "Cause," the Executive shall not be entitled to any severance
pay or post-termination benefits, other than as required by law.
(b) Without Cause. During the term of this Agreement, the Company may
terminate the Executive for any reason other than "Cause" upon thirty (30)
days' prior written notice to the Executive. For example, under this
provision, the Company may terminate this Agreement upon the Executive's
failure to meet the financial goals established by the Board, whether or not
the failure is willful. If such a termination occurs during the first year of
this Agreement, the Executive shall be entitled to severance pay in the amount
of three (3) months of his monthly base salary then in effect. If such a
termination occurs during the second year of this Agreement, the Executive
shall be entitled to severance pay in the amount of six (6) months of his
monthly base salary then in effect. If such a termination occurs anytime
after the initial term of this Agreement, and during a period in which this
Agreement has been renewed, the Executive shall be entitled to severance pay
in the amount of twelve (12) months of his monthly base salary then in effect.
The severance pay provided for herein shall be in lieu of any and all other
payments, bonuses or other compensation to which he may have been entitled,
which may be paid in a lump sum payment at the Company's discretion.
5.2 Termination by Executive. The Executive may voluntarily terminate his
employment with the Company and terminate this Agreement by giving the Board a
written notice at least sixty (60) days prior to his proposed date of
termination. Upon such a voluntary termination by the Executive, the
Executive shall not be eligible for any severance payment or benefit other
than those earned prior to his date of termination.
5.3 Automatic Termination. This Agreement shall terminate immediately
upon the death of Executive, or upon written notice from the Company to
Executive if Executive shall at any time become incapacitated by reason of a
Disability.
5.4 Cessation of Payment and Benefits. The base salary and other benefits
provided herein shall be paid to Executive through the effective date of
termination of this Agreement for whatever reason, including the death of
Executive, and not thereafter.
ARTICLE 6.
MISCELLANEOUS PROVISIONS
6.1 Invalidity of Any Provision. It is the intention of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws of each state and jurisdiction in which such
enforcement is sought, but that the unenforceability (or the modification to
conform with such laws) of any provision hereof shall not render unenforceable
or impair the remainder of this Agreement which shall be deemed amended to
delete or modify, as necessary, the invalid or unenforceable provisions. The
parties further agree to alter the balance of this Agreement in order to
render the same valid and enforceable. The terms of the restrictive covenant
provisions of this Agreement shall be deemed modified to the extent necessary
to be enforceable and, specifically, without limiting the foregoing, if the
term of the applicable restrictive covenant is too long to be enforceable, it
shall be modified to encompass the longest term which is enforceable and, if
the scope of the geographic area of the applicable restrictive covenant is too
great to be enforceable, it shall be modified to encompass the greatest area
that is enforceable.
6.2 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
6.3 Arbitration. Any claim or dispute arising under this Agreement shall
be subject to arbitration, and prior to commencing any court action, the
parties agree that they shall arbitrate all controversies. The arbitration
shall be conducted in Atlanta, Georgia, in accordance with the Employment
Dispute Rules of the American Arbitration Association and the Federal
Arbitration Act, 9 U.S.C. 1, et. seq. The arbitrator(s) shall be authorized
to award both liquidated and actual damages, in addition to injunctive relief,
but no punitive damages. The arbitrator(s) may also award attorney's fees and
costs, without regard to any restriction on the amount of such award under
Georgia or other applicable law. Such an award shall be binding and
conclusive upon the parties hereto, subject to 9 U.S.C. 10. Each party shall
have the right to have the award made the judgment of a court of competent
jurisdiction.
6.4 Waiver of Breach. The waiver of a breach of any provision of this
Agreement by a party hereto shall not operate or be construed as a wavier of
any subsequent breach by the other party hereto.
6.5 Successors and Assigns. This Agreement shall inure to the benefit of
the Company, and its respective successors and assigns. This Agreement shall
inure to the benefit of and be enforceable by the Executive's estate and/or
legal representatives.
6.6 Assignment of Agreement. This Agreement is not assignable by the
Executive, but shall be freely assignable by the Company to any successor with
the written consent of the Executive. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.
6.7 Notices. All notices, demands and other communications hereunder
shall be in writing and shall be delivered in person or deposited in the
United States mail, certified or registered, with return receipt requested, as
follows:
(a) if to Executive: Mr. John G. Wallace
[Information Needed]
_____________________
(b) if to Company: Metrotrans Corporation
Attention: Board of Directors
[Information Needed]
________________________
(with a copy to the Chairman of each Board Committee)
6.8 Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof. All understanding and
agreements heretofore made between the parties hereto with respect to the
subject matter of this Agreement are merged into this document which alone
fully and completely expresses their agreement. This Agreement may not be
changed orally but only by an agreement in writing signed by both parties.
6.9 Survival of Provisions. The provisions of Article 4 - Restrictive
Covenants shall survive termination of this Agreement.
6.10 Captions. The captions appearing in this Agreement are inserted only
as a matter of convenience and in no way define, limit, construe or describe
the scope or intent of any provisions of this Agreement or in any way affect
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal
as of this _____________ day of July, 1999.
[signatures on next page]
EXECUTIVE:
/s/ John G. Wallace
JOHN G. WALLACE
COMPANY:
METROTRANS CORPORATION
By: /s/ William C. Pitt III
William C. Pitt III
Title: [Information Needed]
[THIS AGREEMENT HAS BEEN EXECUTED IN DUPLICATE.]
ATLANTA:4108194.1
Wallace Employment Agreement
Page 9
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