As filed with the Securities and Exchange Commission on June 27, 1997
Registration No. 333-26497
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
TRAVELCENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5541 36-3856519
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
---------------------
AND ITS SUBSIDIARY GUARANTORS
TA OPERATING CORPORATION NATIONAL AUTO/TRUCKSTOPS, INC.
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
DELAWARE DELAWARE
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
5541 5541
(Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number)
34-1747077 36-3853982
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
---------------------
24601 CENTER RIDGE ROAD, SUITE 300
WESTLAKE, OHIO 44145-5634
(216) 808-9100
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
---------------------
JAMES W. GEORGE
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
TRAVELCENTERS OF AMERICA, INC.
24601 CENTER RIDGE ROAD, SUITE 300
WESTLAKE, OHIO 44145-5634
(216) 808-9100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
WITH A COPY TO:
CARL L. REISNER, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
---------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
<S> <C>
1. Forepart of Registration Statement and Outside Front Cover of
Prospectus............................................................. Forepart of the Registration Statement; Outside
Front Cover Page of the Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................................. Inside Front Cover Page of Prospectus; Outside
Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information...................................................... Summary; Risk Factors; Selected Consolidated
Financial Data
4. Terms of the Transaction............................................... Summary; The Exchange Offer; Description of
New Notes; Certain United States Tax
Considerations; Plan of Distribution
5. Pro Forma Financial Information........................................ Summary; Unaudited Pro Forma Financial
Information
6. Material Contracts with the Company Being Acquired..................... Not Applicable
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters...................................... Not Applicable
8. Interests of Named Experts and Counsel................................. Not Applicable
9. Disclosure of Commission Position on Indemnification for
Securities Liabilities................................................. Not Applicable
INFORMATION ABOUT THE REGISTRANTS:
10 Information with Respect to S-3 Registrants............................ Not Applicable
11. Incorporation of Certain Information by Reference...................... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants..................... Not Applicable
13. Incorporation of Certain Information by Reference...................... Not Applicable
14. Information with Respect to Registrants Other than S-3 or S-2
Registrants............................................................ Summary; Risk Factors; The Refinancing, the
Combination Plan and the Capital Program;
Capitalization; Selected Consolidated Financial
Data; Management's Discussion and Analysis
of Results of Operations and Financial
Condition; Business; Management; Security
Ownership; Certain Transactions; Financial
Statements
INFORMATION ABOUT THE COMPANY BEING ACQUIRED:
15. Information with Respect to S-3 Companies.............................. Not Applicable
16. Information with Respect to S-2 or S-3 Companies....................... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM IN FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
<S> <C>
17. Information with Respect to Companies Other than S-2 or S-3
Companies.............................................................. Not Applicable
VOTING AND MANAGEMENT INFORMATION:
18. Information if Proxies, Consents or Authorization
Are to Be Solicited.................................................... Not Applicable
19. Information if Proxies, Consents or Authorizations Are Not to Be
Solicited or in an Exchange Offer...................................... Management; Security Ownership
</TABLE>
ii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 27, 1997
TRAVELCENTERS OF AMERICA, INC.
OFFER TO EXCHANGE ITS 10 1/4% SENIOR SUBORDINATED
NOTES DUE 2007 WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), FOR
ANY AND ALL OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007,
FULLY AND CONDITIONALLY GUARANTEED TO THE EXTENT DESCRIBED HEREIN, BY
TA OPERATING CORPORATION and NATIONAL AUTO/TRUCKSTOPS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1997, UNLESS EXTENDED.
TravelCenters of America, Inc., a Delaware corporation (the "Company") hereby
offers to exchange up to $125,000,000 aggregate principal amount of its 10 1/4%
Senior Subordinated Notes due 2007 (the "New Notes") for a like principal amount
of its 10 1/4% Senior Subordinated Notes due 2007 outstanding on the date hereof
(the "Existing Notes" and, together with the New Notes, the "Notes") upon the
terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"). The terms of the New Notes are identical in all material respects to
those of the Existing Notes, except for certain transfer restrictions and
registration rights relating to the Existing Notes. The New Notes will be issued
pursuant to, and entitled to the benefits of, the indenture, dated as of March
27, 1997 (the "Indenture"), among the Company, TA Operating Corporation (the "TA
Subsidiary"), National Auto/Truckstops, Inc. (the "National Subsidiary" and,
together with the TA Subsidiary, the "Subsidiary Guarantors") and State Street
Bank and Trust Company of Connecticut, N.A.(successor trustee to Fleet National
Bank), as trustee, governing the Existing Notes. The Existing Notes and New
Notes outstanding under the Indenture at any time are referred to collectively
as the "Notes."
The Notes will be unsecured and subordinated in right of payment to all existing
and future Senior Indebtedness (as defined) of the Company. The Notes will rank
PARI PASSU with any future Senior Subordinated Indebtedness (as defined) of the
Company and will rank senior to all other subordinated indebtedness of the
Company. The Notes will be guaranteed (the "Subsidiary Guarantees") on an
unsecured, senior subordinated basis by the Subsidiary Guarantors, the Company's
major operating subsidiaries. The Company is a holding company that derives
substantially all of its operating income and cash flow from the Subsidiary
Guarantors. The Subsidiary Guarantors have guaranteed the Credit Facilities (as
defined) and the Senior Notes (as defined) and are jointly and severally liable
on a senior basis with the Company for all obligations thereunder. Obligations
under the Credit Facilities and the Senior Notes are secured by pledges of all
the capital stock of the Subsidiaries (as defined), and security interests in,
or liens on, substantially all other tangible and intangible assets of the
Company and the Subsidiaries. See "Description of Senior Indebtedness" and
"Description of New Notes." The Indenture governing the Notes permits the
Company to incur additional indebtedness, including Senior Indebtedness, subject
to certain restrictions. See "Description of New Notes." As of March 31, 1997,
(i) the aggregate amount of the Company's outstanding Senior Indebtedness was
$165.5 million (exclusive of unused commitments), all of which was Secured
Indebtedness (as defined), (ii) the Company had no Senior Subordinated
Indebtedness outstanding other than the Notes and no indebtedness that was
subordinate or junior in right of repayment to the indebtedness represented by
the Notes and (iii) the outstanding Senior Indebtedness of the Subsidiary
Guarantors, consisting entirely of Guarantees of the Senior Indebtedness of the
Company incurred under the Credit Facilities and the Senior Notes, was $165.5
million. See "Description of New Notes--Ranking."
Upon the occurrence of a Change of Control (as defined), (i) the Company will
have the option, at any time on or prior to April 1, 2002, to redeem the Notes,
in whole or in part, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium (as defined), together with accrued and
unpaid interest, if any, to the date of redemption and (ii) if the Company does
not so redeem the Notes or if such Change of Control occurs after April 1, 2002,
the Company will be required to make an offer to repurchase the Notes at a price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. There can be no assurance, however,
that in the event of a Change of Control, the Company will have, or will have
access to, sufficient funds to repurchase the Notes. See "Description of New
Notes--Change of Control."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Subsidiary Guarantors contained in the
Exchange and Registration Rights Agreement, dated March 27, 1997 (the
"Registration Rights Agreement"), among the Company, the Subsidiary Guarantors
and Chase Securities Inc., as the initial purchaser (the "Initial Purchaser") of
the Existing Notes, with respect to the initial sale of the Existing Notes.
(CONTINUED ON NEXT PAGE)
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SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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The date of this Prospectus is June [ ], 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all the expenses incident to the Exchange Offer. Tenders of Existing
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. The Company expressly
reserves the right to terminate or amend the Exchange Offer and not to accept
for exchange any Existing Notes not theretofore accepted for exchange upon the
occurrence of any of the events specified under "The Exchange Offer--Conditions
to the Exchange Offer." If any such termination or amendment occurs, the Company
will notify State Street Bank and Trust Company of Connecticut, N.A. (in such
capacity, the "Exchange Agent") and will either issue a press release or give
oral or written notice to the holders of the Existing Notes as promptly as
practicable. The Exchange Offer will expire at 5:00 P.M., New York City time, on
[ ], 1997, unless the Company, in its sole discretion, has extended the
period of time for which the Exchange Offer is open. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Existing
Notes with respect to the Exchange Offer, the Company will promptly return such
Existing Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal (as defined) states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Existing Notes where such Existing Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the Existing
Notes. The Company currently does not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system and no active public market for the New Notes is currently
anticipated. There can be no assurance that an active public market for the New
Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NEW NOTES OR
EXISTING NOTES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR
SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR THE EXCHANGE PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF. UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS
IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS.
------------------------------------------------------------------
ii
<PAGE>
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-4
(together with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the New Notes
being offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. For further information with respect to the Company and the New
Notes, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and, where such contract or other document is an exhibit
to the Registration Statement, each such statement is qualified in all respects
by the provisions in such exhibit, to which reference is hereby made. Copies of
the Registration Statement may be examined without charge at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the Commission's Regional Offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any portion of the Registration Statement can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, upon payment of certain fees prescribed by the
Commission. The Commission maintains a World Wide Web site (http://www.sec.gov)
that contains such material regarding issuers that file electronically with the
Commission. The Registration Statement has been so filed.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of the Exchange Offer, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of any material so filed can
be obtained from the Public Reference Section of the Commission at the address
set forth above, upon payment of certain fees prescribed by the Commission.
Pursuant to the Indenture, the Company has agreed to provide the Trustee
and holders and (upon their request) prospective holders of the Notes with
annual, quarterly and other reports at the times and containing in all material
respects the information specified in Sections 13 and 15(d) of the Exchange Act
and to file such reports with the Commission.
iii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION, RISK FACTORS AND HISTORICAL
AND PRO FORMA FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES, APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES IN THIS PROSPECTUS TO (i) THE
"COMPANY" MEAN TRAVELCENTERS OF AMERICA, INC. (FORMERLY, NATIONAL
AUTO/TRUCKSTOPS HOLDINGS CORPORATION) OR TRAVELCENTERS OF AMERICA, INC. TOGETHER
WITH ITS SUBSIDIARIES, AS APPLICABLE AND (ii) THE "NETWORK" MEANS THE COMPANY'S
NETWORK OF TRAVEL CENTERS AFTER GIVING EFFECT TO THE COMBINATION PLAN (AS
DEFINED). UNLESS OTHERWISE INDICATED, (i) ALL MARKET DATA PRESENTED IN THIS
PROSPECTUS IS BASED ON THE COMPANY'S RESEARCH AND ESTIMATES AND (ii) ALL
INFORMATION DISCLOSED IN THIS PROSPECTUS IS ACCURATE AS OF JUNE 15, 1997.
THE COMPANY
OVERVIEW
The Company owns, operates and franchises more travel centers in the
United States than any of its competitors, with 163 network sites nationwide,
including 134 Company-owned locations. The Company's travel centers (the
"TravelCenters") are full service facilities offering a broad range of fuel and
nonfuel products, services and amenities to trucking fleets, professional truck
drivers and other motorists. In addition to diesel fuel and gasoline
(collectively, "Fuel"), the TravelCenters provide truck maintenance and repair
services and products, full service and fast food dining, travel and convenience
stores, telecommunications services and various hospitality and rest-related
amenities (collectively, "Nonfuel"). This broad range of products and services
distinguishes the TravelCenters from traditional truckstops, which focus on the
sale of diesel fuel, and provides diverse revenue sources for the Company. For
the twelve months ended December 31, 1996, the Company sold 967.8 million
gallons of diesel fuel and had pro forma consolidated net revenues and EBITDA
(as defined) of $1,033.5 million and $63.4 million, respectively.
The Company is the only travel center or truckstop network operator in the
United States able to provide such comprehensive services and facilities to
long-haul truck drivers and fleets on a nationwide basis. The Company's
strategically positioned TravelCenters, which are located at key points on
interstate highways in 36 states, enable trucking fleets and drivers to utilize
the Company's TravelCenters as their supplier of choice for Fuel and Nonfuel
products and services on major trucking routes. The Company's integrated
information systems for billing and truck maintenance and repairs further
enhance operating efficiencies for the Company's large fleet customers and
strengthen these important relationships. Management believes that the Company's
broad range of products and services together with its comprehensive geographic
coverage has enabled the Company to become the largest supplier of diesel fuel
to the three largest and five of the six largest long-haul trucking fleets in
the United States. The Company's position as a leading supplier of diesel fuel
to major trucking fleets positions it to continue to increase its sales of
higher margin Nonfuel products and services to fleets, their drivers and
independent drivers.
The Company owns and operates two separate travel center networks, each of
which has operated for more than 30 years: the TA network, with 48 sites (40
Company-owned and operated sites and eight Franchisee-Owner Sites (as defined)),
operating under the Company-owned "Truckstops of America" and "TA" trademarks
(the "TA Network" or "TA"), and the National network, with 115 sites (34
Company-owned and operated sites, 60 Leased Sites (as defined) and 21
Franchisee-Owner Sites), operating under the licensed "Unocal 76" and related
trademarks (the "National Network" or "National," and together with the TA
Network, the "Existing Networks"). Historically, under the Company's ownership,
each of the Existing Networks has been separately managed and financed. The
Company believes it has identified a significant opportunity to improve its
operating results by combining the premier locations and long-standing fleet
relationships of the larger National Network with the strong brand image,
complementary strategic locations, established fleet relationships and proven
management expertise of the TA Network within a single Network operating under
the well-regarded "TA" brand (the "Combination Plan").
1
<PAGE>
In connection with the Combination Plan, the Company is pursuing a
business strategy which management believes will increase diesel fuel volume (in
particular with fleets), expand the sale of higher margin Nonfuel products and
services, increase operating efficiency and continue to broaden the Company's
customer base (see "Business--Business Strategy"). This business strategy is
consistent with the strategy that the TA management team successfully
implemented at TA since 1993. The existing TA management team, which has
recently assumed control of both Existing Networks, will manage the combined
Network. From 1993 to 1996, the TA strategy has resulted in a 10% increase in
diesel fuel volume, a 14% increase in Nonfuel revenues and a 32% increase in
EBITDA at TA. In 1996, Company-owned and operated TA sites sold an average of
8.7 million gallons of diesel fuel and had average Nonfuel revenues of $4.6
million, while Company-owned and operated National sites sold an average of 5.6
million gallons of diesel fuel and had average Nonfuel revenues of $2.8 million.
Based on its experience at TA, management believes there are opportunities to
improve the operating performance of the National locations joining the combined
Network. The Company intends to capitalize on these opportunities through the
implementation of its business strategy and the Capital Program described in
"Business--Business Strategy."
The Company has initiated a capital program (the "Capital Program") to
upgrade, rebrand, reimage and increase the number of the combined Network's
TravelCenters. Under this Capital Program, the Company intends to invest
approximately $200 million in the Network's sites by the end of 2001, with
approximately $110 million to be spent by the end of 1998. In addition, pursuant
to the Combination Plan, the Company expects to rationalize the combined Network
by selling 23 Company-owned National sites (six of which are Company-operated)
and terminating the franchise relationships with an additional 17 National
sites. Since March 24, 1997, the Company has sold one previously Company-owned
site to the former National Operator of that site and has terminated franchise
relationships with respect to six former National Franchisee-Owner Sites. Upon
completion of this rationalization, the Network is expected to be comprised of
123 TA branded facilities in 36 states versus 163 TA and National branded
facilities in 36 states as of June 15, 1997. For a description of the specific
components of the Combination Plan and the Capital Program, see "The
Refinancing, the Combination Plan and the Capital Program."
The United States travel center and truckstop industry is fragmented and
the ability of industry participants to add new sites is hindered by the limited
availability of suitable locations along or near interstate highways and the
substantial capital costs associated with constructing new full service
facilities (approximately $6 million to $10 million per site). In the United
States, there are generally two types of facilities designed to service the
trucking industry: pumper-only truckstops, which provide fuel, typically at
discounted prices, with limited additional services, and full service travel
centers, such as those in the Company's networks. Company research indicates
that in general only one of every three stops a truck driver makes on a long
distance route is for fuel. By offering a wide variety of Nonfuel products and
services, a full service network operator such as the Company positions itself
to capture the maximum revenue possible at both fueling and nonfueling stops.
Based on industry data, the Company believes that there are approximately 2,500
travel centers and truckstops nationwide, of which approximately 500 are full
service travel centers. Only ten travel center or truckstop chains in the United
States have 25 or more locations, which the Company believes is the approximate
minimum number required to provide regional coverage. Only six of these chains
(including TA and National) currently operate 25 or more full service travel
centers. The Company is the only travel center network operator offering full
service on a nationwide basis.
For a discussion of the Company's competitive advantages, see
"Business--Competitive Advantages" and for a discussion of the Company's
business strategy, see "Business--Business Strategy."
2
<PAGE>
TRANSACTIONS RELATED TO THE OFFERING
On March 27, 1997 (the "Closing Date") the Company was recapitalized and
restructured pursuant to a series of transactions in which (i) the Company
issued $85.5 million principal amount of its Senior Secured Notes, $35.5 million
principal amount of which consisted of its fixed rate Series I Senior Secured
Notes due 2002 (the "Series I Senior Notes") and $50.0 million principal amount
of which consisted of its floating rate Series II Senior Secured Notes due 2005
(the "Series II Senior Notes" and, together with the Series I Senior Notes, the
"Senior Notes"), in exchange for all of the National Subsidiary's (as defined)
then outstanding 8.76% Senior Secured Notes due 2002 and all of the TA
Subsidiary's (as defined) then outstanding 8.63% Senior Secured Notes due 2002
(collectively, the "Old Senior Notes"), other than $4.5 million principal amount
of the TA Subsidiary's Old Senior Notes (the "Redeemed Notes"), and paid accrued
interest on the Old Senior Notes, in cash, on the Closing Date, (ii) the Company
obtained an $80.0 million eight-year senior secured term loan facility (the
"Term Facility") and a $40.0 million senior secured revolving credit facility
(the "Revolving Credit Facility" and, together with the Term Facility, the
"Credit Facilities"), (iii) the Company issued the Existing Notes (as defined),
(iv) the proceeds of the Term Facility and the Existing Notes were advanced to
National Auto/Truckstops, Inc. (the "National Subsidiary") and TA Operating
Corporation (the "TA Subsidiary") to enable them to repay all amounts then
outstanding under the Old Credit Facilities (as defined) and Old Subordinated
Notes (as defined), to enable the TA Subsidiary to repay all amounts then
outstanding under the Redeemed Notes, and to fund, in part, capital expenditures
and an inventory investment being made in connection with the Combination Plan
and the Capital Program, (v) the TA Subsidiary and the National Subsidiary
guaranteed the Company's obligations under the Credit Facilities, the Senior
Notes and the Existing Notes (the transactions described in items (i) through
(v) being referred to collectively as the "Refinancing") and (vi) the Company's
subsidiaries were restructured such that the Company directly owns its three
subsidiaries, the National Subsidiary, the TA Subsidiary and TA Franchise
Systems Inc. ("TAFSI") (the "Restructuring" and, together with the Refinancing,
the "Transactions"). See "The Refinancing, the Combination Plan and the Capital
Program," "Use of Proceeds," "Certain Transactions--Certain Indebtedness
Formerly Held by Stockholders and Related Transactions" and "Description of
Senior Indebtedness."
3
<PAGE>
The following table sets forth the sources and uses of funds on the
Closing Date in connection with the Transactions:
SOURCES: (Dollars in Millions)
Excess Cash ............................................... $ 21.1
Term Facility (1) ......................................... 80.0
Senior Notes .............................................. 85.5
Existing Notes ............................................ 125.0
--------
Total Sources of Funds .......................... $ 311.6
========
USES:
Refinance Existing Debt (2) ............................... $ 236.4
Pre-Funded Capital Expenditures (3) ....................... 50.0
Inventory Investment (4) .................................. 10.0
Transaction and Other Costs ............................... 15.2
--------
Total Uses of Funds ............................. $ 311.6
========
- -----------
(1) The Company has available $40.0 million under its Revolving Credit
Facility, of which $1.5 million was utilized at closing for letters of
credit. See "Description of Senior Indebtedness."
(2) Principal amounts outstanding under the Old Credit Facilities, the Old
Senior Notes and the Old Subordinated Notes, together, in each case, with
interest accrued thereon, were repaid with proceeds from the Term Facility
and the Existing Notes and the issuance of the Senior Notes, as well as
cash on hand.
(3) Pre-funded capital expenditures are being made in connection with the
Capital Program. See "The Refinancing, the Combination Plan and the
Capital Program."
(4) The Company intends to make a one-time investment in inventory at both its
central distribution center and at certain Company-operated National
TravelCenters as part of the Combination Plan and the Capital Program. See
"The Refinancing, the Combination Plan and the Capital Program."
OWNERSHIP AND MANAGEMENT
The Company is owned by an institutional investor group (the "Investor
Group") organized by affiliates of The Clipper Group, L.P. ("Clipper"), a New
York City based private investment firm, certain National franchisees and
certain members of the Company's management. See "Security Ownership." The
Company is managed by its President and CEO, Edwin P. Kuhn, President and CEO of
TA since 1994, and the management team that prior to January 1997 managed the TA
Network. The Company acquired the National Network from a subsidiary of Unocal
Corporation (together with its subsidiaries, "Unocal") in April 1993 (the
"National Acquisition") and acquired the TA Network from subsidiaries of The
British Petroleum Company p.l.c. (together with its subsidiaries, "BP") in
December 1993 (the "TA Acquisition" and, together with the National Acquisition,
the "Acquisitions."). See "Management."
4
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......................... Up to $125,000,000 aggregate
principal amount of 10 1/4% Senior
Subordinated Notes due 2007 (the
"New Notes"). The New Notes will be
guaranteed on an unsecured, senior
subordinated basis by each of the
Subsidiary Guarantors. The terms of
the New Notes and those of the
Company's outstanding 10 1/4%
Senior Subordinated Notes due 2007
(the "Existing Notes" and, together
with the New Notes, the "Notes")
are identical in all material
respects, except for certain
transfer restrictions and
registration rights relating to the
Existing Notes.
The Exchange Offer.......................... The New Notes are being offered in
exchange for a like principal
amount of Existing Notes. Existing
Notes may be exchanged only in
integral multiples of $1,000. The
issuance of the New Notes is
intended to satisfy obligations of
the Company and the Subsidiary
Guarantors contained in the
Registration Rights
Agreement.
Expiration Date; Withdrawal of Tender....... The Exchange Offer will expire at
5:00 p.m., New York City time, on [
], 1997, or such later date and
time to which it is extended by the
Company. The tender of Existing
Notes pursuant to the Exchange
Offer may be withdrawn at any time
prior to the Expiration Date. Any
Existing Notes not accepted for
exchange for any reason will be
returned without expense to the
tendering holder thereof as
promptly as practicable after the
expiration or termination of the
Exchange Offer.
Conditions to the Exchange Offer............ The Exchange Offer is subject to
certain customary conditions, which
may be waived by the Company. The
Company currently expects that each
of the conditions will be satisfied
and that no waivers will be
necessary. See "The Exchange
Offer--Conditions to the Exchange
Offer."
Procedures for Tendering Existing
Notes.................................... Each holder of Existing Notes
wishing to accept the Exchange
Offer must complete, sign and date
a Letter of Transmittal, or a
facsimile thereof, in accordance
with the instructions contained
herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile,
together with such Existing Notes
and any other required
documentation, to the Exchange
Agent (as defined) at the address
set forth herein. See "The Exchange
Offer--Procedures for Tendering
Existing Notes."
Use of Proceeds............................. There will be no proceeds to the
Company from the exchange of Notes
pursuant to the Exchange Offer.
Exchange Agent.............................. State Street Bank and Trust Company
of Connecticut, N.A. ("State Street
Bank and Trust Company") is serving
as the Exchange Agent (in such
capacity, the "Exchange Agent") in
connection with the Exchange Offer.
5
<PAGE>
CONSEQUENCES OF EXCHANGING EXISTING NOTES
PURSUANT TO THE EXCHANGE OFFER
Based on certain no-action letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Company to resell
pursuant to Rule 144A ("Rule 144A") under the Securities Act of 1933, as amended
(the "Securities Act") or any other available exemption) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of the holder's
business and such holders have no arrangement or understanding with any person
to participate in a distribution of such New Notes and are not participating in,
and do not intend to participate in, the distribution of such New Notes. The
Company has not sought, and does not intend to seek, its own no-action letter
with regard to the Exchange Offer. Accordingly, there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer. By tendering, each holder will represent to the Company in
the Letter of Transmittal that, among other things, the New Notes acquired
pursuant to the Exchange Offer are being acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the holder, that neither the holder nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such New
Notes, that neither the holder nor any such other person is participating in or
intends to participate in the distribution of such New Notes and that neither
the holder nor any such other person is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company. Each broker-dealer that receives New
Notes for its own account in exchange for Existing Notes must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and complied with.
The Company has agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the New
Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Notes reasonably requests in writing. If a
holder of Existing Notes does not exchange such Existing Notes for New Notes
pursuant to the Exchange Offer, such Existing Notes will continue to be subject
to the restrictions on transfer contained in the legend thereon. In general, the
Existing Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. See "The
Exchange Offer--Consequences of Failure to Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
6
<PAGE>
THE NEW NOTES
Issuer...................................... TravelCenters of America, Inc.
Securities Offered.......................... $125,000,000 aggregate principal
amount 10 1/4% Senior Subordinated
Notes due 2007.
Maturity.................................... April 1, 2007.
Interest Payment Dates...................... April 1 and October 1 of each year,
commencing October 1, 1997.
Sinking Fund................................ None.
Optional Redemption......................... Except as described below, the
Company may not redeem the New
Notes prior to April 1, 2002. On or
after such date, the Company may
redeem the New Notes, in whole or
in part, at the redemption prices
set forth herein together with
accrued and unpaid interest, if
any, to the date of redemption. In
addition, at any time and from time
to time on or prior to April 1,
2000, the Company, at its option,
may redeem up to 35% of the
original aggregate principal amount
of the Notes, with the net cash
proceeds of one or more Public
Equity Offerings (as defined) by
the Company, at a redemption price
equal to 110.25% of the principal
amount to be redeemed, together
with accrued and unpaid interest,
if any, to the date of redemption,
provided that at least 65% of the
original aggregate principal amount
of the Notes remains outstanding
immediately after each such
redemption. See "Description of New
Notes--Optional Redemption."
Change of Control........................... Upon the occurrence of a Change of
Control (as defined), (i) the
Company will have the option, at
any time on or prior to April 1,
2002, to redeem the New Notes, in
whole or in part, at a redemption
price equal to 100% of the
principal amount thereof plus the
Applicable Premium (as defined),
together with accrued and unpaid
interest, if any, to the date of
redemption and (ii) if the Company
does not so redeem the New Notes or
if such Change of Control occurs
after April 1, 2002, the Company
will be required to make an offer
to repurchase the New Notes at a
price equal to 101% of the
principal amount thereof, together
with accrued and unpaid interest,
if any, to the date of purchase.
See "Description of New
Notes--Change of Control."
Subsidiary Guarantees....................... The New Notes will be guaranteed on
an unsecured, senior subordinated
basis by each of the Subsidiary
Guarantors. See "Description of New
Notes--Subsidiary Guarantees."
7
<PAGE>
Ranking..................................... The New Notes will be unsecured and
subordinated in right of payment to
all existing and future Senior
Indebtedness (as defined) of the
Company. The New Notes will rank
PARI PASSU with any future Senior
Subordinated Indebtedness (as
defined) of the Company and will
rank senior to all other
subordinated indebtedness of the
Company. The Subsidiary Guarantees
will be general, unsecured
obligations of the Subsidiary
Guarantors, subordinated in right
of payment to all existing and
future Senior Indebtedness of the
Subsidiary Guarantors. As of March
31, 1997, (i) the aggregate amount
of the Company's outstanding Senior
Indebtedness was $165.5 million
(exclusive of unused commitments),
all of which was Secured
Indebtedness, (ii) the Company had
no Senior Subordinated Indebtedness
outstanding other than the Existing
Notes and no indebtedness that was
subordinate or junior in right of
repayment to the indebtedness
represented by the Existing Notes,
(iii) the outstanding Senior
Indebtedness of the Subsidiary
Guarantors, consisting entirely of
guarantees of the Senior
Indebtedness of the Company
incurred under the Credit
Facilities and the Senior Notes,
was $165.5 million and (iv) all
liabilities of the Subsidiaries
(including Senior Indebtedness and
trade payables, but excluding the
Subsidiary Guarantees and other
intercompany liabilities) was
approximately $77.3 million. See
"Description of New
Notes--Ranking."
Restrictive Covenants....................... The indenture under which the New
Notes will be issued (the
"Indenture") restricts (i) the
incurrence of additional
indebtedness by the Company and its
Restricted Subsidiaries (as
defined); (ii) the payment of
dividends on, and redemption of,
capital stock of the Company and
its Restricted Subsidiaries and the
redemption of certain subordinated
obligations of the Company and its
Restricted Subsidiaries; (iii)
investments; (iv) sales of assets;
(v) certain transactions with
affiliates; (vi) the sale or
issuance of capital stock of
Restricted Subsidiaries; (vii) the
creation of liens; (viii) the lines
of business in which the Company
and its Restricted Subsidiaries may
operate; (ix) sale and leaseback
transactions and (x)
consolidations, mergers and
transfers of all or substantially
all of the Company's assets. The
Indenture also will prohibit
certain restrictions on
distributions from Restricted
Subsidiaries. However, all of these
limitations and prohibitions are
subject to a number of important
qualifications and exceptions. See
"Description of New Notes--Certain
Covenants; --Merger and
Consolidation."
Certain United States Tax
Considerations........................... In the opinion of Paul, Weiss,
Rifkind, Wharton & Garrison,
counsel to the Company, the
exchange pursuant to the Exchange
Offer should not be a taxable event
for federal income tax purposes,
and the holder should not recognize
any taxable gain or loss as a
result of the exchange. See
"Certain United States Tax
Considerations."
8
<PAGE>
RISK FACTORS
Holders of Existing Notes and prospective purchasers of New Notes should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the specific factors set forth under "Risk Factors"
in connection with the Exchange Offer.
SUMMARY SUPPLEMENTAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical financial and pro forma
data for the Company that is supplemental to its consolidated audited and
unaudited financial statements included elsewhere in this Prospectus. In such
audited and unaudited financial statements, as a result of the Company's
decision to pursue the Repurchase (as defined), the Company's investment in TA
was presented as net assets of subsidiary held for disposition for the period
from January 1, 1994 to September 30, 1996. Furthermore, TA's results of
operations were excluded from the Company's consolidated results of operations
until December 31, 1994, and subsequently included therein as a single amount in
the Company's consolidated income statement. Effective September 30, 1996, the
decision was made to retain TA and, subsequently, the Company chose to pursue
the Combination Plan in order to improve its operating results by combining the
Existing Networks. As a result, beginning October 1, 1996, TA's results were
reconsolidated into the Company's financial statements. The supplemental
presentation below for the years 1994 through 1996 and the three months ended
March 31, 1996 sets forth the consolidated results of operations and financial
position of the Company as though TA had not been held for disposition and had
instead been fully consolidated. The historical financial data for the three
months ended March 31, 1997 have been derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus. However, in the
opinion of the Company's management, such unaudited financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of such data. The results for the three months ended March
31, 1997 are not necessarily indicative of results to be expected for the full
year. The pro forma consolidated financial data have been derived from the
Unaudited Pro Forma Financial Information and the related notes thereto included
elsewhere in this Prospectus. The pro forma information does not purport to
represent what the Company's results would have actually been if the
Transactions and the application of the proceeds therefrom had occurred on the
dates indicated nor does such information purport to project the results of the
Company for any future period. The summary financial data below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Financial Information" and the
audited and unaudited financial statements and related notes thereto included
elsewhere in this Prospectus.
9
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY
----------------------------------------------------------------------------------------
Year Ended December 31, Three Months Ended March 31,
-------------------------------------------------- ------------------------------------
Pro Forma Pro Forma
1994 (1) 1995 (1) 1996 (1) 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Fuel ............................... $ 603,719 $ 590,398 $ 752,266 $ 752,266 $ 167,850 $ 194,151 $ 194,151
Nonfuel ............................ 187,712 201,533 239,449 239,449 53,784 61,242 61,242
Rent ............................... 48,424 47,840 41,762 41,762 10,950 9,720 9,720
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total revenues ..................... 839,855 839,771 1,033,477 1,033,477 232,584 265,113 265,113
Cost of revenues (excluding
depreciation) ...................... 634,595 632,822 801,665 800,381 179,215 205,878 205,557
----------- ----------- ----------- ----------- ----------- ----------- ----------
Gross profit (excluding depreciation) . 205,260 206,949 231,812 233,096 53,369 59,235 59,556
Operating expenses .................... 100,990 101,620 128,773 128,773 27,598 34,083 34,083
Selling, general and administrative
expenses ........................... 35,361 43,198 42,349 40,899 12,889 11,733 11,256
Refinancing, transition
and development costs (2) .......... 5,529 1,866 2,687 2,687 155 1,618 1,618
Depreciation and amortization ......... 20,348 22,611 26,970 26,730 6,161 6,944 6,886
Other (income) expense, net (3) ....... (215) 247 1,324 1,324 (6) (74) (74)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Income from operations ................ 43,247 37,407 29,709 32,683 6,593 4,931 5,787
Interest (expense), net ............... (20,537) (20,867) (20,827) (25,916) (5,095) (5,105) (6,321)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Income (loss) before income taxes and
extraordinary loss ................. 22,710 16,540 8,882 6,767 1,498 (174) (534)
Provision (benefit) for income taxes .. 9,029 6,614 3,349 2,503 582 (68) (212)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Income (loss) before extraordinary
loss ............................... 13,681 9,926 5,533 4,264 916 (106) $ (322)
==========
Extraordinary loss .................... -- -- -- -- -- (5,554)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) ..................... $ 13,681 $ 9,926 $ 5,533 $ 4,264 $ 916 $ (5,660)
=========== =========== =========== =========== =========== ===========
BALANCE SHEET DATA (END OF PERIOD):
Cash .................................. $ 35,839 $ 15,617 $ 23,779 $ 30,362 $ 74,910
Total assets .......................... $ 420,196 $ 413,366 $ 429,742 $ 438,095 $ 479,831
Total debt (net of unamortized
discount) .......................... $ 244,218 $ 226,351 $ 224,435 $ 233,154 $ 290,500
Mandatorily redeemable preferred
stock (4) .......................... $ 41,315 $ 46,195 $ 51,075 $ 47,415 $ 52,295
Total shareholders' equity ............ $ 67,341 $ 71,212 $ 72,243 $ 71,451 $ 60,266
Working capital (5) ................... $ 49,144 $ 38,512 $ 23,766 $ 36,560 $ 113,314
OTHER FINANCIAL AND OPERATING DATA:
EBITDA (6) ............................ $ 68,909 $ 62,131 $ 60,690 $ 63,424 $ 12,903 $ 13,419 $ 14,217
Cash flows (used in) provided by:
Operating activities ............... $ 32,322 $ 27,407 $ 39,475 $ 38,398 $ 16,206 $ 4,864 $ 2,633
Investing activities ............... $ (19,564) $ (29,488) $ (28,476) $ (28,476) $ (8,211) $ (5,565) $ (5,565)
Financing activities ............... $ (5,446) $ (18,141) $ (2,837) $ 46,663 $ 6,750 $ 51,832 $ (1,224)
Capital expenditures (7) .............. $ 20,841 $ 32,183 $ 27,089 $ 27,089 $ 5,148 $ 1,388 $ 1,388
Total diesel fuel sold (thousands of
gallons) ........................... 959,652 948,156 967,756 967,756 241,761 250,172 250,172
Ratio of EBITDA to interest expense,
net (8)(9) ......................... 2.4x
Ratio of net debt to EBITDA (10) ...... 3.8x
Ratio of earnings to fixed charges (11) 2.0x 1.7x 1.4x 1.2x 1.3x -- --
SITES (END OF PERIOD):
Company-Owned and Operated Sites ...... 39 46 58 58 52 67 67
Company-Owned and Leased Sites ........ 96 89 77 77 83 68 68
Franchisee-Owner Sites ................ 41 38 35 35 38 34 34
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total TravelCenters ................... 176 173 170 170 173 169 169
=========== =========== =========== =========== =========== =========== ==========
</TABLE>
See Notes to Summary Supplemental and Pro Forma Consolidated Financial Data
10
<PAGE>
The following table sets forth the TA Subsidiary's historical
financial data. For the years 1994 through 1996, such financial data has been
derived from the TA Subsidiary's audited financial statements included elsewhere
in this Prospectus. For the three months ended March 31, 1996, the historical
financial data was derived from the unaudited financial statements of the TA
Subsidiary which are not included in this Prospectus. However, in the opinion of
the Company's management, such unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such data.
<TABLE>
<CAPTION>
THE TA SUBSIDIARY
-----------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ MARCH 31,
1994 1995 1996 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Fuel .................................. $206,971 $214,250 $284,378 $ 58,943
Nonfuel ............................... 167,830 172,201 182,488 42,232
-------- -------- -------- --------
Total revenues ........................ $374,801 $386,451 $466,866 $101,175
======== ======== ======== ========
Gross profit (excluding depreciation) ....... $131,354 $130,452 $143,230 $ 32,856
EBITDA (6) .................................. $ 25,036 $ 26,040 $ 27,306 $ 4,977
Total diesel fuel sold (thousands of gallons) 295,875 306,255 344,803 79,098
Sites at end of period ...................... 46 47 48 47
</TABLE>
The following table sets forth the National Subsidiary's historical
financial data. For the years 1994 through 1996, such financial data has been
derived from the National Subsidiary's audited financial statements included
elsewhere in this Prospectus. For the three months ended March 31, 1996, the
historical financial data was derived from the unaudited financial statements of
the National Subsidiary which are not included in this Prospectus. However, in
the opinion of the Company's management, such unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data.
<TABLE>
<CAPTION>
THE NATIONAL SUBSIDIARY
-----------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ MARCH 31,
1994 1995 1996 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Fuel .................................. $396,748 $376,148 $467,888 $108,907
Nonfuel ............................... 19,882 29,332 56,961 11,552
Rent .................................. 48,424 47,840 41,762 10,950
-------- -------- -------- --------
Total revenues ........................ $465,054 $453,320 $566,611 $131,409
======== ======== ======== ========
Gross profit (excluding depreciation) ....... $ 73,906 $ 76,497 $ 88,582 $ 20,513
EBITDA (6) .................................. $ 44,399 $ 36,259 $ 34,120 $ 8,060
Total diesel fuel sold (thousands of gallons) 663,777 641,901 622,956 162,663
Sites at end of period ...................... 130 126 122 126
</TABLE>
- -------------
(1) See Note 20 to the audited financial statements of the Company included
elsewhere in this Prospectus. The amounts set forth in this supplemental
presentation for the years 1994, 1995 and 1996 which represent the TA
Subsidiary's results of operations (as well as those representing the
National Subsidiary's results of operations) were derived from the audited
financial statements included elsewhere in this Prospectus.
(2) "Refinancing, transition and development costs" represent non-recurring
costs, and certain development costs, associated with, among other things,
(i) the Repurchase and related refinancing efforts, (ii) pursuit of
potential acquisitions, (iii) expenses incurred as TA transitioned to a
stand-alone operation apart from BP and (iv) the design of the TA
TravelCenter prototype. Management expects to incur additional
non-recurring transition expenses pursuant to the Combination Plan.
11
<PAGE>
(3) "Other (income) expense, net" primarily represents gains and losses on
sales of property and equipment.
(4) "Mandatorily redeemable preferred stock" is comprised of two series of
convertible preferred stock which accumulate dividends semi-annually at a
compound annual rate of 13.5%. Both series are mandatorily redeemable in
2008 and are held by certain members of the Investor Group.
(5) "Working capital" is defined as current assets minus current liabilities.
(6) "EBITDA" is defined herein as income from operations plus the sum of
depreciation; amortization; refinancing, transition and development costs;
and other (income) expense, net and is presented because it is commonly
used by certain investors and analysts to analyze and compare operating
performance, and to determine a company's ability to service and incur
debt. EBITDA should not be considered in isolation from, or a substitute
for, net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
(7) Over the past three years capital expenditures have averaged approximately
$27 million and have been generally comprised of (i) maintenance capital
expenditures (which are expected to be $8 million to $12 million per
annum), (ii) underground storage tank upgrades which are required to be
completed by December 1998 and (iii) development projects. Development
projects include new sites, fast food installations, stand-alone truck
maintenance and repair shop additions and systems upgrades, such as fuel
island automation.
(8) Pro forma "Interest (expense), net" is net of $1.2 million of interest
income actually earned in 1996. Pro forma "Interest (expense), net" does
not include any interest income on the approximately $50 million of excess
proceeds to be raised in the Refinancing to pre-fund certain capital
expenditures in connection with the Capital Program.
(9) The pro forma ratio of EBITDA to "Interest expense, net" set forth is
different than the Consolidated Coverage Ratio (as defined in the
Indenture). See "Description of Notes--Certain Definitions." The
Consolidated Coverage Ratio, giving effect to the pro forma adjustments as
described in the Notes to the Unaudited Pro Forma Financial Information
included elsewhere in this Prospectus (See "Unaudited Pro Forma Financial
Information"), is 2.4x.
(10) Net debt is calculated by deducting from total debt the $50.0 million of
pre-funded capital expenditures in connection with the Capital Program
to be held in cash following the Refinancing. Pro forma for the
Refinancing, including such $50.0 million and $10.0 million anticipated
to be used to invest in inventory, cash will total $70.8 million as of
December 31, 1996.
(11) For purposes of computing this ratio, earnings consist of income from
operations before income taxes and fixed charges. Fixed charges consist
of interest expense, amortization of debt discount and one-third of
rental expense. Earnings were not sufficient to cover fixed charges by
$174,000 for the three months ended March 31, 1997 and by $534,000 on a
pro forma basis for the three months ended March 31, 1997.
12
<PAGE>
RISK FACTORS
SET FORTH BELOW ARE THE PRINCIPAL RISK FACTORS INVOLVED IN AN EXCHANGE OF
OR INVESTMENT IN THE NOTES. HOLDERS OF EXISTING NOTES AND PROSPECTIVE PURCHASERS
OF THE NEW NOTES SHOULD CAREFULLY CONSIDER THESE RISK FACTORS AS WELL AS THE
OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS, WHICH MAY AFFECT A
DECISION TO ACQUIRE THE NEW NOTES. FOR A DISCUSSION OF CERTAIN POTENTIAL TAX
CONSEQUENCES OF SUCH AN INVESTMENT, SEE "CERTAIN UNITED STATES TAX
CONSIDERATIONS." THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE SECURITIES ACT AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE RISK FACTORS SET FORTH BELOW. SEE "SPECIAL NOTE REGARDING
FORWARD LOOKING STATEMENTS."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company is highly leveraged. As of March 31, 1997, the Company and its
consolidated subsidiaries had an aggregate of $290.5 million of outstanding
indebtedness. The Indenture permits the Company to incur additional
indebtedness, including indebtedness that is senior in rank to the Notes
("Senior Indebtedness"), subject to certain restrictions. The degree to which
the Company is leveraged could have important consequences to holders of the
Notes, including the following: (i) the Company's ability to obtain additional
financing for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; (ii) a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of interest on the
Notes and other indebtedness, thereby reducing the funds available to the
Company for other purposes; (iii) the indebtedness under the Credit Facilities
and the Series II Senior Notes is at variable rates of interest, which may cause
the Company to be vulnerable to increases in interest rates; (iv) all of the
indebtedness outstanding under the Credit Facilities and the Senior Notes is
secured by substantially all the assets of the Company and the Subsidiary
Guarantors, and will mature prior to the Notes; (v) the Company is substantially
more leveraged than certain of its competitors, which might place the Company at
a competitive disadvantage; (vi) the Company may be hindered in its ability to
adjust rapidly to changing market conditions; and (vii) the Company's
substantial degree of leverage could make it more vulnerable in the event of a
downturn in general economic conditions or in its industry or business. See
"Capitalization," "Description of Senior Indebtedness" and "Description of New
Notes."
The Company's ability to pay the interest on and retire principal of the
Notes and the Company's other indebtedness is dependent upon its future
operating performance, which in turn is subject to general economic conditions
and to financial, business and other factors, many of which are beyond the
Company's control. In the event that the Company is unable to generate cash flow
that is sufficient to service its obligations in respect of the Notes and its
other indebtedness, the Company may be forced to adopt one or more alternatives,
such as reducing or delaying capital expenditures, attempting to refinance or
restructure its indebtedness, selling material assets or operations or selling
equity. There can be no assurance that any of such actions could be effected on
satisfactory terms, that they would enable the Company to satisfy its debt
service requirements or that they would be permitted by the Credit Facilities,
the Senior Notes or the Indenture. The failure to generate such sufficient cash
flow or to achieve such alternatives could significantly adversely affect the
market value of the Notes and the Company's ability to pay principal of and
interest on the Notes.
SUBORDINATION OF NOTES; ASSET ENCUMBRANCE; HOLDING COMPANY STRUCTURE
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Indebtedness of the Company, including
all amounts owing under the Credit Facilities and the Senior Notes. In addition
to being contractually subordinated, the Notes are unsecured and thus, will
effectively rank junior to any secured indebtedness of the Company or the
Subsidiary Guarantors, including the indebtedness outstanding
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under the Credit Facilities and the Senior Notes, which is secured by liens on
substantially all of the assets of the Company and the Subsidiary Guarantors. As
of March 31, 1997, the aggregate amount of such Senior Indebtedness of the
Company was approximately $165.5 million, all of which was secured.
Consequently, in the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company, assets of the
Company will be available to pay obligations on the Notes only after all Senior
Indebtedness has been paid in full, and there can be no assurance that there
will be sufficient assets to pay amounts due on all or any of the Notes.
Similarly, the Indebtedness evidenced by the Subsidiary Guarantees of the Notes
by the Subsidiary Guarantors will be subordinated to the prior payment in full
of all existing and future Senior Indebtedness, including all amounts owing
pursuant to the Subsidiary Guarantors' guarantees of the indebtedness
outstanding under the Credit Facilities and the Senior Notes. Furthermore, the
Subsidiary Guarantors' guarantees of the Credit Facilities and the Senior Notes
are secured by liens on substantially all of the assets of the Subsidiary
Guarantors and, along with other Secured Indebtedness of the Subsidiary
Guarantors, will effectively rank senior to the Subsidiary Guarantees, which are
unsecured. All Senior Indebtedness of the Company outstanding after giving
effect to the Transactions will be guaranteed pursuant to the secured guarantees
by the Subsidiary Guarantors of the Credit Facilities and Senior Notes. See
"Description of New Notes--Ranking and Subordination" and "--Subsidiary
Guarantees."
The Company is a holding company whose only material assets are its
investments in its subsidiaries. The Company conducts no business and is
dependent on distributions from its subsidiaries to service its debt
obligations, including the payment of interest and principal on the Notes. There
can be no assurance that such distributions will be adequate to fund the
interest and principal payments on the Credit Facilities, the Senior Notes and
the Notes when due.
RESTRICTIVE COVENANTS IN THE CREDIT FACILITIES AND SENIOR NOTES
The agreements providing for the Credit Facilities and the exchange of the
Senior Notes include a number of covenants that, among other things, restrict
the ability of the Company and its subsidiaries to dispose of assets, incur
additional indebtedness, incur guarantee obligations, prepay, redeem or
repurchase other indebtedness or amend certain other debt instruments, pay
dividends, create liens on assets, enter into sale and leaseback transactions,
make investments, loans or advances, make acquisitions, engage in mergers or
consolidations, change the business conducted by the Company or its
subsidiaries, make capital expenditures or engage in certain transactions with
subsidiaries and affiliates and otherwise restrict certain corporate activities.
In addition, under the Credit Facilities and Senior Notes, the Company is
required to comply with specified financial ratios and tests, including minimum
interest coverage ratios, maximum leverage ratios, a minimum working capital
requirement and a minimum net worth test. There can be no assurance that these
requirements will be met in the future. If they are not met, the senior lenders
could declare all amounts borrowed under the Credit Facilities and the Senior
Notes to be due and payable, together with accrued and unpaid interest, and the
commitments of the senior lenders to make further extensions of credit under the
Credit Facilities could be terminated. If the Company were unable to repay its
indebtedness to its senior lenders, such lenders could proceed against the
collateral securing such indebtedness as described under "Description of Senior
Indebtedness." If the indebtedness under the Credit Facilities and Senior Notes
were accelerated, there could be no assurance that the assets of the Company
would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Notes.
COMPETITION
The travel center and truckstop industry is highly competitive and
fragmented. The Company competes in a large number of markets in which its
competitors offer both Fuel and Nonfuel products and services. Certain of the
Company's competitors offer diesel fuel at discount prices (in some cases
reflecting discounts on street prices greater than those offered by the
Company), which has caused severe price competition in certain of the Company's
markets, and from time to time certain of the Company's competitors may adopt
pricing strategies which the Company and its franchisees will be unwilling to
match. Due principally to competitive conditions within the truckstop and travel
center industry, retail
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diesel fuel margins have declined in recent years, both industry-wide and at the
Company. Certain of the Company's competitors also have greater financial
resources than the Company and are less financially leveraged. The Company
believes that fleets, which comprise a large part of its and its franchisees'
business, satisfy a significant portion of their diesel fuel needs through their
own terminals. Fleets often have their truck maintenance performed at dedicated
fleet garages. While such facilities do not compete directly with the Company as
travel centers or truckstops, pricing decisions for diesel fuel and repair
services cannot be made without considering their existence and capacity for
expansion.
CONDITION OF THE TRUCKING INDUSTRY; RELIANCE ON FLEET ACCOUNTS
The Company's business is dependent upon the trucking industry in general
and upon long-haul trucks in particular. In turn, the trucking industry is
dependent on economic factors, such as the level of domestic economic activity
and interest rates, as well as operating factors such as the availability of
fuel supply, government regulation of fuel composition, prices and taxes and
regulation of permitted daily driving time, over which the Company has no
control and which could contribute to a decline in truck travel. The long-haul
trucking business is also a mature industry that has grown slowly in recent
years and has been susceptible to recessionary downturns. Available data
indicate that diesel fuel consumption by the trucking industry has grown more
slowly than trucking ton-miles as the fuel efficiency of diesel trucks has
continued to increase. That trend is expected to continue as engine technology
is refined and older trucks are retired and replaced with newer models. Any
sustained decline in operations in the trucking industry would adversely affect
the Company.
The Company derives a significant percentage of its revenues as a result
of relationships with fleet accounts, under which it provides diesel fuel,
products and services to fleet vehicles. The Company estimates that fleet
accounts represented approximately 75% and 60%, respectively, of the TA
Network's and the National Network's total diesel fuel volume sold in 1996,
although no one fleet accounted for more than 8% of either TA's or National's
total diesel fuel volume. Travel center and truckstop chains compete
aggressively for fleet account business and any significant reduction in fleet
accounts or sales to those accounts would adversely affect the Company. No
assurance can be given as to the continuation of the current level of sales to
fleets. See "Business--Sales and Marketing."
DEPENDENCE ON NETWORK MEMBERS
In 1996, the Company derived 23% of its gross profit from rent, franchise
royalties and other Nonfuel payments made by Operators (as defined) and
Franchisee-Owners (as defined). The Company is therefore substantially dependent
on the stable financial condition of the Operators and Franchisee-Owners, which
condition is subject to economic and industry factors, as well as other factors
affecting individual Operators and Franchisee-Owners, that are beyond the
Company's control. The Company has no opportunity to increase the rent it
charges the Operators, beyond an annual adjustment for inflation, until renewal
of the leases governing Leased Sites. As of December 31, 1996, the average
remaining term of the Operator leases was in excess of three years. In addition,
as part of the Combination Plan, the Company is offering new lease and franchise
agreements to Operators of Leased Sites that are being offered the opportunity
to convert from the National Network to the Network. The new leases reduce the
fixed rent paid by Operators offered such lease by an average of $96,000 per
site annually (as compared to 1996 rents) and extend the lease terms of such
Operators by an average of between one and two years. The reduction in lease
payments is expected to be offset by increased franchisee royalty payments under
the new franchise agreements, although there can be no assurance that such
increases will be fully realized.
For the twelve months ended December 31, 1996, the Company derived 4% of
its gross profit from sales of Fuel to Operators and Franchisee-Owners in the
National Network. The Company does not currently sell Fuel to TA franchisees.
The Company expects to continue to derive a significant percentage of its gross
profit from sales made to the Operators and Franchisee-Owners. Each of the
Operators and Franchisee-Owners is an independent business person, whose selling
and pricing decisions the Company does not control.
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The Combination Plan contemplates significant changes in the leasing,
franchising and Fuel sale relationships with the National Operators and
Franchisee-Owners. There can be no assurance that these changes will be
implemented at all or consistently by such Operators and Franchisee-Owners. See
"--Certain Franchisee Matters," "Business--Business Strategy" and "The
Refinancing, the Combination Plan and the Capital Program."
DEPENDENCE ON MOTOR FUEL SUPPLY AND SALES
In 1996, the Company derived 22% of its gross profit from sales of Fuel
both to Operators and Franchisee-Owners and from Company-operated TravelCenters.
The volume of Fuel sold by the Company and the profit margins associated with
these sales are affected by numerous factors outside of the Company's control,
including the condition of the long-haul trucking industry, the supply of and
demand for Fuel and the pricing policies of its Operators and Franchisee-Owners
and their respective (and the Company's) competitors.
The Company purchases Fuel from various suppliers at rates that fluctuate
with market prices and reset daily, and resells Fuel to its Operators and
Franchisee-Owners and to the public at rates that the Company resets daily.
Although price increases can be reflected rapidly in the prices charged, such
increases have historically tended to lead to temporary declines in retail fuel
sales volumes, which could negatively impact the Company's revenues. The Company
keeps only limited inventories of Fuel and consequently is susceptible to price
increases and interruptions in supply. Interruptions in supply may be caused by
local conditions, such as a malfunction in a particular pipeline or terminal,
that could prevent the Company's suppliers from supplying a specific geographic
location. The Company has attempted to reduce the impact of local interruptions
by entering into contractual arrangements with alternative sources of supply.
Interruptions in supply may also be caused by national or international
conditions, limitations on sales to Fuel wholesalers such as the Company imposed
by the limited number of Fuel suppliers and government agency regulation. A
material decrease in the volume of Fuel sold for an extended period of time or
instability in the prices of Fuel would have a material adverse effect on the
Company.
Each of the Company's Fuel suppliers has established credit lines in favor
of the Company to fund such purchases. Generally, these supply agreements
provide that the credit line may be revised by the supplier in various
circumstances, including at any time the supplier determines that the financial
condition of the Company has become impaired or is otherwise unsatisfactory. No
assurance can be given that the Transactions, future refinancings or a future
downturn in operating results will not cause the Company's suppliers to reduce
or eliminate such credit lines, which could have a material adverse effect on
the Company.
ENVIRONMENTAL LIABILITIES
The Company's operations and properties are subject to extensive federal,
state and local laws, regulations and ordinances relating to environmental
matters, particularly those that (i) govern activities and operations that may
have adverse environmental effects, such as discharges to air, soil and water,
as well as handling, storage and disposal practices for petroleum products and
other hazardous and toxic substances ("Hazardous Substances") or (ii) impose
liability and damages for the costs of remediating sites affected by, and for
damages resulting from, past spills and disposal or other releases of Hazardous
Substances ("Environmental Laws"). Pursuant to certain Environmental Laws, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of Hazardous Substances on, under or in such
property. Environmental Laws typically impose liability whether or not the owner
or operator knew of, or was responsible for, the presence of such Hazardous
Substances. Persons who arrange, or are deemed to have arranged, for the
disposal or treatment of Hazardous Substances also may be liable for the costs
of removal or remediation of such substances at the disposal or treatment site,
regardless of whether the affected site is owned or operated by such person.
In connection with the National Acquisition and the TA Acquisition, the
Company entered into agreements (the "Environmental Agreements") with the
respective sellers, Unocal and BP, obligating the
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sellers to undertake, at their sole expense, activities necessary to bring their
former properties and operations into compliance with Environmental Laws and to
indemnify the Company with respect to certain other environmental liabilities.
The Company believes that, after giving effect to the Environmental Agreements,
liabilities under Environmental Laws will not have a material adverse effect on
the Company. If additional environmental compliance or remediation obligations
arise or are discovered, if additional environmental requirements are imposed by
government agencies, or if Unocal or BP fail to satisfy their obligations under
the Environmental Agreements, increased remediation and compliance expenditures
may be required, which could have a material adverse effect on the Company. See
"Business--Regulation--Environmental Regulation."
ADVERSE EFFECTS OF AN INABILITY TO EFFECT OPERATING STRATEGY
The failure to implement the Company's operating strategy and consolidate
management effectively could have a material adverse effect on the Company. The
Company's plan to integrate the TA Network and the National Network entails a
number of significant risks, including, but not limited to, the risks that a
number of National Operators will refuse to accept the offer of a Network
franchise, that Operators who do accept will not be able to operate successfully
within the Network or that National's customers will not continue to provide the
same level of business after those sites are converted. In addition, although
management has successfully instituted cost controls, operating efficiencies and
revenue enhancement techniques within the TA Network, there is a risk that the
same programs will not be successfully implemented at sites that convert from
the National Network, particularly at sites that are not operated by the
Company. See "Business--Business Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on the
efforts and abilities of its management team, which has had responsibility for
the management of the TA Network for more than four years but only recently
assumed responsibility for overall management of the Company. The loss of the
services of certain of these individuals could have a material adverse effect on
the Company.
CHANGE OF CONTROL
A Change of Control (as defined in the Indenture) could require the
Company to refinance substantial amounts of its indebtedness. Upon the
occurrence of a Change of Control, the Company, unless it redeems the Notes,
would be required to offer to repurchase the Notes at a purchase price equal to
101% of the principal amount of such Notes, plus accrued and unpaid interest, if
any, to the date of purchase. However, the agreements providing for the Credit
Facilities and the exchange of the Senior Notes prohibit the purchase of the
Notes by the Company in the event of a Change of Control, unless and until such
time as the indebtedness under the Credit Facilities and the Senior Notes is
repaid in full. The Company's failure to purchase the Notes would result in a
default under the Indenture, the Credit Facilities and the Senior Notes. The
agreements providing for the Credit Facilities and the exchange of the Senior
Notes also provide that the indebtedness under the Credit Facilities and Senior
Notes becomes due in the event of a "Change of Control" as defined therein. In
addition, a Change of Control would constitute a "Change of Control" under such
agreements. The inability to repay the indebtedness under the Credit Facilities
and the Senior Notes, if accelerated, could have adverse consequences to the
Company and the holders of the Notes. In the event of a Change of Control, there
can be no assurance that the Company would have sufficient assets to satisfy all
of its obligations under the Credit Facilities, the Senior Notes and the Notes.
See "Description of Senior Indebtedness" and "Description of New Notes--Change
of Control."
CERTAIN FRANCHISEE MATTERS
The Company is subject to various state and federal laws relating to its
relationship with its franchisees. The failure by the Company to comply with
these laws could subject the Company to liability to franchisees and to fines or
other penalties imposed by governmental authorities. The Company believes it is
in material compliance with these laws and regulations and its agreements with
franchisees. The
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Company is currently involved in litigation with certain of its franchisees,
which is not expected to have a material adverse effect on the Company. There
can be no assurance, however, that franchisees will not commence additional
litigation against the Company in the future or that an unfavorable decision in
existing or future litigation will not have a material adverse effect on the
Company. See "Business--Litigation" and "Business--Regulation--Franchise
Regulation."
FRAUDULENT CONVEYANCE
The incurrence of indebtedness and the use of proceeds thereof are subject
to review under relevant federal and state fraudulent conveyance statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
the obligor. Under these statutes, if a court were to find that obligations were
incurred with the intent of hindering, delaying or defrauding present or future
creditors or that the obligor received less than a reasonably equivalent value
or fair consideration for those obligations and, at the time of the occurrence
of the obligations, the obligor either (i) was insolvent or rendered insolvent
by reason thereof, (ii) was engaged or was about to engage in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital or (iii) intended to or believed that it would incur debts beyond
its ability to pay such debts as they matured or became due, such court could
void or subordinate the obligations in question. The measure of insolvency for
purposes of a fraudulent conveyance claim will vary depending upon the law of
the jurisdiction being applied. Generally, however, a company will be considered
insolvent at a particular time if the sum of its debts at that time is greater
than the then fair value of its assets or if the fair saleable value of its
assets at that time is less than the amount that would be required to pay its
probable liability on its existing debts as they become absolute and mature.
The Subsidiary Guarantees may be subject to review under relevant federal
and state fraudulent conveyance and similar statutes in a potential bankruptcy
or reorganization case or a lawsuit by or on behalf of creditors of any of the
Subsidiary Guarantors. In such a case, the analysis set forth above would
generally apply, except that the Subsidiary Guarantees could also be subject to
the claim that, since the Subsidiary Guarantees were incurred for the benefit of
the Company (and only indirectly for the benefit of the Subsidiary Guarantors),
the obligations of the Subsidiary Guarantors thereunder were incurred for less
than reasonably equivalent value or fair consideration. A court could void a
Subsidiary Guarantor's obligation under its Subsidiary Guarantee, subordinate
the Subsidiary Guarantee to other indebtedness of a Subsidiary Guarantor or take
other action detrimental to the holders of the Notes.
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Existing Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Existing
Notes desiring to tender such Existing Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. Neither the Company nor the
Exchange Agent is under any duty to give notification of defects or
irregularities with respect to the tenders of Existing Notes for exchange.
Existing Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer certain registration rights under the Registration Rights
Agreement will terminate.
RECEIPT OF RESTRICTED SECURITIES UNDER CERTAIN CIRCUMSTANCES
Any holder of Existing Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer--Consequences of
Failure to Exchange; Resales of New Notes."
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ADVERSE EFFECT ON MARKET FOR EXISTING NOTES
To the extent that Existing Notes are tendered and accepted in the
Exchange Offer, the trading market for the untendered and tendered but
unaccepted Existing Notes could be adversely affected. See "The Exchange Offer."
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are new securities and there is currently no established
market for the New Notes. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes. The Company does not
intend to apply for listing of the New Notes on a securities exchange.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical information provided herein are
forward-looking statements and may contain information about financial results,
economic conditions, trends and known uncertainties. The forward-looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as competition from other travel center and truckstop operators (including
additional or improved services or facilities of competitors), the economic
condition of the trucking industry (which in turn is dependent on general
economic factors), diesel and gasoline fuel pricing, availability of fuel supply
and difficulties that may be encountered by the Company or its franchisees in
implementing the Company's plan to combine its existing TravelCenter networks
into a single network.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. In addition to the disclosure contained herein,
readers should carefully review any disclosure of risks and uncertainties
contained in other documents the Company files or has filed from time to time
with the Commission pursuant to the Exchange Act.
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THE REFINANCING, THE COMBINATION PLAN AND
THE CAPITAL PROGRAM
The Company has been recapitalized and has commenced a restructuring by
completing the Refinancing and the Restructuring in which (a) (i) the National
Subsidiary and the TA Subsidiary repaid in full all indebtedness outstanding
under their respective Old Credit Facilities and Old Subordinated Notes, of
which $139.6 million aggregate principal amount (before unamortized debt
discount and other repayment costs, see "Certain Transactions--Certain
Indebtedness Formerly Held by Stockholders and Related Transactions") was
outstanding on the Closing Date immediately prior to consummation of the
Refinancing, (ii) the Company issued $85.5 million principal amount of the
Senior Notes in exchange for $85.5 million principal amount of the Old Senior
Notes, (iii) the TA Subsidiary redeemed the $4.5 million principal amount of
Redeemed Notes and (iv) the TA Subsidiary and the National Subsidiary repaid all
accrued and unpaid interest on the Old Credit Facilities, Old Subordinated Notes
and Old Senior Notes and (b) the Company's subsidiaries were restructured such
that the Company directly owns its three subsidiaries. The Company is currently
continuing this restructuring by implementing the Combination Plan and the
Capital Program pursuant to which (a) the Company's Existing Networks are being
combined into the Network under the single "TA" trademark and (b) National
locations joining the Network and, as needed certain TA locations, are being
upgraded through capital investments pursuant to the Capital Program, which is
being funded, in part, by the Refinancing.
THE REFINANCING
In connection with the Refinancing, the Company issued pursuant to the
offering of the Existing Notes (the "Offering") $125.0 million aggregate
principal amount of the Existing Notes. The Chase Manhattan Bank ("Chase"),
together with the Lenders (as defined), provided the Company with the senior
secured Credit Facilities in an aggregate principal amount of $120.0 million,
comprised of the $80.0 million Term Facility and the $40.0 million Revolving
Credit Facility, of which up to $20.0 million is available in the form of
letters of credit. Chase syndicated the Term Facility and a portion of its
obligations under the Revolving Credit Facility to a group of financial
institutions (the "Lenders"), with Chase as administrative agent for the
Lenders. Upon consummation of the Term Facility and the Offering, the Company
made advances to the National Subsidiary and the TA Subsidiary, respectively, in
amounts sufficient to (i) enable them to repay the principal outstanding under
their respective Old Credit Facilities, which, in each case, were senior secured
credit facilities with lenders for which Chase was the administrative agent, and
their respective Old Subordinated Notes, in each case together with accrued
interest, (ii) enable the TA Subsidiary to repay the principal outstanding under
the Redeemed Notes, together with accrued interest, (iii) enable them to pay
related costs and expenses and (iv) pre-fund the Capital Program. See "--The
Combination Plan," "--The Capital Program," "Use of Proceeds," "Description of
Senior Indebtedness," and "Description of Existing Notes."
The Company also issued $85.5 million aggregate principal amount of its
Senior Notes in exchange for all the Old Senior Notes other than the Redeemed
Notes and paid in cash interest accrued thereon to the Closing Date. The Senior
Notes and the Credit Facilities are secured by the same collateral and the
Senior Notes rank PARI PASSU with the Credit Facilities. The relationship
between the Lenders and the holders of the Senior Notes is governed by an
intercreditor agreement, with Chase as collateral agent. See "Description of
Senior Indebtedness--Credit Facilities; --Senior Notes."
THE COMBINATION PLAN
A key component of the Company's strategic plan to continue improving its
operating performance is the Combination Plan, pursuant to which the Company is
integrating a majority of the National Network TravelCenters and all of the TA
Network TravelCenters into a single Network and consolidating leadership of the
combined Network under TA's management team (which assumed management
responsibility for the National Network in January 1997) and will operate the
Network under the well- regarded "TA" trademark. Historically, under the
Company's ownership, each of the Existing Networks has been separately managed
and financed. Through the Combination Plan, the Company expects to capitalize on
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both TA's proven management approach to the marketing and operation of a large
TravelCenter network as well as the larger National Network's premier locations.
The value of these combined assets will be further enhanced by the complimentary
nature of the Existing Networks' relationships with the largest long-haul
trucking fleets in the United States and the impact of the investment of
significant capital in the Network pursuant to the Capital Program.
The TA Network is comprised primarily of Company-owned and operated
TravelCenters, with 40 such locations, as compared to only eight sites
("Franchisee-Owner Sites") owned and operated by independent franchisees of the
Company ("Franchisee-Owners"). Consequently, TA's management had the opportunity
to provide substantial direction and focus to its operations and to develop and
implement a successful model for operating a travel center network. Management
expects that as a result of the Combination Plan, the TA management approach
will rapidly impact the 28 Company-operated National TravelCenters that have
been selected to become part of the Network because these TravelCenters are
being placed under the direct supervision of TA managers. In addition, 43 of the
75 National sites that have been selected to become part of the Network are
Company-owned sites ("Leased Sites") leased to lessee-franchisees of the Company
("Operators"). Management expects that these Leased Sites will be positively
impacted as a result of the Combination Plan, but does not expect the benefits
accruing to the Company to be realized as quickly, or to the same extent, as
they will at the Company-operated sites. Management believes that the Company
will also realize improved revenues from the four National Franchisee-Owner
Sites that are expected to join the Network. In connection with the Combination
Plan, the Company is offering new Network Franchise Agreements (as defined) to
certain National Operators and Franchisee-Owners with respect to 47 National
Network sites and new Network Lease Agreements (as defined) to certain National
Operators with respect to 43 of such sites that are Leased Sites. With respect
to National TravelCenters that will not become part of the Network, over time,
the Company expects to sell 23 such properties which are Company-owned
(including six Company-operated sites) and expects to terminate franchise
agreements with respect to 17 of such properties which are Franchisee-Owner
Sites. Since March 24, 1997, the Company has sold one previously Company-owned
site to the former National Operator of that site and has terminated franchises
with respect to four former National Franchisee-Owner Sites. The Company is
engaged in discussions with Operators and Franchisee-Owners regarding the 34
National TravelCenters not operated by the Company and not designated to be
integrated into the Network to effect mutually agreeable terms for the
termination of franchise and lease agreements with Operators and
Franchisee-Owners and the disposition of those facilities that are leased from
the Company.
In 1996, the 23 Company-owned sites which are planned to be sold as part
of the Combination Plan, together with the one Company-owned site which has
already been sold, contributed approximately $12 million of EBITDA, while the 17
franchised sites planned to be terminated, together with the six sites already
terminated, contributed approximately $2 million of EBITDA. The Company
currently anticipates receiving an average of approximately $2 million to $3
million of proceeds per Company-owned site sold. The actual amount the Company
receives could vary, perhaps significantly. The Company anticipates that the
Combination Plan will be implemented over a period of approximately one to three
years. The termination and renegotiation of franchise agreements in connection
with the Combination Plan will be subject to and must be implemented in
compliance with the PMPA (as defined), which will affect the time required to
implement fully the Combination Plan. See "Business--Regulation--Franchise
Regulation." Based on the Network Franchise Agreement and the Network Lease
Agreement, if all of the Operators and Franchisee-Owners of the 47 sites
expected to be offered such agreements enter into such agreements, the Company's
EBITDA would be reduced by approximately $1 million to $2 million on a pro forma
basis for 1996. However, the impact of these reductions is expected to be more
than offset over time by the benefits to be realized by the Company in
connection with Combination Plan. See "Risk Factors--Dependence on Network
Members."
21
<PAGE>
The following chart summarizes the changes assumed in the Combination Plan
to the Company's number and mix of sites as of June 15, 1997.
<TABLE>
<CAPTION>
NATIONAL TA NETWORK
----------------------------- -------- --------
Non-
Continuing Post
Actual Sites Combination
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Company-Owned and Operated Sites.... 34 (6) 28 40 68
Company-Owned and Leased Sites ..... 60 (17) 43 -- 43
-------- -------- -------- -------- --------
Company-Owned Sites .......... 94 (23) 71 40 111
Franchisee-Owner Sites ............. 21 (17) 4 8 12
-------- -------- -------- -------- --------
Total ........................ 115 (40) 75 48 123
</TABLE>
The foregoing summarizes the Combination Plan as currently formulated.
Based on discussions with Operators and Franchisee-Owners, further market
analysis and other relevant factors, there could be changes to the total number
and composition of sites within the Network. In particular, the Company is
currently in discussions with approximately six Operators regarding the possible
conversion of their Leased Sites to Company-operated sites. However, management
does not expect such changes to materially impact the scope of the Combination
Plan.
THE CAPITAL PROGRAM
In connection with the Combination Plan, the Company has initiated the
Capital Program to upgrade, rebrand, reimage and increase the number of the
combined Network's TravelCenters. Specific components of the Capital Program
include the following: (i) rebranding approximately 76 National sites to the
"TA" brandname; (ii) expanding the Network's offering of Nonfuel products and
services through the installation of fast food kiosks and food courts, improved
gasoline branding, redesigned and expanded travel and convenience stores and
larger TA type truck maintenance and repair shops; (iii) improving the Network's
image through expanded and improved parking, better lighting and security and
other general improvements such as site repainting and bathroom and shower
improvements; (iv) completing all required environmental expenditures including
compliance with the federally imposed 1998 underground storage tank
requirements; and (v) adding new Company-operated or franchised sites to the
Network. The foregoing improvements will be implemented at National sites that
join the Network and will be completed, where needed, at TA Network locations.
The Company expects to invest approximately $200 million in the Network between
1997 and the end of 2001 (with approximately $110 million of this amount to be
spent by the end of 1998) in connection with the Capital Program. Approximately
$50 million of the $200 million intended to be spent by the end of 2001
represents normal ongoing maintenance and related capital expenditures. The
Company will also incur approximately $11 million of one-time transition charges
during the next two to three years to execute the Combination Plan. A portion of
the proceeds of the Refinancing are being used to pre-fund the Capital Program.
See "Use of Proceeds."
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of New Notes
for Existing Notes pursuant to the Exchange Offer. This Exchange Offer is
intended to satisfy certain of the Company's and the Subsidiary Guarantors'
obligations under the Registration Rights Agreement. The proceeds from the
Offering, $125.0 million (before deductions of discounts and other expenses of
the Offering), together with the proceeds of the Term Facility and funds
available from the Company's cash on hand were used to (a) repay in full (i)
$57.6 million principal amount outstanding on the Closing Date under the
National Subsidiary's Old Credit Facility, which facility would have matured on
March 31, 2000 and had an interest rate of 8.44%, (ii) $42.0 million principal
amount outstanding on the Closing Date under the TA Subsidiary's Old Credit
Facility, which facility would have matured on December 31, 2000 and had an
interest rate of 8.31% (together with the National Subsidiary's Old Credit
Facility, the "Old Credit Facilities"), (iii) $4.5 million principal amount of
the Redeemed Notes, (iv) $25.0 million principal amount
22
<PAGE>
of the National Subsidiary's 12.5% Senior Subordinated Notes due April 14, 2003,
(v) $15.0 million principal amount of the TA Subsidiary's 12% Series A and 12%
Series B Senior Subordinated Notes due December 10, 2003 (collectively, the "Old
Subordinated Notes"), in each case, together with accrued interest; and (b) fund
certain inventory purchases and capital expenditures of the Company in
connection with the Capital Program (approximately $10 million and $50 million,
respectively). The balance of such proceeds was used to pay fees and expenses of
$15.2 million incurred in connection with the Transactions. The Refinancing also
includes the exchange by the holders of the Old Senior Notes of such Old Senior
Notes, other than the Redeemed Notes, for an equivalent principal amount of
Senior Notes and the payment in cash of accrued interest to the Closing Date.
See "The Refinancing, The Combination Plan and The Capital Program,"
"Business--Business Strategy," "Certain Transactions" and "Description of Senior
Indebtedness."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997. This table should be read in conjunction with "Use of Proceeds"
and the "Pro Forma Financial Information" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997
----------------------
(Dollars in Thousands)
<S> <C>
Cash ............................................................... $ 74,910
========
Short-term debt:
Revolving Credit Facility (1) ................................... $ --
Current maturities of long-term debt ............................ 500
--------
Total short-term debt ........................................ 500
--------
Long-term debt:
Term Facility ................................................... 79,500
Senior Notes .................................................... 85,500
Notes ........................................................... 125,000
--------
Total long-term debt ......................................... 290,000
Mandatorily redeemable senior convertible participating
preferred stock ................................................. 52,295
--------
Shareholders' equity:
Other preferred stock, common stock and other shareholders'
equity ....................................................... 49,499
Retained earnings ............................................... 10,767
--------
Total shareholders' equity ................................... 60,266
--------
Total capitalization ......................................... $403,061
========
</TABLE>
- ----------
(1) The Company's Revolving Credit Facility permits borrowings in an aggregate
principal amount of up to $40.0 million, of which up to $20.0 million is
available for letters of credit, $1.5 million of which was utilized at the
closing of the Transactions for letters of credit.
23
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Statements of Income of the
Company for the year ended December 31, 1996 and the three months ended March
31, 1997 have been prepared to reflect the consummation of the Transactions as
if such Transactions occurred as of January 1, 1996. The Pro Forma Financial
Information is unaudited and not necessarily indicative of the results that
would have actually occurred if the Transactions had been consummated on such
date, or results which may be obtained in the future. The pro forma adjustments,
as described in the Notes to the Unaudited Pro Forma Statements of Income, are
based on available information and upon certain assumptions that the Company
believes are reasonable. The Pro Forma Financial Information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited and unaudited financial statements
and related notes thereto, included elsewhere in this Prospectus.
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
ACTUAL(a) ADJUSTMENT PRO FORMA(b)
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Fuel .................................. $ 752,266 $ 752,266
Nonfuel ............................... 239,449 239,449
Rent .................................. 41,762 41,762
----------- -----------
Total revenues ........................ 1,033,477 1,033,477
Cost of revenues (excluding depreciation) ... 801,665 $ (1,284)(c) 800,381
----------- ----------- -----------
Gross profit (excluding depreciation) ....... 231,812 1,284 233,096
Operating expenses .......................... 128,773 128,773
Selling, general and administrative expenses 42,349 (1,450)(d) 40,899
Refinancing, transition and development costs 2,687 2,687
Depreciation and amortization ............... 26,970 1,900 (e) 26,730
(2,140)(f)
Other (income) expense, net ................. 1,324 1,324
----------- ----------- -----------
Income from operations ...................... 29,709 2,974 32,683
Interest (expense), net ..................... (20,827) 22,072 (g) (25,916)
(27,161)(h)
----------- ----------- -----------
Income before provision for income taxes .... 8,882 (2,115) 6,767
Provision for income taxes .................. 3,349 (846)(i) 2,503
----------- ----------- -----------
Net Income .................................. $ 5,533 $ (1,269) $ 4,264
=========== =========== ===========
Other Financial Data:
EBITDA (j) ................................ $ 60,690 $ 63,424
Capital expenditures ...................... $ 27,089 $ 27,089
</TABLE>
See Notes to Unaudited Pro Forma Statements of Income
24
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENT PRO FORMA(b)
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Fuel ...................................... $ 194,151 $ 194,151
Nonfuel ................................... 61,242 61,242
Rent ...................................... 9,720 9,720
--------- ---------
Total revenues ............................ 265,113 265,113
Cost of revenues (excluding depreciation) ....... 205,878 $ (321)(c) 205,557
--------- --------- ---------
Gross profit (excluding depreciation) ........... 59,235 59,556
Operating expenses .............................. 34,083 34,083
Selling, general and administrative expenses .... 11,733 (477)(d) 11,256
Refinancing, transition and development costs ... 1,618 1,618
Depreciation and amortization ................... 6,944 (475)(e) 6,886
(533)(f)
Other (income) expense, net ..................... (74) (74)
--------- --------- ---------
Income from operations .......................... 4,931 856 5,787
Interest (expense), net ......................... (5,105) 5,267 (g) (6,321)
(6,483)(h)
--------- --------- ---------
(Loss) before income taxes and extraordinary loss
(174) (360) (534)
Income tax (benefit) ............................ (68) (144)(i) (212)
--------- --------- ---------
(Loss) before extraordinary loss ................ $ (106) $ (216) $ (322)
========= ========= =========
Other Financial Data:
EBITDA (j) .................................... $ 13,419 $ 14,217
Capital expenditures .......................... $ 1,388 $ 1,388
</TABLE>
See Notes to Unaudited Pro Forma Statements of Income
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
(a) The Company's investment in TA was presented as net assets of subsidiary
held for disposition and the results of TA's operations were included in
the Company's income statement as a single amount for the nine months
ended September 30, 1996. Effective September 30, 1996, the decision was
made to retain TA and, subsequently, the Company chose to pursue the
Combination Plan. This presentation for the year ended December 31, 1996
sets forth the Company's consolidated results as though TA had not been
held for disposition and had instead fully consolidated for the year.
(b) The pro forma statement of operations data assume the following
transactions occurred at January 1, 1996:
(1) the sale of the Existing Notes;
(2) the borrowing of $80.0 million of senior secured debt under the Term
Facility;
(3) the issuance of $85.5 million of Senior Notes and the prepayment of
$85.5 million of Old Senior Notes (which excludes the Redeemed Notes)
together with accrued interest;
(4) the prepayment of all amounts outstanding under the Old Credit
Facilities;
(5) the prepayment of the $4.5 million of Redeemed Notes and the payment
of accrued interest;
(6) the prepayment of the $40.0 million of Old Subordinated Notes and the
payment of accrued interest; and
(7) the payment of approximately $15.2 million of fees and expenses
associated with the foregoing, all of which are assumed to be new debt
issuance costs.
As a result of the early extinguishment of the Company's prior
indebtedness as part of the refinancing of the Company's debt on March 27,
1997, the Company recognized an extraordinary loss, net of applicable
income taxes, of $5.6 million from the write-off of the then remaining
unamortized balances of deferred financing costs and debt discount of
$7.8 million and $1.3 million, respectively. The extraordinary loss is not
reflected in the pro forma statements of income.
(c) Reflects cost savings for tires to be purchased for TA Company-operated
sites under the terms of the National tire purchase contract (estimated to
total approximately $600,000 annually and $150,000 quarterly) and payments
to the Company for National sites electing to participate in the TA oil
purchase program (assumes participation by each of the 76 National Sites
expected to join the Network at the current contract rate (totaling
approximately $684,000 annually and $171,000 quarterly)). The Company's
contracts permit the terms of both the tire and oil purchase arrangements
to be extended to all TravelCenters in the Network.
(d) For the year ended December 31, 1996, reflects a decrease in compensation
expense of $950,000 and a decrease in rent expense of $500,000 and for the
three months ended March 31, 1997 reflects a decrease in compensation
expense of $352,000 and a decrease in rent expense of $125,000. These
amounts result from the Combination Plan. The compensation expense amounts
represent the normal compensation and benefits earned by certain
executives of the National Subsidiary during 1996 and the first three
months of 1997, but exclude post-employment expenses related to the
Termination, Consulting and Release Agreements entered into with such
executives. These executives resigned as a direct result of the
Combination Plan. These expenses would have been avoided under the
Company's current management structure, which provides for one executive
management group for both of the Company's Networks. The rent expense
amount represents the respective portion of the annual rent paid for the
National Subsidiary headquarters in Nashville. The Nashville headquarters
becomes redundant under the Combination Plan and will be closed in 1997.
26
<PAGE>
(e) Reflects the amortization expense associated with the $15.2 million of new
deferred financing costs.
(f) Reflects the elimination of the amortization expense related to the
deferred financing costs associated with the Old Credit Facilities, the
Old Senior Notes and the Old Subordinated Notes.
(g) Reflects elimination of interest expense incurred in relation to the Old
Credit Facilities, the Old Senior Notes and the Old Subordinated Notes.
(h) Reflects interest expense at 10.25% as the result of the issuance of the
Existing Notes, the Senior Notes (distributed as: Series I: $35.5 million
at 8.94%, fixed and Series II: $50.0 million at an assumed rate of 8.75%,
floating) and the Term Facility ($80.0 million at an assumed rate of
8.50%, floating).
(i) Reflects the decrease in the income tax provisions (at an assumed rate of
40%) required as a result of the decreased pro forma income before taxes
as a result of the above adjustments.
(j) "EBITDA" is defined herein as income from operations plus the sum of
depreciation; amortization; refinancing, transition and development costs;
and other (income) expense, net and is presented because it is commonly
used by certain investors and analysts to analyze and compare operating
performance, and to determine a company's ability to service and incur
debt. EBITDA should not be considered in isolation from, or a substitute
for, net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical financial data for the
Company, the TA Subsidiary and the National Subsidiary, as well as a portion of
the business of BP, consisting of the TA Network, and a portion of the business
of Unocal, consisting of the National Network, that were acquired by the Company
in the Acquisitions (the "BP Predecessor Business" and the "Unocal Predecessor
Business," respectively). The Company's historical financial data set forth in
the table below for the years ended 1994 through 1996 have been derived from the
Company's audited financial statements included elsewhere in this Prospectus.
For the period from April 15, 1993 through December 31, 1993 the historical data
have been derived from the Company's audited financial statements which are not
included in this Prospectus. The historical financial data for the three months
ended March 31, 1996 and 1997 have been derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus. However, in the
opinion of the Company's management, such unaudited financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of such data. The results for the three months ended March
31, 1997 are not necessarily indicative of results to be expected for the full
year. As discussed elsewhere in this Prospectus, such data presents the
Company's investment in TA as net assets of subsidiary held for disposition for
the period from January 1, 1994 to September 30, 1996. Accordingly, given the
Company's decision to retain TA and pursue the Combination Plan, such data
should be read in conjunction with "Summary Supplemental and Pro Forma
Consolidated Financial Data," "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited and unaudited financial statements and related notes
thereto of the Company included elsewhere in this Prospectus.
28
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY (1)
--------------------------------------------------------------------------
OPERATING
PERIOD
APRIL 15,
1993 THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER ----------------------------------- ----------------------
31,
1993(2) 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Fuel ............................... $ 306,141 $ 396,748 $ 376,148 $ 550,212 $ 108,907 $ 194,151
Nonfuel ............................ 10,175 19,882 29,332 101,278 11,552 61,242
Rent ............................... 31,973 48,424 47,840 41,762 10,950 9,720
--------- --------- --------- --------- --------- ---------
Total revenues ..................... 348,289 465,054 453,320 693,252 131,409 265,113
Cost of revenues (excluding
depreciation) ...................... 295,781 391,148 376,823 568,226 110,896 205,878
--------- --------- --------- --------- --------- ---------
Gross profit (excluding depreciation) . 52,508 73,906 76,497 125,026 20,513 59,235
Operating expenses .................... -- 7,711 9,521 54,001 3,683 34,083
Selling, general and administrative
expenses ........................... 21,326 22,322 30,885 30,803 9,055 11,733
Refinancing, transition and
development costs (3) .............. 1,518 4,117 831 2,197 25 1,618
Depreciation and amortization ......... 7,844 10,398 11,379 17,838 3,214 6,944
Other (income) expense, net (4) ....... (21) (138) 196 1,324 (27) (74)
Income of subsidiary held for
disposition ........................ -- -- (6,199) (5,255) (143) --
--------- --------- --------- --------- --------- ---------
Income from operations ................ 21,841 29,496 29,884 24,118 4,706 4,931
Interest (expense), net ............... (9,177) (13,243) (13,344) (15,236) (3,208) (5,105)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary loss ............. 12,664 16,253 16,540 8,882 1,498 (174)
Provision (benefit) for income taxes .. 5,176 6,561 6,614 3,349 582 (68)
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
loss ............................... 7,488 9,692 9,926 5,533 916 (106)
Extraordinary loss .................... -- -- -- -- -- (5,554)
--------- --------- --------- --------- --------- ---------
Net income (loss) ..................... $ 7,488 $ 9,692 $ 9,926 $ 5,533 $ 916 $ (5,660)
========= ========= ========= ========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Total assets ....................... $ 284,168 $ 294,961 $ 297,231 $ 425,889 $ 318,853 $ 479,831
Total debt (net of unamortized
discount) ....................... $ 157,310 $ 153,938 $ 139,991 $ 224,435 $ 148,023 $ 290,500
Mandatorily redeemable preferred
stock (5) ....................... $ 36,435 $ 41,315 $ 46,195 $ 51,075 $ 47,415 $ 52,295
Total shareholders' equity ........ $ 57,267 $ 63,489 $ 68,449 $ 68,390 $ 67,599 $ 60,266
Working capital (6) ............... $ 23,784 $ 18,421 $ 9,872 $ 23,766 $ 8,003 $ 113,314
OTHER FINANCIAL AND OPERATING DATA:
Ratio of earnings to fixed charges (7) 2.3x 2.1x 2.1x 1.5x 1.4x --
</TABLE>
See Notes to Selected Consolidated Financial Data
29
<PAGE>
The following table sets forth selected historical financial data for the
TA Subsidiary for the years ended December 31, 1992 through December 31, 1996.
For the years 1994 through 1996, the historical financial data have been derived
from the TA Subsidiary's audited financial statements included elsewhere in this
Prospectus. The TA historical financial data for the years 1992 and 1993 (the
period prior to the TA Acquisition) have been derived from the unaudited
financial statements of the BP Predecessor Business. For the three months ended
March 31, 1996, the historical financial data was derived from the unaudited
financial statements of the TA Subsidiary which are not included in this
Prospectus. In the opinion of the Company's management, such unaudited financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such data and such financial
statements were prepared on a basis that is consistent with the audited
financial statements for the TA Subsidiary appearing in this Prospectus.
<TABLE>
<CAPTION>
BP PREDECESSOR
BUSINESS (8) THE TA SUBSIDIARY
------------------- -----------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel ................. $214,250 $229,972 $206,971 $214,250 $284,378 $ 58,943
Nonfuel .............. 169,492 159,718 167,830 172,201 182,488 42,232
-------- -------- -------- -------- -------- --------
Total revenues ....... $383,742 $389,690 $374,801 $386,451 $466,866 $101,175
======== ======== ======== ======== ======== ========
Gross profit (excluding
depreciation) ........ $119,269 $129,761 $131,354 $130,452 $143,230 $ 32,856
EBITDA (9) .............. $ 13,049 $ 20,655 $ 25,036 $ 26,040 $ 27,306 $ 4,977
Total diesel fuel sold
(thousands of gallons) 308,709 312,326 295,875 306,255 344,803 79,098
Sites at end of period .. 43 44 46 47 48 47
</TABLE>
See Notes to Selected Consolidated Financial Data
30
<PAGE>
The following table sets forth selected historical financial data for the
National Subsidiary for the years ended December 31, 1992 and December 31, 1994
through December 31, 1996, as well as for the period ended April 14, 1993 and
December 31, 1993. For the period from April 15, 1993 through December 31, 1993
and for the years 1994 through 1996 the historical financial data have been
derived from the National Subsidiary's audited financial statements. The
National historical financial data for 1992 and for the period from January 1,
1993 through April 14, 1993 have been derived from the audited financial
statements of the Unocal Predecessor Business. For the three months ended March
31, 1996, the historical financial data was derived from the unaudited financial
statements of the National Subsidiary which are not included in this Prospectus.
However, in the opinion of the Company's management, such unaudited financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such data.
<TABLE>
<CAPTION>
UNOCAL PREDECESSOR
BUSINESS (8) THE NATIONAL SUBSIDIARY
-------------------------- ------------------------------------------------------------------------
OPERATING OPERATING
PERIOD PERIOD THREE
JANUARY 1, APRIL 15, 1993 YEAR ENDED DECEMBER 31, MONTHS
YEAR ENDED 1993 THROUGH ------------------------------------------ ENDED
DECEMBER 31, THROUGH DECEMBER 31, MARCH 31,
1992 APRIL 14, 1993 1993 1994 1995 1996 1996
------------ ------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel ............ $ 463,670 $ 128,414 $ 306,141 $ 396,748 $ 376,148 $ 467,888 $ 108,907
Nonfuel ......... 15,941 4,277 31,970 19,882 29,332 56,961 11,552
Rent ............ 37,782 11,466 10,175 48,424 47,840 41,762 10,950
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total revenues .. $ 517,393 $ 144,157 $ 348,289 $ 465,054 $ 453,320 $ 566,611 $ 131,409
============ ============ ============ ============ ============ ============ ============
Gross profit (excluding
depreciation) ... $ 70,675 $ 18,675 $ 52,508 $ 73,906 $ 76,497 $ 88,582 $ 20,513
EBITDA (9) ............ $ 31,776 $ 4,353 $ 31,203 $ 44,399 $ 36,259 $ 34,120 $ 8,060
Total diesel fuel sold
(thousands of
gallons) ........... 669,179 192,105 446,972 663,777 641,907 622,956 162,663
Sites at end of period 141 139 138 130 126 122 126
</TABLE>
See Notes to Selected Consolidated Financial Data
31
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) For the period from January 1, 1994 to September 30, 1996, the Company's
investment in TA was presented as net assets of subsidiary held for
disposition and TA's results of operations were excluded from the
Company's consolidated results of operations until December 31, 1994 and
subsequently included therein as a single amount in the Company's
consolidated income statement through September 30, 1996. Effective
September 30, 1996, the decision was made to retain TA and, subsequently,
the Company chose to pursue the Combination Plan. Accordingly, at such
time TA was no longer carried as a net asset of subsidiary held for
disposition. At that date, the carrying value of the Company's investment
in TA of $44.6 million was allocated to identifiable assets and
liabilities and was based on the estimated current fair values at that
date. In addition, the results of operations and cash flows of TA are
included in the consolidated results of operations and cash flows of the
Company from October 1, 1996.
(2) Effective April 14, 1993 and December 10, 1993, the Company acquired
National and TA, respectively. Although the Company was organized in 1992,
business operations did not commence until April 15, 1993, when the
National Acquisition was consummated. Prior to the National Acquisition,
the only activities of the Company were the recruitment of employees and
the negotiation of the National Acquisition. Expenses incurred during the
Company's pre-operating period are immaterial and have been included in
the results for the operating period from April 15, 1993 through December
31, 1993.
(3) "Refinancing, transition and development costs" represent non-recurring
costs, and certain development costs, associated with, among other things,
(i) the Repurchase and related refinancing efforts, (ii) pursuit of
potential acquisitions, (iii) expenses incurred as TA transitioned to a
stand-alone operation apart from BP and (iv) the design of the TA
TravelCenter prototype. Management expects to incur additional
non-recurring transition expenses pursuant to the Combination Plan.
(4) "Other (income) expense, net" primarily represents gains and losses on
sales of property and equipment.
(5) "Working capital" is defined as current assets minus current liabilities.
(6) For purposes of computing this ratio, earnings consist of income from
operations before income taxes and fixed charges. Fixed charges consist of
interest expense, amortization of debt discount and one-third of rental
expense. Earnings were not sufficient to cover fixed charges by $174,000
for the three months ended March 31, 1997.
(7) "Mandatorily redeemable preferred stock" is comprised of two series of
convertible preferred stock which accumulate dividends semi-annually at a
compound annual rate of 13.5%. Both series are mandatorily redeemable in
2008 and are held by certain members of the Investor Group.
(8) For the year ended December 31, 1992 and for the period from January 1,
1993 through December 10, 1993 the BP Predecessor Business constituted
part of the business of BP. For the year ended December 31, 1992 and for
the period from January 1, 1993 through April 14, 1993 the Unocal
Predecessor Business constituted part of the business of Unocal. As
discussed above, the Company's management believes the financial
statements for the BP Predecessor Business were prepared on a basis that
is consistent with the audited financial statements for the TA Subsidiary
appearing elsewhere in this Prospectus; however, the financial data for
the BP Predecessor Business may not be comparable to the financial data
for the TA Subsidiary for a number of reasons, including purchase
accounting for the TA Acquisition and the addition of significant interest
expense following the TA Acquisition. The financial data for the Unocal
Predecessor Business may not be comparable to the financial data for the
National Subsidiary for a number of reasons, including the effects of new
lease and franchise agreements that have been entered into between the
Company and its franchisees, purchase accounting for the National
Acquisition, the addition of significant interest expense following
32
<PAGE>
the National Acquisition, the internal transfer price of Fuel purchased
from Unocal and the allocation of selling, general and administrative
expenses by Unocal to the Unocal Predecessor Business.
(9) "EBITDA" is defined herein as income from operations plus the sum of
depreciation; amortization; refinancing, transition and development costs;
and other (income) expense, net and is presented because it is commonly
used by certain investors and analysts to analyze and compare operating
performance, and to determine a company's ability to service and incur
debt. EBITDA should not be considered in isolation from, or a substitute
for, net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations presents detail on the Company's combined results as
well as the operating results of the TA Subsidiary and the National Subsidiary.
This discussion should be read in conjunction with the audited and unaudited
financial statements (including the notes thereto) included elsewhere in this
Prospectus. See "Index to Financial Statements."
OVERVIEW
The Company is a holding company which, through its wholly-owned
subsidiaries, the TA Subsidiary and the National Subsidiary, owns, operates and
franchises more travel centers in the United States than any of its competitors
with 163 network sites nationwide, including 134 Company-owned locations. TA
currently operates a network of 48 TravelCenters in 27 states under the
"Truckstops of America" or "TA" brand name and National currently operates a
network of 115 TravelCenters in 36 states under the licensed "Unocal 76" and
related brand names.
The Company was formed in December 1992 to facilitate the National
Acquisition in April 1993. In December 1993, the Company acquired the TA Network
through the TA Subsidiary. In connection with the TA Acquisition, the Investor
Group and certain members of TA's management granted an option to the Company
whereby the Company could repurchase its equity held by such Investor Group and
management members in exchange for consideration consisting of cash and all of
the equity of TA (the "Repurchase"). If the Repurchase had been consummated, the
Company and the National Network would have been owned by the Operator and
Franchisee-Owner stockholders of the Company and certain members of National's
management, and TA would have been owned by the Investor Group and certain
members of TA's management. Accordingly, the Company's consolidated financial
statements for the years 1994 and 1995 and the first nine months of 1996
reflected TA as net assets of subsidiary held for disposition. In addition,
during these periods, ongoing efforts by certain Operator and Franchisee-Owner
shareholders to consummate the Repurchase or a transaction similar thereto
resulted in the incurrence by the Company of certain non-recurring costs and
expenses (including legal and financing costs). During those same periods, each
of TA and National was separately managed and financed. Effective September 30,
1996, the decision was made to retain TA and, subsequently, the Company chose to
pursue the Combination Plan in order to improve its operating results by
combining the Existing Networks. After that date, TA was no longer carried as
net assets of subsidiary held for disposition.
Historically, under the Company's ownership, National operated principally
as a franchisor. As a result, its revenues consisted primarily of wholesale
diesel fuel sales to franchisees, rent from Operators of Leased Sites and
Nonfuel franchise royalty payments. Since early 1995, National has increased its
number of Company-operated sites as certain Operators terminated their franchise
and lease agreements. In contrast, TA operated principally as an owner-operator
of TravelCenters. Consequently, while TA derived the majority of its revenues
from retail diesel fuel sales, its principal strategic focus has been on the
sale of higher margin Nonfuel products and services.
34
<PAGE>
The following tables set forth for each of TA and National the number and
type of ownership and management of the TravelCenters in each of the Existing
Networks.
<TABLE>
<CAPTION>
TA NATIONAL
---------------------- ----------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
---------------------- ----------------------
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Company-Owned and Operated Sites 38 39 40 1 7 18
Company-Owned and Leased Sites -- -- -- 96 89 77
--- --- --- --- --- ---
Company-Owned Sites ....... 38 39 40 97 96 95
Franchisee-Owner Sites ....... 8 8 8 33 30 27
--- --- --- --- --- ---
Total ..................... 46 47 48 130 126 122
=== === === === === ===
</TABLE>
<TABLE>
<CAPTION>
TA NATIONAL
--------------- ---------------
AS OF MARCH 31, AS OF MARCH 31,
--------------- ---------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Company-Owned and Operated Sites ........ 39 40 13 27
Company-Owned and Leased Sites .......... -- -- 83 68
--- --- --- ---
Company-Owned Sites .................. 39 40 96 95
Franchisee-Owner Sites .................. 8 8 30 26
--- --- --- ---
Total ................................ 47 48 126 121
=== === === ===
</TABLE>
35
<PAGE>
RESULTS OF OPERATIONS
TRAVELCENTERS OF AMERICA, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
THE TA SUBSIDIARY THE NATIONAL SUBSIDIARY
----------------------------------------- -----------------------------------------
1994 1995 1996 1994 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel ............................... $ 206,971 $ 214,250 $ 284,378 $ 396,748 $ 376,148 $ 467,888
Nonfuel ............................ 167,830 172,201 182,488 19,882 29,332 56,961
Rent ............................... -- -- -- 48,424 47,840 41,762
----------- ----------- ----------- ----------- ----------- -----------
Total revenues ..................... 374,801 386,451 466,866 465,054 453,320 566,611
Cost of revenues (excluding
depreciation) ...................... 243,447 255,999 323,636 391,148 376,823 478,029
----------- ----------- ----------- ----------- ----------- -----------
Gross profit (excluding depreciation) . 131,354 130,452 143,230 73,906 76,497 88,582
Operating expenses .................... 93,279 92,099 100,085 7,711 9,521 28,688
Selling, general and administrative
expenses ........................... 13,039 12,313 15,839 21,796 30,717 25,774
Refinancing, transition and development
costs .............................. 1,412 1,035 1,303 4,117 831 1,384
Depreciation and amortization ......... 9,950 11,232 12,663 10,398 11,379 14,307
Other (income) expense, net ........... (77) 51 21 (138) 196 1,303
----------- ----------- ----------- ----------- ----------- -----------
Income from operations ................ 13,751 13,722 13,319 30,022 23,853 17,126
Interest (expense), net ............... (7,294) (7,523) (7,381) (13,243) (13,344) (13,446)
----------- ----------- ----------- ----------- ----------- -----------
Income before provision for income
taxes .............................. 6,457 6,199 5,938 16,779 10,509 3,680
Provision for income taxes ............ 2,468 2,445 2,212 6,766 4,236 1,336
----------- ----------- ----------- ----------- ----------- -----------
Net income ............................ $ 3,989 $ 3,754 $ 3,726 $ 10,013 $ 6,273 $ 2,344
=========== =========== =========== =========== =========== ===========
EBITDA (2) ............................ $ 25,036 $ 26,040 $ 27,306 $ 44,399 $ 36,259 $ 34,120
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY (1)
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Fuel ............................... $ 603,719 $ 590,398 $ 752,266
Nonfuel ............................ 187,712 201,533 239,449
Rent ............................... 48,424 47,840 41,762
----------- ----------- -----------
Total revenues ..................... 839,855 839,771 1,033,477
Cost of revenues (excluding
depreciation) ...................... 634,595 632,822 801,665
----------- ----------- -----------
Gross profit (excluding depreciation) . 205,260 206,949 231,812
Operating expenses .................... 100,990 101,620 128,773
Selling, general and administrative
expenses ........................... 35,361 43,198 42,349
Refinancing, transition and development
costs .............................. 5,529 1,866 2,687
Depreciation and amortization ......... 20,348 22,611 26,970
Other (income) expense, net ........... (215) 247 1,324
----------- ----------- -----------
Income from operations ................ 43,247 37,407 29,709
Interest (expense), net ............... (20,537) (20,867) (20,827)
----------- ----------- -----------
Income before provision for income
taxes .............................. 22,710 16,540 8,882
Provision for income taxes ............ 9,029 6,614 3,349
----------- ----------- -----------
Net income ............................ $ 13,681 $ 9,926 $ 5,533
=========== =========== ===========
EBITDA (2) ............................ $ 68,909 $ 62,131 $ 60,690
</TABLE>
- ----------------------------
(1) Results shown are historical results as presented under "Summary
Supplemental and Pro Forma Consolidated Financial Data." Such results
include expenses of $526, $168 and $736 in 1994, 1995 and 1996,
respectively, not incurred at the TA Subsidiary or the National
Subsidiary.
(2) EBITDA is defined herein as income from operations plus the sum of
depreciation; amortization; refinancing, transition and development costs;
and other (income) expense, net.
36
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
STATEMENTS OF INCOME
QUARTERS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
THE TA SUBSIDIARY THE NATIONAL SUBSIDIARY THE COMPANY (1)
---------------------- ---------------------- ----------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1997 1996 1997 1996 1997
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel ..................................... $ 58,943 $ 80,082 $ 108,907 $ 114,069 $ 167,850 $ 194,151
Nonfuel .................................. 42,232 44,320 11,552 16,922 53,784 61,242
Rent ..................................... -- -- 10,950 9,720 10,950 9,720
--------- --------- --------- --------- --------- ---------
Total revenues ........................... 101,175 124,402 131,409 140,711 232,584 265,113
Cost of revenues ............................ 68,319 88,988 110,896 116,890 179,215 205,878
--------- --------- --------- --------- --------- ---------
Gross profit ................................ 32,856 35,414 20,513 23,821 53,369 59,235
Operating expenses .......................... 23,894 24,854 3,683 9,229 27,598 34,083
Selling, general and administrative expenses 3,834 5,132 9,025 6,407 12,889 11,733
Refinancing, transition and development costs 130 844 25 774 155 1,618
Depreciation and amortization ............... 2,947 3,236 3,214 3,708 6,161 6,944
Other (income) expense, net ................. 21 (40) (27) (34) (6) (74)
--------- --------- --------- --------- --------- ---------
Income from operations ................... 2,030 1,388 4,593 3,737 6,593 4,931
Interest (expense), net ..................... (1,887) (2,128) 3,208 (2,699) (5,095) (5,105)
--------- --------- --------- --------- --------- ---------
(Loss) income before income taxes and
extraordinary item .................... 143 (740) 1,385 1,038 1,498 (174)
Provision for income tax (benefit), expense . 57 (296) 537 412 582 (68)
--------- --------- --------- --------- --------- ---------
Income before extraordinary item ......... 86 (444) 848 626 916 (106)
Extraordinary item (net of taxes) ........... -- (2,086) -- (3,468) -- (5,554)
--------- --------- --------- --------- --------- ---------
Net income ............................... $ 86 $ (2,530) $ 848 $ (2,842) $ 916 $ (5,660)
========= ========= ========= ========= ========= =========
EBITDA (2) .................................. $ 5,128 $ 5,428 $ 7,805 $ 8,185 $ 12,903 $ 13,419
</TABLE>
- ----------------------------
(1) Results shown are historical results as presented under "Summary
Supplemental and Pro Forma Consolidated Financial Data." Such results
include expenses of $30 and $194 for the three months ended March 31, 1996
and 1997, respectively, not incurred at the TA Subsidiary or the National
Subsidiary.
(2) EBITDA is defined herein as income from operations plus the sum of
depreciation; amortization; refinancing, transition and development costs;
and other (income) expense, net.
37
<PAGE>
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
REVENUES
Revenues were derived from the sale of fuel and nonfuel products and
services and the collection of rent and royalties. The Company's revenues for
the period ended March 31, 1997 were $265.1 million compared to $232.6 million
for the same period in 1996, an increase of $32.5 million or 14.0%. TA accounted
for $23.2 million of this increase, while National accounted for $9.3 million.
In the first quarter of 1997, TA had revenues of $124.4 million compared
to $101.2 million in 1996, an increase of $23.2 million or 23.0%. This increase
in revenues consisted of a $21.1 million increase in fuel revenues from $59.0
million to $80.1 million, and a $2.1 million increase in nonfuel revenues, from
$42.2 million to $44.3 million. The increase in fuel revenues was primarily due
to an 18.4 million gallon increase in diesel fuel volume, or 23.3%, and an
increase in diesel fuel prices. Diesel fuel volume increased principally due to
increases in sales to fleets, including increased sales though a trucking fleet
fuel sales program with another company whereby TA receives a fixed margin per
gallon and the addition of one TravelCenter in September of 1996. The increase
in TA's nonfuel revenues is principally attributable to a $1.4 million increase
in truck maintenance and repair shop revenues partially related to the addition
of three repair facilities after the first quarter of 1996 and a $0.6 million
increase in fast food revenues primarily due to the installation of 13 new fast
food kiosks.
During the first quarter of 1997, National had revenues of $140.7 million
compared to $131.4 million in 1996, an increase of $9.3 million or 7.1%. This
increase in revenues consisted of a $5.2 million increase in fuel revenues from
$108.9 million to $114.1 million and a $5.3 million increase in nonfuel
revenues, from $11.6 million to $16.9 million, partially offset by a $1.2
million decrease in rent from $10.9 million to $9.7 million. The increase in
fuel revenues was primarily due to an increase in diesel fuel prices partially
offset by a decrease in diesel fuel volume of 10.0 million gallons, or 6.1%. The
decrease in diesel fuel volume was primarily attributable to National's
difficulty in maintaining a coordinated fleet marketing program among its
franchisees. The increase in nonfuel revenues and the decrease in rent revenues
were primarily due to the conversion of 14 formerly leased sites to
Company-operated sites.
GROSS PROFIT
The Company's gross profit for the first quarter of 1997 was $59.2
million, compared to $53.4 million for 1996, an increase of $5.8 million, or
11.0%. In 1997, TA had gross profit of $35.4 million, compared to $32.9 million
in 1996, an increase of $2.5 million, or 7.8%. The increase in TA's gross profit
was primarily due to an increase in nonfuel revenues and an increase in diesel
fuel volume as described above. In 1997, National had gross profit of $23.8
million, compared to $20.5 million in 1996, an increase of $3.3 million, or
16.1%. The increase in National's gross profit was primarily due to an increase
in nonfuel revenues associated with the site conversions described above, which
was partially offset by a decline in rent revenues.
OPERATING AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses include the direct expenses of Company-operated
TravelCenters and selling, general and administrative expenses ("SG&A") include
corporate overhead and administrative costs. The Company's operating expenses
increased from $27.6 million in the first quarter of 1996 to $34.1 million in
1997. The increase in operating expenses was derived from a $1.0 million
increase at TA and a $5.5 million increase at National. The Company's SG&A
decreased from $12.9 million in 1996 to $11.7 million in 1997 due to a $2.6
million decrease at National, partially offset by a $1.3 million increase at TA.
TA's operating expense increase was associated with an increase in nonfuel
revenues at existing TA TravelCenters and the addition of one new TA
TravelCenter and two stand-alone truck maintenance and repair shops. The
increase in TA's SG&A was primarily due to expanded field support and training
as well as planning and development costs. National's operating expense increase
was related primarily to the site
38
<PAGE>
conversions described above. The decrease in National's SG&A was primarily due
to a reduction in bad debt expense, payroll and contract labor and reduced
levels of financial assistance to franchisees.
REFINANCING, TRANSITION AND DEVELOPMENT COSTS
Refinancing, transition and development costs for the first three months
of 1997 increased from $0.2 million in 1996 to $1.6 million. The refinancing,
transition and development costs for 1997 at TA were $0.8 million compared to
$0.1 million for 1996. The 1997 costs were incurred in effecting the combination
of National and TA. The 1997 National refinancing, transition and development
costs of $0.8 million is also primarily attributable to the combination of the
TravelCenters network and principally represents severance pay.
The Company is continuing to evaluate the staffing requirements and
conversion obligations in relation to the combination of TA and National. The
Company believes additional transition costs will be incurred to effect the
combination as the plan is completed.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the first quarter of 1997 and 1996 were
$6.9 and $6.2 million, respectively, an increase of $0.7 million. The increased
level of depreciation is related to the capital expenditures discussed below.
INCOME FROM OPERATIONS
Income from operations for the Company for the first quarter of 1997 was
$4.9 million as compared to $6.6 million in 1996, a decrease of $1.7 million.
Income from operations for 1997 and 1996 was $3.7 million and $4.6 million,
respectively, for National, while TA's income from operations was $1.4 for 1997
and $2.0 for 1996. The decrease for both companies is primarily attributable to
the additional transition costs incurred to effect the combination of
TravelCenters of America. EBITDA for the Company in 1997 was $13.4 million as
compared to $12.9 million for 1996.
INTEREST (INCOME) EXPENSE - NET
Interest expense for the first three months of both 1997 and 1996 was $5.1
million.
1996 COMPARED TO 1995
REVENUES
The Company's revenues for 1996 were $1,033.5 million compared to $839.8
million for 1995, an increase of $193.7 million or 23.1%. TA accounted for $80.4
million of this increase, while National accounted for $113.3 million.
In 1996, TA had revenues of $466.9 million compared to $386.5 million in
1995, an increase of $80.4 million or 20.8%. This increase in revenues consisted
of a $70.1 million increase in Fuel revenues from $214.3 million to $284.4
million, and a $10.3 million increase in Nonfuel revenues, from $172.2 million
to $182.5 million. The increase in Fuel revenues was primarily due to a 38.5
million gallon increase in diesel fuel volume, or 12.6%, and an increase in
diesel fuel prices. Diesel fuel volume increased principally due to increases in
sales to fleets (including increased sales through the Pathway Program (as
defined), see "Business--Sales and Marketing") and the addition of one
TravelCenter in November of 1995 and another in September 1996.
The increase in TA's Nonfuel revenues is principally attributable to: (i)
a $4.7 million, or 8.7%, increase in truck maintenance and repair shop revenues;
(ii) a $2.6 million, or 34.3%, increase in fast food
39
<PAGE>
revenues primarily due to the installation of 14 new fast food kiosks and (iii)
a $1.5 million, or 3.5%, increase in full service restaurant revenues.
In 1996, National had revenues of $566.6 million compared to $453.3
million in 1995, an increase of $113.3 million or 25.0%. This increase in
revenues consisted of a $91.7 million increase in Fuel revenues from $376.2
million to $467.9 million and a $27.6 million increase in Nonfuel revenues, from
$29.3 million to $57.0 million, partially offset by a $6.1 million decrease in
rent from $47.8 million to $41.7 million. The increase in Fuel revenues was
primarily due to an increase in diesel fuel prices partially offset by a
decrease in diesel fuel volume of 18.9 million gallons, or 3.0%. The decrease in
diesel fuel volume was primarily attributable to National's difficulty in
maintaining a coordinated fleet marketing program and a reduction in the total
number of National facilities. The increase in Nonfuel revenues and the decrease
in rent were primarily due to the conversion of 11 formerly Leased Sites to
Company-operated sites as well as the full year impact of six such conversions
which occurred in 1995.
GROSS PROFIT
The Company's gross profit for 1996 was $231.8 million, compared to $206.9
million for 1995, an increase of $24.9 million, or 12.0%. In 1996, TA had gross
profit of $143.2 million, compared to $130.5 million in 1995, an increase of
$12.7 million, or 9.8%. The increase in TA's gross profit was primarily due to
an increase in Nonfuel revenues and an increase in diesel fuel volume as
described above. In 1996, National had gross profit of $88.6 million, compared
to $76.5 million in 1995, an increase of $12.1 million, or 15.8%. The increase
in National's gross profit was primarily due to the increase in Nonfuel revenues
associated with the site conversions described above, which was partially offset
by a decline in rent.
OPERATING AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's operating expenses increased from $101.6 million in 1995 to
$128.8 million in 1996. The increase in operating expenses was derived from an
$8.0 million increase at TA and a $19.2 million increase at National. The
Company's SG&A decreased from $43.2 million in 1995 to $42.3 million in 1996
principally due to a $4.9 million decrease at National, partially offset by a
$3.5 million increase at TA. TA's operating expense increase was associated with
an increase in Nonfuel revenues at existing TA TravelCenters and the addition of
two new TA TravelCenters and of two stand-alone truck maintenance and repair
shops as part of TABB (as defined). The increase in TA's SG&A was primarily due
to expanded field support and training as well as planning and development
costs. National's operating expense increase was related primarily to the site
conversions described above. The decrease in National's SG&A was primarily due
to a reduction in bad debt expense and reduced levels of financial assistance to
franchisees.
REFINANCING, TRANSITION AND DEVELOPMENT COSTS
Refinancing, transition and development costs increased from $1.9 million
in 1995 to $2.7 million in 1996. In 1996, refinancing costs incurred at National
pursuant to the proposed Repurchase (including legal and financing costs) were
$1.4 million compared to $0.8 million for 1995. In addition, at TA, transition
and development expenses for 1996 were $1.3 million compared to $1.0 million for
1995. In 1996, these costs were incurred in pursuit of a potential acquisition
as well as in connection with TA's expansion plan and the design of the
TravelCenter prototype. In 1995, the costs also included expenses incurred as TA
transitioned to a stand-alone operation.
40
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for 1996 and 1995 were $27.0 and $22.6
million, respectively, an increase of $4.4 million. The increased level of
depreciation is related to the capital expenditures discussed below.
INCOME FROM OPERATIONS
Income from operations for the Company for 1996 was $29.7 million as
compared to $37.4 million in 1995, a decrease of $7.7 million. Income from
operations for 1996 and 1995 was $17.1 million and $23.9 million, respectively,
for National, while TA's income from operations was $13.3 for 1996 and $13.7 for
1995. The decrease at National is primarily attributable to the conversion of
Leased Sites to Company-operated sites. This decrease resulted in part from
start-up costs incurred upon conversion of the Leased Sites and the lack of a
corporate infrastructure at National to manage Company-operated sites. This
decrease in income from operations at National is also attributable to
distractions associated with the Repurchase. EBITDA decreased from $62.1 million
in 1995 to $60.7 million in 1996.
INTEREST (INCOME) EXPENSE--NET
Interest expense for 1996 was $20.8 million compared to $20.9 million for
the same period in 1995.
1995 COMPARED TO 1994
REVENUES
The Company's revenues for 1995 were $839.8 million which was flat with
1994. TA's revenues increased by $11.7 million, while National's revenues
decreased by $11.7 million.
In 1995, TA had revenues of $386.5 million compared to $374.8 million in
1994, an increase of $11.7 million or 3.1%. This increase in revenues consisted
of a $7.3 million increase in Fuel revenues from $207.0 million to $214.3
million, and a $4.4 million increase in Nonfuel revenues from $167.8 million to
$172.2 million. The increase in Fuel revenues was primarily due to a 10.4
million gallon increase in diesel fuel volume, or 3.5%. Diesel fuel volume
increased principally due to increases in sales to fleets (including increased
sales through the Pathway Program, which began in November 1994).
The TA Nonfuel increase was principally attributable to: (i) a $1.7
million, or 4.2%, increase in travel and convenience store revenues and (ii) a
$1.6 million, or 27.0%, increase in fast food revenues primarily due to the
installation of six new fast food kiosks.
In 1995, National had revenues of $453.3 million compared to $465.0
million in 1994, a decrease of $11.7 million or 2.5%. This decrease in revenues
consisted of a $20.6 million decrease in Fuel revenues from $396.7 million to
$376.1 million, partially offset by a $9.4 million increase in Nonfuel revenues,
from $19.9 million to $29.3 million. The decrease in Fuel revenues was primarily
due to a decrease in diesel fuel volume of 21.1 million gallons, or 3.2%. This
decrease is principally due to causes similar to those described above in the
comparison of 1995 to 1996 results. The increase in Nonfuel revenues was
primarily due to the conversion of six formerly Leased Sites to Company-operated
sites during 1995.
GROSS PROFIT
The Company's gross profit for 1995 was $206.9 million, compared to $205.2
million for 1994, an increase of $1.7 million, or 0.8%. National's gross profit
increased $2.6 million partially offset by TA's gross profit decrease of $0.9
million. In 1995, TA had gross profit of $130.5 million, compared to
41
<PAGE>
$131.4 million in 1994, a decrease of $0.9 million, or 0.7%. The decrease in
TA's gross profit was primarily due to a reduction in diesel margins partially
offset by an increase in diesel fuel volume as described above. This decrease
was further offset by an increase in 1995 of higher margin Nonfuel revenues
totaling $4.4 million. In 1995, National had gross profit of $76.5 million,
compared to $73.9 million in 1994, an increase of $2.6 million, or 3.5%. The
increase in National's gross profit was primarily due to the increase in Nonfuel
revenues associated with the site conversions described above.
OPERATING AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's operating expenses increased from $101.0 million in 1994 to
$101.6 million in 1995 and its SG&A increased from $35.4 million in 1994 to
$43.2 million in 1995. The increase in operating expense was derived from a $1.8
million increase at National partially offset by a $1.2 million decrease at TA,
and the increase in SG&A was primarily derived from a $8.9 million increase at
National. TA's operating expense decrease was due to cost control programs
implemented in late 1994. These programs included labor scheduling models for
all profit centers, billboard optimization and inventory control programs.
National's increase in operating expense increase was related primarily to the
site conversions described above. The increase in National's SG&A was primarily
due to increases in bad debt expense, financial assistance to franchisees and
litigation costs.
REFINANCING, TRANSITION AND DEVELOPMENT COSTS
Refinancing, transition and development costs decreased from $5.5 million
in 1994 to $1.9 million in 1995. In 1995, refinancing costs incurred at National
pursuant to the proposed Repurchase were $0.8 million compared to $4.1 million
for 1994, when the Company unsuccessfully pursued a public debt offering and
related financings. In addition, at TA, transition and development expenses for
1995 were $1.0 million in 1995 compared to $1.4 million for 1994. In 1995, these
costs were incurred in the development of TA's expansion plan and the design of
the TA TravelCenter prototype as well as expenses incurred to continue the
transition of TA to a stand-alone operation. In 1994, these costs only
represented transition efforts to establish TA as an entity separate from BP.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs for 1995 and 1994 were $22.6 and $20.3
million, respectively, a difference of $2.3 million. The increased levels of
depreciation is related to the capital expenditures discussed below.
INCOME FROM OPERATIONS
Income from operations for the Company for 1995 was $37.4 million as
compared to $43.2 million in 1994, a decrease of $5.8 million. Income from
operations for 1995 and 1994 was $23.9 million and $30.0 million, respectively,
for National, while TA's income from operations was essentially flat from 1994
to 1995. The decrease at National is primarily attributable to the increase in
its SG&A, as described above, partially offset by a reduction in costs incurred
in connection with the proposed Repurchase. EBITDA decreased from $69.0 million
in 1994 to $62.1 million in 1995.
INTEREST (INCOME) EXPENSE--NET
Interest expense for 1995 was $20.9 million compared to $20.5 million in
1994.
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LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources is based upon
the TA Subsidiary and the National Subsidiary as combined for the years 1994,
1995 and 1996 and the three months ended March 31, 1996, and on the consolidated
unaudited financial statements of the Company for the three months ended March
31, 1997, which are contained elsewhere in this Prospectus. The combined
financial data for the years 1994, 1995 and 1996 are based on the audited cash
flow statements of the TA Subsidiary and the National Subsidiary contained
elsewhere in this Prospectus. The financial data for the three months ended
March 31, 1996 are based on the unaudited cash flow statements of the TA
Subsidiary and the National Subsidiary which are not contained in this
Prospectus.
On March 27, 1997, the Company was refinanced and currently has
outstanding $290.5 million of indebtedness, consisting of $125.0 million
principal amount of Subordinated Notes, $85.5 million principal amount of Senior
Notes and an $80.0 million Term Facility. The Company also has a $40.0 million
Revolving Facility, which, except for $1.5 million used for letters of credit,
was not drawn upon at March 31, 1997. The Senior Notes have no amortization
requirements until 2001, the Subordinated Notes are due 2007 and the Term
Facility has annual amortization requirements of $500,000 until 2004 (see Note 6
of the unaudited financial statements for a more detailed explanation of the
debt facilities).
The Company's cash requirements consist principally of working capital
needs, payments of principal and interest on outstanding indebtedness and
capital expenditures, including expenditures for acquisitions, expansion and
environmental upgrades. See "--Environmental Matters."
Net cash provided by operating activities totaled $4.9 million in the
first quarter of 1997 and $16.2 million in the first quarter of 1996. The
decreased amount of cash provided by operations results from decreased earnings,
largely due to payments made to former executives of the National Subsidiary
upon their resignations, as well as from funding an increase in working capital
primarily resulting from operating an increased number of Company-operated
sites. Net cash provided by operating activities on a combined basis totaled
$38.8 million in 1996, $27.3 million in 1995 and $32.4 million 1994. The change
in net cash flows provided by operating activities in 1996 compared to 1995 was
due to an increase in accounts payable and depreciation and amortization
partially offset by a decrease in National's results of operations. The
reduction in net cash flows provided by operating activities in 1995 as compared
to 1994 was primarily due to the decline in National's results of operations.
Net cash used in investing activities for the first quarter of 1997 was
$5.6 million versus $8.2 million for the first quarter of 1996. The decrease in
cash used in investing activities from 1996 to 1997 is attributable to a $3.8
million decrease in capital expenditures, partially offset by an $1.2 million
increase in the amounts spent converting leased sites into Company-operated
sites. Net cash used in investing activities totaled $28.5 million in 1996,
$29.5 million in 1995 and $19.6 million in 1994. The decrease in cash used in
investing activities in 1996 compared to 1995 was due to reduced capital
expenditures. The increase in investing activities in 1995 compared to 1994
reflected increased capital expenditures, largely at National, to improve sites.
Net cash flows provided by financing activities were $51.8 million for the
first quarter of 1997 and $6.8 million for the first quarter of 1996. The
increase in cash provided by financing activities reflects the refinancing
completed by the Company on March 27, 1997, as described above. Net cash flows
used in financing activities totaled $2.1 million in 1996, $18.1 million in 1995
and $5.5 million in 1994. The decrease in the amount of cash flows used in
financing activities in 1996 from 1995 was due to National's borrowings of $14.0
million under its existing revolving loan agreement in 1996. The increase in
1995 from 1994 was due to scheduled increases in long-term debt payments.
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Interest payments on the Notes and the Senior Notes and interest and
principal payments under the Credit Facilities represent significant cash
requirements for the Company. On the Closing Date, following consummation of the
Refinancing, the Company had outstanding approximately $290.5 million of
indebtedness, consisting of $125.0 million principal amount of the Existing
Notes, $85.5 million principal amount of the Senior Notes and the $80.0 million
Term Facility. The Company also has a $40.0 million Revolving Credit Facility,
which is undrawn, other than approximately $1.5 million (out of $20.0 million
available) used for letters of credit. The Senior Notes have no amortization
requirements until 2001 and the Term Facility has annual amortization
requirements of $500,000 until 2004. See "Description of Senior Indebtedness."
The Company expects to invest approximately $200 million in the Network
between 1997 and the end of 2001 (with approximately $110 million of this amount
to be spent by the end of 1998) in connection with the Capital Program to
upgrade, rebrand, reimage and increase the number of the Network's
TravelCenters. Approximately $50 million of the $200 million intended to be
spent represents normal ongoing maintenance and related capital expenditures.
The Company has budgeted expenditures in order to rebrand and reimage sites,
purchase, install and upgrade information systems at certain sites, to make
required environmental improvements and convert certain Leased Sites to
Company-operated sites.
The Company anticipates that it will be able to fund its 1997 working
capital requirements and capital expenditures primarily from funds generated
from the Refinancing, funds generated from operations, and, to the extent
necessary, from borrowings under the Revolving Credit Facility. The Company's
long-term liquidity requirements, including capital expenditures, are expected
to be financed by a combination of internally generated funds, borrowings and
other sources of external financing as needed.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to various
Environmental Laws.
The Company owns and uses USTs (as defined) and ASTs (as defined) at
Company-operated locations and Leased Sites which must comply with certain
statutory and regulatory requirements by December 22, 1998. The Company is
making necessary upgrades to comply with those requirements. The Company
incurred capital expenditures, maintenance, remediation and other environmental
related costs of approximately $2.2 million, $4.0 million and $7.2 million in
1994, 1995 and 1996, respectively, and of approximately $1.3 million for the
three months ended March 31, 1997. The majority of these expenditures were
required to comply with the federally imposed 1998 UST regulations. The Company
expects to spend a total of approximately $15 million to $20 million in 1997 and
1998 to complete the upgrade of USTs and other environmental related costs. The
Company also expects to spend a total of approximately $6 million in 1997 and
1998 for certain one-time projects relating to control of wastewater and
stormwater discharges and other matters. In addition, the Company has estimated
the current ranges of remediation costs at currently active sites and what it
believes will be its ultimate share for such costs after required
indemnification and remediation is performed by Unocal and BP under the
Environmental Agreements and has a reserve at March 31, 1997 of $798,000 for
such matters.
For additional information on environmental matters, see "Risk
Factors--Environmental Liabilities" and "Business--Regulation--Environmental
Regulation."
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal
(which together constitute the Exchange Offer), to exchange up to $125.0 million
aggregate principal amount of New Notes for a like aggregate principal amount of
Existing Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Existing Notes. The total
aggregate principal amount of Existing Notes and New Notes will in no event
exceed $125.0 million.
As of the date of this Prospectus, $125.0 million aggregate principal
amount of the Existing Notes was outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about
, 1997, to all holders of Existing Notes known to the Company. The
Company's obligation to accept Existing Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth under "--Conditions
to the Exchange Offer" below.
PURPOSE OF THE EXCHANGE OFFER
The Existing Notes were issued by the Company on March 27, 1997 in a
transaction exempt from the registration requirements of the Securities Act.
Accordingly, the Existing Notes may not be reoffered, resold, or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration and prospectus delivery requirements of the
Securities Act is available.
In connection with the issuance and sale of the Existing Notes, the
Company and each of the Subsidiary Guarantors entered into an Exchange and
Registration Rights Agreement, dated as of March 27, 1997 (the "Registration
Rights Agreement"), which requires the Company and each of the Subsidiary
Guarantors to use its best efforts to file on or before May 26, 1997 (60 days
after the date of issuance of the Existing Notes) a registration statement
relating to the Exchange Offer (or a shelf registration statement relating to
resales of the Existing Notes) and to cause the registration relating to the
Exchange Offer or the shelf registration statement to become effective on or
before August 9, 1997 (135 days after the date of issuance of the Existing
Notes). The Exchange Offer is being made by the Company and each of the
Subsidiary Guarantors to satisfy its obligations with respect to the
Registration Rights Agreement.
Based on no-action letters issued by the staff of the Commission to third
parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. The Company has not sought, and does not intend to seek, its own
no-action letter with regard to the Exchange Offer. Accordingly, there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. Any holder of Existing Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the New
Notes may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. Thus, any
New Notes acquired by such holders will not be freely transferable except in
compliance with the Securities Act. See "--Consequences of Failure to Exchange;
Resale of New Notes."
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EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 P.M., New York City time, on [ ],
1997, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended, is
referred to herein as the "Expiration Date"). The Expiration Date will be at
least 20 business days after the commencement of the Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. In addition, the Company
has agreed in the Registration Rights Agreement to keep the Exchange Offer open
for not less than 30 days after the date that notice thereof is first mailed to
the holders of the Existing Notes. The Company expressly reserves the right, at
any time or from time to time, to extend the period of time during which the
Exchange Offer is open, and thereby delay acceptance for exchange of any
Existing Notes, by giving oral notice (promptly confirmed in writing) or written
notice to the Exchange Agent and by giving written notice of such extension to
the holders thereof or by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release through
the Dow Jones News Service, in each case, no later than 9:00 A.M. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Existing Notes previously tendered will remain
subject to the Exchange Offer unless properly withdrawn.
In addition, the Company expressly reserves the right to terminate or
amend the Exchange Offer and not to accept for exchange any Existing Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "--Conditions to the Exchange Offer." If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Existing Notes as promptly as practicable.
For purposes of the Exchange Offer, the term "business day" has the
meaning set forth in Rule 14d- 1(c)(6) under the Exchange Act.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Existing Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Existing Notes being tendered and any required
signature guarantees, to the Exchange Agent at its address set forth below on or
prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO EXISTING NOTES OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the amount of an
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Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a clearing agency, an insured
credit union, a savings association or a commercial bank or trust company having
an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Existing Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Existing Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Existing Notes at the book-entry transfer facility, The Depository Trust
Company, for the purpose of facilitating the Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in the
book-entry transfer facility's system may make book-entry delivery of Existing
Notes by causing such book-entry transfer facility to transfer such Existing
Notes into the Exchange Agent's account with respect to the Existing Notes in
accordance with the book-entry transfer facility's procedures for such transfer.
Although delivery of Existing Notes may be effected through book-entry transfer
into the Exchange Agent's account at the book-entry transfer facility, an
appropriate Letter of Transmittal with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit
a Letter of Transmittal or Existing Note to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the names in which the Existing
Notes are registered and, if possible, the certificate numbers of the Existing
Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date the
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Existing Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes into the Exchange Agent's account at the book-entry transfer
facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Existing Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required documents)
and the tendered Existing Notes.
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes for exchange must be cured within such reasonable period of time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Existing Notes, such Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Existing Notes.
If the Letter of Transmittal or any Existing Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
By tendering, each holder will represent to the Company in the Letter of
Transmittal that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, that
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes, that
neither the holder nor any such other person is participating in or intends to
participate in the distribution of such New Notes and that neither the holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent prior to the Expiration Date at its address
set forth below. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Existing Notes to be withdrawn (the "Depositor"),
(ii) identify the Existing Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Existing Notes), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Existing Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Existing Notes into the name of the person
withdrawing
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the tender and (iv) specify the name in which any such Existing Notes are to be
registered, if different from that of the depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company in its sole discretion, which determination will be
final and binding on all parties. Any Existing Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Existing Notes which have been tendered for exchange and which are
properly withdrawn will be returned to the holder thereof without cost to such
holder as soon as practicable after such withdrawal. Properly withdrawn Existing
Notes may be retendered by following one of the procedures described under
"--Procedures for Tendering Existing Notes" above at any time on or prior to the
Expiration Date.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Existing
Notes properly tendered and will issue the New Notes promptly after acceptance
of the Existing Notes. See "--Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Existing Notes for exchange when, as and if the Company has
given oral and written notice thereof to the Exchange Agent.
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note.
In all cases, issuance of New Notes for Existing Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Existing Notes or a
timely Book-Entry Confirmation of such Existing Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any tendered
Existing Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Existing Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Existing Notes will be returned without expense to the tendering
holder thereof (or, in the case of Existing Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Existing Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration of
the Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Existing Notes and may terminate or amend the Exchange Offer if at any
time before the acceptance of such Existing Notes for exchange or the exchange
of the New Notes for such Existing Notes any of the following events shall
occur:
(i) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer shall violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
from time to time in its sole discretion. The failure by the
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Company at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of 1939
(the "TIA"). In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
BY MAIL: BY HAND: BY OVERNIGHT MAIL OR COURIER:
State Street Bank and State Street Bank and State Street Bank and
Trust Company Trust Company Trust Company
Corporate Trust Department Corporate Trust Department Corporate Trust Department
P.O. Box 778 Fourth Floor Fourth Floor
Boston, MA 02102-0078 Two International Place Two International Place
Boston, MA 02110 Boston, MA 02110
For information, call:
(800) 531-0368
Confirm: (617) 664-5456
Fax: (617) 664-5739
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The cash
expenses to be incurred by the Company in connection with the Exchange Offer
will be paid by the Company.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company.
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Neither the delivery of this Prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Existing Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the
exchange of Existing Notes for New Notes pursuant to the Exchange Offer.
However, holders who instruct the Company to register New Notes in the name of,
or request that Existing Notes not tendered or not accepted in the Exchange
Offer be returned to, a person other than the registered tendering holder will
be responsible for the payment of any applicable transfer tax thereon.
ACCOUNTING TREATMENT
The New Notes will be recorded at the carrying value of the Existing Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of New Notes for Existing Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
remain outstanding in accordance with their terms. In general, the Existing
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. However, (i) if the Initial Purchaser so requests with respect
to Existing Notes not eligible to be exchanged for New Notes in the Exchange
Offer and held by it following consummation of the Exchange Offer, (ii) if any
holder of Existing Notes is not eligible to participate in the Exchange Offer
or, in the case of any holder of Existing Notes that participates in the
Exchange Offer, does not receive freely tradable New Notes in exchange for
Existing Notes or (iii) if the Exchange Offer is not completed with respect to
tendered Existing Notes on or before September 8, 1997, the Company is obligated
to file a shelf registration statement (a "Shelf Registration Statement") on the
appropriate form under the Securities Act relating to the Existing Notes.
Based on certain no-action letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. The Company has not sought, and does not intend to seek, its own
no-action letter with regard to the Exchange
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Offer. Accordingly, there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Existing Notes that were acquired for its own account as
a result of market making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Existing Notes, where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Existing Notes reasonably requests in writing.
Participation in the Exchange Offer is voluntary, and holders of Existing
Notes should carefully consider whether to participate. Holders of the Existing
Notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Company and the Subsidiary Guarantors will have fulfilled a covenant
contained in the Registration Rights Agreement. Holders of Existing Notes who do
not tender their Existing Notes in the Exchange Offer will continue to hold such
Existing Notes and will be entitled to all the rights, and limitations
applicable thereto, under the Indenture, except for any such rights under the
Registration Rights Agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of this Exchange Offer. See
"Description of Existing Notes." All untendered Existing Notes will continue to
be subject to the restrictions on transfer set forth in the Indenture. To the
extent that Existing Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Existing Notes could be adversely affected.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise.
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BUSINESS
COMPANY OVERVIEW
The Company owns, operates and franchises more travel centers in the
United States than any of its competitors, with 163 network sites nationwide,
including 134 Company-owned locations. The Company's TravelCenters are full
service facilities offering a broad range of Fuel and Nonfuel products, services
and amenities to trucking fleets, professional truck drivers and other
motorists. In addition to diesel fuel and gasoline, the TravelCenters provide
truck maintenance and repair services and products, full service and fast food
dining, travel and convenience stores, telecommunications services and various
hospitality and rest-related amenities. This broad range of products and
services distinguishes the TravelCenters from traditional truckstops, which
focus on the sale of diesel fuel, and provides diverse revenue sources for the
Company. For the twelve months ended December 31, 1996, the Company sold 967.8
million gallons of diesel fuel and had pro forma consolidated net revenues and
EBITDA of $1,033.5 million and $63.4 million, respectively.
The Company is the only travel center or truckstop network operator in the
United States able to provide such comprehensive services and facilities to
long-haul truck drivers and fleets on a nationwide basis. The Company's
strategically positioned TravelCenters, which are located at key points on
interstate highways in 36 states, enable trucking fleets and drivers to utilize
the Company's TravelCenters as their supplier of choice for Fuel and Nonfuel
products and services on major trucking routes. The Company's integrated
information systems for billing and truck maintenance and repairs further
enhance operating efficiencies for the Company's large fleet customers and
strengthen these important relationships. Management believes that the Company's
broad range of products and services together with its comprehensive geographic
coverage has enabled the Company to become the largest supplier of diesel fuel
to the three largest and five of the six largest long-haul trucking fleets in
the United States. The Company's position as a leading supplier of diesel fuel
to major trucking fleets positions it to continue to increase its sales of
higher margin Nonfuel products and services to fleets, their drivers and
independent drivers.
The Company owns and operates two separate travel center networks, each of
which has operated for more than 30 years: the TA Network, with 48 sites (40
Company-owned and operated sites and eight Franchisee-Owner Sites), operating
under the Company-owned "Truckstops of America" and "TA" trademarks, and the
National Network, with 115 sites (34 Company-owned and operated sites, 60 Leased
Sites and 21 Franchisee-Owner Sites), operating under the licensed "Unocal 76"
and related trademarks. Historically, under the Company's ownership, each of the
Existing Networks has been separately managed and financed. The Company believes
it has identified a significant opportunity to improve its operating results by
combining the premier locations and long-standing fleet relationships of the
larger National Network with the strong brand image, complementary strategic
locations, established fleet relationships and proven management expertise of
the TA Network within a single Network operating under the well-regarded "TA"
brand.
In connection with the Combination Plan, the Company is pursuing a
business strategy which management believes will increase diesel fuel volume (in
particular with fleets), expand the sale of higher margin Nonfuel products and
services, increase operating efficiency and continue to broaden the Company's
customer base (see "--Business Strategy"). This business strategy is consistent
with the strategy that the TA management team successfully implemented at TA
since 1993. The existing TA management team, which has recently assumed control
of both Existing Networks, will manage the combined Network. From 1993 to 1996,
the TA strategy has resulted in a 10% increase in diesel fuel volume, a 14%
increase in Nonfuel revenues and a 32% increase in EBITDA at TA. In 1996,
Company-owned and operated TA sites had total Nonfuel revenues of $180.1
million, and average Nonfuel revenues and diesel fuel sales per site of $4.6
million and 8.7 million gallons, respectively (in the case of sites not owned
and operated by the Company for all of 1996, such average reflects annualized
results
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based on actual results during the period of Company operation), while
Company-owned and operated National sites had total Nonfuel revenues of $38.5
million, and average Nonfuel revenues and diesel fuel sales per site of $2.8
million and 5.6 million gallons, respectively (calculated as described above in
the case of sites not owned and operated by the Company for all of 1996). Based
on its experience at TA, management believes there are opportunities to improve
the operating performance of the National locations joining the combined
Network. The Company intends to capitalize on these opportunities through the
implementation of its business strategy and the Capital Program described below.
The Company has initiated a capital program to upgrade, rebrand, reimage
and increase the number of the combined Network's TravelCenters. Under this
Capital Program, the Company intends to invest approximately $200 million in the
Network's sites by the end of 2001, with approximately $110 million to be spent
by the end of 1998. In addition, pursuant to the Combination Plan, the Company
expects to rationalize the combined Network by selling 23 Company-owned National
sites (six of which are Company-operated) and terminating the franchise
relationships with an additional 17 National sites. Since March 24, 1997, the
Company has sold one previously Company-owned site to the former National
Operator of that site and has terminated franchise relationships with respect to
six former National Franchisee-Owner Sites. Upon completion of this
rationalization, the Network is expected to be comprised of 123 TA branded
facilities in 36 states versus 163 TA and National branded facilities in 36
states as of June 15, 1997. In 1996, the 23 Company-owned sites which are
planned to be sold as part of the Combination Plan, together with the one
Company-owned site which has already been sold, contributed approximately $12
million of EBITDA, while the 17 franchised sites planned to be terminated,
together with the six sites already terminated, contributed approximately $2
million of EBITDA. For a description of the specific components of the
Combination Plan and the Capital Program, see "The Refinancing, the Combination
Plan and the Capital Program."
COMPETITIVE ADVANTAGES
The Company believes that the following competitive advantages provide it
with an attractive foundation upon which to implement the Combination Plan and
the Capital Program, further improve its marketing strength and operating
performance and strengthen its position as an industry leader:
o LARGEST FULL SERVICE TRAVEL CENTER NETWORK. Upon completion of the
Combination Plan, the Company will operate the nation's largest and only
nationwide network of full service travel centers with 123 sites in 36 states,
of which 111 will be Company-owned. The Company is the only travel center
network operator that offers truck maintenance and repair services at virtually
every location. In addition, the Company is the only industry participant with a
centralized procurement, warehousing and distribution system. These factors,
among others, have positioned the Company to offer its products and services at
competitive prices throughout the United States, which is particularly
attractive to long-haul trucking fleet customers. The Company believes that the
unique combination of its size and the comprehensive scope of products and
services it offers would be difficult for any competitor to replicate.
o STRATEGIC LOCATIONS. The Company's TravelCenters are located at
convenient intervals and will enable drivers to make stops within the same
network system across the country. Management believes that the strategic
geographic distribution of the Company's TravelCenters enhances the operating
efficiency of its fleet customers and positions the Company to continue to
increase fleet business. Most of the Existing Network properties were purchased
15 to 20 years ago when real estate along the interstate highway system was more
readily available than it is today. Management estimates that the cost of
duplicating the average Network site would be approximately $6 million to $8
million. Management believes that the Company's Network of sites could not be
easily duplicated due to the limited availability of well-situated locations,
increasingly restrictive zoning regulations and significant construction costs.
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o STRONG FLEET RELATIONSHIPS. The Company sells more diesel fuel to the
three largest and five of the six largest long-haul trucking fleets than any
other travel center or truckstop operator, primarily due to the size of its
networks and the broad range of services the Company provides to these fleets,
including centralized billing, volume discount pricing, truck and cargo security
and other driver amenities. In addition, the TA Network currently offers an
industry leading 24-hour truck maintenance and repair service and a warranty
program honored system-wide. As part of the Combination Plan, the National
Network truck maintenance, repair and warranty program will be upgraded to the
TA standard. Fleet relationships provide directed diesel fuel volume to the
Company, reducing its dependence on individual customers. Fleet relationships
also increase Nonfuel related revenues as fleet drivers are generally required
by their employers to stop for diesel fuel and truck maintenance and repair
services only at facilities where the fleet maintains an account. The Company
estimates that fleet accounts represented approximately 75% and 60%,
respectively, of the TA Network's and the National Network's total diesel fuel
volume sold in 1996, although no single fleet accounted for more than 8% of
either TA's or National's total diesel fuel volume. TA and National together
currently have supply relationships with each of the 25 largest long-haul
trucking fleets, and only one fleet represents one of the ten largest customers
of both TA and National.
o DIVERSIFIED REVENUE AND EARNINGS SOURCES. In 1996, TravelCenters owned
and operated by the Company derived 36% of their total revenues and 74% of their
gross profit from their broad array of Nonfuel products and services such as
truck maintenance and repair shops, full service and fast food restaurants,
travel and convenience stores, motels, telecommunications, truck weighing
stations and other services. The relationship between revenues and gross profit
arose because in 1996, the Company-operated TravelCenters earned gross margins
of approximately 57% on Nonfuel revenues compared to approximately 11% on diesel
fuel revenues. This diversity of gross profit sources among various profit
centers distinguishes the Company from pumper-only competitors that rely heavily
on profits generated by diesel fuel sales and often are unable substantially to
expand their Nonfuel offerings due to real estate constraints at their sites or
other factors.
o NATIONALLY RECOGNIZED BRANDS. The TravelCenters feature a variety of
well recognized national brands which attract professional truck drivers,
motorists and other customers who often satisfy both Fuel and Nonfuel needs at
the same stop. The Company's nationally recognized fast food and motel brands
include Burger King, Dunkin' Donuts, Kentucky Fried Chicken, Long John Silver's,
Pizza Hut, Sbarro, Subway, Taco Bell, DayStop, HoJo Inn and Travelodge. The
Company also offers such well recognized gasoline brands as BP, Exxon, Mobil,
Shell and Unocal 76. This portfolio of brands strongly appeals to what market
research indicates are customers' priorities of quality, convenience and
consistency of product offerings, as well as cleanliness and safety.
o STRONG MANAGEMENT TEAM. The Company's senior management team, led by
Edwin P. Kuhn, the President and CEO, has an average of over 21 years of
experience in the travel center, truckstop and related industries. From 1993 to
1996, the TA strategy has resulted in a 10% increase in diesel fuel volume, a
14% increase in Nonfuel revenues and a 32% increase in EBITDA at TA.
BUSINESS STRATEGY
The Company's strategy is to enhance its operating margins and strengthen
its position as a leading owner, operator and franchisor of travel centers in
the United States. In managing the integrated Network, the Company intends to
implement across the larger National Network the same strategy which it
successfully employed at the TA Network. The key components of this strategy
include the following initiatives:
o INCREASE DIESEL FUEL VOLUME. By more competitively pricing its diesel
fuel, TA has increased its diesel fuel volume. By implementing a similar pricing
strategy, the Company believes it can increase diesel fuel volume at National
sites that join the Network. At Company-owned and operated National sites,
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management is currently implementing TA's pricing strategy by selectively
reducing posted prices and negotiating fleet business at greater discounts. The
Company intends to offer its franchisees that operate National sites more
competitive wholesale fuel pricing and certain other incentives. Although the
Company cannot establish the prices at which its franchisees sell diesel fuel,
the Company expects these incentives to result in consistently reduced diesel
prices across the Network. The Company also believes that multiple visits to
TravelCenters by drivers initially attracted by competitive diesel fuel pricing
enhances driver loyalty toward the Company's Nonfuel offerings. As part of its
business strategy, the Company plans to extend to all Network locations TA's
"Loyal Fueler" program, which is similar to airline frequent flyer programs and
which encourages drivers to select the Company's TravelCenters for their Fuel
and Nonfuel stops. The increase in customer traffic associated with Fuel patrons
provides the Company with an additional opportunity to sell higher margin
Nonfuel products and services.
o EXPAND NONFUEL PRODUCTS AND SERVICES. The Company intends to expand its
offering of higher margin Nonfuel products and services in order to maximize the
Nonfuel revenue captured from each customer stop at a Network TravelCenter. In
addition to its existing broad range of Nonfuel products and services, the
Capital Program will allow the Company to add additional fast food kiosks and
food courts, expand and reformat travel and convenience stores, improve truck
maintenance and repair shops at National sites which join the Network and
construct new stand-alone truck maintenance and repair shops at selected
locations.
o INCREASE OPERATING EFFICIENCY. The Company has established a cost
reduction program at TA through which TA is realizing decreased labor costs by
investing in systems such as fuel island automation and by reducing overtime
expenses through improved labor scheduling. TA has also created operating
efficiencies by utilizing centralized purchasing and distribution. The current
management team reduced operating expenses as a percentage of Nonfuel revenues
for TA from 59% in 1993 to 54% in 1996, representing annual savings of
approximately $9 million based on TA's 1996 Nonfuel revenues. Management expects
to realize further operating efficiencies by implementing these initiatives at
the Company-operated National sites joining the Network and to achieve corporate
overhead savings by consolidating National's headquarters (historically located
in Tennessee) into TA's Westlake, Ohio headquarters. The Company expects to
realize corporate overhead savings, before one-time transition charges, of up to
$3.0 million in 1997, increasing to up to $6.0 million by 1999.
o BROADEN CUSTOMER BASE. The Company is in the process of expanding its
offering of nationally recognized, branded products and reimaging and upgrading
its sites (primarily National sites joining the Network) in order to attract
additional non-trucking customers, such as interstate motorists, recreational
vehicle travelers, long distance bus operators and their passengers and local
residents. The Company's market research indicates that these customers' primary
priorities are quality, convenience and consistency of product offerings as well
as cleanliness and safety, rather than price. By prominently featuring
nationally recognized brands which convey these qualities, the Company expects
to improve its appeal to these relatively price insensitive customers.
THE INDUSTRY
The United States travel center and truckstop industry is fragmented and
the ability of industry participants to add new sites is hindered by the limited
availability of suitable locations along or near interstate highways and the
substantial capital costs associated with constructing new full service
facilities (approximately $6 million to $10 million per site). In the United
States, there are generally two types of facilities designed to service the
trucking industry: pumper-only truckstops, which provide fuel, typically at
discounted prices, with limited additional services, and full service travel
centers, such as those in the Company's networks, which have a diversity of
revenue sources derived from a broad range of product and service offerings to
fleet and independent truck drivers and nontruck traffic, including Fuel
products, fast food and casual dining restaurants, hotel accommodations, truck
maintenance and repair products and
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services, truck weighing scales, electronic data networks which enable fleets to
monitor the location of their vehicles, to communicate messages to drivers and
to control their drivers' fuel purchase and maintenance and repair decisions,
telecommunication services, banking services, drivers' lounges, arcades,
specialized travel and convenience stores, barber shops, laundry facilities,
showers, truck washes and secure parking areas. Company research indicates that
in general only one of every three stops a truck driver makes on a long distance
route is for fuel. By offering a wide variety of Nonfuel products and services,
a full service network operator such as the Company positions itself to capture
the maximum revenue possible at both fueling and nonfueling stops. Based on
industry data, the Company believes that there are approximately 2,500 travel
centers and truckstops nationwide, of which approximately 500 are full service
travel centers. Only ten travel center or truckstop chains in the United States
have 25 or more locations, which the Company believes is the approximate minimum
number required to provide regional coverage. Only six of these chains
(including TA and National) currently operate 25 or more full service travel
centers. The Company is the only travel center network operator offering full
service on a nationwide basis.
According to the National Association of Truck Stop Operators, travel
centers and truckstops generated revenues of approximately $30 billion in 1996
in the following categories:
Fuel sales.................................................... 62%
Restaurants................................................... 9%
Retail operations............................................. 7%
Other (1)..................................................... 22%
------
Total...................................................... 100%
======
- -----------
(1) Includes truck maintenance and repair products and services, truck
weighing scales, amusements, telecommunications, showers, laundry and
other hospitality services.
The industry's principal customers, accounting for the majority of
diesel fuel volume, are long-haul trucking companies. Most long-haul truck
drivers make trips of several days' duration and have access to a limited number
of self-fueling terminals. For this reason, most long-haul trucking companies
purchase a majority of their diesel fuel at travel centers and truckstops, as
opposed to trucking company-owned terminals.
Over the last 20 years, trucks have increasingly become preferred over
rail by shippers as a method of transporting goods long and short distances. As
a result, according to the United States Department of Transportation (the
"DOT"), there was a relatively steady increase in the demand for highway diesel
fuel from 1970 to 1996. Even during economic recessions, demand for diesel fuel
has remained flat or decreased relatively insignificantly. Although the fuel
efficiency for trucks has improved and continues to improve, the continuing
growth of the trucking industry has heretofore helped to mitigate the negative
effects fuel efficiency would otherwise have had on diesel fuel demand. Demand
for diesel fuel is also relatively stable throughout the year, with slight
decreases typically in February and slight increases typically in October.
Since the deregulation of the trucking industry in 1980, the long-haul
trucking industry has become increasingly dominated by large, relatively more
efficient trucking fleets. Corporate relationships between fleets and full
service travel center networks like TA and National provide various benefits to
fleets, including consolidated billing, truck maintenance and repair warranties
honored on a network-wide basis, the ability to monitor repair and billing
information for its individual trucks and drivers and the provision of food,
accommodations, telecommunications and various amenities to fleet drivers.
Fleets also prefer to
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maintain relationships with travel center and truckstop chains in order to
consolidate fuel purchases and therefore to negotiate lower fuel prices.
Generally, in exchange for minimum monthly volume purchases, fleets negotiate to
purchase diesel fuel at prices discounted from the street prices from travel
center and truckstop chains. As a consequence, while the Company projects that
diesel fuel volume will grow as fleet volume increases, the Company also
anticipates an associated decrease in diesel fuel gross margins on a per gallon
basis. However, the increase in customer traffic from fleet drivers associated
with additional fuel volume provides the Company with an opportunity to increase
its higher-margin Nonfuel revenues. In 1996, 75% of the average Company-owned TA
site's gross profit was generated from Nonfuel sales.
Deregulation in the trucking industry (which has imposed price pressure
on trucking fleets), the growth of fleet bargaining power and a general decline
in oil prices has created an environment of generally declining fuel margins
over the course of the last ten years and has led the Company and its
competitors generally to adopt one of two strategies to continue to improve
profitability. The pumper-only truckstop chains have discounted the price of
diesel fuel in order to increase volume. However, pumper-only competition has
had the effect of further decreasing gross margins on fuel, and pumper-only
chains are very dependent on diesel driven profits. The Company and other full
service travel center and truckstop operators (and certain chains offering a mix
of pumper-only and full service facilities) have identified a different
opportunity in the generally lower diesel fuel margin environment. By offering
full service, the Company attracts customers by addressing the equipment
maintenance and individual driver needs of trucking fleets, as well as those of
independent drivers. Offering full service also gives the Company diverse and
higher-margin revenue sources, making the Company less dependent on, and less
sensitive to, diesel fuel price fluctuations than pumper-only chains. As a
result, the Company is able to offer to fleets diesel fuel prices (after giving
effect to negotiated discounts) that are competitive with, and post street
diesel fuel prices that are typically only slightly higher than, pumper-only
truckstops.
Trucking fleets are also affected by an industry-wide shortage of
drivers and a driver turnover rate that the Company believes averages in excess
of 100% per year. The driver shortage is due in part to increased trucking
activity and a federally mandated maximum daily driving time of ten hours. High
driver turnover rates are due in part to high fatigue levels, difficult working
conditions and long absences from home and family. Driver turnover represents a
significant expense, costing fleets $3,000 to $5,000 to recruit and train a
driver. In an effort to ameliorate some of the difficult conditions faced by
drivers, fleet operators often design routes so that their drivers may stop at
full service facilities as often as possible while making long-haul deliveries.
In response to the mandated daily driving hour maximum, fleets are increasingly
assigning two drivers to travel as a team in order to increase utilization of
the fleet, and reduce shipping times. The trend towards team driving favors full
service travel centers because a truck stopping at a travel center has two
potential Nonfuel consumers, as opposed to one in the case of a single driver.
Generally, travel center and truckstop operators attempt to have at
least one location in every 200 to 300 mile interval of any route. However,
because interstate travel patterns vary, the geographic distribution of service
areas varies by region. In the Western United States, where there are fewer
origin and destination points, the need for service areas is reduced as the
various hauls become coordinated into one major flow. In the upper Midwestern,
Northeastern and Southeastern United States, there are more origin and
destination points and, therefore, travel center and truckstop operators require
a greater number of locations to maximize their ability to compete effectively.
In contrast, the need for a great number of geographically distributed sites is
diminished on routes to and from the West Coast due to fewer origin and
destination points, resulting in concentrations of competition along these
routes. The Company has more locations than any other travel center or truckstop
chain and because its locations are distributed nationally, the Company is the
industry participant best positioned to capture driver and fleet expenditures
when a driver stops on transcontinental and other long-haul trips.
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TRAVELCENTERS
The Company's TravelCenters are designed to appeal to drivers seeking
either a quick stop or a more extended visit. The typical professional driver
patronizes a TravelCenter to seek not only diesel fuel but also food, truck
maintenance and repair services and products, supplies, business and
telecommunications services, restrooms, showers and laundry and sleeping and
parking facilities. Motorists and recreational vehicle and long distance bus
passengers typically stop at TravelCenters to purchase gasoline, food or
convenience store items or to use the telephones, motels or restrooms. (The
descriptions and related data set forth under the heading "TravelCenters" (i)
for TA TravelCenters refer to the TA TravelCenters prior to any rebranding of
National TravelCenters under the "TA" brand that has occurred since March 24,
1997 and (ii) for National TravelCenters refer to the National TravelCenters
prior to such rebranding and prior to the terminations of National franchises
that have occurred since March 24, 1997.)
Each of the TA and National TravelCenters is a full service facility
located on or near an interstate highway and identified with TA or Unocal 76
signage. As part of the Combination Plan, the National TravelCenters joining the
Network are being rebranded under the TA trademark. All Fuel and Nonfuel
products and services are generally available 24 hours per day and 365 days per
year. The typical TA TravelCenter, which is the model for the Network, on
average has 106 employees.
PROPERTY. The layout of the Company-owned TravelCenters generally vary
from site to site. The TA facilities are located on properties averaging 27
acres, of which an average of approximately 19 acres are developed. The majority
of the developed acres contain the main building, housing one or more
restaurants, a travel and convenience store and driver amenities, a truck
maintenance and repair shop, separate truck and car fuel islands, separate truck
and car paved parking and, in some cases, motels. The remaining developed acres
contain landscaping and access roads. On average, TA's Company-owned sites have
185 truck and 44 car parking spaces. The typical TA site has four 20,000 gallon
underground storage tanks for diesel fuel and three such 10,000 gallon tanks for
gasoline. The National facilities are located on properties averaging 20 acres
and have layouts which are similar to TA properties. The typical National
TravelCenter has three 20,000 gallon underground storage tanks for diesel fuel,
two gasoline tanks ranging in size from 10,000 to 20,000 gallons and an average
of 140 truck and 65 car parking spaces. The Company believes that the National
sites that have been selected by the Company to be rebranded, reimaged and
upgraded as part of the Capital Program have sufficient acreage available to
implement all the features of the typical TA TravelCenter which are described
below.
SECURITY AND SAFETY. The security of a travel center is important to
fleets and owner-operators of trucks both with regard to protection against
theft of the truck, the trailer and its cargo and with regard to the safety of
the driver. Tractors and trailers represent significant investments for fleets
and owner-operators, costing approximately $100,000 to $150,000 (excluding the
cargo value). Individual and vehicle safety and security are also important to
the Company's non-trucking customers. Accordingly, the typical TravelCenter has
well-lit parking, fuel island and indoor areas. In addition, in response to
customer concerns, Company facilities located in areas where security is of
particular importance (typically in or near urban population centers) generally
have fenced parking areas (for which the TravelCenter charges a fee to
nonfueling trucking customers) and sometimes dedicated security personnel
patrolling indoor and outdoor areas.
FUEL ISLANDS. Both TA and National sites have diesel fuel islands that
accommodate ten pumps on average, most of which are dual fill pumps that can
fill each of a typical truck's two tanks simultaneously. In addition,
TravelCenters generally have a gasoline island which can accommodate four to
eight automobiles simultaneously. Certain locations also have one and sometimes
two additional convenience stores located at the fuel islands. For the
convenience of truck drivers who need to refill rapidly and resume their
driving, the diesel pumps are easily accessible from the highway and are
separated from the gasoline pumps and other services. The average truck
refueling takes from 10 to 20 minutes and requires 100
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gallons of diesel fuel. Both TA and National sites feature nationally recognized
brands of gasoline, including BP, Exxon, Mobil, Shell and Unocal 76.
In 1996, TA entered into an agreement with Comdata Corporation
("Comdata") to, among other things, introduce Smart Fuel(R), currently the most
advanced system of card reader diesel pumps and billing technology in the travel
center and truckstop industry. The Smart Fuel(R) system is similar to the pumps
now available at many gasoline stations where customers can purchase gasoline
directly at the pump with a credit or debit card. In connection with this
agreement, TA invested approximately $2.6 million to install Smart Fuel(R) at TA
Network facilities in 1996. The system is expected to be fully operational
across the TA Network during the second quarter of 1997 and will provide TA the
following advantages: (i) elimination of approximately one or two employees per
site (an expected annual savings of approximately $1 million at TA's 40
Company-operated sites), (ii) enhancement of fleet operators, ability to receive
fuel consumption data and to control their drivers' fuel purchase decisions and
(iii) reduction of refueling waiting periods for drivers, allowing the Company
to service an increased number of trucks by maximizing fuel pump availability.
The Company intends to implement a promotional program based on the speed of the
fueling transaction. The Capital Program provides for the installation of the
Smart Fuel(R) system at all of the National TravelCenters joining the Network.
TRUCK MAINTENANCE AND REPAIR SHOP. Virtually all TravelCenters have
truck maintenance and repair shops nearly all of which operate 24 hours per day
and 365 days per year. The Company believes that TA is regarded as the industry
leader in providing truck maintenance and repair services. TA truck repair shops
typically feature one or more independently certified mechanics per shift. In
addition, TA has established uniform truck maintenance and repair procedures
which are reinforced by computerized monitoring systems to enhance the ability
of its mechanics to deliver consistency and quality over the entire TA Network.
The typical TravelCenter repair shop has between two and four service
bays, a parts storage room and fully trained mechanics on duty at all times.
These shops offer extensive maintenance and emergency repair and road services,
from basic services such as oil changes and tire repair to specialty services
such as diagnostics and repair of air conditioning, air brake and electrical
systems. Repair services performed at TA sites are backed by a warranty honored
at all other TA sites, a benefit that is particularly attractive to long-haul
fleet and independent operators. The Combination Plan is expected to further
enhance the value of this benefit by extending the TA truck maintenance and
repair warranty program to all former National locations joining the Network. As
a result, the Network will offer the only nationally accepted truck maintenance
and repair warranty program in the travel center and truckstop industry.
The TA truck maintenance and repair shops offer an advanced computer
system service which tracks customer maintenance and repair records by truck
serial number. The system enhances the ability of TA mechanics to repair the
individual trucks they service by allowing them to access individual truck
repair and maintenance histories on-line. This system is particularly attractive
to fleet operators because it provides them with consolidated fleet repair and
maintenance data on an as requested basis. As part of the Network Franchise
Agreement, the Company plans to require installation of the truck maintenance
and repair shop computer system at all National TravelCenters joining the
Network.
The Company believes that implementing the TA truck repair shop program
at the National TravelCenters as part of the Combination Plan will increase
Company profitability. In 1996, Company-operated TA truck maintenance and repair
shops collected total revenues of $58.3 million, and average revenues per site
of $1.5 million (in the case of sites not owned and operated by the Company for
all of 1996, such average reflects annualized results based on actual results
during the period of Company operation), as compared to total revenues of $10.7
million for Company-operated National shops and average revenues per site of
$0.7 million (calculated as described above in the case of sites not owned and
operated by the Company for all of 1996). The average annual shop revenue for
the five full service TA Franchisee-Owner Sites which joined the TA Network
since 1991 increased by 86% within one year
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after joining the TA Network by implementing the TA truck maintenance and repair
program. In addition to expanding the TA shop program across the National
Network sites, TA has also initiated a program to operate "TA" branded shops on
the premises of Burns Brothers (as defined) travel centers. See "--Joint
Venture."
CAT BRANDED WEIGH STATIONS. Nearly all TA sites include a nationally
recognized CAT Scale ("CAT") branded weigh station to allow truck drivers to
monitor their compliance with governmental regulations regarding maximum weight
limits. CAT's weigh stations set the industry standard, due in part to their
accuracy and their associated guarantee. As part of the Combination Plan, the
Company intends to replace existing weigh stations with CAT branded weigh
stations at many of the National facilities joining the Network.
MAIN BUILDING. The main building at each TravelCenter contains a full
service and, in many instances, a fast food restaurant, the travel and
convenience store, a fuel desk, driver amenity areas, including a lounge,
television room, private showers and laundry, as well as office space and
training rooms for the employees of the TravelCenter. In early 1994, the Company
began to install ATM machines at most sites. As of December 31, 1996, all TA and
National locations had installed ATMs. As part of the Capital Program, the
Company has allocated funds to expand the main building floor space for a
majority of the National Network sites selected to join the Network in order to
create adequate space within the main building to implement the Company's fast
food program or to increase the size of the TravelCenters' store or gaming and
vending areas.
FULL SERVICE AND FAST FOOD RESTAURANTS. All TA and National
TravelCenters have full service restaurants that offer seating for an average of
approximately 130 and 155 customers, respectively. The restaurants offer a wide
variety of "home style" meals through menu table service, buffets and take out
service. For the convenience of the truck drivers, most restaurants have private
"truck driver only" dining areas that offer pay phones at each table. The TA
Network has associated its full service restaurants with the Company-owned
"Country Pride" brand name in order to foster brand loyalty among its restaurant
patrons. As part of the Combination Plan and Capital Program, most of the
National locations joining the Network are also expected to rebrand their full
service restaurant under the "Country Pride" name.
The Company has also promoted the installation of nationally branded
fast food restaurants such as Burger King, Dunkin' Donuts, Kentucky Fried
Chicken, Long John Silver's, Pizza Hut, Sbarro, Subway and Taco Bell, at its
TravelCenters. The Company believes that the addition of fast food kiosks or
food courts enhances the Company's opportunity to obtain additional high margin
revenues. The Company generally attempts to locate fast food offerings within
the main truckstop building (as opposed to constructing stand-alone buildings).
Management believes that fast food offerings do not significantly reduce
revenues at a TravelCenter's existing full service restaurant, but offer an
alternative that is popular with truck drivers, motorists and bus passengers. As
of December 31, 1996, 24 of the 40 Company-owned TA sites offered at least one
nationally branded fast food offering, while 17 of the 72 Company-owned National
sites that are expected to be included in the Network had such an offering. The
Capital Program contemplates installation of fast food kiosks such that the
Company will have at least one fast food offering at each Company-owned Network
site by 2001.
TRAVEL AND CONVENIENCE STORE. Each TravelCenter has a travel and
convenience store that caters to truck drivers, motorists, recreational vehicle
and bus customers. The travel and convenience stores sell food and snack items,
beverages, non-prescription drug and beauty aids, batteries, automobile
accessories, music and audio products. In addition to complete convenience store
offerings, the travel and convenience stores also sell items specifically
designed for the truck driver's on-the-road lifestyle, including laundry
supplies and clothing as well as truck accessories. The TA travel and
convenience stores' product offering is based on a uniform planogram, which the
Company believes increased TA's Company-owned TravelCenter travel and
convenience store merchandise same store revenues by 18% following its roll-out
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from 1992 to 1994. The typical TA store averages approximately 1,800 square
feet, while the typical National store averages approximately 1,600 square feet.
The Capital Program includes funds to expand store size for a majority of
National sites joining the Network. In addition, the Company plans to redesign
these expanded National stores based on the TA planogram. Certain TravelCenters
also have one and sometimes two additional convenience stores located at the
Fuel islands.
The TA travel and convenience stores have been able to offer
competitive pricing while maintaining what management believes are higher
margins than most of the Company's competition through the purchasing power of
TA's dedicated distribution and warehouse center located in Nashville, Tennessee
(the "Distribution Center"). The Company believes that the centralized
purchasing power of the Distribution Center generates cost savings, relative to
most truckstop operations, in excess of 10% for its travel and convenience store
operations. The Capital Program allocates funds to expand Distribution Center
operations in order to service the National sites joining the Network. See
"--Distribution."
MOTELS. Thirteen of TA's TravelCenters currently have Company-owned
motels, with an average capacity of 35 rooms. Eleven of these motels are
operated under franchise grants from nationally branded motel chains, including
DayStop, HoJo Inn and Travelodge. The remaining two motels are TA branded
motels. In 1996, TA's motels had an average annual occupancy rate of
approximately 56%. TA currently remits royalty and advertising fees to its motel
franchisors at rates ranging from 3% to 8% of gross revenues.
None of the National Network sites that are expected to join the
Network have motels on the property, but certain National Operators operate
motels on adjacent parcels. Management believes that an opportunity exists to
lease or sell unused property at certain Company locations to motel developers
to enhance the offerings at such sites.
ADDITIONAL SERVICES. Each TA and National TravelCenter provides
professional drivers with access to specialized business services, including an
information center where drivers can send and receive faxes, overnight mail and
other communications, and a banking desk where drivers can cash checks and
receive fund transfers from fleet operators. Most TA and National sites have
installed telephone rooms with 20 to 25 pay telephones with AT&T long distance
service. To meet the personal needs of truck drivers, the typical TravelCenter
has designated "truck driver only" areas, including a television room with a VCR
and comfortable seating for drivers, a barber shop, a laundry area with washers
and dryers, 6 to 12 private showers and dressing rooms. These amenities will be
improved and upgraded at National locations joining the Network, and where
needed at TA sites, as part of the Capital Program. Company-owned TravelCenters
located in Louisiana and Nevada also feature gaming operations. Although the
primary customers for gaming activities are local area residents, these
operations also cater to truck drivers and motorists.
HISTORY
The Company was formed in 1992 by the Investor Group led by Clipper, as
well as certain then prospective National Operators and Franchisee-Owners. The
Company acquired National in April 1993 and TA in December 1993. The Company is
a holding company whose sole assets consist of the stock of its subsidiaries.
TA, together with its predecessors, has been providing quality products
and services to the trucking industry and to nonprofessional travelers for over
30 years. The Standard Oil Company of Ohio ("Sohio") acquired TA from Ryder
System, Inc. ("Ryder") in 1984. Ryder founded the TA Network in 1973. The
Company acquired the assets of TA from BP (Sohio's successor in interest) for a
purchase price (including working capital) of approximately $130 million which
included 38 owned and six franchised locations. Since 1993, TA has added two
Company-operated sites and three franchised sites, terminated one franchised
site and entered into the TABB joint venture with Burns Brothers described below
(see
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"--Joint Venture"). As part of the TA Acquisition, BP agreed to indemnify the
Company against certain environmental liabilities with respect to which claims
are made prior to December 11, 2004 or December 11, 1996 (the relevant date
depending upon the nature of the underlying claim) (see
"--Regulation--Environmental Regulation"), entered into a noncompete agreement
for a seven-year period commencing on December 10, 1993 and granted the Company
the right, title and interest in and to certain copyrights, trademarks, service
marks and other intellectual property, including, "Truckstops of America," "TA"
and "Country Pride." See "--Agreements with Unocal and BP."
National has been providing quality products and services for over 35
years and has been the largest chain of full service travel centers or
truckstops, based on number of locations in the United States. Pure Oil Company
("Pure") founded the National Network and Unocal acquired National in connection
with Unocal's merger with Pure in 1965. In April 1993, the Company acquired the
National Network from Unocal in a series of asset purchase transactions for an
aggregate purchase price (including working capital) of approximately $210
million. The assets then acquired included a total of 139 facilities, of which
95 were Leased Sites, 42 were Franchisee-Owner Sites and two were Company-owned
and operated sites. Included in such purchase was the acquisition of six Leased
Sites located in California (the "California Properties") pursuant to separate
agreements. Prior to the National Acquisition, certain of the Operators of the
California Properties brought suit to challenge the sale of their respective
truckstops to the Company. See "--Litigation." As part of the National
Acquisition, Unocal agreed to indemnify the Company against certain
environmental liabilities occurring prior to 1993 with respect to which claims
are made prior to April 14, 2004 (see "--Regulation--Environmental Regulation"),
entered into a non-compete agreement for a ten-year period terminating on April
13, 2003, granted the Company a license to use certain Unocal trademarks, and
granted the Company a royalty-free license to use the ACCESS 76 on-line
information retrieval and credit card system. See "--Agreements with Unocal and
BP."
SALES AND MARKETING
The Existing Networks derive a significant percentage of their revenues
as a result of the sale of diesel fuel and Nonfuel products and services to
long-haul trucking fleets, and the Company is committed to providing the
products and services that fleets and their drivers demand. In 1996,
approximately 75% and 60% of the TA and National Networks' diesel fuel volumes,
respectively, were sold to fleets. TA and National together currently have
supply relationships with each of the 25 largest long-haul trucking fleets and
only one fleet represents one of the ten largest customers of both TA and
National. In 1996, the Company sold more diesel fuel to the three largest and
five of the six largest long-haul trucking fleets than any other chain of travel
centers or truckstops.
The agreements with fleet customers are not exclusive arrangements and
unilaterally permit the customer to terminate the agreements. The Company does
not believe that it is dependent on any individual fleet or group of fleets. In
1996, TA's two largest fleets represented approximately 8% and approximately 6%,
respectively, of TA's total diesel fuel volume and National's largest fleet
represented approximately 7% of National's total diesel fuel volume. The Company
manages its fleet relationships through a force of approximately 15 regionally
located salespersons.
Due to an environment of relatively volatile fuel prices over the past
approximately two years, trucking fleets have been increasingly interested in
participating in fuel price hedging programs. TA, in conjunction with Simons
Petroleum, Inc. ("Simons"), offers an industry leading diesel fuel hedging
program (the "Pathway Program") to fleets for hedging fuel prices at the pump.
Simons contracts with fleets to permit them to hedge prices and TA facilitates
the distribution of that diesel fuel through its TravelCenters. TA receives a
fixed margin per gallon on the sale of diesel fuel to fleets participating in
the Pathway Program, but does not assume any hedging risk associated with the
underlying transactions. Diesel fuel sold in such transactions has increased 77%
from 24.4 million gallons in 1995 to 43.3 million gallons in 1996 and
represented approximately 13% of TA's total 1996 diesel fuel volume. The Company
intends
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to extend this program to certain National locations that join the Network in
connection with the Combination Plan.
The Company believes that trucking fleets value price, geographic
coverage, convenience and service in establishing travel center or truckstop
network relationships. The Company offers discounts on fleet diesel fuel
purchases in exchange for minimum monthly volume commitments. Fleet accounts are
also attracted to the Company's TravelCenters by the number of Company sites and
their prime locations on or near key interchanges and other high traffic areas
on the interstate highways. By providing nationwide coverage along long-haul
routes, the Company enables fleets to minimize the number of different
relationships they have with travel center and truckstop operators, allowing
them to consolidate billing and truck maintenance and repair services. The
Company also markets itself to fleets by offering advanced information systems,
which enhance the ability of fleets to monitor and control their operations and
drivers. The Company's TravelCenters are connected to data systems that permit
fleets to track and control drivers' fuel purchases and truck maintenance and
repair decisions, monitor truck locations to determine whether drivers are
adhering to preassigned routes, track vehicle mileage and repair histories for
preventative maintenance and retrieve data for fuel tax reporting purposes. In
addition, the Company provides fleets with communication services that allow
fleet managers to maintain contact with their drivers and banking services that
allow fleets to provide cash advances to them. The Company also offers fleets
driver comforts and amenities, which help to increase driver morale and reduce
the high cost to fleets of driver turnover caused by difficult working
conditions. See "--The Industry." These driver amenities include "trucker-only"
dining areas, lounges, showers, laundries and barbershops. In effect, by having
an account with the Network, a fleet can outsource its ancillary needs which,
the Company believes, is more cost effective for the fleet than developing its
own network of truck and driver service terminals.
The Company also markets itself to independent truck owners and
operators. During 1996, independents accounted for approximately 25% and 40% of
the diesel fuel sold by the TA Network and the National Network, respectively.
Independents are attracted to the Company by (i) the location of its
TravelCenters, (ii) the availability of both full service and fast food
restaurants, (iii) the excellent driver amenities, (iv) the travel and
convenience store, which sells products specially tailored for a truck driver's
"on-the-road" lifestyle, (v) the on-site motel at certain facilities, which is
more attractive to truck drivers than other lodging options because it includes
secure truck parking facilities and (vi) the Company's, and in particular TA's,
highly regarded truck maintenance and repair services. The Company markets its
TravelCenters to independents through its "Loyal Fueler" program (similar to
airlines' frequent flyer programs), which allocates points redeemable on nearly
all Nonfuel purchases at TravelCenter stores, truck maintenance and repair shops
and restaurants based on diesel fuel gallons purchased. The Company also
sponsors trucking industry events.
The Company also targets non-professional travelers. These travelers
include motorists, bus passengers, owners of recreational vehicles and local
area residents. The Company's market research indicates that these travelers are
primarily concerned with quality, convenience, consistency as well as safety and
cleanliness, rather than price. Nonprofessional travelers are attracted to the
Company by (i) the proximity of its TravelCenters to interstate highways, (ii)
the nationally branded gasoline and fast food offerings, (iii) clean restroom
facilities, (iv) phone services, (v) the TravelCenter store and (vi) in certain
locations, motels. The Company expects the Combination Plan and Capital Program
to strengthen the Company's marketing efforts with non-trucking traffic by
adding more high recognition fast food outlets and gasoline brands and by
reimaging the owned National sites (and where needed, owned TA sites) to make
them cleaner, better lit and generally more appealing.
The Company has established an advertising, marketing and promotion
fund for each of its Existing Networks. Franchised sites are required to
contribute to the Company's advertising and marketing budget. The Company
invests in advertising and promotional programs, including magazine
advertisements,
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billboards and state logo signs, trade magazines, point of sale advertising,
on-site promotions and limited local advertisements. In addition to direct
advertising, the National Network publishes "Road King Magazine," a bi-monthly
subscription publication for professional truck drivers and also distributes
"Fleet Magazine Quarterly" to its fleet customers by mail.
The Company has implemented a variety of customer service support
programs and has a quality assurance program in place for nearly all of its
TravelCenters. For example, TA employs a "Mystery Shopper" program, an
independent quality assurance program that provides an evaluation of the overall
performance of each TA TravelCenter and of its major Nonfuel profit centers,
performed by independent shoppers approximately six to eight times a year. In
connection with the Combination Plan, the Company intends to implement the
Mystery Shopper program at those National TravelCenters that join the Network.
PAYMENT PROCEDURES
The Existing Networks offer customers a variety of ways to monitor,
control and facilitate their purchase transactions. The TA Network provides
electronic credit and billing information systems to its customers through the
Star Billing System, a proprietary, advanced electronic credit and billing
system that the Company acquired from BP in connection with the TA Acquisition.
The National Network provides more comprehensive services to its customers
through ACCESS 76, a proprietary, advanced, on-line credit card and information
retrieval system, which it licensed from Unocal as part of the National
Acquisition. The Company will integrate its credit and billing information into
a single, enhanced system as part of the Combination Plan. These and other
improvements to and upgrades of the Company's management information systems are
provided for under the Capital Program.
Over the last decade, several third-party billing companies, such as
Comdata, have developed systems which provide features comparable to those of
the Star Billing System and ACCESS 76. These billing companies typically have
relationships with fleet accounts. The companies issue cards to fleet drivers,
electronically approve purchases, arrange customized programs of discounted
diesel fuel at specified truckstops across the country and provide the fleet
accounts with billing information and expenditure analysis reports. The Existing
Networks have all necessary electronic interface capabilities to provide billing
data to such third-party billing companies as their fleet customers require.
CENTRALIZED PURCHASING AND DISTRIBUTION
The Distribution Center is the only dedicated purchasing, warehousing
and distribution center in the travel center and truckstop industry. The
Distribution Center is located in Nashville, Tennessee and has approximately
85,000 square feet of storage space. Approximately every two weeks, the
Distribution Center delivers products to each of TA's 48 sites using TA's fleet
of trucks and trailers. In 1996, the Distribution Center shipped approximately
$30 million of products (at cost). The Distribution Center's cost savings allow
the TA TravelCenters to offer products at reduced prices while maintaining
higher profit margins than many industry competitors. The Company estimates that
it purchases products for its restaurants, travel and convenience stores and
truck maintenance and repair shops through the Distribution Center at a weighted
average discount of approximately 15% to the prices paid by most of the
Company's competitors. The Capital Program includes the funds necessary to
expand the Distribution Center's operations to enable the Distribution Center to
supply all of the National TravelCenters that join the Network.
The Distribution Center provides the Company with cost savings by using
its considerable consolidated purchasing power to negotiate volume discounts
with third-party suppliers. The Distribution Center is able to obtain further
price reductions from suppliers in the form of reduced shipping charges, as
suppliers need only deliver their products to the Distribution Center warehouse
(as opposed to each TA site individually). The Distribution Center's
sophisticated inventory management system provides
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administrative cost savings to the Company. This system tracks inventory at each
TA site and attempts to individually tailor the Distribution Center's product
distributions to match each particular site's needs. The system handles returns
of defective or obsolete items and provides Company management with information
regarding product sales volumes, allowing the Company to react quickly to
changing market conditions. In addition, use of the system has reduced the time
that site managers spend on inventory matters and has allowed them to focus on
product merchandising.
SUPPLY
The Company purchases Fuel from various suppliers at rates that
fluctuate with market prices and reset daily, and resells fuel to National
Operators and Franchisee-Owners and to the public at prices that the Company
establishes daily. By contracting for only a portion of its monthly diesel fuel
requirements and by establishing supply relationships with an average of four or
five alternate suppliers per location, TA has been able effectively to create
competition for the Company's business among the Company's various diesel fuel
suppliers on a daily basis. This flexibility has improved TA's purchasing
position and helped it partially to offset the decline in retail diesel fuel
margins. In connection with the Combination Plan, the Company intends to extend
this strategy to encompass National sites joining the Network. Purchases made by
the Company are delivered directly from suppliers' terminals to the
TravelCenters. The Company does not keep substantial quantities of Fuel in
inventory and is therefore susceptible to price increases and interruptions in
supply. The Company currently engages in only minimal hedging in connection with
its diesel fuel purchases. The Company's hedging program is not anticipated to
change significantly going forward. See "Risk Factors--Dependence on Motor Fuel
Supply and Sales."
The Company believes TA has used its purchasing power, particularly
through the Distribution Center, to negotiate favorable Nonfuel supply
arrangements. Management expects the combination of the Existing Networks to
further enhance economies of scale in the Company's Nonfuel procurement.
JOINT VENTURE
In 1995, the Company through TA entered into a joint venture with Burns
Bros., Inc. ("Burns Brothers") to market jointly and bill fleets for products
and services under the TABB(TM) name ("TABB"). Burns Brothers operates a chain
of 19 travel centers and truckstops in nine Western states. The Company began
this strategic alliance in 1996 to improve TA's coverage so that TA could meet
greater fleet needs in the Western and Northwestern United States. TA has
further initiated a program to operate "TA" branded truck maintenance and repair
shops at Burns Brothers travel centers. In connection with the TABB joint
venture, Burns Brothers agreed to construct and TA agreed to equip and operate
"TA" branded shops on Burns Brothers sites. Two such stand-alone shops opened in
1996 and, in connection with the Capital Program, the Company intends to open an
additional ten such shops over the next ten years, and three to five such shops
by 2001. Although the Company derives direct revenues only from the two Burns
Brothers sites that have TA truck maintenance and repair shops, the Company
believes that the TABB alliance provides the Company with additional valuable
marketing exposure. The Company believes that the TABB TravelCenters will
continue to provide expanded coverage for the Network following implementation
of the Combination Plan and the Company intends to continue this relationship.
COMPETITION
The travel center and truckstop industry is highly competitive and
fragmented. Fuel and Nonfuel products and services can be obtained by long-haul
truck drivers from a wide variety of sources other than the Company, including
regional full service travel center and pumper-only truckstop chains,
independently owned and operated truckstops, some large service stations and
fleet-operated fueling terminals.
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The Company believes that it experiences substantial competition from
pumper-only truckstop chains and that such competition is based principally on
diesel fuel prices. In the pumper-only truckstop segment, the largest networks
(based on number of facilities and gallons of diesel fuel sold) are Emro
Marketing Company, a subsidiary of Marathon Oil Company selling primarily under
the brand name Speedway, and Pilot Corporation. Additional substantial
competition is experienced from major full service networks and independent
chains and is based principally on diesel fuel prices and customer service. In
the full service travel center segment, the largest networks (other than the
Company) are operated by Flying J Inc. ("Flying J") and Petro Stopping Centers,
L.P.; however, only some of Flying J's sites offer full service. The Company's
vehicle products and truck maintenance and repair service operations compete
with regional full service travel center and truckstop chains, full service
independently owned and operated truckstops, independent garages and auto parts
service centers. The Company's TravelCenters compete with a variety of
establishments located within walking distance of its sites, including full
service and fast food restaurants and electronics, drug, health and beauty aid
and travel and convenience stores. The Company also competes with Comdata and
other third-party integrated billing networks in marketing credit programs to
fleets. See "--Payment Procedures."
A significant portion of all intercity diesel fuel consumption by
fleets and companies with their own trucking capability occurs through
self-fueling at both dedicated terminals and at fuel depots strategically
located across the country. Such terminals often provide facilities for truck
maintenance and repair. The Company's pricing decisions for diesel fuel and
repair services cannot be made without considering the existence of these
operations and their capacity for expansion. However, the Company believes that
a trucking industry trend has been to reduce the use of such terminals and to
outsource fuel and repair services in order to maximize the benefits of
competitive fuel pricing, superior driver amenities and reduced environmental
compliance expenditures.
Although the Company faces substantial competition in both its Fuel and
Nonfuel offerings, the Company nonetheless believes it is well positioned to
compete effectively in both areas because of the Company's size, locations, full
service offerings and other competitive advantages. See "--Competitive
Advantages." These factors enable the Company to compete effectively for large
fleet accounts because it is the chain best able to provide service to fleets
and to professional truck drivers on a nationwide basis.
RELATIONSHIPS WITH THE OPERATORS AND FRANCHISEE-OWNERS
Pursuant to the Combination Plan, the Company is offering the new TA
franchise agreement (the "Network Franchise Agreement") and the new TA lease
agreement (the "Network Lease Agreement" or "Network Lease" and, together with
the Network Franchise Agreement, the "Network Agreements") to certain of
National's existing Operators and is offering the Network Franchise Agreement to
certain National Franchisee-Owners, and in connection therewith, upon such
franchisee's acceptance of such offer, will terminate the existing National
lease (the "National Lease Agreement") and National franchise agreement (the
"National Franchise Agreement," and, together with the National Lease Agreement,
the "National Agreements") at those locations. The Company expects the
replacement of all the National Agreements with the Network Agreements to occur
within three to four years. Existing TA Franchisee-Owners will be allowed to
continue their franchises under the Network Franchise Agreement upon expiration
of their existing TA franchise agreements (the "Existing TA Franchise
Agreements"), which have an average remaining term of approximately four years.
The Network Agreements, the Existing TA Franchise Agreements and the National
Agreements are summarized below.
TA licenses its trademarks to TAFSI. TA enters into its franchise
agreements with Franchisee-Owners of TravelCenters in the TA Network through
TAFSI and TAFSI collects franchise fees and royalties under such agreements. As
part of the Combination Plan and the Capital Program, TAFSI will enter into the
Network Franchise Agreement with all Operators and Franchisee-Owners of
TravelCenters in the
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integrated Network. TAFSI's assets consist primarily of the rights under the
Existing TA Franchise Agreements and its trademark licenses from TA. TAFSI has
no significant tangible assets.
NETWORK FRANCHISE AGREEMENT
INITIAL FRANCHISE FEE. If the franchisee has been continuously
operating under a franchise agreement, license agreement or prescribed marketing
plan or system of another travel center or truckstop company (including the
National Network) during a one-year period before signing the Network Franchise
Agreement and meets certain other conditions, the initial franchise fee would be
$5,000; otherwise, the franchise fee would be $100,000.
TERM OF AGREEMENT. The initial term of the Network Franchise Agreement
is five years. The Network Franchise Agreement provides for five three-year
renewals on the terms being offered to prospective franchisees at the time of
such franchisee's renewal. The Company offers no assurance that the terms of
such renewal will be the same as the initial Network Franchise Agreement, and
the Company reserves the right to decline renewal under certain circumstances or
if certain terms and conditions are not satisfied by the franchisee. Subject to
certain exceptions (including existing operations by the Company), so long as
the franchisee is not in default under the Network Franchise Agreement, the
Company agrees not to operate, or allow another person to operate, a travel
center or travel center business that uses the "TA" brand, within 75 miles in
either direction along the primary interstate at which the Franchised Premises
(as defined in the Network Franchise Agreement) is located.
RESTRICTIVE COVENANTS. Except for the continued operation of certain
businesses identified by the franchisee at the time of execution of the Network
Franchise Agreement, the franchisee is prohibited, during the term of the
agreement, from operating any travel center or truckstop-related business under
a franchise agreement, licensing agreement or marketing plan or system of its
own or another person or entity. If the franchisee owns the Franchised Premises,
the franchisee may continue to operate a travel center at the Franchised
Premises after termination of the Franchise Agreement, so long as such facility
is not a branded facility.
ROYALTY PAYMENTS. Franchisees are required to pay to the Company a
Continuing Services and Royalty Fee equal to 3.75% of all Nonfuel Revenue (each
term, as defined in the Network Franchise Agreement). In addition, as part of
the Continuing Services and Royalty Fee, the franchisees are required to pay to
the Company $0.03 per gallon on all sales of gasoline purchased from a supplier
other than the Company or its affiliates. If branded fast food is sold from the
Franchised Premises, the franchisee must pay the Company 3% of all net revenues
earned directly or indirectly in connection with such sales after deduction of
royalties paid to the fast food franchisor.
ADVERTISING, PROMOTION AND IMAGE ENHANCEMENT. The Network Franchise
Agreement establishes a system-wide advertising, marketing and promotional fund
to which the franchisees are required to contribute 0.6% of their Nonfuel
Revenue and net revenues from fast food sales. Franchisees are also required to
spend certain minimum amounts on advertising.
FUEL PURCHASES AND SALES. Pursuant to the Network Franchise Agreement,
the Company agrees to sell to franchisees, and franchisees agree to buy from the
Company, 100% of their requirements of diesel fuel. Franchisees agree to
purchase gasoline from only those suppliers that have been approved by the
Company in writing. Franchisees may not commingle any Fuel.
MAINTENANCE. Franchisees are required to operate their sites in
conformity with the Company's guidelines and offer any products and services the
Company deems integral to the Network. The Company will offer franchisees the
right to purchase products through the Company's Distribution Center, subject to
a warehouse fee equal to 5% of the product's current average weighted cost. If
franchisees do not
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purchase products through the Company's Distribution Center, the products to be
purchased by franchisees must comply with the Company's standards and
specifications and must be approved by the Company. The Company has the right to
require a franchisee to discontinue any product or service that the Company
concludes is harmful to the image or productivity of the Network.
TRANSFER OR ASSIGNMENT OF NETWORK FRANCHISE AGREEMENT. Franchisees may
not transfer or assign their rights or interests under the Network Franchise
Agreement without the prior written consent of the Company. Except for transfers
to immediate family members or principal operators which are approved by the
Company, any such transfer or assignment is subject to the payment of a $25,000
transfer and training fee.
RIGHT OF FIRST REFUSAL. If the Company does not renew the Network
Franchise Agreement prior to its expiration because (i) the Company makes a good
faith determination to withdraw from the marketing of Fuel in the area of the
Franchised Premises, (ii) the Company and the Operator fail to agree to changes
or additions to the Network Franchise Agreement, or (iii) the Company makes a
good faith determination not to renew the Network Franchise Agreement because it
would be uneconomical to the Company, the Company may not enter into another
Network Franchise Agreement relating to the same Franchised Premises with
another party within 180 days of such expiration date on terms materially
different from those offered to the prior Franchisee, unless the prior
Franchisee is offered the right, for a period of 30 days, to accept a renewal of
the Network Franchise Agreement on such different terms.
NETWORK LEASE AGREEMENT
TERM. Each Operator of a Leased Site that enters into a Network
Franchise Agreement also must enter into a Network Lease. The term of the
Network Lease is five years and contains five successive renewal options of
three years each. The Operator may terminate the Network Lease without cause
upon 180 days' prior written notice to the Company.
LEASED SITE. The Leased Site consists only of the improved (buildings
and improvements) land existing as of the date of the Network Lease. All of the
Company's property not included in the Leased Site may be developed, improved,
leased or sold by the Company in its sole discretion, provided that such surplus
property is not used for or in connection with any business engaged principally
in the sale of Fuel.
RENT. Under the Network Lease, an Operator must pay annual fixed rent
("Fixed Rent") equal to the sum of (i) base rent agreed upon by the Operator and
the Company, plus (ii) an amount equal to 14% of the cost of all capital
improvements, agreed upon by the Company and the Operator to enhance the value
of the Leased Premises, which cost in excess of $2,500 and are paid for by the
Company, plus (iii) an annual inflator equal to the percentage increase in the
consumer price index ("Inflator"). The base rent will not be increased if the
Operator elects to pay for the capital improvements. If the Company and the
Operator agree upon an amortization schedule for a capital improvement funded by
the Operator, the Company will, upon termination of the Network Lease, reimburse
the Operator for an amount equal to the unamortized portion of the cost of such
capital improvement. The Fixed Rent, using the Inflator, may not increase more
than 20% during the initial five-year term or 12% during any three-year renewal
term of the Network Lease. The Operator is responsible for the payment of all
charges and expenses in connection with the operation of the Leased Site,
including maintenance costs. The Company is required to pay the cost of any
alterations it requires, but only to the extent that the aggregate cost of such
alterations exceeds $2,500.
USE OF THE LEASED SITE. The Operator must operate the Leased Site as a
travel center in compliance with all laws, including all Environmental Laws. The
Operator must submit to quality inspections by the Company and appoint a
manager, acceptable to the Company, who is responsible for the day-to-day
operations at the Leased Site.
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TRANSFERABILITY OF INTEREST. The Network Lease may be assigned freely
by the Company. Transfer by the Operator is subject to the Company's consent.
RIGHT OF FIRST REFUSAL. If the Company does not renew the Network Lease
prior to its expiration because (i) the Company makes a good faith determination
to withdraw from the marketing of Fuel in the area of the Franchised Premises,
(ii) the Company and the Operator fail to agree to changes or additions to the
Network Lease, or (iii) the Company makes a good faith determination not to
renew the Network Lease because it would be uneconomical to the Company, the
Company will not sell, or enter into an agreement to sell, the Company's
interest in the Leased Premises to another party within 180 days of such
expiration date, unless the Operator is offered the right, for a period of 30
days, to meet the bona fide offer of such other party to purchase the Company's
interest in the Leased Premises.
EXISTING TA FRANCHISE AGREEMENT
INITIAL FRANCHISE FEE. If the franchisee converted an existing travel
center facility to a TA franchise, the initial franchise fee was $100,000. If
the franchisee built a new travel center facility to be operated as a TA
franchise, the initial franchise fee was $150,000.
TERM OF AGREEMENT. The initial term of the Existing TA Franchise
Agreement is ten years. The Existing TA Franchise Agreement provides for one
five-year renewal on the terms being offered to prospective franchisees at the
time of the franchisee's renewal. The Existing TA Agreement offers no assurance
that the terms of such renewal will be the same as those of the initial Existing
TA Franchise Agreement, and the Company intends to offer the existing TA
franchisees renewals in accordance with the terms of the Network Franchise
Agreement. The Company reserves the right to decline renewal under certain
circumstances or if certain terms and conditions are not satisfied by the
franchisee. In addition, the Company may charge a renewal fee, which fee may
equal but not exceed the amount of the current initial franchise fee being
charged by the Company for new franchises. So long as the franchisee is not in
default under the Existing TA Franchise Agreement, the Company agrees not to
operate, or allow another person to operate, the travel center or travel center
business that uses the "TA" brand, within the designated area in either
direction along one or more interstates at which the Franchised Premises (as
defined in the Franchise Agreement) is located, such area to be determined on a
case-by-case basis. The Company may terminate the Existing TA Franchise
Agreement upon the occurrence of certain defaults, upon notice and without
affording the franchisee an opportunity to cure such defaults. Upon the
occurrence of certain other defaults, the Company may terminate the Existing TA
Franchise Agreement if, after receipt of such notice of default, the franchisee
has not cured such default within the applicable grace period. The franchisee
may terminate the Existing TA Franchise Agreement upon thirty days' notice if
the Company is in material default under the Existing TA Franchise Agreement and
fails to cure or attempt to cure such default within a reasonable period after
notification.
RESTRICTIVE COVENANTS. During the term of its Existing TA Franchise
Agreement and for two years thereafter, if such agreement is terminated prior to
its expiration date, the franchisee is prohibited from: (i) operating any other
truckstop or travel center within its protected territory; (ii) operating at the
franchise location under any national brand other than "TA"; (iii) operating a
branded facility within 150 miles of any other TA facility; and (iv) operating
any competitive business (or a business that trades upon the franchise) within
the area adjacent to the franchise location.
ROYALTY PAYMENTS. Franchisees are required to pay to the Company a
continuing services and royalty fee equal to 4% of all revenues earned directly
or indirectly by the franchisee from any business conducted at or from the
Franchised Premises, excluding fuel sales and sales of branded fast food. As
part of the continuing services and royalty fee, the franchisee must pay to the
Company $0.004 per gallon on all sales of fuel. If branded fast food is sold
from the Franchised Premises, the franchisee must pay the Company 2% of all
revenues earned directly or indirectly in connection with such sales.
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ADVERTISING, PROMOTION AND IMAGE ENHANCEMENT. The Existing TA Franchise
Agreement establishes a system-wide advertising, marketing and promotional fund
to which franchisees are required to contribute 0.25% of all revenues (including
revenues from fuel and fast food sales) and mandates certain minimum franchisee
expenditures on advertising.
FUEL PURCHASES AND SALES. Franchisees are not required to purchase
gasoline or diesel fuel from the Company; however, all fuel sales at the
Franchised Premises are subject to the Continuing Services and Royalty Fee (as
defined in the Existing TA Franchise Agreement).
MAINTENANCE. Franchisees are required to operate their travel centers
in conformity with the Company's guidelines, participate in and comply with all
programs prescribed by the Company as mandatory and offer any products and
services the Company deems integral to the Network. The Company grants
franchisees the right to purchase products from the Distribution Center. If a
franchise does not purchase products through the Distribution Center, the
products purchased by the franchisee must be approved by the Company in
accordance with its standards and specifications. The Company has the right to
require a franchisee to discontinue the sale of any product or service that the
Company concludes is harmful to the image or productivity of the TA Network.
TRANSFER OR ASSIGNMENT OF EXISTING TA FRANCHISE AGREEMENT. Franchisees
may not transfer or assign their rights or interests under the Existing TA
Franchise Agreement without the prior written consent of the Company. Any such
transfer or assignment is subject to the payment of a transfer and training fee
in an amount equal to 25% of the initial franchise fee originally charged to the
franchisee by the Company.
NATIONAL FRANCHISE AGREEMENT
TERM OF AGREEMENT. The term of the National Franchise Agreement is five
years plus (i) for Operators, the amount of time remaining under the existing
Unocal lease agreement, if applicable, but in no event longer than seven years
from the next anniversary date of such Unocal lease agreement and (ii) for
Franchisee-Owners, the amount of time remaining under their existing Unocal
motor fuel purchase agreement, but in no event longer than seven years from the
next anniversary date of that Unocal Fuel purchase agreement. The National
Franchise Agreement provides for five three-year renewals on the terms being
offered to prospective franchisees at the time of renewal. The Company offers no
assurance that the terms of any renewal will be the same as the initial
franchise agreement. The National Franchise Agreement provides no geographic
exclusivity and the franchise grant applies only to the specific location on
which the franchisee's travel center is located. The National Franchise
Agreement contains termination and nonrenewal provisions that are substantially
the same as those provided in the PMPA. Operators and Franchisees have similar
rights to terminate the agreements, and the Franchisees have the right to
terminate the National Lease Agreement upon 180 days, prior written notice to
the Company.
ROYALTY PAYMENTS. Franchisees are obligated to pay to the Company a 3%
Non-Fuel Royalty (as defined in the National Franchise Agreement) in excess of a
Base Year Amount (as defined in the National Franchise Agreement). Franchisees
are also required to pay a one-time supplemental royalty fee in an aggregate
amount of $80,000.
FUEL PURCHASES AND SALES. Pursuant to the National Franchise Agreement,
the Company agrees to sell to Franchisees, and Franchisees agree to buy, from
the Company, 100% of their requirements for Fuel. The Agreement sets forth the
terms and conditions under which the Company sells Fuel to the franchisees.
Franchisees may be allowed to purchase gasoline from other suppliers, but from
only those suppliers that have been approved by the Company in writing.
Franchisees may not commingle any Fuel.
CENTRALIZED BUYING PROGRAM. Pursuant to the National Franchise
Agreement, the Company offers Franchisees the opportunity to participate in its
buying program (the "Buying Program"), which is a
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centralized purchasing effort designed to maximize franchisees' buying power. At
the time of signing the National Franchise Agreement, a franchisee had the
option either to accept or reject the Buying Program. If the franchisee accepted
the plan, it became obligated to purchase those products included in the Buying
Program only from participating or approved suppliers. Franchisees who
participate in the Buying Program must maintain a representative inventory of
all products covered in the program.
SITE OPERATION AND MAINTENANCE. Franchisees are required to operate
their TravelCenters in conformity with the Company's guidelines, offer any
products and services the Company deems to be integral to the National Network
and pass two annual evaluations.
ADVERTISING, PROMOTION AND IMAGE ENHANCEMENT. The National Franchise
Agreement requires each Franchisee to participate in the ACCESS 76 system and
all National Network promotional programs. The Company does not mandate a
specified price with respect to such promotional programs but may suggest prices
to be charged in any promotional program. The National Franchise Agreement
establishes a system-wide advertising, marketing and promotional fund to which
Franchisees are required to contribute 1% of their non-fuel revenues.
NATIONAL LEASE AGREEMENT
Each Operator who has elected to enter into a National Franchise
Agreement also must enter into a National Lease Agreement. The term of the lease
is coterminous with the National Franchise Agreement and contains an identical
renewal option. No assurance is given that the terms of any renewal lease
agreement will be the same as the initial lease agreement.
Under the current National Lease Agreement, an original Operator
Franchisee pays annual fixed rent ("Fixed Rent"). Operators receive a rent
rebate, payable monthly in arrears, equal to the sum of (i) 9% of the Fixed Rent
that was paid by the Operator and (ii) unless the Operator participates in a
special fuel pricing program, the product of $0.03 multiplied by the sum of the
number of gallons of diesel fuel purchased by such Operator from the Company. A
consumer price index inflator is applied to the Fixed Rent each year on the
anniversary date of the Operator current National Lease Agreement.
AGREEMENTS WITH UNOCAL AND BP
TRADEMARK AND SOFTWARE LICENSE AGREEMENTS. In conjunction with its
purchase of the National Network, the Company entered into a trademark license
agreement (the "Trademark License Agreement") with Unocal pursuant to which
Unocal granted the Company a ten-year license, with two optional two-year
extensions, to use certain registered or unregistered Unocal marks, including,
"76," "Unocal" and "ACCESS 76" (collectively, the "Unocal Marks"), in connection
with marketing approved petroleum and related products and approved services
through the Network. The Company is obligated to pay Unocal an annual trademark
license fee of $600,000, adjusted annually for inflation. The Company may
terminate the Trademark License Agreement upon 180 days, prior written notice to
Unocal and expects to discontinue the use of the Unocal Marks as soon as
feasible.
The Company also entered into a software license agreement with Unocal
whereby Unocal provides to the Company a 99-year, royalty-free license to use
the ACCESS 76 software program in connection with the ownership and operation of
the Network. Under the terms of that license agreement, the Company is
responsible for the costs of maintaining and upgrading the ACCESS 76 software
system. In addition, the Company may sub-license certain portions of the ACCESS
76 software program to National Network members and to entities not associated
with the National Network.
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In conjunction with its purchase of the TA Network, the Company
acquired all of BP's right, title and interest in and to certain patents,
copyrights, trademarks and service marks, including, "Truckstops of America,"
"TA" and "Country Pride."
NON-COMPETITION AGREEMENTS. Pursuant to non-competition agreements,
which are subject to certain exceptions specified therein, Unocal and BP have
agreed not to compete with the Company in the interstate travel center business
in the continental United States. Unocal has agreed not to compete with the
Company for a ten-year period beginning April 14, 1993. BP has agreed not to
compete with the Company for a seven-year period commencing December 10, 1993.
ENVIRONMENTAL AGREEMENTS. For a description of the Environmental
Agreements between the Company and each of Unocal and BP, see
"--Regulation--Environmental Regulation."
REGULATION
FRANCHISE REGULATION. The relationship between the Company and the
National Network franchisees is governed by the Petroleum Marketing Practices
Act (the "PMPA"), 15 U.S.C. ss.ss. 2801 et seq. The relationship between the
Company and the TA franchisees is not governed by the PMPA because TA does not
license its franchisees to sell Fuel under a refiner's brand. The Network
Franchise Agreement will not be subject to the PMPA. Among other things, the
PMPA limits the circumstances under which franchisors such as the Company may
terminate or fail to renew a franchise agreement, and it imposes notification
and other requirements in those cases where termination or nonrenewal is
permissible. Circumstances under which a franchisor is permitted to terminate or
fail to renew include, among others, the following (in each case subject to
certain conditions): violation by the franchisee of any provision of the
franchise or lease agreement that is reasonable and of material significance to
the franchise relationship; the franchisee's bankruptcy or insolvency; fraud by
the franchisee; the franchisee's criminal misconduct or continuing disability;
willful adulteration, mislabeling or misbranding of Fuel or other trademark
violations by the franchisee; and loss of the franchisor's right to grant the
right to use the trademarks that are the subject of the franchise. The PMPA also
permits the franchisor to terminate or not to renew a franchise relationship if,
subject to certain conditions, the franchisor makes a good faith determination
to withdraw from the marketing of refiner's branded fuel in the relevant
geographic market area. The Company intends to terminate certain franchisees on
that basis if it is unable to reach a voluntary termination agreement with those
franchisees.
The PMPA also permits the franchisor not to renew the franchise under
certain circumstances, including (in each case subject to certain conditions):
the failure of the parties to agree upon good faith changes or additions to the
provisions of the franchise agreement; numerous customer complaints or failure
to operate the franchised premises in a safe and healthful manner; a good faith
determination by the franchisor to convert the premises to another use,
materially alter, add to, or replace the premises, sell the premises; or a good
faith determination by the franchisor that renewal of the franchise would be
uneconomical. The PMPA permits a franchisor and a franchisee to terminate their
franchise relationship by written agreement. In certain circumstances the PMPA
requires the franchisor upon termination or nonrenewal to make a bona fide offer
to sell the premises to the franchisee or to provide the franchisee with a right
of first refusal to purchase the premises. Finally, where the PMPA applies, it
preempts any inconsistent state laws that purport to govern termination or
nonrenewal of a franchise.
The Company is also subject to state franchise laws, some of which
require the Company to register with the state before it may offer a franchise,
require the Company to deliver specified disclosure documentation to potential
franchisees, and impose special regulations upon petroleum franchises. Some
state franchise laws also impose restrictions on the Company's ability to
terminate or not to renew its franchises, and impose other limitations on the
terms of the franchise relationship or the conduct of the franchisor. With
respect to National franchisees who do not consent to termination or nonrenewal
of their
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existing National franchises, the PMPA preempts state laws with respect to
termination or nonrenewal unless such laws are consistent with the PMPA.
Finally, a number of states include, within the scope of their petroleum
franchising statutes, prohibitions against price discrimination and other
allegedly anticompetitive conduct. These provisions supplement applicable
antitrust laws at the federal and state levels.
The Company is subject to regulation under the Federal Trade Commission
("FTC") rule entitled "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures," and the FTC requires that
franchisors make extensive disclosure to prospective franchisees but does not
require registration.
The Company cannot predict the effect of any future federal, state, or
local legislation or regulation on its franchising operations.
ENVIRONMENTAL REGULATION. The Company's operations and properties are
subject to extensive regulation pursuant to Environmental Laws that (i) govern
activities and operations that may have adverse environmental effects, such as
discharges to air, soil and water, as well as handling, storage and disposal
practices for Hazardous Substances or (ii) impose liability and damages for the
costs of cleaning up sites affected by, and for damages resulting from, past
spills and disposal or other releases of Hazardous Substances.
The Company owns and uses underground storage tanks ("USTs") and
aboveground storage tanks ("ASTs") at Company-operated and Leased Sites to store
petroleum products and waste. These tanks must comply with requirements of
Environmental Laws regarding tank construction, integrity testing, leak
detection and monitoring, overfill and spill control, release reporting,
financial assurance and corrective action in case of a release from a UST or AST
into the environment. At certain locations, the Company also is subject to
Environmental Laws relating to vapor recovery and discharges to water. The
Company believes that all of its travel centers are in material compliance with
applicable requirements of Environmental Laws. The Company is making necessary
upgrades to USTs to comply with federal regulations which will take effect in
1998. These upgrades are expected to be completed by 1998 at a total estimated
cost to the Company of approximately $15 to $20 million. The Company does not
believe that such costs will have a material adverse effect on the Company and
the Capital Program incorporates funds to complete such upgrades.
The Company has received notices of alleged violations of Environmental
Laws associated with wastewater discharges (relating to periods both before and
after the Company acquired the Networks) from Company-owned travel centers in a
number of jurisdictions. In 1996, the TA Network facility in Wadsworth, Illinois
was assessed a $100,000 penalty in connection with a government Consent Order
resolving alleged wastewater discharge violations. BP paid this penalty because
the violations at issue occurred prior to the TA Acquisition or arose from
conditions existing prior to such acquisition. The Company does not expect that
any financial penalties associated with these alleged violations, or remedial
costs incurred in connection therewith, will be material to the Company's
results of operation or financial condition. The Company expects to spend a
total of approximately $6 million in 1997 and 1998 for certain one-time projects
relating to wastewater discharge controls and other matters. The Company is
conducting investigatory and/or remedial actions with respect to releases and/or
spills of Hazardous Substances that have occurred subsequent to the National
Acquisition and the TA Acquisition, respectively, at fewer than 30 Network
properties. While the Company cannot precisely estimate the ultimate costs it
will incur in connection with the investigation and remediation of these
properties, based on its current knowledge, the Company does not expect that the
costs to be incurred at these properties, individually or in the aggregate, will
be material to the Company's results of operation or financial condition. While
the aforementioned matters are, to the best knowledge of the Company, the only
proceedings for which the Company is currently exposed to potential liability
(particularly given the Unocal and BP indemnities discussed below),
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there can be no assurance that additional contamination does not exist at these
or additional Network properties, or that material liability will not be imposed
in the future. If additional environmental problems arise or are discovered, or
if additional environmental requirements are imposed by government agencies,
increased environmental compliance or remediation expenditures may be required,
which could have a material adverse effect on the Company.
In connection with the National Acquisition, Phase I environmental
assessments of the then 97 Company-owned National Network properties (now 95)
were conducted. Pursuant to the Unocal Environmental Agreement, Phase II
environmental assessments of all such National properties are required to be
completed by the year 2000. As of December 31, 1996, 31 of the Phase II
assessments were in progress and 46 had been completed. The Company contributed
$500,000 toward the total cost of the Phase II environmental assessments, and
Unocal is responsible for the remainder of the cost. The Unocal Environmental
Agreement provides that Unocal is responsible for all costs incurred for
remediation of environmental contamination (the remediation must achieve
compliance with the Environmental Laws in effect on the date the remedial action
is completed) and for otherwise bringing the properties into compliance with
Environmental Laws (as in effect at the date of the National Acquisition) with
respect to environmental contamination or non-compliance identified in the Phase
I or Phase II environmental assessments, which environmental contamination or
non-compliance existed on or prior to the date of the National Acquisition.
Under the terms of the Unocal Environmental Agreement, Unocal also must
indemnify the Company against any other environmental liabilities that arise out
of conditions at, or ownership or operations of, the National Network prior to
the date of the National Acquisition. Pursuant to the Unocal Environmental
Agreement, Unocal is obligated to indemnify the Company for claims made before
April 14, 2004. Except as described above, Unocal does not have any
responsibility for any environmental liabilities arising out of the ownership or
operations of the National Network after the date of the National Acquisition.
There can be no assurance that, if additional environmental claims or
liabilities were to arise under the Unocal Environmental Agreement, Unocal would
not dispute the Company's claims for indemnification thereunder.
Prior to the TA Acquisition, 38 TA locations (two locations were
acquired after the TA Acquisition) were subject to Phase I and Phase II
environmental assessments, undertaken at BP's expense. The BP Environmental
Agreement provides that, with respect to environmental contamination or
non-compliance with Environmental Laws identified in the Phase I or Phase II
environmental assessments, BP is responsible for all costs incurred for
remediation of such environmental contamination (the remediation must achieve
compliance with the Environmental Laws in effect on the date the remedial action
is completed) and for otherwise bringing the properties into compliance with
Environmental Laws (as in effect at the date of the TA Acquisition). The BP
Environmental Agreement further provides that BP must indemnify the Company
against any other environmental liabilities that arise out of conditions at, or
ownership or operations of, the TA locations prior to the date of the BP
Acquisition. With respect to liabilities relating to the investigation and
remediation of environmental contamination, BP is obligated to indemnify the
Company for liabilities with respect to which claims are made before December
11, 2004. With respect to liabilities otherwise relating to non-compliance with
Environmental Laws (for example, equipment), BP is obligated to indemnify the
Company for liabilities with respect to which claims were made before December
11, 1996. Except as described above, BP does not have any responsibility for any
environmental liabilities arising out of the ownership or operations of the TA
locations after the date of the TA Acquisition. There can be no assurance that,
if additional environmental claims or liabilities were to arise under the BP
Environmental Agreement, BP would not dispute the Company's claims for
indemnification thereunder.
OTHER REGULATION. The Company, the Operators and the Franchisee-Owners
are required to comply with federal, state and local government regulations
applicable to service station and lubrication operations and consumer food
services businesses generally, including those relating to the preparation and
sale of food, minimum wage requirements, overtime, working, health, fire, safety
and sanitation conditions, mandated health insurance coverage and citizenship
requirements, as well as regulations relating to zoning,
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construction, business licensing and employment. The Company believes that it is
in material compliance with the provisions applicable to it and has no knowledge
of material violations of these provisions by its Operators and
Franchisee-Owners.
LITIGATION
The Company is party to several litigation matters, described below,
involving certain of its franchisees. The Company does not expect any of these
matters to have a material adverse effect on the Company. From time to time the
Company is a party to litigation in the ordinary course of its business
involving negligence and other similar claims which are covered by the Company's
third party insurance policies. While claims for damages in such litigation may
in certain instances be in excess of the Company's insurance coverage, the
Company does not expect its existing litigation to have a material adverse
effect on the Company.
FORTY-NINER TRUCK PLAZA LITIGATION. This action was commenced in
California Superior Court, Sacramento County, on January 28, 1993 by four
Operators of National TravelCenters in California. The complaint asserts claims
on behalf of each of the plaintiffs against the Company, Clipper and Unocal
Corporation and its subsidiaries based upon alleged violations by Union Oil
Company of California and Unocal Corporation (together the "Unocal Entities") of
the California Business and Professions Code and of an alleged contract by
failing to provide them with a bona fide offer or right of first refusal to
purchase their truckstops in connection with the sale of the plaintiffs'
truckstops by Unocal to the Company. Two of the plaintiffs settled their claims
prior to commencement of the trial. The claims of two plaintiffs, who are
franchisees of National in Sacramento and Santa Nella, California, were tried
and the jury rendered a verdict awarding $4.0 million in compensatory damages
jointly and severally against the Company, the Unocal Entities and Clipper, and
assessing punitive damages against them in the amount of $1.5 million, $7.0
million and $1.6 million, respectively. On August 1, 1995, the court granted the
defendants' motions for a new trial on all issues, although it denied
defendants' motions for judgment notwithstanding the verdict. These orders are
currently on appeal. The appeal has been fully briefed but not argued. Pursuant
to the asset purchase and related agreements between the Company and the Unocal
Entities, the Company believes that the Unocal Entities are required to
indemnify it for attorneys' fees and compensatory damages. The Unocal Entities
may, however, contest the Company's claim for indemnification. The
indemnification agreement between the Unocal Entities and the Company does not
by its terms cover punitive damages. The Company entered into an agreement
indemnifying Clipper in connection with the Company's purchase of the properties
in the National Network, and Clipper has asserted and the Company has concurred
that this agreement obligates the Company to pay any compensatory and punitive
damages assessed against Clipper.
CHARLESTON WEST VIRGINIA LITIGATION. This action was commenced on April
17, 1996 in the Circuit Court of Berkeley County, West Virginia. The amended
complaint, brought on behalf of eighteen National Operators, alleges that the
Company's fuel pricing policies and practices violate the PMPA and the Uniform
Commercial Code and constitute a breach of the contractual duty of good faith
and fair dealing and unjust enrichment. The amended complaint also asserts
claims of fraud and fraud in the inducement, apparently based on alleged
representations made by the Company concerning fuel pricing. The amended
complaint asserts claims against the Company, Clipper and certain present and
former directors and officers of the Company, and seeks actual and punitive
damages in an unspecified sum. The Company has removed the case to federal
court, and the court has granted the Company's motion to transfer the case to
federal court in Nashville, Tennessee.
The Company has entered into settlement agreements with four of the
plaintiffs pursuant to which the claims of those plaintiffs have been or will be
dismissed with prejudice. One additional plaintiff has withdrawn its claims in
the action without prejudice.
76
<PAGE>
On March 31, April 1 and April 7, 1997, three of the plaintiffs filed
motions for a preliminary injunction. The motions sought an order requiring,
among other things, that the Company sell to the movants all of the movants'
requirements of diesel fuel at a price per gallon of not more than two cents
above the Oil Price Information Service average price under the terms of the
Company's existing lease and franchise agreements. In addition, on April 22,
1997, two of the movants filed a motion seeking a temporary restraining order
for substantially the same relief. On May 21, 1997, the court denied the
plaintiffs' motions.
FOOD SYSTEMS LITIGATION. The Company filed this action on May 7, 1996,
in the U.S. District Court for the Middle District of Tennessee seeking, among
other things, a declaratory judgment that it was entitled to terminate the
franchise of the defendant, one of the Company's TravelCenter Operators, for
failure to pay rent and on other grounds. On June 11, 1996, the defendant filed
counterclaims for violation of the PMPA, for breach of contract and for breach
of implied contract, seeking actual and punitive damages in an unspecified
amount. On November 12, 1996, the defendant filed for relief under Chapter 7 of
the Bankruptcy Code, thereby staying all proceedings in this action. The Company
has recovered possession of the Salt Lake City site through bankruptcy court
proceedings.
EMPLOYEES
As of June 15, 1997, the Company employed approximately 235 employees
who performed managerial, operational or support services and approximately
7,450 employees at Company-operated locations. Approximately 50 employees staff
the Distribution Center. Except for certain employees of two National
Company-operated sites (both of which the Company intends to close or sell
pursuant to the Combination Plan), all of the Company's employees are non-union.
The Company believes its relationship with its employees is satisfactory.
PROPERTIES
The Company's principal executive offices are leased and are located at
24601 Center Ridge Road, Suite 300, Westlake, Ohio 44145-5634. The Company also
leases offices at 3100 West End Avenue, Suite 300, Nashville, Tennessee 37203.
The Distribution Center is a leased facility located at 1450 Gould Boulevard,
LaVergne, Tennessee 37086-3535.
Of the Company's 134 owned sites, the improvements at three are leased,
two are subject to ground leases of the entire site and seven are subject to
ground leases of portions of such sites.
The following charts set forth a list of each of the TA Network's
locations (including locations of Burns Brothers, which is affiliated with TA
through the TABB joint venture) and the National Network's locations, and also
list certain of the products and services available at each TravelCenter as of
December 31, 1996.
77
<PAGE>
<TABLE>
<CAPTION>
TravelCenter Directory
TA Network & Burns Brothers Network
Full AT&T Private 24 Truck Permit Cert-
Service Fast Parking Phone Drivers' Show- Hour Maint- Serv- ified
ST City Name/Interstate Location Dining Food Spaces Service Lounge ers ATM Garage enance ices Scales
- -- ---------------- ------------------------- ------ ---- ------ ------- ------ ------ --- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL Tuscaloosa Exit 77, I-20/I-59 X SUB 152 X X 12 X X X X X
& Buttermilk Rd.
AZ Eloy Toltec Rd. Exit I-8/I-10 X TB 222 X X 12 X X X X X
AR West Memphis Earle Exit 260, I-40 & X 140 X X 10 X X X X X
S.R. 149
CA Ontario Exit Milliken Ave., I-10 X SBA, 630 X X 28 X X X X X
& Milliken Ave. BK
CA Wheeler Ridge I-5 at Lake Isabella X TB, 165 X X 13 X X X X X
(Northbound) SUB,
I-5 at Laval Rd. BK
(Southbound)
CA Barstow (BB) West Main Exit, I-15 X 35 X 7 X
CA Coachella (BB) Dillon Road Exit, I-10 X TCBY 300 X X 16 X X X X X
CA Corning (BB) South Avenue Exit, I-5 X SUB 300 X X 20 X X X X X
CA Lost Hills (BB) Exit Hwy 45, I-5 X 65 X 6 X X
CT Willington Exit 71, I-84 X BK, 256 X X 10 X X X X X
DQ
GA Atlanta Exit 39/Hwy. 160, I-285E X 239 X X 12 X X X X X
GA Brunswick Exit 6, I-95 at U.S. 17 X DQ 120 X X 12 X X X X X
IL Chicago North Illinois/Wisconsin Line, X PH 250 X X 12 X X X X X
I-94 & Russell
IL Effingham Exit 160, I-57/I-70 & X 170 X X 10 X X X X X
S.R. 32 & 33
IN Gary Burr St. Exit, I-80/I-94 X PH, 339 X X 22 X X X X X
TB,
KFC
IN Seymour Exit 50, I-65 & S.R. 50 X 145 X X 11 X X X X X
ID Boise (BB) Exit 54, I-84 X 130 X X 8 X X X X
IA Minden (BB) Exit 29, I-80 X 30 X 2 X X X
IA Stockton (BB) Exit 280, I-80 X 75 X 3 X X
IA Walcott I-80 at Exit 284 X DQ, 620 X X 24 X X X X X
BL,
W
KS Beto Junction Exit 155, U.S. 75 & I-35 X 180 X X 6 X X X X X
KY Cincinnati South Exit 175, I-75/I-71 X 98 X X 8 X X X X X
& S.R. 338
MD Baltimore South Jessup Exit 41A, Rt. 175 X SUB 650 X X 25 X X X X X
& I-95
MI Monroe Exit 15, I-75 & S.R. 50 X 82 X X X X
MO Concordia Exit 58, I-70 & Rt. 23 X PH, 125 X X 12 X X X X X
SUB
MO Mt. Vernon Exit 46, I-44 & S.R. 39 X 150 X X 12 X X X X X
NJ Carney's Point Exit 2C, I-295 X 80 X X 6 X X X X X
NJ Columbia Exit 4, I-80 at Rt. 94 X 200 X X 7 X X X X X
NE Overton (BB) Exit 248, I-80 X 45 X 3 X X
58 Miles West of Grand
Island
NE Waco (BB) Exit 360, I-80 X 70 X 3 X X
NV Mill City (BB) Exit 151, I-80 X 120 X X 10 X X
(heading West)
Exit 149, I-80
(heading East)
NV Rye Patch (BB) Exit 129, I-80 40 3 X X
25 Miles East of
Lovelock
</TABLE>
(BB) - Denotes Burns Brothers site
<TABLE>
<CAPTION>
Express Dining Legend
<S> <C> <C> <C> <C> <C> <C>
DQ Dairy Queen SBA Sbarro LC Little Ceasar's
TB Taco Bell Express BK Burger King HSP Hot Stuff Pizza
SUB Subway LJS Long John Silver's TCBY TCBY
BL Blimpie W Wendy's PH Pizza Hut
KFC Kentucky Fried Chicken HD Hardee's PY Popeyes
OM Oscar Meyer
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
TravelCenter Directory
TA Network & Burns Brothers Network
Full AT&T Private 24 Truck Permit Cert-
Service Fast Parking Phone Drivers' Show- Hour Maint- Serv- ified
ST City Name/Interstate Location Dining Food Spaces Service Lounge ers ATM Garage enance ices Scales
- -- ---------------- ------------------------- ------ ---- ------ ------- ------ ------ --- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NM Gallup Exit 16, I-40 & Hwy. 66 X 120 X X 15 X X X X X
NM Las Cruces I-10 & Amador Exit, X 150 X X 15 X X X X X
Hwy. 292
NM Santa Rosa Exit 277, I-40 & X SUB 160 X X 10 X X X X X
U.S. 66, 54 & 84
NC Greensboro Exit 138, I-85/I-40 & X BK 198 X X 13 X X X X X
Hwy. 61
NC Kenly Exit 106, I-95 X HSP 300 X X 12 X X X X X
OH Ashland Exit 186, I-71 & U.S. 250 X 55 X X 4 X X X X X
OH Dayton Exit 10, I-70 & U.S. 127 X SUB 225 X X 8 X X X X X
OH Jeffersonville Exit 65, I-71 & U.S. 35 X 101 X X 4 X X X X X
OH Lodi Exit 209, I-71 & I-76 at X 250 X X 12 X X X X X
Rt. 224
OH Stony Ridge Ohio Turnpike Exit 5, X SBA 300 X X 15 X X X X X
I-80 & I-280
OK Oklahoma City Council Rd. Exit, I-40 X BK 200 X X 12 X X X X X
OR Eugene Exit 199, I-5 X 120 X X 6 X X X X X
OR Troutdale (BB) Exit 17, I-84 X SUB 240 X X 10 X X X X
OR Wilsonville (BB) Exit 266, I-5 X 300 X X 7 X X X X X
PA Barkeyville Exit 3, I-80 & S.R. 8 X SUB 86 X X 9 X X X X X
PA Breezewood PA Turnpike Exit 12 & X DQ, 220 X X 16 X X X X X
U.S. 30, LC
I-76/I-70
PA Brookville Exit 13, I-80 & Rt. 36 X TB 220 X X 16 X X X X X
PA Harrisburg Manada Hill Exit 27, X 175 X X 17 X X X X X
I-81 & S.R. 39
PA Lamar Exit 25, I-80 & S.R. 64 X SUB 75 X X 10 X X X X X
SC Spartanburg Exit 63, I-85 & S.R. 290 X DQ 160 X X 12 X X X X X
SD Kadoka (BB) Exit 152, I-90 X 75 X 4 X X
SD Spencer (BB) Exit 353, I-90 SUB 20 1 X X
45 Miles West of Sioux
Falls
TN Knoxville Exit 374, I-40 & I-75 X TB 180 X X 14 X X X X X
TN Nashville Exit 85, I-65 X SUB 205 X X 11 X X X X X
TX Amarillo Exit 81, I-40 E & X SUB 156 X X 12 X X X X X
FM 1912
TX Baytown Exit 789, I-10 & X 200 X X 10 X X X X X
Thompson Rd.
TX Dallas Exit Big Town Blvd., X 265 X X 13 X X X X X
I-30 & U.S. 80
UT Parowan (BB) Exit 78, I-15 40 X X 3 X X
20 Miles North of Cedar
City
VA Ashland Exit 92, I-95 & Rt. 54 X 204 X X 16 X X X X X
VA Roanoke Exit 150, I-81 & X BK 100 X X 11 X X X X X
U.S. 220
WV Wheeling Exit 11, I-170 at X 200 X X 15 X X X X X
Dallas Pike
WI Janesville Exit 171-C, I-90 & W 52 X X 4 X X X
Hwy 14
WY Sinclair (BB) Exit 221, I-80 150 X 4 X X
WY Cheyenne (BB) Exit 377, I-80 X 140 X X 12 X X X X
17 Miles East of
Cheyenne
WY Ft. Bridger (BB) Exit 30, I-80 X 200 X X 9 X X X X
East of Evanston
</TABLE>
(BB) - Denotes Burns Brothers site
<TABLE>
<CAPTION>
Express Dining Legend
<S> <C> <C> <C> <C> <C> <C>
DQ Dairy Queen SBA Sbarro LC Little Ceasar's
TB Taco Bell Express BK Burger King HSP Hot Stuff Pizza
SUB Subway LJS Long John Silver's TCBY TCBY
BL Blimpie W Wendy's PH Pizza Hut
KFC Kentucky Fried Chicken HD Hardee's PY Popeyes
OM Oscar Meyer
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
TravelCenter Directory
National Network
Full AT&T Private 24 Truck Permit Cert-
Service Fast Parking Phone Drivers' Show- Hour Maint- Serv- ified
ST City Name/Interstate Location Dining Food Spaces Service Lounge ers ATM Garage enance ices Scales
- -- ---------------- ------------------------- ------ ---- ------ ------- ------ ------ --- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL Mobile Mobile 76 Auto/Truck X 102 X X 10 X X X X X
Plaza
I-10, Exit 4
AL Montgomery Montgomery 76 X 100 X X 14 X X X X X
Auto/Truck Plaza
I-65, Exit 168
AL Tuscaloosa Baggett's 76 Truck Plaza X 110 X X 11 X X X X X
I-59 & I-20, Exit 76
AR North Little Rock Little Rock Auto-Truck X 175 X X 9 X X X X X
Stop
I-40 & Galloway, MM 161
AR Van Buren Van Buren Travel Center X 120 X X 6 X X X X X
I-40 & Highway 59,
Exit 5
AR West Memphis Memphis Gateway Truck X TB, 165 X X 10 X X X X X
Center TCBY
I-40 & I-55, Exit 278
AZ Kingman Kingman 76 Auto/Truck X 125 X X 12 X X X X X
Plaza
I-40, Exit 48
CA Buttonwillow Bruce's 76 Travel Plaza X 220 X X 12 X X X X X
I-5, Highway 58
CA Ontario Ontario Auto/Truck Plaza X 450 X X 18 X X X X X
I-10 at Milliken Avenue
CA Redding Redding 76 Travel Center X 250 X X 9 X X X X X
I-5, Knighton Road
CA Sacramento Sacramento 49er X 220 X X 12 X X X X X
Auto/Truck Plaza
I-80 at West El Camino
CA Santa Nella Mid Cal Auto Truck Plaza X 216 X X 13 X X X X X
I-5 & Highway 33, Santa
Nella Exit
CO Wheat Ridge Denver West Travel X 155 X X 10 X X X X X
Center
I-70, Exit 266
CT New Haven New Haven 95 East Truck X 120 X X 7 X X X X X
Stop
I-95, CT Exit 56
CT Southington American Eagle 76 X 94 X X 12 X X X X X
Auto/Truck Plaza
I-84, Exit 28,
HIGHWAY 322
FL Jacksonville Jacksonville I-10 X 90 X X 6 X X X X X
Travel Center
Jct. I-10 & U.S. 301,
Exit 50, MM 345
FL Jacksonville Jacksonville South X 137 X X 6 X X X X X
Travel Center
I-95 & C.R. 210 West,
Exit 96, MM 329
FL Marianna Marianna 76 Auto/Truck X 138 X X 12 X X X X X
Stop
I-10 & State Route 71
FL Vero Beach Vero Beach Travel Center X W 180 X X 9 X X X X X
I-95, Exit 68, MM 147
FL Wildwood Wildwood Travel Center X PH, 170 X X 12 X X X X X
I-75 at Route 44, SUB
Exit 66, MM 330
GA Commerce North Georgia 85 X 151 X X 14 X X X X X
Auto/Truck Plaza
I-85 & U.S. 441,
Exit 53, MM 151
GA Jackson Atlanta South 75 Travel X SUB 200 X X 12 X X X X X
Plaza
I-75 & Georgia
Highway 36
GA Lake Park Lake Park Travel Center X TB 75 X X 6 X X X X X
I-75, Exit 1
GA Madison Madison 20 Travel Center X TB 75 X X 10 X X X X X
I-20, Exit 51
GA Ringgold Cochran's Auto Truckstop X 82 X X 12 X X X X X
I-75 & U.S. 41, Exit 139
</TABLE>
(BB) - Denotes Burns Brothers site
<TABLE>
<CAPTION>
Express Dining Legend
<S> <C> <C> <C> <C> <C> <C>
DQ Dairy Queen SBA Sbarro LC Little Ceasar's
TB Taco Bell Express BK Burger King HSP Hot Stuff Pizza
SUB Subway LJS Long John Silver's TCBY TCBY
BL Blimpie W Wendy's PH Pizza Hut
KFC Kentucky Fried Chicken HD Hardee's PY Popeyes
OM Oscar Meyer
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
TravelCenter Directory
National Network
Full AT&T Private 24 Truck Permit Cert-
Service Fast Parking Phone Drivers' Show- Hour Maint- Serv- ified
ST City Name/Interstate Location Dining Food Spaces Service Lounge ers ATM Garage enance ices Scales
- -- ---------------- ------------------------- ------ ---- ------ ------- ------ ------ --- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GA Savannah Savannah Travel Center X PH, 107 X X 9 X X X X X
I-95 & U.S. 17 South, LJS
Exit 14
IA Altoona Mid-Iowa Travel Center X 165 X X 10 X X X X X
I-80, Exit 143
IA Council Bluffs Council Bluffs X TCBY 100 X X 5 X X X X X
Auto/Truck Stop
I-80 & I-29, Exit 3
IL Bloomington Bloomington Auto/Truck X 150 X X 11 X X X X X
Plaza
I-55, I-74, I-39 at
Route 9, Exit 160A
IL Chicago New Lemont Auto/Truck X 175 X X 9 X X X X
Plaza
I-55, Exit 267
IL Chicago Calumet Auto/Truck Plaza X 210 X X 10 X X X X X
I-94, Exit 73B
IL Elgin Elgin West Truckstop X 125 X X 10 X X X X X
I-90 & U.S. Highway 20,
Maringo-Hampshire Exit
IL Monee Windy City South X PH 125 X X 6 X X X X X
Auto/Truck Plaza
I-57, Exit 335
IL Mt. Vernon Big Chief Auto/Truck X 85 X X 8 X X X X X
Plaza
I-57 & I-64, MM 95
IL Peru Lasalle-Peru X 115 X X 7 X X X X X
Auto/Truckstop
I-80, Exit 75
IL Troy St. Louis Easts Truck X HD 100 X X 6 X X X X X
Plaza
I-55 & I-70, Exit 18
IN Angola Angola 76 Travelers Mall X 75 X X 6 X X X X X
I-80/90, Exit 144; I-69,
Exit 157
IN Clayton Indianapolis West 70 X OM 100 X X 7 X X X X X
Truck Plaza
I-70 & State Road 39,
Exit 59, MM 59
IN New Lisbon New Lisbon Travel Plaza X 100 X X 5 X X X X
I-70, Exit 131
IN New Point Ross Point Travel Plaza X 100 X X 5 X X X X X
I-74, New Point
Interchange, MM 143
IN Remington Remington Truck Plaza X 150 X X 7 X X X X X
I-65, Exit 201
IN Whitestown Indy 500 Auto/Truck X 150 X X 6 X X X X X
Plaza
I-65, State Road 334,
Exit 130
KS Solomon Mid Kansas Travel Center X 80 X X 6 X X X
I-70, Exit 266
KY Florence Burns Bros. Truck Plaza X OM 200 X X 8 X X X X X
I-75, Exit 181
KY Waddy Waddy Travel Center X 175 X 4 X X X
I-64 & KY 395, Exit 43
LA Lafayette Lafayette 76 X 119 X X 13 X X X X X
Auto/Truck Plaza
I-10 & State Road 182,
MM 101
LA Slidell Slidell 76 Travel Center X 200 X X 10 X X X X X
I-10, Exit 266
LA Tallulah Louisiana I-20 East X 120 X X 8 X X X X X
Travel Center
I-20 & U.S. 65,
Exit 171
</TABLE>
(BB) - Denotes Burns Brothers site
<TABLE>
<CAPTION>
Express Dining Legend
<S> <C> <C> <C> <C> <C> <C>
DQ Dairy Queen SBA Sbarro LC Little Ceasar's
TB Taco Bell Express BK Burger King HSP Hot Stuff Pizza
SUB Subway LJS Long John Silver's TCBY TCBY
BL Blimpie W Wendy's PH Pizza Hut
KFC Kentucky Fried Chicken HD Hardee's PY Popeyes
OM Oscar Meyer
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
TravelCenter Directory
National Network
Full AT&T Private 24 Truck Permit Cert-
Service Fast Parking Phone Drivers' Show- Hour Maint- Serv- ified
ST City Name/Interstate Location Dining Food Spaces Service Lounge ers ATM Garage enance ices Scales
- -- ---------------- ------------------------- ------ ---- ------ ------- ------ ------ --- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MD Elkton Maryland's Liberty Bell X SUB 230 X X 12 X X X X X
Auto/Truck Plaza
I-95, Exit 109B
MI Ann Arbor Wolverine Truck Plaza X 200 X X 10 X X X X X
I-94, Exit 167
MI Saginaw Alpine Auto/Truck Plaza X 100 X X 4 X X X X X
I-75, Exit 144
MI Sawyer Sawyer Truck Plaza X 175 X X 8 X X X X X
I-94, Exit 12
MN Rogers Twin City West X 127 X X 8 X X X X X
Auto/Truck Plaza
I-94 & Highway 101,
Exit 207
MO Foristell St. Louis West 70 Truck X 86 X X 8 X X X X X
Plaza
I-70 & Route W,
Exit 203, MM 204
MO Matthews Eagle Landing Travel X TB 100 X X 6 X X X X X
Center
I-55 & Highway 80,
Exit 58
MO Oak Grove Kansas City East X 130 X X 10 X X X X X
National 76
I-70 & Route H, Exit 28
MO Strafford Springfield 44 X 130 X X 8 X X X X X
Auto/Truck Stop
I-44, Exit 88
MS Meridian Kelley's Truck Plaza X 115 X X 6 X X X X X
I-20 & I-59, Exit 160
NC Charlotte Jake's Red Ball at Sunset X 150 X X 18 X X X X X
I-77, Exit 16
NC Benson Dunn Robin Hood Truck Plaza X 75 X X 7 X X X
I-95, Exit 77
NC Mocksville Horn's Auto Truck Plaza X 150 X X 7 X X X X X
I-40 & Highway 601,
Exit 170, MM 170
NC Salisbury Derrick 76 X 120 X X 8 X X X X
I-85, Exit 71
NC Waynesville McElroy, Inc. X 25 X X 3 X X X X X
I-40, Exit 24
NC Wilmington Wilmington Auto/Truck X 275 X X X X
Stop
Highway 421 at Third
Street
NE Grand Island Grand Island West 76 X 125 X X 7 X X X X X
Auto/Truck Plaza
I-80, Exit 305
NE Ogallala Ogallala 76 Auto/Truck X 100 X X 10 X X X X X
Plaza
I-80, Exit 126
NJ Bloomsbury Garden State Truck Plaza X 175 X X 7 X X X X X
I-78, Bloomsbury Exit 7
NM Albuquerque Albuquerque Travel X 125 X X 11 X X X X X
Center
I-25 & I-40, Exit 227A
NM Gallup Baggett's Gallup 76 X 90 X X 9 X X X X
I-40, Exit 16
NV Las Vegas Blue Diamond Auto/Truck X 135 X X 14 X X X X X
Center
I-95, Blue Diamond
Exit 33
NV Reno-Sparks Sierra Sid's Auto/Truck X 187 X X 16 X X X X X
Plaza
I-80, Exit 19
NY Buffalo Buffalo I-90 East Auto X 150 X X 8 X X X X X
Truck Center
I-90 & SR 77, Exit 48A,
Pembroke
NY Ripley Ripley State Line X 150 X X 4 X X X X X
Truckstop
I-90 Shortman Road 61,
495
</TABLE>
(BB) - Denotes Burns Brothers site
<TABLE>
<CAPTION>
Express Dining Legend
<S> <C> <C> <C> <C> <C> <C>
DQ Dairy Queen SBA Sbarro LC Little Ceasar's
TB Taco Bell Express BK Burger King HSP Hot Stuff Pizza
SUB Subway LJS Long John Silver's TCBY TCBY
BL Blimpie W Wendy's PH Pizza Hut
KFC Kentucky Fried Chicken HD Hardee's PY Popeyes
OM Oscar Meyer
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
TravelCenter Directory
National Network
Full AT&T Private 24 Truck Permit Cert-
Service Fast Parking Phone Drivers' Show- Hour Maint- Serv- ified
ST City Name/Interstate Location Dining Food Spaces Service Lounge ers ATM Garage enance ices Scales
- -- ---------------- ------------------------- ------ ---- ------ ------- ------ ------ --- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OH Columbus Ohio 70-37 Truck Stop X 160 X X 9 X X X X X
I-70 at Ohio 37, Exit 126
OH Jeffersonville Garner's Auto TruckStop X 190 X 7 X X X X X
I-71, MM 65
OH Kingsville Kingsville 90 X 150 X X 8 X X X X X
Auto/Truckstop
I-90, Exit 255
OH London Columbus I-70 West X PH 200 X X 13 X X X X X
Auto/Truck Stop
I-70 & U.S. 42, Exit 79
OH North Canton Akron/Canton Truck Plaza X 90 X X 5 X X X X X
I-77, Exit 111
OH Seville Akron West Travel Center X 190 X X 9 X X X X X
I-71, Exit 209, MM 209
OH Toledo Toledo-5 Travel Center X 200 X X 12 X X X X X
I-80/90 & I-280, Exit 5
OH Youngstown Youngstown 76 Auto/Truck X 200 X X 12 X X X X X
Plaza
I-80, Route 46, Exit 223,
Ohio Turnpike, Exit 15
OK Oklahoma City Oklahoma City Travel X OM 200 X X 9 X X X X X
Center
I-40 West, Exit 140
OR Portland Portland Travel Center X 90 X X 8 X X X X X
I-5, Exit 278
PA Bartonsville American Falcon X PH, 120 X X 9 X X X X X
Auto/Truck Stop TB,
I-80 & U.S. 611, SUB
Exit 46B
PA Breezewood All American 76 X 150 X X 10 X X X X
Auto/Truck Plaza
PA Turnpike Exit 12,
I-70 & Route 30
PA Claysville Exit 2 Travel Center X SBA, 135 X X 6 X X X X X
I-70, Exit 2 TCBY
PA Harrisburg P & M 76 Plaza X 180 X X 8 X X X X X
I-81, Exit 27, MM 76
PA North East North East Service Plaza X PH, 90 X X 10 X X X X X
I-90, Route 20, Exit 12, TB
MM 44
PA Smithton New Stanton West Auto X 130 X X 7 X X X X X
Truck Plaza
I-70, Exit 23
PA Strattanville Keystone Shortway 76 X 140 X X 9 X X X X X
I-80 & U.S. Route 322,
Exit 11, MM 70
SC Manning Jerry's Travel Center X TB, 114 X 7 X X X X X
I-95, MM 119 BL,
SBA
TN Antioch Baggett's Music City X 150 X X 6 X X X X X
Auto/Truckstop
I-24, Exit 62, MM 62
TN Franklin Nashville South 76 Auto X 86 X X 6 X X X X X
Truck Plaza
I-65, Exit 61
</TABLE>
(BB) - Denotes Burns Brothers site
<TABLE>
<CAPTION>
Express Dining Legend
<S> <C> <C> <C> <C> <C> <C>
DQ Dairy Queen SBA Sbarro LC Little Ceasar's
TB Taco Bell Express BK Burger King HSP Hot Stuff Pizza
SUB Subway LJS Long John Silver's TCBY TCBY
BL Blimpie W Wendy's PH Pizza Hut
KFC Kentucky Fried Chicken HD Hardee's PY Popeyes
OM Oscar Meyer
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
TravelCenter Directory
National Network
Full AT&T Private 24 Truck Permit Cert-
Service Fast Parking Phone Drivers' Show- Hour Maint- Serv- ified
ST City Name/Interstate Location Dining Food Spaces Service Lounge ers ATM Garage enance ices Scales
- -- ---------------- ------------------------- ------ ---- ------ ------- ------ ------ --- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TN Jackson Wilhite's Travel Center X 100 X X 6 X X X X X
I-40, Exit 68
TN Knoxville Knoxville Travel Center X PH, 176 X X 13 X X X X X
I-40 & I-75, Exit 369 BK
TN Lebanon Nashville East 40 Truck X 100 X X 6 X X X X X
Stop
I-40 & Highway 109,
Exit 232
TN Monteagle Monteagle Truck Plaza X 100 X X 6 X X X X X
I-24, Exit 135,
U.S. 64 & 41A
TX Amarillo Amarillo Travel Center X 114 X X 8 X X X X X
I-40, Exit 74
TX Brookshire Houston West Travel X 250 X X 8 X X X X X
Center
I-10 & FM 359, Exit 732,
MM 732
TX Dallas Denton Travel Center X 160 X 9 X X X X X
I-35 & U.S. 77,
Exit 471, MM 471
TX Edinburg Edinburg Auto/Truck Stop X 175 X X 4 X X X
North Highway 281
at FM 2812
TX El Paso El Paso Travel Plaza X 350 X X 13 X X X X X
I-10, Exit 37, MM 37,
Horizon Blvd.
TX Ozona Circle Bar 76 X 150 X X 6 X X X X X
Auto/Truck Plaza
I-10 & Taylor Box Road,
Exit 372
TX Rockwall Rockwall 76 Auto/Truck X 100 X X 6 X X X X X
Plaza
I-30 at State Highway
205, Exit 68
TX Sweetwater Sweetwater 76 Auto/Truck X PH, 110 X X 6 X X X X X
Stop OM
I-20, Exit 242
UT Salt Lake City Salt Lake City Auto X 150 X X 12 X X X X X
Truck Plaza
I-80, Exit 99
VA Ashland Speed & Briscoe X TB 158 X X 8 X X X X X
I-95, Exit 89, MM 89
VA Raphine Whites Truckstop X 260 X X 10 X X X X X
I-81 & I-64, Exit 205
VA Wytheville Wilderness Road Travel X TB, 120 X X 12 X X X X X
Center SUB
I-77, Exit 41, I-81,
Exit 72
WI Hudson Twin City East 76 X 90 X X 6 X X X X X
Auto/Truck Plaza
I-94, Exit 4
WI Madison Madison Travel Center X SUB 150 X X 10 X X X X X
I-90 & I-94, Exit 132
WI New Lisbon New Lisbon Travel Center X 75 X X 6 X X X X X
I-90/I-94, Exit 61
WI Oak Creek Milwaukee Travel Center X SUB 180 X X 10 X X X X X
I-94 & Route 100, Ryan
Road, Exit 322, MM 23
WV Hurricane Charleston West 76 X 95 X X 7 X X X X X
Auto/Truck Stop
I-64, Exit 39
WV Martinsburg Panhandle Travel Center X 103 X X 4 X X X X X
I-81 & Spring Mills
Road, WV Highway 901
</TABLE>
(BB) - Denotes Burns Brothers site
<TABLE>
<CAPTION>
Express Dining Legend
<S> <C> <C> <C> <C> <C> <C>
DQ Dairy Queen SBA Sbarro LC Little Ceasar's
TB Taco Bell Express BK Burger King HSP Hot Stuff Pizza
SUB Subway LJS Long John Silver's TCBY TCBY
BL Blimpie W Wendy's PH Pizza Hut
KFC Kentucky Fried Chicken HD Hardee's PY Popeyes
OM Oscar Meyer
</TABLE>
84
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND MEMBERS OF BOARD OF DIRECTORS
The executive officers and members of the Board of Directors of the
Company and their ages, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Edwin P. Kuhn.......................... 54 President, Chief Executive Officer and Director
James W. George........................ 46 Senior Vice President, Chief Financial Officer
and Secretary
Timothy L. Doane....................... 40 Senior Vice President
Michael H. Hinderliter................. 48 Senior Vice President
Walter E. Smith, Jr.................... 57 Director
Margaret M. Eisen...................... 43 Director
Robert B. Calhoun, Jr.................. 54 Chairman of the Board of Directors and Director
Eugene P. Lynch........................ 35 Director
Louis J. Mischianti.................... 38 Director
Rolf H. Towe........................... 58 Director
</TABLE>
Officers of the Company are appointed by the Board of Directors and
serve at its discretion.
Edwin P. Kuhn was named the President, Chief Executive Officer and
Director of the Company and its subsidiaries in January 1997. Mr. Kuhn has
served as the President and Chief Executive Officer of TA since the closing of
the TA Acquisition in December 1993. Mr. Kuhn served as the General Manager (the
most senior position and effective President) of TA under BP's ownership from
April 1992 to December 1993. Prior to joining TA, Mr. Kuhn spent 25 years with
Sohio and BP in a series of retail site operating positions, most recently as
the Retail Marketing Regional Manager for all BP retail facilities in the states
of Ohio, Pennsylvania and Kentucky.
James W. George was named Senior Vice President and Chief Financial
Officer of the Company and its subsidiaries in January 1997, and was named
Secretary of the Company and its subsidiaries in June 1997. Mr. George has
served as a Vice President and Chief Financial Officer of TA since the closing
of the TA Acquisition in December 1993. From August 1990 to December 1993, Mr.
George served as the Controller (the most senior financial position) of TA under
BP's ownership. Prior to joining TA, Mr. George spent ten years with Sohio and
BP in a series of accounting and finance positions.
Timothy L. Doane was named Senior Vice President, Market Development of
the Company and its subsidiaries in January 1997. Mr. Doane has served as a Vice
President, Market Development of TA since 1995. Prior to joining TA, Mr. Doane
spent 15 years with Sohio and BP in a series of positions including Director of
Procurement (for all purchases except crude oil), Manager of BP's Procare
Automotive Service (a chain of stand-alone automobile repair garages in three
midwestern states), International Brand Manager (in the United Kingdom) and
Division Manager in retail marketing.
85
<PAGE>
Michael H. Hinderliter was named Senior Vice President, Marketing of
the Company and its subsidiaries in January 1997. Mr. Hinderliter has served as
a Vice President, Marketing of TA since the closing of the TA Acquisition in
December 1993. From August 1992 to December 1993, Mr. Hinderliter served as the
Marketing Manager of TA under BP's ownership. From 1989 to August 1992, Mr.
Hinderliter was the manager of BP Truckstops Limited, BP's truckstop network in
the United Kingdom. Prior thereto, Mr. Hinderliter spent 14 years with TA under
Ryder, Sohio and BP ownership in a series of positions which included serving as
a Fleet Sales Manager, Division Manager and location General Manager.
Walter E. Smith, Jr. has been a Director of the Company since July
1995. Mr. Smith has operated TravelCenters under franchises from National since
1993. Mr. Smith is a director of Citrus Financial Services, Inc., a bank holding
company in Vero Beach, FL, and the chief executive officer of four separate
private corporations which operate National TravelCenters.
Margaret M. Eisen has been a director of the Company since April 1997.
Ms. Eisen has served as Managing Director, North American Equities since June
1995 at General Motors Investment Management Corporation ("GMIMC"), the
investment advisor to First Plaza Group Trust ("First Plaza"). From March 1993
to June 1995 and from March 1992 to March 1993, Ms. Eisen served as Director,
Worldwide Pension Investments and as Director, Equity Portfolio Strategy,
respectively, at Du Pont Pension Fund Investment, E. I. Du Pont de Nemours and
Company.
Robert B. Calhoun, Jr. has been a director of the Company since April
1993 and was elected Chairman of the Board of Directors in September 1996. Mr.
Calhoun has been President of Clipper Asset Management Corporation, which is the
sole general partner of Clipper, as well as certain of its affiliates, since
1991. Mr. Calhoun also serves as director of Avondale Mills, Inc., Hvide Marine
Incorporated, Interstate Bakeries Corporation, Sterling Chemicals Holdings, Inc.
and several private companies.
Eugene P. Lynch has been a director of the Company since April 1993.
Mr. Lynch has been employed by Clipper or its affiliates since 1991 and has
served as a Managing Director since 1993. Mr. Lynch also serves as a director of
Owosso Corporation and several private companies.
Louis J. Mischianti has been a director of the Company since October
1992. Mr. Mischianti has been employed by Olympus Advisory Partners, Inc., an
affiliate of Olympus Private Placement Fund, L.P. ("Olympus"), since May 1994.
Mr. Mischianti was employed by Clipper or its affiliates from 1991 to April
1994. Mr. Mischianti serves as a director of several private companies.
Rolf H. Towe has been a director of the Company since July 1996. Mr.
Towe has served as a Senior Managing Director of Clipper and its affiliates
since 1991. Mr. Towe also serves as a director of American Heritage Life
Insurance Company, Sealy Corporation and several private companies.
86
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the
compensation awarded to, earned by or paid to the Chief Executive Officer and
each of the five most highly compensated officers of the Company as of December
31, 1996 (the "Named Executive Officers") for services rendered to the Company
and its subsidiaries for 1994, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
-----------
Securities All Other
Annual Compensation Underlying Compen-
Name and Principal Position Year Salary($) Bonus($)(1) Options(#) sation($)(2)
- --------------------------- ---- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
C. William Osborne............................. 1996 264,452 26,445 -- 1,235
President, Chief Executive Officer and 1995 257,500 20,214 -- 1,152
Director (3) 1994 250,764 70,351 -- 1,152
Edwin P. Kuhn.................................. 1996 230,000 92,000 -- 4,204
President, Chief Executive Officer, TA 1995 220,000 88,000 -- 2,165
Subsidiary (4) 1994 210,000 84,000 -- 528
James W. George................................ 1996 144,000 57,600 -- 360
Vice President and Chief Financial Officer, 1995 136,500 54,600 -- 348
TA Subsidiary (5) 1994 130,000 52,000 -- 324
Michael H. Hinderliter......................... 1996 144,000 57,600 -- 360
Vice President, TA Subsidiary (5) 1995 136,500 54,600 -- 348
1994 130,000 52,000 -- 324
Kenneth W. Barrios............................. 1996 179,731 17,973 -- 747
Executive Vice President (3) 1995 175,000 13,738 -- 518
1994 139,213 46,013 -- 313
Timothy L. Doane............................... 1996 138,000 55,200 -- 348
Vice President, TA Subsidiary (5)(6) 1995 86,666 34,666 23,400 216
1994 -- -- -- --
</TABLE>
- ----------------------
(1) Represents bonus for services rendered in the indicated year.
(2) Represents life insurance premiums paid by the Company. Mr. Kuhn's amount
includes $1,613 in 1995 and $3,628 in 1996, reflecting his use of
a Company automobile.
(3) Resigned effective January 21, 1997.
(4) Elected as Chief Executive Officer and President of the Company and as a
director, effective January 21, 1997.
(5) Elected as Senior Vice President of the Company, effective
January 21, 1997.
(6) Mr. Doane has served as a Vice President of the TA Subsidiary since
May 1995.
87
<PAGE>
OPTION GRANTS. No options were granted by the Company to any Named
Executive Officer in 1996.
1993 STOCK PLAN. Stock options to purchase shares of Common Stock have
been granted to the Named Executive Officers prior to 1996 pursuant to the
Company's 1993 Stock Incentive Plan (the "1993 Stock Plan") as Series I, Series
II and Series III options, as follows: Mr. Osborne, 25,175, 26,573 and 28,252
options; Mr. Kuhn, 15,860, 16,721 and 17,799 options; both of Messrs. George and
Hinderliter, 9,818, 10,364 and 11,018 options; Mr. Barrios, 14,161, 14,948, and
15,892 options; and Mr. Doane, 7,364, 7,773, and 8,263 options, respectively.
The option exercise price for each Series I, Series II and Series III option is
as follows: $10.00 per share, $17.49 per share and $28.56 per share,
respectively. Fifty percent of each of the Series I, II and III options have
vested with respect to Messrs. Osborne and Barrios; however, all of such options
have been canceled. See "--Termination, Consulting and Release Agreements with
C. William Osborne, Kenneth W. Barrios and Daniel L. Tennant." Seventy-five
percent of each series of options have vested with respect to Messrs. Kuhn,
George and Hinderliter and 67% of each series of options have vested with
respect to Mr. Doane. Options are currently exercisable to the extent vested as
of December 31, 1996 and remain exercisable for limited periods following
termination of employment of the Named Executive Officer. All such unvested
options are expected to be canceled in connection with the adoption of a new
stock incentive plan. See "--Certain Prospective Management Equity
Participation." Common Stock acquired upon the exercise of options may not be
transferred except to certain family members and is subject to call and put
options upon termination of employment. It is expected that the call and put
option pricing formula under the 1993 Stock Plan and option agreements will be
modified. It is also expected that if a change of control occurs within six
months after termination of employment for "good reason," death, "disability" or
termination other than for "cause" (as defined), an adjustment will be made to
the amount paid upon exercise of any call options or put options (but, in the
case of put options, only to the extent the proceeds received by the former
employee upon exercise of the put option are used to repay indebtedness to the
Company) so that the former employee will be able to receive any amounts in
excess of the call or put price payable in the change of control transaction. It
is further expected that the option exercise price of the Series III options
granted under the 1993 Stock Plan, other than those which were canceled, shall
be reduced from $28.56 per share to $22.50 per share. See "Certain
Transactions--Stockholders' Agreements--Supplemental Institutional and
Management Stockholders' Agreement."
The following table sets forth information concerning the value of
unexercised options as of December 31, 1996 held by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN 1996
AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED VALUE UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
ON EXERCISE REALIZED AT 1996 YEAR-END (#) AT 1996 YEAR-END ($)
NAME (#) (1) ($) (1) EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE(2)(3)
---- --------- --------- ---------------------------- -------------------------------
<S> <C> <C> <C> <C>
C. William Osborne............... -- -- 40,000 / 40,000(4) 159,225 / 159,225(4)
Edwin P. Kuhn.................... -- -- 37,800 / 12,600 134,382 / 66,188
James W. George.................. -- -- 23,400 / 7,800 83,210 / 40,985
Michael H. Hinderliter........... -- -- 23,400 / 7,800 83,210 / 40,985
Kenneth W. Barrios............... -- -- 22,500 / 22,500(4) 89,570 / 89,570(4)
Timothy L. Doane................. -- -- 15,678 / 7,722 62,411 / 30,738
- ---------------------
</TABLE>
(1) No options were exercised by any Named Executive Officer in 1996.
(2) The portion of all options granted pursuant to the 1993 Stock Plan
which are unexercisable as of December 31, 1996 are expected to be
canceled in connection with the adoption of the 1997 Stock Plan
(as defined). See "--Certain Prospective Management Equity Participation."
88
<PAGE>
(3) Based on a stock price of $20.00 per share.
(4) All options of Messrs. Osborne and Barrios, 50% vested at 1996 Year-End,
have been canceled. See "--Termination, Consulting and Release Agreements
with C. William Osborne, Kenneth W. Barrios and Daniel L. Tennant."
CERTAIN PROSPECTIVE MANAGEMENT EQUITY PARTICIPATION
The Board of Directors has approved the adoption of a 1997 Stock
Incentive Plan (the "1997 Stock Plan"). The principal terms and conditions of
the plan are expected to be as follows: a maximum of 750,000 shares of Common
Stock (subject to adjustment), reduced by (i) the number of shares subject to
outstanding options and unrelated stock appreciation rights under the plan, (ii)
the number of shares previously issued pursuant to option exercise under the
plan and (iii) the number of shares in respect of which related and unrelated
stock appreciation rights under the plan have previously been exercised, may be
issued pursuant to options and stock appreciation rights granted to officers,
directors and key employees of the Company designated by the 1997 Stock Plan
Committee (the "Stock Plan Committee"). The Board of Directors has appointed the
members of its Compensation Committee to serve as the members of the Stock Plan
Committee. Except as otherwise determined by the Stock Plan Committee in the
case of nonqualified options, the option exercise price for each option granted
will be the fair market value of the stock on the respective grant date; the
options will vest on the December 31 of the year of grant upon the attainment of
performance targets (outstanding options and options with respect to shares
reserved for future awards will vest upon a "change of control" or "initial
public offering" of the Company (as such terms are defined in the plan)), and
remain exercisable for limited periods following termination of employment.
Shares of Common Stock acquired upon exercise of options are subject to call and
put options upon termination of employment. If a change of control occurs within
six months after termination of the employment of a former employee for "good
reason," death, "disability" or termination other than for "cause" (as defined),
an adjustment will be made to the amount paid upon exercise of any call options
or put options (in the case of put options, only to the extent the proceeds
received by the former employee upon exercise of the put option are used to
repay indebtedness to the Company) so that the former employee will be able to
receive any amounts in excess of the call or put price payable in the change of
control transaction. No participant may be granted options and/or stock
appreciation rights covering more than 150,000 shares in any calendar year.
In addition, it is also expected that the Company will issue to Mr.
Doane, for a subscription price of $15.00 per share, 7,727 shares of Common
Stock.
COMPENSATION OF DIRECTORS
In September 1996, the Company's Board of Directors unanimously agreed
to waive all Board of Directors retainers and meeting fees. There is no
assurance such an arrangement will continue in the future. Members of the
Company's Board of Directors receive reasonable out-of-pocket expenses in
connection with travel to and attendance at meetings.
EMPLOYMENT AGREEMENTS AND STOCKHOLDERS' AGREEMENTS WITH EDWIN P. KUHN, JAMES W.
GEORGE, MICHAEL H. HINDERLITER AND TIMOTHY L. DOANE
The Company plans to enter into an employment agreement, a
stockholder's agreement and a Supplemental Institutional and Management
Stockholders' Agreement with each of Edwin P. Kuhn, James W. George, Michael H.
Hinderliter and Timothy L. Doane (the "Executives"). The principal terms and
conditions of the Executives' employment agreements are expected to be as
follows:
89
<PAGE>
The Executives shall be employed by the Company from January 1, 1997
through December 31, 2000 (unless terminated earlier). The employment agreements
provide for annual base salaries of $325,000 for Mr. Kuhn and $210,000 for
Messrs. George, Hinderliter and Doane, respectively; annual bonuses of up to 50%
of annual base salary, minimum 25% of base salary for 1997 and 12.5% of base
salary for 1998 (the "Guaranteed Bonuses"); participation in Company employee
benefit plans; and certain fringe benefits.
If an Executive's employment is terminated prior to December 31, 2000:
(i) by his resignation (other than for "good reason" (this term and each
subsequent term in quotation marks referenced in this paragraph as defined in
the employment agreements) or for "cause", he shall be entitled to only his
accrued and unpaid base salary and any vested benefits under the Company's 1993
and 1997 Stock Plans; (ii) by reason of death or "permanent disability", then in
addition to the foregoing, any annual or guaranteed bonus (whichever is
greater), pro-rated, and Company-paid continued medical coverage; and (iii) by
his resignation for good reason or by the Company for any other reason, base
salary until December 31, 2000 (or if later, for one year) subject to offset,
his guaranteed bonus, if any (or, if greater, any annual bonus, pro-rated), any
vested benefits under the Company's 1993 and 1997 Stock Plans and subsidized
medical coverage; provided that if the Executive engages in a "competitive
activity," he shall instead only be entitled to his accrued and unpaid base
salary, any vested benefits under the Company's 1993 and 1997 Stock Plans and
subsidized medical coverage. If any payments and the value of benefits are
"contingent on a change of control" within the meaning of section 280G of the
Internal Revenue Code of 1986, as amended (which could include, for example and
without limitation, the accelerated vesting of stock options upon a change of
control), then the Company may be denied an income tax deduction for all or a
portion of such payments, and the recipient thereof may be subject to a 20%
excise tax in addition to income tax otherwise imposed. The Executives'
employment agreements also include non-competition and non-solicitation
covenants and confidentiality agreements.
For a description of the stockholder's agreements and Supplemental
Institutional and Management Stockholders' agreement to be entered into by the
Executives, see "Certain Transactions--Stockholder Agreements."
EMPLOYMENT AGREEMENT WITH KENNETH E. DONNER
The Company plans to enter into an employment agreement with Kenneth E.
Donner ("Donner"). The principal terms and conditions of Donner's employment
agreement are expected to be as follows:
Donner shall be employed by the Company for two years (unless
terminated earlier). The employment agreement provides for an annual base salary
of $111,100 and participation in Company employee benefit plans. The other terms
and conditions of Donner's agreement are expected to be similar to those found
in the Executives' employment agreements. Donner's employment agreement also
includes non-competition and non-solicitation covenants and confidentiality
agreements.
TERMINATION, CONSULTING AND RELEASE AGREEMENTS WITH C. WILLIAM OSBORNE,
KENNETH W. BARRIOS AND DANIEL L. TENNANT
The Company has entered into a Termination, Consulting and Release
Agreement with three of the National Subsidiary's former executive officers, C.
William Osborne, President and Chief Executive Officer of the National
Subsidiary, Kenneth W. Barrios, Executive Vice President of the National
Subsidiary, and Daniel L. Tennant, Vice President of the National Subsidiary
(the "National Executives") on the principal terms and conditions described
below, as of January 17,1997 (the "Termination Agreements").
Each National Executive resigned from all positions and directorships
of the Company and its affiliates. The National Executives were entitled to
continued base salaries through January 31, 1997,
90
<PAGE>
1996 fiscal year bonuses (10% of annual base salary), any vested benefits under
the Company's retirement or group health plans and reimbursement for up to six
months of outplacement services.
The National Executives have been retained as consultants from February
1, 1997 (the "Initial Payment Date") through January 31, 1998 (the "Final
Payment Date"), in consideration for payment on or about February 28, 1997 of
$176,300, $119,817 and $95,200 for Messrs. Osborne, Barrios and Tennant,
respectively, continued medical coverage for up to one year, and severance of
$88,150, $59,908 and $47,600 for Messrs. Osborne, Barrios and Tennant,
respectively, on the Final Payment Date.
Certain stock options held by the National Executives under the
Company's 1993 Stock Plan were canceled without consideration. The Series I
options were canceled for the right to receive (i) on or about the Initial
Payment Date, (x) the product of $13.00 and the number of shares of Class B
common stock into which the Series I options held by the National Executive
could be converted minus (y) the option exercise price and (ii) on the Final
Payment Date, the product of $2.69 and such number of shares. Shares of Class B
common stock held by the National Executives or by their transferees were
purchased by the Company for (i) an amount payable on or about the Initial
Payment Date equal to the product of $10.00 and such number of shares and (ii)
an amount payable on the Final Payment Date equal to the product of $5.69 and
such number of shares.
The outplacement service reimbursements and all deferred payments are
conditioned upon the National Executive's service as a consultant not being
terminated for "cause" (as defined in the Termination Agreements). The National
Executives also executed a general release of claims and covenants regarding
confidentiality, non-solicitation of employees or clients and non-disparagement.
EMPLOYMENT ARRANGEMENTS WITH A. BRUCE REYNOLDS
A. Bruce Reynolds ("Reynolds"), the Company's former Vice President and
Chief Financial Officer, was terminated as of May 15, 1997. Prior thereto,
Reynolds and the Company had entered into an Employment, Termination, Consulting
and Release Agreement under which Reynolds was to receive his former annual base
salary of $148,914 through July 31, 1997, a bonus of 10% of his annual base
salary and reimbursement for up to six months of outplacement services. In
addition, Reynolds was to be retained as a consultant from May 16, 1997 through
January 31, 1998 in consideration for the payment of a retainer fee of $74,457
payable in equal monthly installments, continued medical coverage and severance
of $112,865 payable on January 31, 1998. As a result of Reynolds' termination,
Reynolds is no longer entitled to the continued base salary payments, bonus
payments, outplacement service reimbursements and all other deferred payments
described above were terminated.
Reynolds' Series I options were canceled in consideration for a payment
on or about March 10, 1997 of $13.00 minus the option exercise price for each
underlying share of common stock and, assuming certain conditions were met, a
payment on January 31, 1998 of $2.69 for each such share. In addition, the
Company agreed to purchase Reynolds' Class B shares of common stock for $10.00
per share payable on or about March 10, 1997 and, assuming certain conditions
were met, an additional payment of $5.69 per share payable on January 31, 1998.
As a result of Reynolds' termination, Reynolds is not entitled to either of the
payments due on January 31, 1998 described above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Hugh D. Schmieder, Bruce D. Dorbeck, Walter M. Cain and Louis J.
Mischianti served as members of the Compensation Committee of the Board of
Directors during fiscal year 1996. Messrs. Schmieder, Dorbeck and Cain are
former directors of the Company, each of whom resigned in April 1997. Mr.
Schmieder is an Operator of three TravelCenters and is a Franchisee-Owner with
respect to one TravelCenter. Mr. Dorbeck is an Operator of one TravelCenter and
a lessee (but not a franchisee) of an
91
<PAGE>
additional TravelCenter. During fiscal 1996, Mr. Cain was employed by GMIMC, the
investment advisor to First Plaza, but resigned as of April 1997. Mr. Mischianti
is employed by an affiliate of Olympus. As of April 1997, the members of the
Compensation Committee of the Board of Directors were Messrs. Calhoun,
Mischianti and Towe.
CERTAIN TRANSACTIONS
VOTING TRUST AGREEMENT
The following summary description of the Voting Trust Agreement does
not purport to be complete and is qualified in its entirety by reference to such
agreement.
Voting and transfer of the shares of Common Stock beneficially owned by
Operators and Franchisee-Owners ("Certificate Holders") are governed by a voting
trust agreement dated as of April 14, 1993, as amended as of March 6, 1997,
among the Certificate Holders, United States Trust Company of New York as the
voting trustee (the "Voting Trustee") and the Company (the "Voting Trust
Agreement"). The Operators' and Franchisee-Owners' beneficial ownership interest
in such shares is evidenced by voting trust certificates (the "Voting Trust
Certificates"). In connection with any matter which may be put to a vote of the
Company's stockholders, the Voting Trustee will vote all of the shares subject
to the Voting Trust Agreement in the manner determined by a vote by the
Certificate Holders. Transfers of the Voting Trust Certificates or beneficial
interests in shares of Common Stock represented thereby are only permitted in
accordance with applicable securities laws and are also subject to certain
restrictions. Certain provisions of the Voting Trust Agreement may only be
amended by a vote of Certificate Holders holding a majority of the Voting Trust
Certificates and a vote of the holders of a majority of the shares of Series I
Preferred Stock (and the holders of Common Stock issued upon conversion of
Series I Preferred Stock) together with the consent of the Company. The Voting
Trust Agreement will terminate on the earlier of (i) April 14, 2003, unless
Certificate Holders beneficially owning 65% of the shares subject to the Voting
Trust Agreement elect to continue the Voting Trust or (ii) upon the consent of
the Company and the vote of the holders of Voting Trust Certificates who
beneficially own more than 75% of the shares subject to the Voting Trust
Agreement.
STOCKHOLDERS' AGREEMENTS
The following summary descriptions of the Stockholders' Agreements does
not purport to be complete and is qualified in its entirety by reference to such
agreements.
GLOBAL STOCKHOLDERS' AGREEMENT. The Voting Trustee, Certificate
Holders, certain members of the Investor Group (members of such group referred
to individually as an "Investor") holding preferred stock, certain members of
management (the "Management Stockholders") and the Company are parties to a
stockholders' agreement, dated as of April 14, 1993, as amended as of March 6,
1997 (the "Global Stockholders' Agreement"). Pursuant to the Global
Stockholders' Agreement, the Management Stockholders have agreed not to sell any
shares of Common Stock except for certain family transfers, transfers pursuant
to the laws of descent and distribution, and certain other exceptions. The
Global Stockholders' Agreement provides that, in the event of any sale (whether
by merger or sale of the stock) of the Company effected on the same terms for
each holder of capital stock of the Company, a stockholder party to the Global
Stockholders' Agreement has no right to dissent and be paid the appraised value
of his or her shares and, in the event of a stock sale, is required to sell his
or her shares to any purchaser in such sale. The Global Stockholders' Agreement
will terminate on the earlier of April 14, 2003 or the consummation of a
registered public offering of the Company's stock.
SUPPLEMENTAL STOCKHOLDERS' AGREEMENT. The Company and certain Investors
are parties to a supplemental stockholders' agreement, dated as of December 10,
1993, which the parties thereto expect
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to amend following completion of this Offering (the "Supplemental Stockholders'
Agreement"). The Supplemental Stockholders' Agreement sets forth analogous
provisions for the transfer of preferred stock as the Global Stockholders'
Agreement sets forth for transfer of shares held by Management Stockholders.
INSTITUTIONAL AND MANAGEMENT STOCKHOLDERS' AGREEMENT. The Company and
the Investor Group are parties to a preferred and common stockholders'
agreement, dated as of December 10, 1993 (the "Institutional and Management
Stockholders' Agreement") to establish in part the composition of the Company's
Board of Directors and to provide for certain participation rights related to
the sale of stock by major stockholders. This agreement is expected to be
amended and restated contemporaneously with or shortly following this Offering
to add Management Stockholders as parties and provide for certain other changes.
The parties to the Institutional and Management Stockholders' Agreement
are required to vote their shares to elect to the Board of Directors two
nominees of Clipper Capital Associates, L.P. ("CCA"), an affiliate of Clipper,
one nominee of National Partners III, L.P. ("National III"), two nominees of
National Partners, L.P. ("National I") and one nominee jointly chosen by
National I and CCA. After the liquidation of National I, First Plaza will assume
National I's rights and after the liquidation of National III, Olympus will
assume National III's rights, with respect to nominating directors under the
agreement. Under certain conditions, the rights of certain parties to nominate
directors may increase or decrease. The right to nominate a director ceases when
any party (together with its affiliates) sells any shares governed by the
agreement unless such shares have been registered under the Securities Act or
sold pursuant to Rule 144 under the Securities Act. The portion of the
Institutional and Management Stockholders' Agreement pertaining to the Board of
Directors terminates on December 10, 2003 unless extended. In the event that the
Company becomes publicly held, the Institutional and Management Stockholders'
Agreement will terminate except for that portion of the agreement pertaining to
nomination of directors.
The Institutional and Management Stockholders' Agreement provides for
the right of such stockholders to participate in certain sales of stock of the
Company by other parties. In addition, the agreement requires Management
Stockholders to participate in any sale of the Company.
Any transferee of a party to the Institutional and Management
Stockholders' Agreement must become party to that agreement according to its
terms.
SUPPLEMENTAL INSTITUTIONAL AND MANAGEMENT STOCKHOLDERS' AGREEMENT. The
Company plans to enter into a Supplemental Institutional and Management
Stockholders Agreement with the Investor Group and the Management Stockholders
effective contemporaneously with or shortly following this Offering, the
principal terms and conditions of which are expected to be as follows: shares of
Common Stock held by Management Stockholders will be subject to call and put
options upon termination of employment of Management Stockholders; the call and
put option pricing formula under the 1993 Stock Plan and option agreements will
be modified; if a change of control occurs within six months after termination
of the employment of a Management Stockholder for "good reason," death,
"disability" or termination other than for "cause" (as defined), an adjustment
will be made to the amount paid upon exercise of any call options or put options
(but, in the case of put options, only to the extent the proceeds received by
the Management Stockholder upon exercise of the put option are used to repay
indebtedness to the Company) so that the Management Stockholders will be able to
receive any amounts in excess of the call or put price payable in the change of
control transaction; the option exercise price of vested and exercisable Series
III options granted under the 1993 Stock Plan shall be reduced from $28.56 per
share to $22.50 per share; and no participant may be granted options and/or
stock appreciation rights covering more than 150,000 shares in any calendar
year.
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CERTAIN INDEBTEDNESS FORMERLY HELD BY STOCKHOLDERS AND RELATED TRANSACTIONS
On the Closing Date, immediately prior to the consummation of the
Refinancing, First Plaza, Olympus and Barclays Bank PLC (together with its
affiliates, "Barclays") owned $19.6 million, $3.2 million and $2.1 million in
principal amount, respectively, of the National Subsidiary's Old Subordinated
Notes and each owned, individually (directly or through affiliates), more than
5% of at least one class of the Company's capital stock. In connection with the
issuance of the National Subsidiary's Old Subordinated Notes, the Company issued
a total of 128,206 warrants exercisable at $0.01 per warrant for an equal number
of shares of Common Stock. First Plaza, Olympus and Barclays received 100,641,
16,539 and 11,026 warrants, respectively. Immediately prior to the Closing Date,
Clipper/Merban, L.P. ("Clipper/Merban"), an affiliate of Clipper, Union Bank of
Switzerland (together with its affiliates, "UBS") and Barclays held $6.0
million, $6.0 million and $3.0 million in principal amount, respectively, of the
TA Subsidiary's Old Subordinated Notes and each owned, individually (directly or
through affiliates), more than 5% of at least one class of the Company's capital
stock. In connection with the issuance of the TA Subsidiary's Old Subordinated
Notes, the Company issued a total of 80,520 shares of Common Stock, with 53,680
such shares issued to UBS and 26,840 such shares issued to Barclays. In lieu of
receiving shares of Common Stock in connection with the issuance of the Old
Subordinated Notes to it, Clipper/Merban received a right to a contingent
payment upon early redemption of the Old Subordinated Notes held by it in the
amount necessary to cause the yield on its Old Subordinated Notes to aggregate
14%. As part of the Refinancing, all outstanding indebtedness under the Old
Subordinated Notes was repaid in full, Clipper/Merban received a payment equal
to approximately $480,000 pursuant to its contingent payment right described
above and the warrants and Common Stock referred to above remain outstanding.
See "Use of Proceeds" and "The Refinancing, the Combination Plan and the Capital
Program." In April 1993, the Company entered into an agreement (the "First
Clipper Agreement") and related indemnity for financial advisory services to be
provided, on an exclusive basis, by Clipper and Clipper Capital Partners, L.P.
(together, the "Clipper Entities") to the Company and the National Subsidiary.
In December 1993, the First Clipper Agreement was restated and amended in
connection with the TA Acquisition and TA Holdings Corporation ("TA Holdings"),
a former subsidiary of the Company that was merged with and into the Company in
connection with the Restructuring, and the TA Subsidiary entered into an
agreement (the "Second Clipper Agreement" and, together with the First Clipper
Agreement, the "Clipper Agreements") and related indemnity for financial
advisory services to be provided, on an exclusive basis, by the Clipper Entities
to TA Holdings and the TA Subsidiary. In consideration for services provided
pursuant to such agreements, the Company, the National Subsidiary, TA Holdings
and the TA Subsidiary agreed to compensate the Clipper Entities at rates
established by the Clipper Entities consistent with those rates customarily
charged by nationally recognized investment firms. The terms of the Clipper
Agreements continue until such time as Clipper and its affiliates no longer own,
in the aggregate, 5% or more of the equity securities of the Company. To date,
no fees have been paid or have become payable to the Clipper Entities pursuant
to the First Clipper Agreement or the Second Clipper Agreement or the related
indemnity other than fees paid to Clipper at the time of the National
Acquisition and the time of the TA Acquisition. Clipper has also been reimbursed
from time to time by the Company for out of pocket expenses, including legal
fees. Upon the closing of the Transactions, the Company reimbursed Clipper for
approximately $137,000 in connection with Clipper's payment for certain
consulting services rendered to the Company and the reimbursement of out of
pocket expenses incurred in connection therewith by Charles L. Dunlap, a former
director of the Company. The Company anticipates amending and restating the
First Clipper Agreement and the Second Clipper Agreement into one agreement in
connection with the Refinancing. Margaret M. Eisen, who is employed by GMIMC,
the investment advisor to First Plaza, and Louis J. Mischianti, who is employed
by an affiliate of Olympus, are directors of the Company. Robert B. Calhoun,
Jr., Rolf H. Towe and Eugene P. Lynch, each of whom are directors of the
Company, are employed by Clipper or its affiliates.
On the Closing Date, immediately prior to the consummation of the
Refinancing, the Travelers Insurance Company (together with its affiliates,
"Travelers") owned, in the aggregate, $7.0 million and
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$20.0 million in principal amount of the TA Subsidiary's and the National
Subsidiary's Old Senior Notes, respectively, and owned, in the aggregate, more
than 5% of at least one class of the Company's capital stock. The Old Senior
Notes held by Travelers were exchanged by the Company for Senior Notes as part
of the Refinancing. See "The Refinancing, the Combination Plan and the Capital
Program" and "Use of Proceeds."
TRANSACTIONS WITH OPERATOR SHAREHOLDERS AND DIRECTORS
As of June 15, 1997, Operators and Franchisee-Owners controlling 51
TravelCenters owned an aggregate of 704,600 shares of the Company's Common
Stock, which represents approximately 11.2% of the issued and outstanding Common
Stock giving effect to the conversion of preferred stock and the exercise of
warrants. The Company's transactions with these Operators are at prices and on
terms that are the same as similar transactions with non-stockholder Operators.
Such Operator stockholders have entered into the Voting Trust Agreement with the
Company and the Voting Trustee.
Walter E. Smith, Jr., a director of the Company, is an Operator of four
TravelCenters. See "Business--Relationships with the Operators and
Franchisee-Owners--The National Agreements."
TRANSACTIONS WITH OFFICERS
As of March 31, 1997, the Company had issued or agreed to issue or sell
to Edwin P. Kuhn, James W. George, Timothy L. Doane, Michael H. Hinderliter and
Kenneth E. Donner, 15,452, 11,590, 7,727, 11,590 and 10,000 shares of Common
Stock (the "Management Shares"), respectively, pursuant to certain management
subscription agreements (together, the "Management Subscription Agreement").
Each Management Subscription Agreement provides for a purchase price of the
Management Shares of $10 per share. As described below, the Company financed a
portion of the purchase price of the Management Shares.
The Management Subscription Agreement gives the Company the right, but
not the obligation, for 60 days following the employee's cessation of employment
with the Company, for any reason whatsoever, to repurchase the Management Shares
at a formula price and gives the employee the right, but not the obligation, for
an additional 60 days to sell the Management Shares to the Company at a second
formula price. Pursuant to either of the foregoing formulas, the purchase price
per share is equal to the product of (a) a specified multiple of EBITDA (as
defined in the Management Subscription Agreement) of the Company for the most
recent four consecutive full fiscal quarters less the aggregate amount of
consolidated indebtedness of the Company and (b) a fraction, the numerator of
which is equal to the number of Management Shares being repurchased by the
Company and the denominator of which equals the number of fully diluted shares
of capital stock of the Company. The Credit Facilities, the Senior Notes and the
Indenture limits the Company's ability to repurchase the Management Shares. See
"Description of Senior Indebtedness" and "Description of the New Notes."
In connection with the purchase of the Management Shares, each of the
members of senior management who entered into the Management Subscription
Agreement also received financing from the Company with respect to no more than
one half of the purchase price of such manager's stock purchases. In connection
with such financing, each such manager executed a note in favor of the Company
(each, a "Management Note") and a pledge agreement (each a "Management Pledge
Agreement"). The Management Notes total $349,862.50 in principal amount, and are
payable by the following members of senior management in the indicated principal
amount as follows: Edwin P. Kuhn, $77,260; James W. George, $57,950; Timothy L.
Doane, $57,950; Michael H. Hinderliter, $57,950; and Kenneth E. Donner $50,000.
With respect to the Management Notes, interest accrues at an annual rate of
4.76% for Messrs. Kuhn, George and Hinderliter, 7% for Mr. Doane and 6.42% for
Mr. Donner, in each case, compounded semi-annually. Accrued and unpaid interest,
together with unpaid principal, if not sooner paid, is due and
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payable on the earliest of (i) the date of cessation of employment of such
employee, (ii) the date such employee is no longer the owner of the particular
Management Shares and (iii) the tenth anniversary of the Management Note.
During 1996, Mr. Reynolds was indebted to the Company in the principal
amount of $67,001 respecting certain demand relocation loans, which currently
bear interest at the rate of 6.51% per annum. As of June 15, 1997, the total
amount outstanding was $54,699.30. Mr Reynolds was terminated by the Company as
of May 15, 1997. See "Management--Employment Arrangements with A. Bruce
Reynolds."
SECURITY OWNERSHIP
Prior to March 6, 1997 the Company had two classes of common stock.
However, pursuant to the amendment and restatement of the Company's Certificate
of Incorporation effected on March 6, 1997, the Company currently has only one
class of common stock ("Common Stock"). For a description of this
Recapitalization, see "Description of Capital Stock--Recapitalization."
The Company has one class of Common Stock outstanding and four classes
of convertible preferred stock outstanding: Series I and Series II Convertible
Preferred Stock, par value $0.01 per share ("Series I Preferred" and "Series II
Preferred," respectively), and Series I and Series II Senior Convertible
Participating Preferred Stock, par value $0.01 per share ("Series I Senior" and
"Series II Senior," respectively).
At the option of the holder thereof, Series I Preferred and Series I
Senior may be converted to Common Stock at any time on a one for one basis.
Series II Preferred and Series II Senior also may be converted to Common Stock
on a one for one basis; however, the total number of shares that may be
converted at any one time is limited to a percentage determined by reference to
a formula reflecting the number of outstanding shares of Common Stock at the
time of conversion. Pursuant to this formula, as of June 15, 1997,
Clipper/Merchant I, L.P. ("Clipper/Merchant"), which holds of record all
outstanding shares of Series II Preferred and Series II Senior, could have
elected to convert a combined total of 429,608 shares of Series II Preferred and
Series II Senior (out of a total of 2,171,718 shares) to an equal number of
shares of Common Stock.
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The following table sets forth the number of shares of capital stock of
the Company beneficially owned, as of June 15, 1997, by each person known by the
Company to beneficially own more than 5% of any class of capital stock of the
Company (other than directors and officers, see "--Directors and Officers").
<TABLE>
<CAPTION>
Amount and PERCENT OF
Nature of STATED
NAME OF BENEFICIAL OWNER Ownership (1) CLASS CLASS (1)
- ------------------------ ------------- ----- ----------
<S> <C> <C> <C>
United States Trust Company of New York........ 1,086,250 (2) Common 84.3%
770 Broadway
New York, NY 10003
Clipper Capital Associates, L.P. (3)........... 4,880,140 Common (4) 79.1
650 Madison Avenue 2,594,876 Series I Preferred (5) 100.0
New York, NY 10022 1,237,374 Series II Preferred (5) 100.0
1,855,656 Series I Senior (5) 69.2
934,344 Series II Senior (5) 100.0
UBS Capital Corporation........................ 478,680 Common (6) 27.9
299 Park Avenue 425,000 Series I Senior 15.9
New York, NY 10171
First Plaza Group Trust........................ 3,945,391 Common (7) 75.4
c/o Mellon Bank, N.A. 2,044,750 Series I Preferred (8) 78.8
One Mellon Bank Center 1,800,000 Series I Senior (8) 67.1
Pittsburgh, PA 15258
Olympus Private Placement Fund, L.P............ 494,039 Common (9) 27.7
Metro Center 277,500 Series I Preferred (10) 10.7
One Station Place 200,000 Series I Senior 7.5
Stamford, CT 06902
The Travelers Indemnity Company................ 200,000 Common (11) 13.5
One Tower Square 200,000 Series I Senior 7.5
Hartford, CT 06183
Barclays U.S.A., Inc........................... 222,866 Common (12) 14.7
222 Broadway 185,000 Series I Preferred (13) 7.1
New York, NY 10038
Merchant Truckstops, L.P. (14)................. 429,608 Common (15) 25.0
650 Madison Avenue 1,225,000 Series II Preferred 99.0
New York, NY 10022
</TABLE>
- -----------
(1) With respect to Common Stock, reflects beneficial ownership of Common
Stock, assuming the conversion into Common Stock by the listed
shareholder of any preferred stock and the exercise by the listed
shareholder of any warrants to purchase Common Stock owned by such
shareholder to the extent currently convertible or exercisable.
(2) United States Trust Company of New York holds these shares in its
capacity as Voting Trustee under the Voting Trust Agreement.
See "Certain Transactions."
(3) CCA directly owns 62,298 shares of Series I Preferred and 37,474 shares
of Series I Senior and is the general partner of four limited
partnerships which are the record owners of the remainder of these
shares: (i) National I, (ii) National Partners II, L.P. ("National II"),
(iii) National III and (iv) Clipper/Merchant. CCA thus may be said to
beneficially own all such shares owned by these four
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limited partnerships. Clipper Capital Associates, Inc. ("CCI") is the
general partner of CCA, and the sole shareholder of CCI is Robert B.
Calhoun, Jr., a director of the Company. By virtue of such relationship,
CCI and Mr. Calhoun may be deemed to beneficially own these shares. CCI
and Mr. Calhoun disclaim beneficial ownership of all such shares except
to the extent of any pecuniary interest they may have therein. See
footnote 3 to the following security ownership table.
(4) Includes shares of Common Stock that could be issued upon conversion of
all outstanding shares of preferred stock of the Company held of record
by the following: (i) CCA: 62,298 shares of Series I Preferred and 37,474
shares of Series I Senior, (ii) National I: 2,065,405 shares of Series I
Preferred and 1,818,182 shares of Series I Senior, (iii) National II:
186,869 shares of Series I Preferred, (iv) National III: 280,304 shares
of Series I Preferred and (v) Clipper Merchant: 1,237,374 shares of
Series II Preferred and 934,344 shares of Series II Senior. As of June
15, 1997, a combined total of only 429,608 shares of the two Series II
classes held by Clipper/Merchant were convertible, as described above.
For further discussion of National I, National II, National III and
Clipper/Merchant see footnotes 8, 10, 13 and 14 below.
(5) See footnote 4 above.
(6) Includes 53,680 shares of Common Stock held of record and 425,000 shares
of Common Stock that could be issued upon conversion of Series I Senior.
(7) Includes 100,641 shares of Common Stock that could be issued upon
exercise of warrants, 2,044,750 shares of Common Stock that could be
issued upon conversion of Series I Preferred and 1,800,000 shares of
Common Stock that could be issued upon conversion of Series I Senior. For
further discussion of First Plaza's share ownership, see footnote 8
below.
(8) First Plaza, as limited partner of National I and under National I's
partnership agreement, may be deemed to beneficially own 2,044,750 shares
of Series I Preferred and 1,800,000 shares of Series I Senior held of
record by National I.
(9) Includes 16,539 shares of Common Stock that could be issued upon exercise
of warrants, 277,500 shares of Common Stock that could be issued upon
conversion of Series I Preferred and 200,000 shares of Common Stock that
could be issued upon conversion of Series I Senior. For further
discussion of Olympus' share ownership, see footnote 10 below.
(10) Olympus, as limited partner of National III and under National III's
partnership agreement, may be deemed to beneficially own 277,500 shares
of Series I Preferred held of record by National III. Olympus disclaims
beneficial ownership of all such shares, except to the extent of any
pecuniary interest it may have therein.
(11) Includes 200,000 shares of Common Stock of Travelers that could be issued
upon conversion of Series I Senior.
(12) Includes 26,840 shares of Common Stock, 11,026 shares of Common Stock
that could be issued upon exercise of warrants held by an affiliate, and
185,000 shares of Common Stock that could be issued upon conversion of
Series I Preferred. For further discussion of Barclays' share ownership,
see footnote 13 below.
(13) Barclays, as limited partner of National II and under National II's
partnership agreement, may be deemed to beneficially own 185,000 shares
of Series I Preferred held of record by National II. Barclays disclaims
beneficial ownership of all such shares, except to the extent of any
pecuniary interest it may have therein.
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(14) Merchant Truckstops, L.P. ("Merchant"), as the limited partner of
Clipper/Merchant and under Clipper/Merchant's partnership agreement, may
be deemed to beneficially own 1,225,000 shares of Series II Preferred
held of record by Clipper/Merchant. Merchant is a limited partnership of
which Merchant Truckstops, Inc. ("Merchant Inc.") is the general partner,
and Merchant Inc. is an indirect wholly-owned subsidiary of Credit Suisse
Group ("CS"). By virtue of such relationship, Merchant Truckstops and CS
may be deemed to beneficially own these shares. Merchant, Merchant Inc.
and CS disclaim beneficial ownership of all such shares, except to the
extent of any pecuniary interest they may have therein.
(15) Includes 429,608 shares of Common Stock that could be issued upon
conversion of shares of Series II Preferred that were eligible for
conversion as of June 15, 1997, as described above.
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DIRECTORS AND OFFICERS
The following table sets forth the number of shares of capital stock of
the Company beneficially owned, as of June 15, 1997, by each of the Company's
executive officers and directors, and all executive officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
Amount and PERCENT OF
Nature of STATED
NAME Ownership (1) CLASS CLASS (1)
- ---- ------------- ----- ----------
<S> <C> <C> <C>
Edwin P. Kuhn......................... 53,237 Common 4.0%
James W. George....................... 34,990 Common 2.7
Timothy L. Doane...................... 23,405 Common 1.8
Michael H. Hinderliter................ 34,990 Common 2.7
Walter E. Smith, Jr. (2).............. 50,000 Common 3.9
Margaret M. Eisen..................... -- -- --
Robert B. Calhoun, Jr................. 4,880,140 Common (3) 79.1
2,594,876 Series I Preferred (3) 100.0
1,237,374 Series II Preferred (3) 100.0
1,855,656 Series I Senior (3) 69.2
934,344 Series II Senior (3) 100.0
Eugene P. Lynch....................... -- -- --
Louis J. Mischianti................... -- -- --
Rolf H. Towe.......................... -- -- --
All directors and officers as a group
(10 persons) (2)................... 5,076,762 Common 81.1
2,594,876 Series I Preferred 100.0
1,237,374 Series II Preferred 100.0
1,855,656 Series I Senior 69.2
934,344 Series II Senior 100.0
C. William Osborne (4)................ -- -- --
Kenneth W. Barrios (4)................ -- -- --
</TABLE>
- -----------
(1) In the case of Common Stock, reflects beneficial ownership of Common
Stock, assuming the exercise by the listed shareholder of options to
purchase Common Stock owned by such shareholder to the extent currently
exercisable.
(2) Walter E. Smith, Jr., a director of the Company, owns 50,000 shares of
Common Stock which are held pursuant to the Voting Trust Agreement. See
footnote 2 to the previous table and "Certain Transactions."
(3) CCA, National I, National II, National III and Clipper/Merchant are the
record owners of these shares. Mr. Calhoun is the sole shareholder of
CCI, which is the general partner of CCA. CCA is the general partner of
each of National I, National II, National III and Clipper/Merchant. By
virtue of such relationships, Mr. Calhoun may be deemed to beneficially
own all of such shares. Mr. Calhoun disclaims beneficial ownership of
such shares, except to the extent of any pecuniary interest he may have
therein. See footnotes 3, 4, and 5 to the previous security ownership
table.
(4) Messrs. Osborne and Barrios resigned from all of their positions with the
Company effective January 21, 1997. All shares of Common Stock
beneficially owned by Messrs. Osborne and Barrios were repurchased on
February 28, 1997, pursuant to the terms of the Termination Agreements
between the Company and each of Messrs. Osborne and Barrios,
respectively. See "Management--Termination, Consulting and Release
Agreements with C. William Osborne, Kenneth W. Barrios and Daniel L.
Tennant."
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DESCRIPTION OF CAPITAL STOCK
THE RECAPITALIZATION
As of March 6, 1997 the Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") and by-laws of the
Company and the by-laws of the National Subsidiary, as the case may be, were
amended to: (i) eliminate the supermajority voting requirements of the Company's
stockholders and the Company's and the National Subsidiary's board of directors
that were applicable to certain actions taken with respect to the Company or the
National Subsidiary, (ii) eliminate all designations of classes of common stock,
the convertibility of one class of common stock into another and all class votes
of holders of common stock, (iii) change the names of the Class A Common Stock
and the Class B Common Stock to Common Stock, (iv) provide that all of the
outstanding shares of preferred stock of the Company be convertible into shares
of Common Stock on the same basis as shares of preferred stock are currently
convertible into Class B Common Stock, (v) eliminate class votes for Directors
of the Company and to provide that Directors will be elected by holders of
Common Stock and Series I Preferred Stock voting together as a single class (the
actions in items (i) through (v) being referred to as the "Recapitalization")
and (vi) change the Company's name to "TravelCenters of America, Inc."
THE CAPITAL STOCK
As of June 15, 1997, the authorized capital stock of the Company
consisted of (i) 30,000,000 shares of Common Stock, par value $.01 per share, of
which 1,276,672 shares were issued and outstanding and (ii) 20,000,000 shares of
Preferred Stock, par value $.01 per share, of which (a) 6,000,000 shares were
designated shares of Series I Preferred, 2,594,876 shares of which were issued
and outstanding, (b) 2,500,000 shares were designated shares of Series II
Preferred, 1,237,374 shares of which were issued and outstanding, (together with
the Series I Preferred, the "Junior Preferred Stock"), (c) 3,000,000 were
designated Series I Senior, 2,680,656 shares of which were issued and
outstanding and (d) 1,000,000 shares were designated shares of Series II Senior,
934,344 shares of which were issued and outstanding (together with the Series I
Senior, the "Senior Preferred Stock").
The following are summaries of the terms of the Common Stock, the
Junior Preferred Stock and the Senior Preferred Stock. Such summaries do not
purport to be complete and are subject to, and qualified in their entirety by,
reference to the terms thereof which are set forth in the Restated Certificate
of Incorporation, as amended, of the Company.
COMMON STOCK
VOTING. Each share of Common Stock entitles the holder thereof to one
vote on all matters submitted to a vote of the Company's stockholders. Holders
of Common Stock vote together with holders of Series I Preferred and Series I
Senior as a single class on all matters submitted to a vote of the Company's
stockholders, except as to the election of directors, upon which the Series I
Senior may not vote, or as otherwise required by law.
DIVIDENDS. The holders of the Common Stock and Junior Preferred Stock
are entitled to receive dividends, if, as and when declared by the Board of
Directors of the Company out of funds legally available therefor, except that no
dividends may be paid on Common Stock or Junior Preferred Stock before the
payment or provision for payment of all amounts required to be paid to the
holders of shares of Senior Preferred Stock. Pursuant to the Company's Restated
Certificate of Incorporation, the Company is precluded from paying dividends on
Common Stock and Series I Preferred, except for the distribution of capital
stock of the Company, so long as any shares of Series II Preferred remain
outstanding. In addition, the Company is precluded from paying dividends or
making distributions to the holders of Common Stock or Junior Preferred Stock
while any shares of Senior Preferred Stock are outstanding, except for dividends
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or distributions of capital stock of the Company, unless (i) in any fiscal year
the dividends and distributions do not exceed fifty percent of the Company's net
income for the prior fiscal year and (ii) if immediately after payment of such
dividend or the making of any such distribution, the value of the Company's
stockholder equity would exceed the value of the aggregate liquidation
preference of the outstanding shares of Junior Preferred Stock and Senior
Preferred Stock and the analogous amount payable to holders of Junior Preferred
Stock by at least one dollar.
LIQUIDATION RIGHTS AND OTHER RIGHTS. For a description of the amounts
to be received by holders of Common Stock in the event of the dissolution,
liquidation or winding up of the Company, see "--Senior Preferred
Stock--Liquidation Preference." The holders of the Common Stock do not have any
conversion, redemption or preemptive rights.
JUNIOR PREFERRED STOCK
GENERAL. Except with respect to voting rights and conversion rights,
shares of Series I Preferred and shares of Series II Preferred Stock are
substantially identical in all respects.
VOTING. Holders of the Series I Preferred vote together with holders of
Common Stock and the Series I Senior as a single class on all matters submitted
to a vote of the Company's stockholders, except as to the election of directors,
upon which the Series I Senior may not vote, or as otherwise required by law.
Notwithstanding the previous sentence, a supermajority vote of one or both
series of Junior Preferred Stock is required to change the rights of either of
the series of Junior Preferred Stock, to authorize the issuance of additional
shares of Junior Preferred Stock or to authorize a new class of stock ranking
prior to or on parity with the Junior Preferred Stock. Except as outlined above
or required by applicable law, the Series II Preferred is non-voting.
DIVIDENDS. Shares of Junior Preferred Stock do not have any
preferential right to receive dividends. For a description of restrictions on
payment of dividends on Junior Preferred Stock, see "--Common Stock--Dividends."
CONVERSION. Each share of Series I Preferred is convertible into a
share of Common Stock at any time at the option of the holder. Each share of
Series II Preferred is convertible at any time at the option of the holder into
one share of Common Stock, provided that, after giving effect to such
conversion, the total number of Series II Preferred and Series II Senior
converted into Common Stock account for 25% or less of the total number of
shares of Common Stock outstanding.
MERGERS AND CONSOLIDATIONS. Upon merger or consolidation of the Company
with another entity, if the consideration to be received is capital stock of the
surviving or resulting corporation, the holders of Common Stock, Junior
Preferred Stock and Senior Preferred Stock all must receive capital stock having
the same or as near equivalent as practicable powers, preferences,
participating, optional or other special rights, qualifications and restrictions
as apply to such series of stock pursuant to the provisions of the Company's
Certificate of Incorporation. If the consideration to be received upon merger or
consolidation is cash or property, the holders of Common Stock, Junior Preferred
Stock and Senior Preferred Stock all are entitled to receive cash or property in
the same amount that such holders would otherwise be entitled to receive if all
such cash or property were distributed upon any liquidation, dissolution or
winding up of the corporation pursuant to the applicable provisions in the
Company's Certificate of Incorporation.
LIQUIDATION PREFERENCE. For a description of the amounts to be received
by the holders of Junior Preferred Stock in the event of a dissolution,
liquidation or winding up of the Company, see "--Senior Preferred
Stock--Liquidation Preference."
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SENIOR PREFERRED STOCK
GENERAL. Except with respect to voting rights and conversion rights,
shares of Series I Senior and shares of Series II Senior are substantially
identical in all respects.
VOTING RIGHTS. Holders of the Series I Senior vote together with
holders of Common Stock and Series I Preferred on all matters submitted to a
vote of the Company's stockholders, except as to the election of directors or as
otherwise required by law. Shares of Senior Preferred Stock do not have any vote
with respect to the election of directors. Notwithstanding the previous
sentence, a supermajority vote of one or both series of Senior Preferred Stock
is required to change the rights of either series of Senior Preferred Stock, to
authorize the issuance of additional shares of Senior Preferred Stock or to
authorize a new class of stock ranking prior to or on parity with the Senior
Preferred Stock. Except as outlined above or pursuant to applicable law, the
Series II Senior is non-voting.
DIVIDENDS. Dividends accumulate on the original $10.00 per share
purchase price for Senior Preferred Stock at a rate of 13.50% per annum,
compounded semi-annually. Such dividends are not payable currently but are
cumulated and increase the liquidation preference of the Senior Preferred Stock.
Such dividends accrue whether or not declared by the Board of Directors. The
Senior Preferred Stock also participate pro rata (on a share for share basis)
with the outstanding Junior Preferred Stock and Common Stock, in dividends and
distributions (other than liquidating distributions).
CONVERSION. Each share of Series I Senior is convertible into a share
of Common Stock at any time at the option of the holder. Each share of Series II
Senior is convertible at any time at the option of the holder into one share of
Common Stock, provided that, after giving effect to such conversion, the total
number of Series II Senior and Series II Preferred converted into Common Stock
account for 25% or less of the total number of shares of Common Stock
outstanding. Following the conversion of at least 75% of the outstanding Senior
Preferred Stock into Common Stock, the Company shall be entitled to convert each
remaining share of Senior Preferred Stock into a share of Common Stock. In
addition, if the Company consummates an underwritten public offering of Common
Stock pursuant to which the net offering price per share is equal to or greater
than the Trigger Price (as defined below) and the net proceeds raised in the
offering are at least $50 million, the Company will have the right to require
that each share of Series I Senior be converted into one share of Series I
Preferred and that each share of Series II Senior be converted into one share of
Series II Preferred. The "Trigger Price" will be an amount equal to $10.00 plus
interest thereon at a rate of 13.50% per annum, compounded semi-annually, from
April 14, 1993 to the date of such public offering.
LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding-up of the Company, after payment or provision for payment of the debts
and liabilities of the Corporation and before any payment or provision for
payment shall be made to the holders of Junior Preferred Stock or Common Stock,
the holders of Senior Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders an amount
per share in cash equal to the "Senior Liquidation Preference," which is equal
to $10.00 per share and accrued Accretion Dividends (as defined in the Company's
Certificate of Incorporation). The aggregate Senior Liquidation Preference
applicable to the Series II Senior Preferred Stock may not exceed the greater of
(x) $10 per share or (y) 25% of the aggregate amount available for distribution
to the holders of all of the Company's capital stock. If, after payment of the
Senior Liquidation Preference, any amount remains for distribution to
stockholders, such remaining amount shall be distributed, as follows: (i) first,
to the holders of Junior Preferred Stock ratably in the amount of $10.00 per
outstanding share; (ii) second, to the holders of Common Stock ratably in the
amount of $10.00 per outstanding share; (iii) third, to the holders of Common
Stock and Junior Preferred Stock ratably in an amount per outstanding share
equal to the excess of the Senior Liquidation Preference per share over $10.00;
and (iv) last, to the holders of Senior Preferred Stock, Junior Preferred Stock,
Common Stock such that the amount distributed per outstanding share of Senior
Preferred Stock equals
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50% of the amount distributed per outstanding share of Junior Preferred Stock,
Common Stock, with each holder of Senior Preferred Stock to receive the same
amount per share, and each holder of Junior Preferred Stock and Common Stock to
receive the same amount per share.
REPURCHASE OFFER. If the Company proposes to declare and pay any
dividends or other distributions (other than stock dividends or distributions)
in respect of Common Stock or Junior Preferred Stock, the Company must offer to
utilize the amount of such proposed dividend or distribution (including the pro
rata share of such dividend or distribution that would otherwise be
distributable to the holders of the Senior Preferred Stock) to redeem shares of
Senior Preferred Stock at a redemption price per share equal to the Senior
Liquidation Preference. Any portion of the proposed dividend amount not used to
redeem shares of Senior Preferred Stock may be utilized by the Company to pay
dividends pari passu to the holders of outstanding shares of Senior Preferred
Stock, Junior Preferred Stock and Common Stock.
OPTIONAL REDEMPTION. The Company may, at its option and at any time,
redeem all (but not less than all) of the outstanding shares of Senior Preferred
Stock at a price per share equal to the Senior Liquidation Preference; provided,
that the holders thereof must be provided an opportunity to convert such shares
of Senior Preferred Stock into shares of Common Stock prior to the effectiveness
of such redemption.
MANDATORY REDEMPTION. The Company is required to redeem all of the then
outstanding shares of Senior Preferred Stock on December 10, 2008, at a
redemption price per share equal to the Senior Liquidation Preference.
OTHER PREFERRED STOCK
In addition, the Board of Directors has the authority to issue
preferred stock in one or more classes or series and to fix the designations,
powers, preferences and dividend rates, conversion rights, voting rights, terms
of redemption and liquidation preferences and the number of shares constituting
each such class or series, subject, in the case of the authorization of, or the
increase in the amount of, any class or series of shares ranking prior to or on
a parity with the shares of Junior Preferred Stock or Senior Preferred Stock, to
certain required votes of holders of the Junior Preferred Stock and/or the
Senior Preferred Stock.
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DESCRIPTION OF SENIOR INDEBTEDNESS
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Credit Facilities and the Senior Notes.
As part of the Refinancing, Chase, together with the Lenders, provided
the Company with senior secured Credit Facilities in an aggregate principal
amount of $120.0 million comprised of the Term Facility in an aggregate
principal amount of $80.0 million and the Revolving Credit Facility in an
aggregate principal amount of up to $40.0 million, of which up to $20.0 million
is available in the form of letters of credit. Chase syndicated the Term
Facility and a portion of its obligations under the Revolving Credit Facility to
the Lenders.
The Company issued $85.5 million aggregate principal amount of its
Senior Notes in exchange for (i) all of the National Subsidiary's Old Senior
Notes and (ii) all of the TA Subsidiary's Old Senior Notes other than the
Redeemed Notes. The Senior Notes and the Credit Facilities are secured by the
same collateral (see "--Credit Facilities--Guarantees; Security" below) and the
Senior Notes will rank PARI PASSU with the Credit Facilities. The relationship
between the Lenders and the holders of the Senior Notes is governed by an
intercreditor agreement, with Chase as Collateral Agent. For a description of
the Senior Notes, see "--Senior Notes."
CREDIT FACILITIES
AVAILABILITY. The availability of the Revolving Credit Facility is
subject to various conditions precedent customary for bank loans of this type.
The full amount of the Term Facility was drawn in a single drawing on the
Closing Date and amounts repaid or prepaid under the Term Facility may not be
reborrowed. Loans and letters of credit under the Revolving Credit Facility are
available at any time prior to, in the case of loans, the final maturity of the
Revolving Credit Facility and, in the case of letters of credit, the fifth
business day prior to the final maturity of the Revolving Credit Facility.
Amounts repaid under the Revolving Credit Facility may be reborrowed. Letters of
credit under the Revolving Credit Facility are issued by Chase or one of its
affiliates (the "Issuing Bank"). Each letter of credit shall expire no later
than the earlier of (i) 12 months after its date of issuance and (ii) the fifth
business day prior to the final maturity of the Revolving Credit Facility.
GUARANTEES; SECURITY. The obligations of the Company under the Credit
Facilities and any interest rate protection agreements entered into with a
Lender (or any affiliate thereof) are unconditionally guaranteed (the "Credit
Facility Guarantees") by each existing or subsequently acquired or organized
subsidiary of the Company, other than TAFSI and other than any foreign
subsidiary if such guarantee would result in adverse tax consequences to the
Company (collectively, the "Subsidiary Senior Guarantors"). The Senior Notes are
also guaranteed (the "Senior Note Guarantees"), on a PARI PASSU basis with the
Credit Facilities, by the Subsidiary Senior Guarantors.
The Credit Facilities, any interest rate protection agreement entered
into with a Lender (or any affiliate thereof) and the Credit Facility Guarantees
are secured by substantially all the assets of the Company and each existing or
subsequently acquired or organized subsidiary of the Company, including but not
limited to (i) a first-priority pledge of 100% (or, in the case of any foreign
subsidiary, 65%) of the capital stock of each such subsidiary of the Company and
(ii) perfected first-priority security interests in, and mortgages on (subject
to certain exceptions), substantially all tangible and intangible assets of the
Company and each such subsidiary, including but not limited to accounts
receivable, inventory, trademarks, trade names, real property, contractual
rights, cash and proceeds of the foregoing (the property referred to in clause
(i) and (ii) collectively, the "Collateral"). The Senior Notes and the Senior
Note Guarantees will also be secured, on a PARI PASSU basis with the Credit
Facilities, by the Collateral.
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Certain matters relating to the Collateral will require approval of the
Lenders and the holders of Senior Notes, voting as a single class, holding a
majority of the aggregate amount of loans and commitments outstanding under the
Credit Facilities and the aggregate amount of outstanding Senior Notes, which
majority shall include, subject to certain exceptions, (i) Lenders holding at
least one-third of the aggregate amount of loans and commitments outstanding
under the Credit Facilities and (ii) holders of Senior Notes holding at least
one-third of the aggregate amount of outstanding Senior Notes.
FINAL MATURITY AND AMORTIZATION. The Term Facility will mature on the
date that is eight years after the Closing Date. Loans made under the Term
Facility will amortize in nominal quarterly installments during the first six
years of such facility and in quarterly installments thereafter in an aggregate
amount equal to $30.0 million in year seven and $47.0 million in year eight. The
Revolving Credit Facility will mature on the date that is seven years after the
Closing Date.
INTEREST; REDUCTIONS. The interest rate under Term Facility is equal
to, at the option of the Company, (i) the Alternate Base Rate ("ABR") (which is
the highest of (a) Chase's Prime Rate, (b) the Federal Funds Effective Rate plus
0.50% and (c) the Base CD Rate plus 1%) plus 2.00% per annum or (ii) the
adjusted London interbank offered rate ("Adjusted LIBOR") plus 3.00% per annum.
The Company may elect interest periods of one, two, three, or six months for
Adjusted LIBOR borrowings. The interest rates under the Revolving Credit
Facility are, at the option of the Company, equal to ABR plus 1.50% per annum or
Adjusted LIBOR plus 2.50% per annum. Amounts under the Credit Facilities not
paid when due bear interest at a default rate equal to 2.00% above the otherwise
applicable rate. The interest rates in respect of the Term Facility and, after
the first anniversary of the closing date, the Revolving Credit Facility will be
reduced by 0.25% at any time that the Credit Facilities or the Series II Senior
Notes are rated at least Ba2 by Moody's Investors Service, Inc. ("Moody's") or
BB by Standard & Poor's Rating Group ("S&P") so long as the Credit Facilities or
the Series II Senior Notes are rated at least Ba3 by Moody's and BB- by S&P at
such time.
MANDATORY PREPAYMENTS; VOLUNTARY PREPAYMENTS. The Company is required to
make mandatory prepayments, PRO RATA, under the Credit Facilities and the Senior
Notes in each fiscal year with (i) 50% of Excess Cash Flow (as defined in the
credit agreement providing for the Credit Facilities (the "Credit Agreement"))
for the immediately preceding fiscal year and (ii) 100% of the net cash proceeds
(net of selling expenses and taxes, including, in the case of income taxes,
estimated income taxes) of (a) all asset sales or other dispositions of property
by the Company and its subsidiaries (including insurance proceeds in excess of
an agreed-upon amount), (b) any sale and leaseback of any asset or the
mortgaging of any real property and (c) all issuances of debt obligations of the
Company and its subsidiaries, subject in each case to certain exceptions. When
there are no longer outstanding loans under the Term Facility, mandatory
prepayments will be allocated PRO RATA between the Senior Notes and the
Revolving Credit Facility and will be applied permanently to reduce loans (and
simultaneously to reduce commitments) under the Revolving Credit Facility. The
holders of the Senior Notes may decline to accept any mandatory prepayment and,
under such circumstances and subject to certain limitations described below, all
amounts that would otherwise be used to prepay Series I Senior Notes shall be
used to prepay loans under the Term Facility and the Series II Senior Notes, pro
rata. The Lenders holding loans under the Term Facility and holders of the
Series II Senior Notes may, subject to the following sentence, decline to accept
any mandatory prepayment (including any mandatory prepayments declined by the
holders of the Series I Senior Notes) and, under such circumstances, the Company
shall retain all amounts (the "Declined Amounts") that would otherwise be used
to repay loans under the Term Facility and amounts outstanding under the Series
II Senior Notes. In the event that any portion of the Declined Amounts has not
been invested in assets used in the principal lines of business of the Company's
subsidiaries or used to make a voluntary prepayment of Senior Notes or loans
under the Credit Facilities during the one-year period after such Declined
Amounts were so declined, the Company shall be required, on the last day of such
one-year period, to make mandatory prepayment of Senior Notes and loans under
the Term Facility in an amount equal to such remaining portion of the Declined
Amounts, provided that (i) any amounts declined by the holders of
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Series I Senior Notes shall be allocated pro rata between the holders of loans
under the Term Facility and the holders of the Series II Senior Notes and (ii)
no holder of loans under the Term Facility and no holder of the Series II Senior
Notes shall be entitled to decline any such mandatory prepayment.
Voluntary prepayments of loans under the Credit Facilities and the
Senior Notes are permitted in whole or in part, at the option of the Company, in
minimum principal amounts set forth in the Credit Agreement and in the Senior
Note Agreement, respectively, and (a) in the case of loans under the Credit
Facilities and the Series II Senior Notes, without premium or penalty and (b) in
the case of the Series I Senior Notes, subject to the payment of a make-whole
premium set forth in the Series I Senior Notes. Any voluntary prepayment of
loans under the Credit Facilities shall be subject to reimbursement of the
Lender's redeployment costs in the case of a prepayment of Adjusted LIBOR
borrowings other than on the last day of the relevant interest period. Neither
the holders of the Senior Notes nor the lenders holding loans under the Credit
Facilities may decline any voluntary prepayment.
FEES. The Company has agreed to pay certain fees with respect to the
Credit Facilities, including (i) fees on the unused commitments of the Lenders
equal to 0.50% per annum of the undrawn portion of the commitments in respect of
the Credit Facilities; (ii) a per annum letter of credit fee equal to the spread
over Adjusted LIBOR in effect under the Revolving Credit Facility on the
aggregate face amount of outstanding letters of credit plus a per annum fronting
bank fee for the Issuing Bank; and (iii) annual administration fees.
COVENANTS. The Credit Agreement contains a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
prepay, redeem or repurchase other indebtedness or amend certain other debt
instruments, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, change the business conducted by the
Company or its subsidiaries, make capital expenditures or engage in certain
transactions with affiliates and otherwise restrict certain corporate
activities. In addition, the Credit Agreement requires the Company to maintain
specified financial ratios and tests, including minimum interest coverage
ratios, maximum leverage ratios, a minimum working capital requirement and a
minimum net worth requirement.
EVENTS OF DEFAULT. The Credit Agreement contains customary events of
default, including, but not limited to, nonpayment of principal or interest;
violation of covenants; incorrectness of representations and warranties in any
material respect; cross default and cross acceleration; bankruptcy; material
judgments; ERISA; actual or asserted invalidity of security documents; and
Change in Control (as defined in the Credit Agreement).
SENIOR NOTES
GUARANTEES; SECURITY; RANKING. Pursuant to the Senior Note Guarantees,
the obligations of the Company under the Senior Notes are unconditionally
guaranteed by the Subsidiary Senior Guarantors. The Credit Facilities are also
be guaranteed, on a PARI PASSU basis, with the Senior Notes by the Subsidiary
Senior Guarantors.
The Senior Notes and the Senior Note Guarantees are secured by the
Collateral. The Credit Facilities and the Credit Facility Guarantees also
secured, on a PARI PASSU basis with the Senior Notes, by the Collateral.
Certain matters relating to the Collateral will require approval of the
Lenders and the holders of the Senior Notes, voting as a single class, holding a
majority of the aggregate amount of loans and commitments outstanding under the
Credit Facilities and the aggregate amount of outstanding Senior
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Notes, which majority shall include, subject to certain exceptions, (i) Lenders
holding at least one-third of the aggregate amount of loans and commitments
outstanding under the Credit Facilities and (ii) holders of the Senior Notes
holding at least one-third of the aggregate amount of outstanding Senior Notes.
AMORTIZATION. The Series I Senior Notes are due on December 31, 2002
and will amortize in the fourth and fifth years after the Closing Date in an
amount equal to $17.75 million in each of years four and five.
The Series II Senior Notes are due on March 31, 2005, and will amortize
in quarterly installments in the seventh and eighth years after the Closing Date
in an amount equal to $20.0 million in year seven and $30.0 million in year
eight.
INTEREST. Interest on the Series I Senior Notes is payable
semi-annually in arrears at 8.94%.
The interest rate under Series II Senior Notes is LIBOR plus 3.00% per
annum, for interest periods of six months. Amounts under the Series I Senior
Notes and the Series II Senior Notes not paid when due bear interest at a
default rate equal to 2.00% above the otherwise applicable rate. The interest
rates in respect of the Series II Senior Notes will be reduced by 0.25% at any
time after the end of the second six month interest period that the Series II
Senior Notes or the Credit Facilities are rated at least Ba2 by Moody's or BB by
S&P so long as the Series II Senior Notes or the Credit Facilities are rated at
least Ba3 by Moody's and BB- by S&P at such time.
MANDATORY PREPAYMENTS; VOLUNTARY PREPAYMENTS. The Company is required
to make mandatory prepayments, pro rata, under the Credit Facilities and the
Senior Notes in each fiscal year with (i) 50% of Excess Cash Flow (as defined in
the Senior Secured Note Exchange Agreement providing for the Senior Notes (the
"Senior Note Agreement")) for the immediately preceding fiscal year and (ii)
100% of the net cash proceeds (net of selling expenses and taxes, including, in
the case of income taxes, estimated income taxes) of (a) all asset sales or
other dispositions of property by the Company and its subsidiaries (including
insurance proceeds in excess of an agreed-upon amount), (b) any sale and
leaseback of any asset or the mortgaging of any real property (other than
mortgages securing the loans under the Credit Agreement and permitted sale and
leaseback transactions) and (c) all issuances of debt obligations of the Company
and its subsidiaries, subject in each case to certain exceptions. When there are
no longer outstanding loans under the Term Facility, mandatory prepayments will
be allocated pro rata between the Senior Notes and the Revolving Credit Facility
and will be applied permanently to reduce loans (and simultaneously to reduce
commitments) under the Revolving Credit Facility. The holders of the Senior
Notes may decline to accept any mandatory prepayment and, under such
circumstances and subject to certain limitations described below, all amounts
that would otherwise be used to prepay the Series I Senior Notes shall be used
to prepay loans under the Term Facility and the Series II Senior Notes, pro
rata. The Lenders holding loans under the Term Facility and holders of the
Series II Senior Notes may, subject to the following sentence, decline to accept
any mandatory prepayment (including any mandatory prepayments declined by the
holders of the Series I Senior Notes) and, under such circumstances, the Company
shall retain all Declined Amounts that would otherwise be used to repay loans
under the Term Facility and amounts outstanding under the Series II Senior
Notes. In the event that any portion of the Declined Amounts has not been
invested in assets used in the principal lines of business of the Company's
subsidiaries or used to make a voluntary prepayment of the Senior Notes or loans
under the Credit Facilities during the one-year period after such Declined
Amounts were so declined, the Company shall be required, on the last day of such
one-year period, to make mandatory prepayment of Senior Notes and loans under
the Term Facility in an amount equal to such remaining portion of the Declined
Amounts, provided (i) any amounts declined by the Series I Senior Notes shall be
allocated pro rata between the holders of loans under the Term Facility and the
holders of the Series II Senior Notes and (ii) no holder of loans under the Term
Facility and no holder of the Series II Senior Notes shall be entitled to
decline any such mandatory prepayment.
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Voluntary prepayments of loans under the Credit Facilities and the
Senior Notes are permitted in whole or in part, at the option of the Company, in
minimum principal amounts set forth in the Credit Agreement and in the Senior
Note Agreement, respectively, and, (a) in the case of the Series I Senior Notes,
subject to the payment of a make-whole premium set forth in the Series I Senior
Notes and (b) in the case of the Series II Senior Notes and loans under the
Credit Facilities, without premium or penalty. Any voluntary prepayment (other
than on the last day of the relevant interest period) of amounts outstanding
under the Series II Senior Notes shall be subject to reimbursement of the
holders of Series II Senior Notes' redeployment costs. Neither the holders of
the Senior Notes nor the lenders holdings loans under the Term Facility may
decline to accept any voluntary prepayment.
COVENANTS. The Senior Note Agreement contains a number of covenants
that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, incur
guarantee obligations, prepay, redeem or repurchase other indebtedness or amend
certain other debt instruments, pay dividends, create liens on assets, enter
into sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change the business conducted
by the Company or its subsidiaries, make capital expenditures or engage in
certain transactions with affiliates and otherwise restrict certain corporate
activities. In addition, the Senior Note Agreement requires the Company to
maintain specified financial ratios and tests, including minimum interest
coverage ratios, maximum leverage ratios, minimum working capital requirement
and a minimum net worth requirement.
FEES. The Company has agreed to pay each holder of Series II Senior
Notes a fee in cash on the closing date in the amount set forth in the Senior
Note Agreement.
EVENTS OF DEFAULT. The Senior Note Agreement contains customary events
of default, including, but not limited to, nonpayment of principal or interest;
violation of covenants; incorrectness of representations and warranties in any
material respect; cross default and cross acceleration; bankruptcy; material
judgments; ERISA; actual or asserted invalidity of security documents; and
Change in Control (as defined in the Senior Note Agreement).
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DESCRIPTION OF NEW NOTES
GENERAL
The Company issued $125.0 million aggregate principal amount of
Existing Notes on March 27, 1997 (the "Issue Date") pursuant to an Indenture
dated as of the Issue Date among the Company, the TA Subsidiary and the National
Subsidiary (the Subsidiary Guarantors as of the Issue Date) and State Street
Bank and Trust Company, the successor trustee to Fleet National Bank, as Trustee
(in such capacity, the "Trustee"). The New Notes will also be issued under the
Indenture which will be qualified under the TIA upon effectiveness of the
Registration Statement of which this Prospectus is a part. The form and terms of
the New Notes are the same as the form and terms of the Existing Notes except
that the New Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer pursuant to the
Securities Act. The New Notes and the Existing Notes are collectively referred
to as the "Notes." The terms of the New Notes include those stated in the
Indenture and those made part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. The New Notes are subject to all such
terms, and holders of New Notes are referred to the Indenture and the TIA for a
statement thereof. Certain capitalized terms used herein and not otherwise
defined have the meanings set forth under "--Certain Definitions."
The following summary of certain provisions of the Indenture and the
Notes does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
TIA. A copy of the Indenture has been filed with the Commission as an exhibit to
the Registration Statement of which this Prospectus is a part and is
incorporated herein by reference.
Principal of, premium, if any, and interest on the Notes are and will
be payable, and the Notes may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee, in New York, New
York), except that, at the option of the Company, payment of interest may be
made by check mailed to the registered holders of the Notes at their registered
addresses.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE NOTES
The Notes are and will be unsecured senior subordinated obligations of
the Company, limited to $125.0 million aggregate principal amount, and will
mature on April 1, 2007. Each Note will bear interest at a rate per annum shown
on the front cover of this Prospectus from the Issue Date or from the most
recent date to which interest has been paid or provided for, payable
semiannually to Holders of record at the close of business on the March 15 or
September 15 immediately preceding the interest payment date on April 1 and
October 1 of each year, commencing October 1, 1997.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time on or after April 1, 2002, and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
as a percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right
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of Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on April 1 of the years set forth below:
REDEMPTION
PERIOD PRICE
------ ----------
2002......................................... 105.125%
2003......................................... 103.417%
2004......................................... 101.708%
2005 and thereafter.......................... 100.000%
In addition, at any time and from time to time prior to April 1, 2000,
the Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings by the Company, at a redemption price (expressed as a percentage of
principal amount thereof) of 110.25% plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
PROVIDED, HOWEVER, that at least 65% of the original aggregate principal amount
of the Notes must remain outstanding after each such redemption.
At any time on or prior to April 1, 2002, the Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a Change
of Control, upon not less than 30 or more than 60 days' prior notice (but in no
event more than 180 days after the occurrence of such Change of Control) mailed
by first-class mail to each Holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium as of,
and accrued but unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes is unsecured Senior
Subordinated Indebtedness of the Company. The payment of the principal of,
premium (if any) and interest (including any liquidated damages payable in
respect of Existing Notes under the Exchange and Registration Rights Agreement
("Additional Interest")) on the Notes is subordinate in right of payment, as set
forth in the Indenture, to all existing and future Senior Indebtedness of the
Company, ranks PARI PASSU in right of payment with all existing and future
Senior Subordinated Indebtedness of the Company and is senior in right of
payment to all existing and future Subordinated Obligations of the Company. The
Notes are also be effectively subordinated to any Secured Indebtedness of the
Company to the extent of the value of the assets securing such Indebtedness.
However, payment from the money or the proceeds of U.S. Government Obligations
held in any defeasance trust described under "Defeasance" below is not
subordinated to any Senior Indebtedness or subject to the restrictions described
herein.
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All the operations of the Company are conducted through its
Subsidiaries. The indebtedness evidenced by a Subsidiary Guarantee is unsecured
Senior Subordinated Indebtedness of such Subsidiary Guarantor. The payment of a
Subsidiary Guarantee is subordinate in right of payment, as set forth in the
Indenture, to all existing and future Senior Indebtedness of such Subsidiary
Guarantor, ranks PARI PASSU in right of payment with all existing and future
Senior Subordinated Indebtedness of such Subsidiary Guarantor and is senior in
right of payment to all existing and future Subordinated Obligations of such
Subsidiary Guarantor. Each Subsidiary Guarantee is also effectively subordinated
to any Secured Indebtedness of the Subsidiary Guarantor to the extent of the
value of the assets securing such Indebtedness.
At March 31, 1997, (i) the aggregate amount of the Company's
outstanding Senior Indebtedness was $165.5 million (exclusive of unused
commitments), all of which was Secured Indebtedness, (ii) the Company had no
Senior Subordinated Indebtedness outstanding other than the Existing Notes and
no indebtedness that was subordinate or junior in right of repayment to the
indebtedness represented by the Existing Notes, (iii) the outstanding Senior
Indebtedness of the Subsidiary Guarantors, consisting entirely of Guarantees of
the Senior Indebtedness of the Company Incurred under the Credit Facilities and
the Senior Notes, was $165.5 million and (iv) all liabilities of the
Subsidiaries (including Senior Indebtedness and trade payables, but excluding
the Subsidiary Guarantees and other intercompany liabilities) was approximately
$77.3 million. Although the Indenture contains restrictions on the Incurrence of
additional Indebtedness by the Company and its Subsidiary Guarantors, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness of the Company or a
Subsidiary Guarantor, as the case may be. See "Certain Covenants--Limitation on
Indebtedness" below.
"Senior Indebtedness" means the principal of, premium (if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization of the Company regardless of whether postfiling
interest is allowed in such proceeding) on, and fees and other amounts owing in
respect of, the Bank Indebtedness, the Senior Note Indebtedness and all other
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
issued, unless in the instrument creating or evidencing the same or pursuant to
which the same is outstanding it is provided that such obligations are not
superior in right of payment to the Notes; PROVIDED, HOWEVER, that Senior
Indebtedness shall not include (i) any obligation of the Company to any
Subsidiary, (ii) any liability for Federal, state, local or other taxes owed or
owing by the Company, (iii) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (iv) any Indebtedness or
obligation of the Company that by its terms is subordinate or junior in any
respect to any other Indebtedness or obligation of the Company, including any
Senior Subordinated Indebtedness and any Subordinated Obligations, (v) any
Capital Stock or (vi) any Indebtedness Incurred in violation of the Indenture.
If any Designated Senior Indebtedness is disallowed, avoided or subordinated
pursuant to the provisions of Section 548 of Title 11 of the United States Code
or any applicable state fraudulent conveyance law, such Designated Senior
Indebtedness nevertheless will constitute Senior Indebtedness.
"Senior Indebtedness" of any Subsidiary Guarantor has a correlative meaning.
Only Indebtedness of the Company or a Subsidiary Guarantor that is
Senior Indebtedness will rank senior to the Notes and the relevant Subsidiary
Guarantee, respectively, in accordance with the provisions of the Indenture. The
Notes and each Subsidiary Guarantee in all respects rank PARI PASSU with all
other Senior Subordinated Indebtedness of the Company and the relevant
Subsidiary Guarantor, respectively. Each of the Company and the Subsidiary
Guarantors has agreed in the Indenture that it will not Incur, directly or
indirectly, any Indebtedness that by its terms is subordinate or junior in
ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness of the Company or a
Subsidiary Guarantor is not deemed to be subordinate or junior to Secured
Indebtedness, as the case may be, merely because it is unsecured.
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The Company may not pay principal of, premium (if any) or interest
(including any Additional Interest) on, the Notes or make any deposit pursuant
to the provisions described under "Defeasance" below and may not otherwise
purchase, redeem or otherwise retire any Notes (collectively, "pay the Notes")
if (i) any Senior Indebtedness is not paid when due in cash or (ii) any other
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such acceleration has been
rescinded in writing or such Senior Indebtedness has been paid in full in cash.
However, the Company may pay the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
Representative of the Senior Indebtedness with respect to which either of the
events set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the second preceding sentence) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, the Company may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to the Company) of written notice (a "Blockage Notice") of such default
from the Representative of the Designated Senior Indebtedness specifying an
election to effect a Payment Blockage Period and ending 179 days thereafter (or
earlier if such Payment Blockage Period is terminated (i) by written notice to
the Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) by repayment in full in cash of such Designated Senior Indebtedness
or (iii) because the default giving rise to such Blockage Notice is no longer
continuing). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Company may resume payments on the
Notes after the end of such Payment Blockage Period. Not more than one Blockage
Notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period. However, if any Blockage Notice within such 360-day period is given by
or on behalf of any holders of Designated Senior Indebtedness other than the
Bank Indebtedness and the Senior Note Indebtedness, the Representative of the
Bank Indebtedness and the Senior Note Indebtedness may give another Blockage
Notice within such period. In no event, however, may the total number of days
during which any Payment Blockage Period or Periods is in effect exceed 179 days
in the aggregate during any 360 consecutive day period.
Upon any payment or distribution of the assets of the Company upon a
total or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash of the Senior
Indebtedness before the Noteholders are entitled to receive any payment and
until the Senior Indebtedness is paid in full in cash, any payment or
distribution to which Noteholders would be entitled but for the subordination
provisions of the Indenture will be made to holders of the Senior Indebtedness
as their interest may appear. If a distribution is made to Noteholders that due
to the subordination provisions of the Indenture should not have been made to
them, such Noteholders are required to hold it in trust for the holders of
Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representatives) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Company may not pay the Notes
until five Business Days after such holders or the Representative of the
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Notes only if the subordination provisions of the
Indenture otherwise permit payment at that time.
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The Indebtedness evidenced by each Subsidiary Guarantee (including the
payment of principal of, premium, if any, and interest (including any Additional
Interest) on the Notes) is subordinated to Senior Indebtedness on the same basis
as the Notes are subordinated to Senior Indebtedness.
By reason of such subordination provisions contained in the Indenture,
in the event of insolvency, creditors of the Company or a Subsidiary Guarantor
who are holders of Senior Indebtedness of the Company or a Subsidiary Guarantor,
as the case may be, may recover more, ratably, than the Noteholders, and
creditors of the Company who are not holders of Senior Indebtedness or of Senior
Subordinated Indebtedness (including the Notes) may recover less, ratably, than
holders of Senior Indebtedness of the Company.
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors, as primary obligors and not merely as
sureties, have irrevocably and unconditionally Guaranteed on an unsecured senior
subordinated basis the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Existing Notes (and upon their issuance will do so
with respect to the New Notes), whether for payment of principal of or interest
on the Notes, expenses, indemnification or otherwise (all such obligations
guaranteed by the Subsidiary Guarantors being herein called the "Guaranteed
Obligations") by executing a Subsidiary Guarantee. The Subsidiary Guarantors
have agreed to pay, in addition to the amount stated above, any and all expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or the
Holders in enforcing any rights under the Subsidiary Guarantee. Each Subsidiary
Guarantee is limited in amount to an amount not to exceed the maximum amount
that can be Guaranteed by the applicable Subsidiary Guarantor without rendering
the Subsidiary Guarantee, as it relates to such Subsidiary Guarantor, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. As of the date of this
Prospectus, the Subsidiary Guarantors are the TA Subsidiary and the National
Subsidiary. After such date, the Company will cause each Restricted Subsidiary
that is not a Foreign Subsidiary and that Incurs Indebtedness to execute and
deliver to the Trustee a Subsidiary Guarantee pursuant to which such Restricted
Subsidiary will Guarantee payment of the Notes. See "Certain Covenants--Future
Subsidiary Guarantors" below.
Each Subsidiary Guarantee is a continuing guarantee and shall (a)
remain in full force and effect until payment in full of all the Guaranteed
Obligations, (b) be binding upon each Subsidiary Guarantor and (c) enure to the
benefit of and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns.
A Subsidiary Guarantee will be automatically released (a) upon the sale
(including through merger or consolidation) of the Capital Stock, or all or
substantially all of the assets, of the applicable Subsidiary Guarantor if such
sale is made in compliance with the Indenture or (b) to the extent, but only to
the extent, that all obligations of such Subsidiary Guarantor under the Credit
Agreement and the Senior Note Agreement, and all its Guarantees of, and under
all its pledges of assets or other security interests that secure, any other
Indebtedness of the Company, shall also terminate.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); PROVIDED, HOWEVER, that notwithstanding the occurrence of a Change in
Control, the Company shall not be obligated to purchase the Notes pursuant to
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this covenant in the event that it has exercised its right to redeem all the
Notes pursuant to the provisions under "--Optional Redemption":
(i) prior to the first public offering of Voting Stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of
the Voting Stock of the Company, whether as a result of issuance of
securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of
securities by any Permitted Holder or otherwise (for purposes of this
clause (i), the Permitted Holders shall be deemed to own beneficially
any Voting Stock of an entity (the "specified entity") held by any
other entity (the "parent entity") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the
parent entity);
(ii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in clause (i) above,
except that such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total voting
power of the Voting Stock of the Company (including any successor by
merger, consolidation or the sale of all or substantially all assets);
or
(iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders
of the Company was approved by a vote of a majority of the directors of
the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
In the event that at the time of such Change of Control the terms of
the Bank Indebtedness or the Senior Note Indebtedness restrict or prohibit the
repurchase of Notes pursuant to this covenant, then prior to the mailing of the
notice to Holders provided for in the immediately following paragraph but in any
event within 30 days following any Change of Control, the Company shall (i)
repay in full all Bank Indebtedness or Senior Note Indebtedness, as the case may
be, or offer to repay in full all Bank Indebtedness or Senior Note Indebtedness,
as the case may be, and repay the Bank Indebtedness of each lender or Senior
Note Indebtedness of each holder, as the case may be, who has accepted such
offer or (ii) obtain the requisite consent under the agreements governing the
Bank Indebtedness or the Senior Note Indebtedness, as the case may be, to permit
the repurchase of the Notes as provided for in the immediately following
paragraph.
Within 30 days following any Change of Control, unless the Company has
mailed a notice of redemption in connection with such Change of Control, the
Company shall mail a notice to each Holder with a copy to the Trustee stating:
(a) that a Change of Control has occurred and that such Holder has the right to
require the Company to purchase such Holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase (subject to the right of Holders of record on
a record date to receive interest on the relevant interest payment date); (b)
the circumstances and relevant facts and financial information regarding such
Change of Control; (c) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and (d) the
instructions determined by the Company, consistent with this covenant, that a
Holder must follow in order to have its Notes purchased.
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The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchasers. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
The occurrence of certain of the events which would constitute a Change
of Control would constitute a default under the Credit Agreement and the Senior
Note Agreement. Future Senior Indebtedness of the Company may contain
prohibitions of certain events which would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) The Company will not, and will not
permit any Restricted Subsidiary to, Incur any Indebtedness; PROVIDED, HOWEVER,
that the Company or any Restricted Subsidiary may Incur Indebtedness if on the
date thereof the Consolidated Coverage Ratio would be greater than 2.0:1, if
such Indebtedness is Incurred on or prior to March 31, 2000, and 2.25:1 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Bank
Indebtedness and Senior Note Indebtedness collectively not in excess of $225.0
million less the aggregate amount of all payments of principal applied to
permanently reduce any such Indebtedness actually made since the Issue Date
(excluding any payments to the extent refinanced at the time of payment under
replacement Bank Indebtedness or Senior Note Indebtedness); (ii) Indebtedness of
the Company owing to and held by any Subsidiary or Indebtedness of a Restricted
Subsidiary owing to and held by the Company or any Subsidiary; PROVIDED,
HOWEVER, that any subsequent issuance or transfer of any Capital Stock or any
other event that results in any such Subsidiary ceasing to be a Subsidiary or
any subsequent transfer of any such Indebtedness (except to the Company or a
Restricted Subsidiary) will be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof; (iii) Indebtedness
represented by the Notes, the Subsidiary Guarantees, any Indebtedness (other
than the Indebtedness described in clause (i) above) outstanding on the Issue
Date and any Refinancing Indebtedness Incurred in respect of any Indebtedness
described in clause (i), this clause (iii) or paragraph (a); (iv) (A)
Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to
the date on which such Restricted Subsidiary was acquired by the Company (other
than Indebtedness Incurred as consideration in, in contemplation of, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Subsidiary or was otherwise acquired by the
Company); PROVIDED, HOWEVER, that at the time such Restricted Subsidiary is
acquired by the Company, the Company would have been able to Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) after giving effect to the
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Incurrence of such Indebtedness pursuant to this clause (iv) and (B) Refinancing
Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness
Incurred by such Restricted Subsidiary pursuant to this clause (iv); (v)
Indebtedness (A) in respect of performance bonds, bankers' acceptances, letters
of credit and surety or appeal bonds provided by the Company and the Restricted
Subsidiaries in the ordinary course of their business and which do not secure
other Indebtedness of the Company or any Restricted Subsidiary (except
Indebtedness permitted under the Indenture), and (B) under Currency Agreements
and Interest Rate Agreements, in each case entered into for bona fide hedging
purposes of the Company in the ordinary course of business and not for the
purposes of speculation; PROVIDED, HOWEVER, that, in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and Interest
Rate Agreements do not increase the Indebtedness of the Company outstanding at
any time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder; and (vi) Indebtedness (which may constitute Bank
Indebtedness or Senior Note Indebtedness) of the Company or any Restricted
Subsidiary (other than Indebtedness permitted to be Incurred pursuant to
paragraph (a) or any other clause of this paragraph (b)) in an aggregate
principal amount on the date of Incurrence which, when added to the principal
amount of all other Indebtedness Incurred pursuant to this clause (vi) and then
outstanding, will not exceed $20.0 million.
(c) Notwithstanding the foregoing, neither the Company nor any
Subsidiary may Incur any Indebtedness pursuant to paragraph (b) above if the
proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated Obligations unless such
Indebtedness will be subordinated to the Notes to at least the same extent as
such Subordinated Obligations. The Company may not Incur any Indebtedness if
such Indebtedness is by its terms expressly subordinate or junior in ranking in
any respect to any Senior Indebtedness of the Company unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness of the Company. In addition, the
Company may not Incur any Secured Indebtedness which is not Senior Indebtedness
of the Company unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with (or on a senior basis to, in the case
of Indebtedness subordinated in right of payment to the Notes) such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A
Subsidiary Guarantor may not Incur any Indebtedness if such Indebtedness is by
its terms expressly subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Subsidiary Guarantor unless such Indebtedness is
Senior Subordinated Indebtedness of such Subsidiary Guarantor or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness of such
Subsidiary Guarantor. In addition, a Subsidiary Guarantor may not Incur any
Secured Indebtedness which is not Senior Indebtedness of such Subsidiary
Guarantor unless contemporaneously therewith effective provision is made to
secure the Subsidiary Guarantee equally and ratably with (or on a senior basis
to, in the case of Indebtedness subordinated in right of payment to such
Subsidiary Guarantee) such Secured Indebtedness for as long as such Secured
Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will
not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable to the Company or another Restricted Subsidiary (and, if such Restricted
Subsidiary is not wholly owned, to its other shareholders on a pro rata basis in
accordance with their respective ownership of the class of Capital Stock
affected thereby), (ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of the Company or any Restricted Subsidiary held by Persons
other than the Company or another Restricted Subsidiary, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) make any Investment
(other than a Permitted Investment) in any Person (any such
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dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to as a "Restricted
Payment") if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default will have occurred and be continuing (or would
result therefrom); (2) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--Limitation
on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination will be
conclusive and evidenced by a resolution of the Board of Directors) declared or
made subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the Issue Date to the end of the most recent fiscal quarter for
which financial statements are then available but ending not more than 60 days
prior to the date of such Restricted Payment (or, in case such Consolidated Net
Income will be a deficit, minus 100% of such deficit); (B) the aggregate Net
Cash Proceeds received by the Company from the issue or sale of its Capital
Stock (other than Disqualified Stock) or other cash contribution subsequent to
the Issue Date (other than an issuance or sale to a Subsidiary of the Company or
an employee stock ownership plan or other trust established by the Company or
any of its Subsidiaries); (C) the amount by which Indebtedness of the Company or
its Restricted Subsidiaries is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary) of any Indebtedness issued
subsequent to the Issue Date of the Company or its Restricted Subsidiaries
convertible or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash or other assets of the Company or any
Subsidiary distributed to holders of such Indebtedness by the Company or any
Restricted Subsidiary upon such conversion or exchange); (D) the amount equal to
the net reduction in Investments in Unrestricted Subsidiaries resulting from (i)
payments of dividends, repayments of the principal of loans or advances or other
transfers of assets to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments and (E) to the extent that any
Investment (other than a Permitted Investment or Investment referred to in
clause (D)) that was made after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (x) the cash received with respect
to such sale, liquidation or repayment of such Investment (less the cost of such
sale, liquidation or repayment, if any) and (y) the amount of such Investment
that was included in calculating the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase or redemption of Capital Stock of the Company or Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
(unless otherwise permitted to be Incurred under the Indenture) and other than
Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan
or other trust established by the Company or any of its Subsidiaries); PROVIDED,
HOWEVER, that (A) such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
applied to make such purchase or redemption from such sale will be excluded from
clause (3)(B) of paragraph (a) above; (ii) any purchase or redemption of
Subordinated Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of the Company that is permitted
to be Incurred pursuant to the covenant described under "--Limitation on
Indebtedness"; provided, however, that such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments; (iii) any
purchase or redemption of Subordinated Obligations from Net Available Cash to
the extent permitted by the covenant described under "--Limitation on Sales of
Assets and Subsidiary Stock"; PROVIDED, HOWEVER, that such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments; (iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
this covenant; PROVIDED, HOWEVER, that such dividend will be included in the
calculation of the amount of Restricted Payments; (v) the repurchase of shares
of, or options to purchase shares of, or
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the payment of the stock appreciation on any options to purchase, common stock
of the Company or any of its Subsidiaries from employees, former employees,
directors or former directors of the Company or any of its Subsidiaries (or
permitted transferees of such employees, former employees, directors or former
directors), pursuant to the terms of agreements (including employment
agreements), plans (or amendments thereto) or other arrangements approved by the
Board of Directors or the board of directors of the applicable Subsidiary, as
the case may be; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases shall not exceed $2.0 million in any calendar year and $5.0 million
in the aggregate (which amount shall be increased by the amount of any cash
proceeds to the Company from sales of its Capital Stock to employees, former
employees, directors or former directors subsequent to the Issue Date); PROVIDED
FURTHER, HOWEVER, that such repurchases shall be included in the calculation of
the amount of Restricted Payments; and (vi) the repurchase of shares of Capital
Stock of the Company in an aggregate amount not in excess of $15.0 million from
Lessee Operators or their Affiliates in connection with the termination of one
or more lease agreements and one or more franchise agreements in respect of one
or more TravelCenters operated directly or indirectly by such Lessee Operator or
its Affiliates.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or pay any
Indebtedness owed to the Company, (ii) make any loans or advances to the Company
or (iii) transfer any of its property or assets to the Company, except: (A) any
encumbrance or restriction pursuant to an agreement in effect at or entered into
on the Issue Date, including the Credit Agreement and the Senior Note Agreement;
(B) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration in,
in contemplation of, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was otherwise acquired by the Company) and outstanding on such
date; (C) any encumbrance or restriction assumed pursuant to an agreement
constituting Bank Indebtedness, Senior Note Indebtedness or Refinancing
Indebtedness Incurred in compliance with the Indenture; provided, however, that
the encumbrances and restrictions contained in such Senior Bank Documents,
Senior Note Documents or any other agreement providing for Refinancing
Indebtedness are no less favorable to the Noteholders than encumbrances and
restrictions contained in the agreements relating to the Indebtedness being
replaced; (D) any encumbrance or restriction assumed pursuant to an agreement
relating to an acquisition of property, so long as the encumbrances or
restrictions in any such agreement relate solely to the property so acquired
(and are not or were not created in anticipation of or in connection with the
acquisition thereof); (E) in the case of clause (iii), any encumbrance or
restriction (1) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (2) contained in security agreements or
mortgages securing Indebtedness of a Subsidiary to the extent such encumbrance
or restrictions restrict the transfer or the property subject to such security
agreements or mortgages or (3) arising or agreed to in the ordinary course of
business and that does not, individually or in the aggregate, detract from the
value of property or assets of the Company or any of its Subsidiaries in any
manner material to the Company or any such Restricted Subsidiary; (F)
restrictions on the transfer of assets subject to any Lien permitted under the
Indenture imposed by the holder of such Lien; and (G) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all the Capital Stock or
assets of such Restricted Subsidiary pending the closing of such sale or
disposition.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company
will not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least
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equal to the fair market value as determined in good faith by the Board of
Directors, whose determination will be conclusive and evidenced by a resolution
of the Board of Directors (including as to the value of all noncash
consideration) of the shares and assets disposed of by the Company or such
Restricted Subsidiary pursuant to such Asset Disposition, (ii) at least 75% of
the consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash or Designated Consideration and (iii) an amount equal to
100% of the Net Available Cash from such Asset Disposition is applied by the
Company (or such Restricted Subsidiary, as the case may be) (A) FIRST, to the
extent the Company elects or is required to prepay, repay or purchase Senior
Indebtedness (in each case other than Indebtedness owed to the Company or an
Affiliate of the Company) within 180 days after the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to the
extent of the balance of Net Available Cash after application in accordance with
clause (A), to the extent the Company or such Restricted Subsidiary elects, to
reinvest in Additional Assets (including by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary) by the later of (x) December 31, 1999,
or (y) 365 days from the later of such Asset Disposition or the receipt of such
Net Available Cash; (C) THIRD, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and (B), to make
an Offer (as defined below) to purchase Notes pursuant to and subject to the
conditions set forth in section (b) of this covenant, and (D) FOURTH, to the
extent of the balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C), to fund (to the extent consistent with any other
applicable provision of the Indenture) any corporate purpose; PROVIDED, HOWEVER,
that in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A) or (C) above, the Company or such Restricted Subsidiary
will retire such Indebtedness and will cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this
covenant, the Company and the Restricted Subsidiaries will not be required to
apply any Net Available Cash in accordance with this covenant except to the
extent that the aggregate Net Available Cash from all Asset Dispositions that is
not applied in accordance with this covenant exceeds $2.0 million.
For the purposes of this covenant, the following are deemed to be cash:
(x) the assumption of Indebtedness of the Company (other than Disqualified Stock
of the Company) or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition (in which case the Company shall, without further
action, be deemed to have applied such assumed Indebtedness in accordance with
clause (A) of the preceding paragraph) and (y) securities or instruments
received by the Company or any Restricted Subsidiary from the transferee that
are promptly converted by the Company or such Restricted Subsidiary into cash.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries will be permitted to consummate any Asset Swap if (i) at the time
of entering into such Asset Swap or immediately after giving effect to such
Asset Swap, no Default or Event of Default shall have occurred or be continuing
or would occur as a consequence thereof, (ii) in the event such Asset Swap
involves an aggregate amount in excess of $2.0 million, the terms of such Asset
Swap have been approved by a majority of the members of the Board of Directors
and (iii) in the event such Asset Swap involves an aggregate amount in excess of
$10.0 million, the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Asset Swap
is fair to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view.
The proceeds of any sale of Capital Stock of a Subsidiary will be
treated as Net Available Cash from an Asset Disposition and must be applied in
accordance with the terms of this covenant.
(b) In the event of an Asset Disposition that requires an Offer
pursuant to clause (a)(iii)(C) of this covenant, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes (the
"Offer") at a purchase price of 100% of their principal amount plus accrued
interest to
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the date of purchase in accordance with the procedures (including prorationing
in the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of Notes tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the Notes, the Company will apply the
remaining Net Available Cash in accordance with clause (a)(iii)(D) of this
covenant. The Company will not be required to make an Offer for Notes pursuant
to this covenant if the Net Available Cash available therefor (after application
of the proceeds as provided in clauses (A) and (B) of this covenant section
(a)(iii)) is less than $10.0 million (which lesser amount will be carried
forward for purposes of determining whether an Offer is required with respect to
the Net Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, enter
into or conduct any transaction (including, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company (an "Affiliate Transaction") on terms (i) that are less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
could be obtained at the time of such transaction in arm's-length dealings with
a Person who is not such an Affiliate and (ii) that, in the event such Affiliate
Transaction involves an aggregate amount in excess of $5.0 million, are not in
writing and have not been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction. In addition,
if such Affiliate Transaction involves an amount in excess of $10.0 million
(other than fees to investment banking firms constituting customary underwriting
discounts for offerings of securities or customary advisory fees for merger and
acquisition or recapitalization transactions), a fairness opinion must be
provided by a nationally recognized appraisal or investment banking firm.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments," (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options, stock appreciation
rights and stock ownership plans approved by the Board of Directors, (iii) loans
or advances for the purposes set forth under clauses (vi) and (viii) of the
definition of Permitted Investments, (iv) indemnification agreements with, and
the payment of fees and indemnities to, directors, officers and employees of the
Company and its Restricted Subsidiaries, in each case in the ordinary course of
business, (v) any employment, noncompetition or confidentiality agreements
entered into by the Company or any of its Restricted Subsidiaries with its
employees in the ordinary course of business or (vi) any transaction between the
Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.
SEC REPORTS. Notwithstanding that the Company may not be required to be
or remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the SEC (if then permitted to do so)
and provide (whether or not so filed with the SEC) the Trustee and Noteholders
and prospective Noteholders (upon request) within 15 days after it files (or
would be obligated to file, if subject to Section 13 or 15(d) of the Exchange
Act) them with the SEC, copies of its annual report and the information,
documents and other reports that are specified in Sections 13 and 15(d) of the
Exchange Act. In addition, following a Public Equity Offering, the Company shall
furnish to the Trustee and the Noteholders, promptly upon their becoming
available, copies of the annual report to shareholders and any other information
provided by the Company to its public shareholders generally. The Company also
will comply with the other provisions of Section 314(a) of the TIA.
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FUTURE SUBSIDIARY GUARANTORS. The Company will cause each Restricted
Subsidiary that is not a Foreign Subsidiary and that Incurs Indebtedness to
execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which such
Subsidiary will Guarantee payment of the Notes. Each Subsidiary Guarantee will
be limited to an amount not to exceed the maximum amount that can be Guaranteed
by such Subsidiary without rendering the Subsidiary Guarantee, as it relates to
such Subsidiary, voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of creditors
generally.
LIMITATION ON LINES OF BUSINESS. The Company will not, and will not
permit any Restricted Subsidiary to, engage in any business, other than a
Related Business; provided, however, that the foregoing limitation shall not
prohibit the acquisition of Additional Assets otherwise permitted hereunder.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company will not, and
will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (a) the Company or such
Subsidiary would be entitled to (i) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "--Limitation on Indebtedness" and (ii) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Notes pursuant to the covenant described under
"--Limitation on Indebtedness", (b) the net cash proceeds received by the
Company or any Subsidiary in connection with such Sale/Leaseback Transaction are
at least equal to the fair value (as determined in good faith by the Board of
Directors) of such property and (c) the transfer of such property is permitted
by, and the Company applies the proceeds of such transaction in compliance with,
the covenant described under "--Limitation on Sale of Assets and Subsidiary
Stock".
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a corporation, partnership, limited liability company or business trust
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company) will expressly assume, by an indenture supplemental to the Indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be continuing; (iii) immediately
after giving effect to such transaction, the Successor Company would be able to
Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant
described under "--Limitation on Indebtedness"; and (iv) the Company will have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture.
Notwithstanding the foregoing clauses (ii) and (iii), (a) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company and (b) the Company may merge with
an Affiliate incorporated for the purpose of reincorporating the Company in
another jurisdiction.
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DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, whether or not prohibited by the
provisions described under "Ranking" above, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated Maturity,
upon redemption, upon required repurchase, upon declaration or otherwise,
whether or not such payment is prohibited by the provisions described under
"Ranking" above, (iii) the failure by the Company to comply with its obligations
under the covenant described under "Merger and Consolidation" above, (iv) the
failure by the Company to comply for 30 days after notice with any of its
obligations under the covenants described under "Change of Control" or "Certain
Covenants" above (in each case, other than a failure to purchase Notes), (v) the
failure by any of the Company or the Subsidiary Guarantors to comply for 60 days
after notice with its other agreements contained in the Securities, the
Indenture or the Subsidiary Guarantees, (vi) the failure by the Company or any
Significant Subsidiary to pay any Indebtedness within any applicable grace
period after final maturity or the acceleration of any such Indebtedness by the
holders thereof because of a default if the total amount of such Indebtedness
unpaid or accelerated exceeds $5.0 million or its foreign currency equivalent
(the "cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary (the
"bankruptcy provisions"), (viii) the rendering of any judgment or decree for the
payment of money in excess of $5.0 million or its foreign currency equivalent
against the Company or a Significant Subsidiary if (A) an enforcement proceeding
thereon is commenced and is not promptly stayed or (B) such judgment or decree
remains outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed (the "judgment default provision") or (ix) any
Subsidiary Guarantee ceases to be in full force and effect or any Subsidiary
Guarantor denies or disaffirms its obligations under the Indenture or any
Subsidiary Guarantee and such Default continues for 10 days (in each case other
than by reason of release of such Subsidiary Guarantee in accordance with the
terms of the Indenture).
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
However, a default under clause (iv) or (v) will not constitute an
Event of Default until the Trustee or the Holders of at least 25% in principal
amount of the outstanding Notes notify the Company of the default and the
Company does not cure such default within the time specified in clauses (iv) and
(v) hereof after receipt of such notice.
If an Event of Default (other than an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Company)
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the outstanding Notes by notice to the Company may declare
the principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal of
and interest on all the Notes will become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount
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of the outstanding Notes have requested the Trustee to pursue the remedy, (iii)
such Holders have offered the Trustee reasonable security or indemnity against
any loss, liability or expense, (iv) the Trustee has not complied with such
request within 60 days after the receipt of the request and the offer of
security or indemnity and (v) the Holders of a majority in principal amount of
the outstanding Notes have not given the Trustee a direction inconsistent with
such request within such 60-day period. Subject to certain restrictions, the
Holders of a majority in principal amount of the outstanding Notes are given the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or of exercising any trust or power conferred on
the Trustee. The Trustee, however, may refuse to follow any direction that
conflicts with law or the Indenture or that the Trustee determines is unduly
prejudicial to the rights of any other Holder or that would involve the Trustee
in personal liability. Prior to taking any action under the Indenture, the
Trustee will be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
The Indenture provides that if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each Holder notice of the
Default within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if any)
or interest on any Note, the Trustee may withhold notice if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interests of the Noteholders. In addition, the Company is required to
deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company also is required to deliver to
the Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action the
Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each Holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose Holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the principal
of or extend the Stated Maturity of any Note, (iv) reduce the premium payable
upon the redemption of any Note or change the time at which any Note may be
redeemed as described under "Optional Redemption" above, (v) make any Note
payable in money other than that stated in the Note, (vi) make any change to the
subordination provisions of the Indenture that adversely affects the rights of
any Holder, (vii) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes, (viii) make any change in the amendment provisions which require
each Holder's consent or in the waiver provisions or (ix) modify the Subsidiary
Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Company and Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to change the subordination provisions to limit or terminate the
benefits to any holder of Senior Indebtedness, to add further Guarantees with
respect to the Notes, to secure the Notes, to add to the covenants of the
Company for the benefit of the Noteholders or to surrender any right or power
conferred upon the Company, to make any change that does not adversely
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affect the rights of any Holder, to provide for the issuance and authorization
of Exchange Notes or to comply with any requirement of the SEC in connection
with the qualification of the Indenture under the TIA. However, no amendment may
be made to the subordination provisions of the Indenture that adversely affects
the rights of any holder of Senior Indebtedness of the Company or of a
Subsidiary Guarantor then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company
is required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered holder of a Note
will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "Certain Covenants" and the provisions described under "Change
of Control", the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Subsidiaries and the judgment default provision
described under "Defaults" above and the limitations contained in clauses (iii)
and (iv) under "Merger and Consolidation" above ("covenant defeasance"). If the
Company exercises its legal defeasance option or its covenant defeasance option,
each Subsidiary Guarantor will be released from all of its obligations with
respect to its Subsidiary Guarantee.
The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated because
of an Event of Default specified in clause (iv), (vi), (vii) with respect only
to Subsidiaries, (viii) or (ix) under "Defaults" above or because of the failure
of the Company to comply with clause (iii) under "Merger and Consolidation"
above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the
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same manner and at the same times as would have been the case if such deposit
and defeasance had not occurred (and, in the case of legal defeasance only, such
Opinion of Counsel must be based on a ruling of the Internal Revenue Service or
other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; PROVIDED, HOWEVER, that any such Restricted Subsidiary described in
clauses (ii) or (iii) above is, or following such acquisition will be, in the
good faith judgment of the Company's management, primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Note at any Redemption
Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the
excess of (A) the present value of all remaining required interest and principal
payments due on such Note, computed using a discount rate equal to the Treasury
Rate plus 75 basis points, over (B) the then-outstanding principal amount of
such Note.
"Asset Disposition" means any sale, lease, transfer or other
disposition of shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) in one transaction or in a series of
related transactions other than (i) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) dispositions
with a fair market value of less than $500,000 in the aggregate in any fiscal
year, (iv) for purposes of the provisions described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" and (v) the disposition of all or
substantially all the assets of the Company permitted by the covenant described
under "Merger and Consolidation".
"Asset Swap" means the execution of a definitive agreement, subject
only to customary closing conditions that the Company's management in good faith
believes will be satisfied, for a substantially
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concurrent purchase and sale, or exchange, of Productive Assets between the
Company or any of its Restricted Subsidiaries and another Person or group of
affiliated Persons; PROVIDED, HOWEVER, that any amendment to or waiver of any
closing condition that individually or in the aggregate is material to the Asset
Swap shall be deemed to be a new Asset Swap.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in
respect of the Senior Bank Documents and any Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism), in whole or in part, Indebtedness under such
Senior Bank Documents including Indebtedness that refinances such Indebtedness,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for postfiling interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof (including, without limitation, cash
collateralization of letters of credit).
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day
on which banking institutions in a place of payment, or receipt are authorized
or required by law to close.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the Lessee without payment of a
penalty.
"Chase" means The Chase Manhattan Bank, a New York banking corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are then
available but ending at least 60 days prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters; PROVIDED,
HOWEVER, that (A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
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outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, (B) if since the beginning of such
period the Company or any Restricted Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets that are the
subject of such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company or its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (C) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made under the
Indenture, which constitutes all or substantially all of an operating unit of a
business (it being understood that a TravelCenter constitutes such an operating
unit), EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (D) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (B) or (C) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
of assets occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of Consolidated Net Income relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating or adjustable rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of the Company and its Restricted Subsidiaries,
plus, to the extent Incurred by the Company and its Restricted Subsidiaries in
such period but not included in such interest expense, (i) interest expense
attributable to Capitalized Lease Obligations and Attributable Debt, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) noncash interest
expense, (v) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing, (vi) net costs associated
with Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock of Subsidiaries and Disqualified
Stock of the Company held by Persons other than the Company or a Wholly Owned
Subsidiary, (viii) the interest portion of any deferred payment obligation, (ix)
interest actually paid on any Indebtedness of any other Person and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust,
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but in no event shall Consolidated Interest Expense include the amortization of
fees Incurred on or prior to the Issue Date in respect of the Credit Agreement,
the Senior Notes or the Notes.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(iii) below) and (B) the Company's equity in a net loss of any such Person
(other than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income; (ii) any net income (loss) of any
person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends or
the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the limitations contained
in clause (iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend that
could have been made to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain or loss realized upon the sale or other
disposition of any asset of the Company or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss; and (vi) the cumulative effect of a change
in accounting principles. Notwithstanding the foregoing, for the purpose of the
covenant described under "Certain Covenants--Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; PROVIDED, HOWEVER, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of March 21,
1997, as amended, waived or otherwise modified from time to time, among the
Company, Chase, as administrative agent, and the several lenders party thereto.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Designated Consideration" means a purchase money note or other noncash
consideration received in connection with the sale by the Company of a
TravelCenter (including any related personal or real property) or any portion
thereof; provided that the aggregate amount of Designated Consideration that the
Company or any Restricted Subsidiary may receive from Asset Dispositions shall
not exceed $10.0 million
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in fair market value as determined in good faith by the Board of Directors plus
the amount of cash received pursuant to the terms or from the disposition of
Designated Consideration.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness, (ii)
the Senior Note Indebtedness and (iii) any other Senior Indebtedness which, at
the date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof, are committed to
lend up to, at least $25.0 million and is specifically designated by the Company
in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company
other than a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense; (iii) any payments made in respect of Attributable Debt in excess of
the amount of such payments included in Consolidated Interest Expense; (iv)
Transition Expenses not in excess of $7.0 million in any year and $11.0 million
in the aggregate; (v) depreciation expense; (vi) amortization expense; and (vii)
any other noncash charge, in each case for such period, but excluding any other
noncash charge to the extent it represents an accrual or reserve for a cash
charge for any future period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
of, a Subsidiary of the Company shall be added to Consolidated Net Income to
compute EBITDA only to the extent (and in the same proportion) that the net
income of such Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement dated as of the Issue Date between the Company and
the Initial Purchaser.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company
that is not organized under the laws of the United States of America or any
State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other
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entity as approved by a significant segment of the accounting profession. All
ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a
Person existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. With respect to Indebtedness to be
borrowed under a binding commitment previously entered into that provides for
the Company to Incur Indebtedness on a revolving basis, the Company shall be
deemed to have Incurred the greater of (a) the Indebtedness actually Incurred or
(b) all or a portion of the amount of such commitment, if the Company shall have
so designated such amount of Indebtedness to be Incurred in an Officers'
Certificate delivered to the Trustee. If such an Officers' Certificate is so
delivered and the amount specified therein is then permitted to be Incurred
pursuant to the covenant described under "--Certain Covenants--Limitation on
Indebtedness", any subsequent Incurrence of Indebtedness pursuant to such
commitment, as in existence on the date of such Officers' Certificate, shall be
permitted pursuant to the covenant described under "--Certain
Covenants--Limitation on Indebtedness". A change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except Trade Payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Debt of such Person; (vi) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of the
Company, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vii) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; PROVIDED, HOWEVER, that the amount of Indebtedness of such Person shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. Notwithstanding the foregoing, Indebtedness
shall not include any liability for
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Federal, state, local or other taxes owed or owing by the Company to any
governmental entity or obligations arising from agreements of the Company or any
Restricted Subsidiary providing for indemnification, adjustment of purchase
price, earn out or other obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or Restricted
Subsidiary, other than Guarantees of Indebtedness incurred by any Person
acquiring all or a portion of such business, assets or Restricted Subsidiary.
"Initial Purchaser" means Chase Securities Inc.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "Certain
Covenants--Limitation on Restricted Payments," (i) "Investment" shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of the Company at
the time that such Subsidiary is designated an Unrestricted Subsidiary;
PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lessee Operator" means a Person who operates a TravelCenter pursuant
to a lease agreement and a franchise agreement, in each case with the Company or
a Restricted Subsidiary, with respect to such TravelCenter.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise (other than
amounts constituting interest thereon), but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring person of Indebtedness or other obligations relating to the properties
or assets that are the subject of such Asset Disposition or received in any
other noncash form) therefrom, in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by
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applicable law be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition (including without limitation
amounts reserved for the cost of any indemnification payments (fixed or
contingent) attributable to the seller's indemnities to the purchaser in respect
of such Asset Disposition).
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer,
the Chief Financial Officer, the President, any Vice President, the Treasurer,
the Secretary, any Assistant Treasurer or Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holders" means: (i) U.S. Trust; (ii) Clipper Capital
Associates, L.P., UBS Capital Corporation, First Plaza Group Trust, Olympus
Private Placement Fund, L.P., The Travelers Indemnity Company, Barclays U.S.A.,
Inc., Credit Suisse Group, Phoenix Insurance Company and their respective
Affiliates; and (iii) any Person acting in the capacity of an underwriter in
connection with a public or private offering of the Company's Capital Stock.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees of the Company or such Restricted Subsidiary
and not exceeding $1.0 million in the aggregate outstanding at any one time;
(vii) stock, obligations or securities received in settlement of debts
(including payment obligations of customers) created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (viii) loans to employees for the purchase of Capital
Stock or the payment of the exercise price of options to purchase Capital Stock
of the Company or loans to satisfy Federal or state income tax withholding
requirements relating to the issuance of Capital Stock of the Company pursuant
to the Company's employee stock plans, in an aggregate amount with respect to
all loans described in this clause (viii) not to exceed $2.0 million outstanding
at any one time; (ix) a Person to the extent such Investment represents the
noncash consideration otherwise permitted to be received by the Company or its
Restricted Subsidiaries in connection with an Asset Disposition; (x) prepayments
and other credits to suppliers made in the ordinary course of business
consistent with the past practices of the Company and its Restricted
Subsidiaries; (xi)
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payments to customers in consideration for such customers' agreements with the
Company to purchase goods and inventory made in the ordinary course of business
consistent with past practices of the Company and its Restricted Subsidiaries;
and (xii) performance bonds or similar Investments in connection with pledges,
deposits or payments made or given in the ordinary course of business in
connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental regulations.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium,
if any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Productive Assets" means assets of a kind used or usable by the
Company and its Restricted Subsidiaries in the Company's business or any Related
Business.
"Public Equity Offering" means an underwritten primary public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act (or the equivalent if the current registration system
of the Securities Act is changed).
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
renews, replaces or extends any Indebtedness permitted to be Incurred by the
Company or any Restricted Subsidiary pursuant to the terms of the Indenture,
whether involving the same or any other lender or creditor or group of lenders
or creditors, but only to the extent that (i) the Refinancing Indebtedness is
subordinated to the Notes to at least the same extent as the Indebtedness being
refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness
is scheduled to mature either (a) no earlier than the Indebtedness being
refunded, refinanced or extended or (b) at least 91 days after the maturity date
of the Notes, (iii) the Refinancing Indebtedness has a weighted average life to
maturity at the time such Refinancing Indebtedness is Incurred that is equal to
or greater than the weighted average life to maturity of the Indebtedness being
refunded, refinanced or extended, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is less than or equal to the sum of (a) the
aggregate principal or accreted amount (in the case of any Indebtedness issued
with original issue discount, as such) then outstanding under the Indebtedness
being refunded, refinanced or extended, (b) the amount of accrued and unpaid
interest, if any, and premiums owed, if any, not in excess of preexisting
prepayment provisions on such Indebtedness being refunded, refinanced or
extended and (c) the amount of customary fees, expenses and costs related to the
incurrence of such Refinancing Indebtedness and (v) such Refinancing
Indebtedness is Incurred by the same Person (or its successor) that initially
Incurred the Indebtedness being refunded, refinanced or extended, except that
the Company may Incur Refinancing Indebtedness to refund, refinance or extend
Indebtedness of any Restricted Subsidiary of the Company.
"Related Business" means any business in which the Company engages on
the Issue Date and any business related, ancillary or complementary (in the good
faith judgment of the Board of Directors) to any of the businesses of the
Company or any of its Restricted Subsidiaries on the Issue Date.
"Representative" means the trustee, agent or representative (if any)
for an issue of Senior Indebtedness. In the case of the Bank Indebtedness and
Senior Note Indebtedness, the term
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"Representative" includes any Person designated to act in such capacity pursuant
to the procedures set forth in the intercreditor agreement dated as of the Issue
Date, among the Company, Chase, as collateral agent, the lenders party to the
Credit Agreement and the holders of Senior Note Indebtedness. In the case of
other Senior Indebtedness that does not by its terms designate a representative,
the term "Representative" means any Person designated to act in such capacity by
the holders of a majority in principal amount of such Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
whether owned as of the Issue Date or thereafter acquired, whereby the Company
or a Restricted Subsidiary transfers such property to a Person and the Company
or a Restricted Subsidiary leases it from such Person, other than leases between
the Company and a Restricted Subsidiary or between Restricted Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by
a Lien.
"Senior Bank Documents" means the collective reference to the Credit
Agreement, any notes issued pursuant thereto and the Guarantee thereof, and the
Security Agreement, the Mortgages and the Pledge Agreement (each as defined in
the Credit Agreement).
"Senior Credit Documents" means the collective reference to the Senior
Bank Documents and the Senior Note Documents.
"Senior Note Agreement" means each of the Senior Secured Note Exchange
Agreements, dated as of the Issue Date, as amended, waived or otherwise modified
from time to time, between the Company and the several purchasers party thereto.
"Senior Note Documents" means the collective reference to the Senior
Note Agreement, the Senior Notes issued pursuant thereto and the Guarantees
thereof, and the Security Agreement, the Mortgages and the Pledge Agreement
(each as defined in the Senior Note Agreement).
"Senior Note Indebtedness" means any and all amounts payable under and
in respect of the Senior Note Documents and any Indebtedness that is incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) Indebtedness under such Senior Note Documents
including Indebtedness that refinances such Indebtedness, as amended from time
to time, including principal, premium (if any), interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for postfiling
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, Guarantees and all other amounts payable thereunder or in respect
thereof (including, without limitation, cash collateralization of letters of
credit).
"Senior Notes" means the fixed rate and floating rate Senior Secured
Notes of the Company due 2002 and 2005, respectively, issued pursuant to the
Senior Note Agreement in exchange for certain other Indebtedness of
Subsidiaries.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank PARI PASSU with the Notes and is not subordinated by its terms to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
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"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) that by its terms
is subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiaries" means subsidiaries of the Company, whether now existing
or hereafter organized or acquired.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person or (ii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantee" means the Guarantee of the Notes by TA and
National and any Guarantee of the Notes that may from time to time be executed
and delivered by a Subsidiary pursuant to the terms of the Indenture. Each such
future Subsidiary Guarantee will be substantially in the form prescribed in the
Indenture.
"Subsidiary Guarantors" means TA Operating Corporation, a Delaware
corporation, and National Auto/Truckstops, Inc., a Delaware corporation, and
each Subsidiary acquired or organized after the Issue Date that becomes a
Subsidiary Guarantor in accordance with the terms of the Indenture.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof or in the shares of a money market mutual fund registered under the
Investment Company Act of 1940, the principal of which is invested only in such
obligations, (ii) investments in time deposit accounts, certificates of deposit
and money market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and undivided
profits aggregating in excess of $250,000,000 (or the foreign currency
equivalent thereof) and whose long-term debt is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act), (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above, (iv) investments in
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America or any foreign
country recognized by the United States of America with a rating at the time as
of which any investment therein is made of "P-1" (or higher) according to
Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Service, currently a division of The McGraw-Hill Companies, Inc.
("S&P"), and (v) investments in securities with maturities of 365 days or fewer
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
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political subdivision or taxing authority thereof, and rated at least "A" by S&P
or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts
payable or any indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person arising in the ordinary course of business
in connection with the acquisition of goods or services.
"Transition Expenses" means to the extent deducted in determining
Consolidated Net Income, transition costs in connection with effecting the
Company's conversion of owned or franchised TravelCenters from the National
network to the TA network, disposition of TravelCenters or termination of lease
or franchise agreements and consolidation of the management and operation of its
Subsidiaries' two TravelCenter networks into a single network, including but not
limited to any severance or relocation expenses related thereto.
"TravelCenter" means a facility owned, operated or franchised by the
Company or a Restricted Subsidiary that provides fuel and nonfuel products,
services and amenities primarily to the trucking industry.
"Trustee" means the party named as such in the Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any officer in the corporate trust administration
department of the Trustee or any other officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"U.S. Trust" means United States Trust Company of New York, as trustee
under the voting trust agreement dated as of April 14, 1993, as amended as of
March 6, 1997, among the Company, the United States Trust Company of New York
and certain beneficial holders of common stock of the Company, and as the same
may be further amended without allowing any beneficial owners thereunder other
than current or future Lessee Operators, franchisees of the Company or their
permitted transferees (as defined in such voting trust agreement).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Restricted Subsidiary of the
Company; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated
has total consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under the covenant entitled "Limitation on Restricted Payments." The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing. Any such designation shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
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"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company
all the Capital Stock of which (other than directors' qualifying shares) is
owned by the Company or another Wholly Owned Subsidiary.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in
the form of one or more registered New Notes in global form without coupons
(each a "Global Note"). Each Global Note will be deposited on the date of the
closing of the exchange of the New Notes for Existing Notes (the "Exchange Offer
Closing Date") with, or on behalf of, DTC and registered in the name of Cede &
Co., as nominee of DTC, or will remain in the custody of the Trustee pursuant to
the FAST Balance Certificate Agreement between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust
company organized under the laws of the State of New York, (ii) a member of the
Federal Reserve system, (iii) a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and (iv) a "Clearing Agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participants (collectively, the "Participants") and facilitates the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i)
upon deposit of the Global Notes, DTC will credit the accounts of Participants
with an interest in the Global Note and (ii) ownership of the New Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer New Notes or to pledge the New Notes as
collateral will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the New Notes represented by the Global Note for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have New Notes represented by such Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of certificated securities (the "Certificated Securities"),
and will not be considered the owners or Holders thereof under the Indenture for
any purpose, including with respect to the giving of any directions, instruction
or approval to the Trustee thereunder. As a result, the ability of a person
having a beneficial interest in New Notes represented by a Global Note to pledge
or transfer such interest to persons or entities that do not participate in
DTC's system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note
must rely on the procedures of DTC and, if such holder is not a Participant or
an Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant would authorize holders owning through such Participants to take
such action or would otherwise act upon the instruction
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of such holders. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, and
interest on, any New Notes represented by a Global Note registered in the name
of DTC or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of DTC or its nominee in its capacity as the
registered holder of the Global Note representing such New Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Issuer nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of interest in the Global Note (including
principal, premium, if any, and interest), or to immediately credit the accounts
of the relevant Participants with such payment, in amounts proportionate to
their respective holdings in principal amount of beneficial interest in the
Global Note as shown on the records of DTC. Payments by the Participants and the
Indirect Participants to the beneficial owners of interests in the Global Note
will be governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no
longer willing or able to act as a depositary or DTC ceases to be registered as
a clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Issuer, at its option, notifies the
Trustee in writing that it elects to cause the issuance of New Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, Certificated
Securities will be issued to each person that DTC identifies as the beneficial
owner of the New Notes represented by the Global Notes. Upon any such issuance,
the Trustee is required to register such Certificated Securities in the name of
such person or persons (or the nominee of any thereof), and cease the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by
DTC or any Participant or Indirect Participant in identifying the beneficial
owners of the related New Notes and each such person may conclusively rely on,
and shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the New Notes to be issued).
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DESCRIPTION OF EXISTING NOTES
On March 27, 1997, the Company issued and sold $125.0 million aggregate
principal amount of the Existing Notes. The form and terms of the Existing Notes
are the same as the form and terms of the New Notes except that the Existing
Notes are not registered under the Securities Act and bear legends restricting
the transfer thereof. See "Description of New Notes."
In connection with the issuance of the Existing Notes, the Company, the
Subsidiary Guarantors and the Initial Purchasers entered into the Registration
Rights Agreement to provide for the Exchange Offer. The Registration Rights
Agreement also obligates the Company and each of the Subsidiary Guarantors under
certain circumstances to file with the Commission a Shelf Registration
Statement. The Registration Rights Agreement further provides that if the
Company or the Subsidiary Guarantors fail to complete the Exchange Offer or have
a Shelf Registration Statement become effective under the Securities Act, within
and for certain specified time periods, the Company and each of the Subsidiary
Guarantors would become obligated to pay to the holders of affected Existing
Notes liquidated damages in an amount equal to $0.192 per week per $1,000
principal amount of the affected Existing Notes. Except as described under "Plan
of Distribution," completion of the Exchange Offer with respect to tendered
Existing Notes on or before September 8, 1997 will satisfy the Company's and the
Subsidiary Guarantors' obligations under the Registration Rights Agreement with
respect to the Exchange Offer. Following completion of the Exchange Offer, the
Company and each of the Subsidiary Guarantors will be obligated to file and
cause to become effective under the Securities Act a Shelf Registration
Statement only if (i) any holder of Existing Notes is not permitted by
applicable law to participate in the Exchange Offer or (ii) a participant in the
Exchange Offer does not receive a freely tradable New Note in exchange for such
Holder's Existing Note.
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CERTAIN UNITED STATES TAX CONSIDERATIONS
The following discussion is the opinion of Paul, Weiss, Rifkind,
Wharton & Garrison, counsel to the Company, with respect to certain of the
anticipated United States federal income tax consequences of an exchange of
Existing Notes for New Notes and of the purchase, ownership, and disposition of
the New Notes, and is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the final, temporary, and proposed regulations
promulgated thereunder, and administrative rulings and judicial decisions now in
effect, all of which are subject to change (possibly with retroactive effect) or
different interpretations. This summary does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor, nor any tax consequences arising under the laws of any state,
locality, or foreign jurisdiction, and it is not intended to be applicable to
all categories of investors, some of which, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, foreign persons, persons
that hold New Notes as part of a straddle or conversion transaction, or holders
subject to the alternative minimum tax, may be subject to special rules. In
addition, the summary is limited to persons that will hold the New Notes as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
EXCHANGE AND THE OWNERSHIP AND DISPOSITION OF NEW NOTES.
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, an exchange of Existing
Notes for New Notes should not be a taxable event to holders of Existing Notes
and holders should not recognize any taxable gain or loss as a result of such an
exchange. Accordingly, a holder would have the same adjusted basis and holding
period in the New Notes as it had in the Existing Notes immediately before the
exchange. Further, the tax consequences of ownership and disposition of any New
Notes should be the same as the tax consequences of ownership and disposition of
Existing Notes.
MARKET DISCOUNT
If a holder purchases a Note for an amount that is less than its
principal amount, the amount of the difference will be treated as "market
discount" for federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules, a holder will be
required to treat any principal payment on, or any gain on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the extent of
the market discount which has not previously been included in income and is
treated as having accrued on such a Note at the time of such payment or
disposition. In addition, the holder may be required to defer, until the
maturity of the Note or its earlier disposition in a taxable transaction, the
deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
holder elects to accrue on a constant interest method. A holder of a Note may
elect to include market discount in income currently as it accrues (on either a
ratable or constant interest method), in which case the rule described above
regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service (the "IRS").
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AMORTIZABLE BOND PREMIUM
A holder that purchases a Note for an amount in excess of the sum of
its principal amount will be considered to have purchased the Note at a
"premium." A holder generally may elect to amortize the premium over the
remaining term of the Note on a constant yield method. The amount amortized in
any year will be treated as a reduction of the holder's interest income from the
Note. Bond premium on a Note held by a holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the Note. The election to amortize premium on a constant yield
method once made applies to all debt obligations held or subsequently acquired
by the electing holder on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A holder's tax basis in a Note will, in general, be the holder's cost
therefor, increased by market discount previously included in income by the
holder and reduced by any amortized premium. Upon the sale, exchange or
retirement of a Note, a holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement
(less any accrued interest, which will be taxable as such) and the adjusted tax
basis of the Note. Except as described above with respect to market discount,
such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if at the time of sale, exchange or retirement the Note has been
held for more than one year. Under current law, long-term capital gains of
individuals are, under certain circumstances, taxed at lower rates than items of
ordinary income. The deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Notes and to the proceeds of
sale of a Note made to holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
THE FOREGOING SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES
TO HOLDERS DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF HIS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF NOTES SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF.
143
<PAGE>
ERISA CONSIDERATIONS
Sections 406 and 407 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the Code prohibit certain
employee benefit plans, individual retirement accounts, individual retirement
annuities, and employee annuity plans ("Plans") from engaging in certain
transactions with persons who, with respect to such Plan, are "parties in
interest" under ERISA or "disqualified persons" under the Code. A violation of
these "prohibited transaction" rules may generate excise taxes under the Code
and other liabilities under ERISA for such persons. Possible violations of the
prohibited transaction rules could occur if the Notes are purchased with the
assets of any Plan if the Company or any of its affiliates is a party in
interest or disqualified person with respect to such Plan, unless such
acquisition is subject to a statutory or administrative exemption.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Any fiduciary of a Plan considering the purchase of the Notes
should consult its legal advisors regarding the consequences of such purchases
under ERISA and the Code. If the Plan is not subject to ERISA, the fiduciary
should consult its legal advisors regarding the consequences of any state law or
Code considerations.
144
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 180
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until
, 1997, all dealers effecting transactions in the New Notes may
be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the close of the Exchange Offer the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the holders of the Existing Notes) other than commissions or concessions of
any brokers or dealers and will indemnify the holders of the Existing Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby and certain federal income tax
matters will be passed upon for the Company by Paul, Weiss, Rifkind, Wharton &
Garrison, New York, New York.
EXPERTS
The financial statements of the Company, the National Subsidiary and
the TA Subsidiary as of December 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1996 included in this Prospectus have
been so included in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
145
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Audited Financial Statements:
- -----------------------------
TravelCenters of America, Inc.
Report of Independent Accountants.................................................................... F-2
Consolidated Balance Sheet at December 31, 1995 and 1996............................................. F-3
Consolidated Statement of Income and Retained Earnings for the years ended
December 31, 1994, 1995 and 1996................................................................... F-4
Consolidated Statement of Cash Flows for the years ended December 31, 1994,
1995 and 1996...................................................................................... F-5
Notes to the Consolidated Financial Statements....................................................... F-6
TA Operating Corporation
Report of Independent Accountants.................................................................... F-41
Consolidated Balance Sheet at December 31, 1995 and 1996............................................. F-42
Consolidated Statement of Income and Retained Earnings for the years ended
December 31, 1994, 1995 and 1996................................................................... F-43
Consolidated Statement of Cash Flows for the years ended December 31, 1994,
1995 and 1996...................................................................................... F-44
Notes to the Consolidated Financial Statements....................................................... F-45
NATIONAL Auto/Truckstops, Inc.
Report of Independent Accountants.................................................................... F-56
Balance Sheet at December 31, 1995 and 1996.......................................................... F-57
Statement of Income and Retained Earnings for the years ended December 31,
1994, 1995 and 1996................................................................................ F-58
Statement of Cash Flows for the years ended December 31, 1994, 1995 and 1996......................... F-59
Notes to the Financial Statements.................................................................... F-60
Unaudited Financial Statements:
- -------------------------------
TravelCenters of America, Inc.
Consolidated Balance Sheet at December 31, 1996 and March 31, 1997................................... F-75
Consolidated Statement of Income and Retained Earnings for the three months
ended March 31, 1996 and 1997...................................................................... F-76
Consolidated Statement of Cash Flows for the three months ended March 31, 1996
and 1997........................................................................................... F-77
Selected Notes to Consolidated Financial Statements.................................................. F-78
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
TravelCenters of America, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of
TravelCenters of America, Inc. and its subsidiaries at December 31, 1995 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 6, 1997
F-2
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- --------
(IN THOUSANDS OF DOLLARS)
ASSETS
<S> <C> <C>
Current assets:
Cash .................................................................... $ 3,191 $ 23,779
Accounts receivable (less allowance for doubtful accounts of
$2,920 for 1995 and $3,502 for 1996) ................................. 36,966 54,371
Inventories ............................................................. 2,116 29,082
Deferred income taxes ................................................... 2,792 3,877
Other current assets .................................................... 6,989 10,530
-------- --------
Total current assets ............................................... 52,054 121,639
Notes receivable, net ...................................................... -- 1,835
Property and equipment, net ................................................ 183,079 269,366
Intangible assets .......................................................... 12,542 19,657
Deferred financing costs ................................................... 6,904 8,379
Net assets of subsidiary held for disposition (Note 2) ..................... 41,484 --
Other assets ............................................................... 1,168 5,013
-------- --------
Total assets ....................................................... $297,231 $425,889
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Revolving loans ......................................................... $ -- $ 14,000
Current maturities of long-term debt .................................... 11,125 17,250
Accounts payable ........................................................ 22,366 37,201
Other accrued liabilities ............................................... 8,691 29,422
-------- --------
Total current liabilities .......................................... 42,182 97,873
Commitments and contingencies (Note 15)
Long-term debt (net of unamortized discount) ............................... 128,866 193,185
Deferred income taxes ...................................................... 8,406 9,452
Other long-term liabilities ................................................ 3,133 5,914
-------- --------
Total liabilities .................................................. 182,587 306,424
Mandatorily redeemable senior convertible participating preferred stock .... 46,195 51,075
Other preferred stock, common stock and other shareholders' equity ......... 51,455 50,743
Retained earnings .......................................................... 16,994 17,647
-------- --------
Total shareholders' equity ......................................... 68,449 68,390
-------- --------
Total liabilities and shareholders' equity ......................... $297,231 $425,889
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
--------- --------- ---------
(In Thousands of Dollars except
per share amounts)
<S> <C> <C> <C>
Revenues:
Fuel .......................................... $ 396,748 $ 376,148 $ 550,212
Nonfuel ....................................... 19,882 29,332 101,278
Rent .......................................... 48,424 47,840 41,762
--------- --------- ---------
Total revenues ................................ 465,054 453,320 693,252
Cost of revenues (excluding depreciation) ........ 391,148 376,823 568,226
--------- --------- ---------
Gross profit (excluding depreciation) ............ 73,906 76,497 125,026
Operating expenses ............................... 7,711 9,521 54,001
Selling, general and administrative expenses ..... 22,322 30,885 30,803
Refinancing, transition and development costs .... 4,117 831 2,197
Depreciation and amortization .................... 10,398 11,379 17,838
Other (income) expense, net ...................... (138) 196 1,324
Income of subsidiary held for disposition ........ -- (6,199) (5,255)
--------- --------- ---------
Income from operations ........................... 29,496 29,884 24,118
Interest (expense), net .......................... (13,243) (13,344) (15,236)
--------- --------- ---------
Income before provision for income taxes ......... 16,253 16,540 8,882
Provision for income taxes ....................... 6,561 6,614 3,349
Net income ....................................... 9,692 9,926 5,533
Less: preferred dividends ..................... (4,880) (4,880) (4,880)
Retained earnings-beginning of the year .......... 7,136 11,948 16,994
--------- --------- ---------
Retained earnings-end of the year ................ $ 11,948 $ 16,994 $ 17,647
========= ========= =========
Net income per common share and common share
equivalent (Note 2) ........................... $ 0.54 $ 0.56 $ 0.07
========= ========= =========
Weighted average number of shares and common share
equivalents (in thousands) .................... 8,934 8,948 8,929
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 9,692 $ 9,926 $ 5,533
Adjustments to reconcile net income to net cash provided
by operating activities:
Net income of subsidiary held for disposition ....................... -- (3,754) (3,153)
Depreciation and amortization ....................................... 10,398 11,379 17,838
Deferred income taxes ............................................... 2,502 1,693 394
Provision for doubtful accounts ..................................... 1,169 2,089 2,545
Loss on sale of property and equipment .............................. -- 351 1,459
Changes in assets and liabilities, adjusted for the effects
of acquisitions of network assets and the
reconsolidation of a subsidiary previously held for
disposition:
Accounts receivable ............................................... 2,354 (3,256) 5,822
Inventories ....................................................... (332) 284 (1,588)
Other current assets .............................................. 1,250 (4,537) (3,617)
Accounts payable .................................................. 6,608 5,043 1,719
Other current liabilities ......................................... (7,284) 218 2,203
Other, net........................................................... -- -- (1,535)
-------- -------- --------
Net cash provided by operating activities ........................... 26,357 19,436 27,620
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of network assets ......................................... -- (575) (2,352)
Proceeds from sales of property and equipment .......................... -- 1,404 643
Capital expenditures ................................................... (10,993) (19,930) (20,545)
Refund of purchase price................................................ -- 1,500 --
-------- -------- --------
Net cash used in investing activities ............................... (10,993) (17,601) (22,254)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings .............................................. 1,000 -- 14,000
Revolving loan repayments .............................................. (1,000) -- --
Long-term debt repayments .............................................. (3,500) (14,075) (12,375)
Proceeds from issuance of stock ........................................ 195 -- 39
Repurchase of common stock ............................................. (141) (66) (751)
Reconsolidation of subsidiary previously held for
disposition.......................................................... -- -- 14,309
-------- -------- --------
Net cash (used in) provided by financing activities ................. (3,446) (14,141) 15,222
-------- -------- --------
Net increase (decrease) in cash ................................... 11,918 (12,306) 20,588
Cash at the beginning of the year ......................................... 3,579 15,497 3,191
-------- -------- --------
Cash at the end of the year ............................................... $ 15,497 $ 3,191 $ 23,779
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
TravelCenters of America, Inc., formerly National Auto/Truckstops Holdings
Corporation (collectively with its subsidiaries, the "Company"), was
incorporated on December 2, 1992, to raise equity and to function as the holding
company of its wholly-owned operating subsidiary, National Auto/Truckstops, Inc.
("National"). National was incorporated to acquire the travel center network
("the National Network") of Unocal Corporation ("Unocal") ("the National
Acquisition"). On December 10, 1993, the Company capitalized a second
wholly-owned subsidiary, TA Holdings Corporation ("TAHC"), which in turn
capitalized a wholly-owned subsidiary, TA Operating Corporation ("TA"). TA was
incorporated to acquire the truckstop network assets ("the TA Network") of BP
Exploration and Oil Company ("BP") (the "TA Acquisition"), and has a
wholly-owned subsidiary, TA Franchise Systems Inc. ("TAFSI"), which holds all of
the TA franchise agreements. The National Acquisition was consummated on April
13, 1993 and the TA Acquisition was consummated on December 10, 1993.
The Company, through its operating subsidiaries, is a nationwide marketer
of truck and auto fuel and related products and services through a network of
170 full-service travel centers (122 operated under the "Unocal 76" trademark
and 48 operated under the "TA" and "Truckstops of America" trademark) in 36
states. Of the 170 network locations at December 31, 1996, the Company owns or
leases 135 locations, 77 of which are leased to independent operators, and 58 of
which are operated by the Company. During 1996, the Company took over the
operations of 11 locations from independent operators. The remaining 35
locations are owned and operated by independent franchisees with whom the
Company has contractual arrangements to supply motor fuels to a majority of the
franchisees, as well as related products and services. The Company purchases and
resells diesel fuel, gasoline and other truckstop products and services to
consumers, commercial fleets, operators and independent franchisees; provides
fleet credit card and customer information services through its proprietary
ACCESS 76 system and STAR Billing system; conducts centralized purchasing
programs; creates promotional programs; and, as a franchisor, assists the
operators and independent franchisees in providing service to commercial fleets
and the motoring public.
The Company grants credit to its customers and may require letters of
credit or other collateral.
As of December 31, 1996, 71 of the operators and 20 of the independent
franchisees operating under the Unocal 76 trademark had entered into new
franchise agreements with the Company. The remaining operators and independent
franchisees operating under the Unocal 76 trademark continue to operate under
fuel supply and lease agreements transferred and assigned to the Company by
Unocal as part of the National Acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The TA Acquisition required the consent of the operators and independent
franchisees who are holders of the Company's Class A Common Stock (the "Operator
Shareholders"). The Operator Shareholders consented to the TA Acquisition and,
in connection therewith, the Company was granted an option to repurchase, for
cash and its stock in TAHC, all of its equity securities, including its
mandatorily redeemable preferred stock, and warrants not held by the Operator
Shareholders and senior management of National. Accordingly, the financial
statements presented the net assets of TAHC as held for disposition. The
carrying value thereof represented the purchase price paid to acquire TAHC plus
TAHC's results of operations subsequent to December 31, 1994. The results of
operations of TAHC
F-6
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
were excluded from the Company's consolidated results of operations until
December 31, 1994, but subsequently have been included therein, as a single
amount, through September 30, 1996. Effective September 30, 1996, a decision was
made to retain TAHC and, subsequently, the Company chose to pursue the
combination of the operations of the TA and National Networks. Accordingly, at
that date, the carrying value of the Company's investment in TAHC of $44,637,000
was allocated to the identifiable assets and liabilities based on the current
fair values as of that date. In addition, the results of operations and cash
flows of TAHC are included in the consolidated results of operations and cash
flows of the Company from October 1, 1996. TAHC had net income of $3,989,000,
$3,754,000 and $3,153,000 in the years ended December 31, 1994 and 1995 and the
nine months ended September 30, 1996, respectively. The statement of cash flows
for the year ended December 31, 1996, includes an increase in cash resulting
from the reconsolidation of TAHC as cash provided by financing activities. The
original 1993 financing of TAHC had never been reflected as cash flows from a
financing activity in the consolidated financial statements of the Company. See
Note 19 for the condensed financial statements of TAHC.
For a pro forma presentation of the Company's consolidated financial
position and results of operations as of December 31, 1995 and 1996 and for each
of the three years ended December 31, 1996, as though TAHC had not been held for
disposition for the period January 1, 1994 through September 30, 1996, see Note
20.
See Note 21 for a discussion of the planned combination of the National and
TA Networks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Fuel sales and related costs are recognized at the time of delivery of
motor fuel and other products to customers at either the terminal or the leased
and independent franchisee locations and at the time of final sale to consumers
at the owned and operated location and at those locations that operate under
fuel consignment agreements.
Franchise and royalty revenues are recognized at the point such revenues
are earned, typically when collectible and when the Company has fulfilled
substantially all of its obligations under the related agreements.
INVENTORIES
Inventories are stated at cost, which approximates market value, cost being
determined on the first in, first out basis for petroleum products and
principally as the weighted average costs for nonfuel merchandise.
F-7
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, initially determined in
accordance with purchase accounting principles and based largely on independent
professional appraisals. Depreciation is computed on a straight-line basis over
the following estimated useful lives of the assets:
Buildings and site improvements............................... 15-25 years
Pumps and underground storage tanks........................... 5-10 years
Machinery and equipment....................................... 3-10 years
Furniture and fixtures........................................ 5-10 years
Repair and maintenance costs are charged to expense as incurred, while
major renewals and betterments are capitalized. The cost and related accumulated
depreciation of property and equipment sold, replaced or otherwise disposed are
removed from the accounts. Any resulting gains or losses are recognized in
operations.
DEFERRED FINANCING COSTS AND INTANGIBLE ASSETS
Deferred financing costs were recorded in conjunction with the National and
TA Acquisitions and are being amortized on a basis approximating the interest
method over the lives of the related debt instruments, ranging from five to ten
years. The intangible assets are being amortized on a straight-line basis over
their estimated lives, principally the terms of the related contractual
agreements giving rise to them (see Note 6).
ADVERTISING COSTS
Costs of advertising are expensed as incurred.
MOTOR FUEL TAXES
Certain motor fuel taxes are collected from customers and remitted to
governmental agencies by the Company. Such taxes are excluded from the reported
amounts of fuel revenues and costs of revenues.
CLASSIFICATION OF COSTS AND EXPENSES
Cost of revenues represents the costs of fuels and other products sold,
including freight. Operating expenses consist primarily of labor, maintenance,
supplies, utilities, warehousing, purchasing and occupancy costs. Development
expenses represent costs incurred to primarily acquire and establish new Network
locations. Refinancing expenses represent nonrecurring costs incurred in
attempts to refinance the Company's indebtedness. Transition expenses represent
the nonrecurring costs incurred by the Company in establishing TAHC as an entity
separate from BP, consisting primarily of costs to implement computerized
information systems previously provided by BP.
ENVIRONMENTAL REMEDIATION
The Company provides for remediation costs and penalties when the
responsibility to remediate is probable and the amount of associated costs is
reasonably determinable. Generally, the timing of remediation accruals coincides
with completion of a feasibility study or the commitment to a formal plan
F-8
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of action. If recoveries of remediation costs from third parties are probable, a
receivable is recorded.Accruals are not recorded for the costs of remediation
activities undertaken on behalf of the Company by Unocal and BP, at Unocal's and
BP's sole expense (see Note 15).
INCOME TAXES
Deferred income tax assets and liabilities are established to reflect the
future tax consequences of differences between the tax bases and financial
statement bases of assets and liabilities.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents.
DERIVATIVE INSTRUMENTS
On a limited basis, the Company engages in commodity risk management
activities within the normal course of its business as an end-user of derivative
instruments. These commodity-based instru ments are used to manage exposure to
price fluctuations related to the anticipated purchase of diesel fuel.
Changes in market value of derivative instruments are deferred and are
subsequently recognized in income in the same period as the underlying
transaction. Recorded deferred gains or losses are reflected within other
current assets or other current liabilities.
At December 31, 1995 and 1996 the amount of open derivative contracts and
the related fair market value and deferred gains and losses were immaterial.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which estimation is practicable:
CASH AND SHORT-TERM INVESTMENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS
PAYABLE: The fair values of financial instruments classified as current
assets or liabilities approximate the carrying values due to the
short-term maturity of the instruments.
LONG-TERM DEBT: The fair value of the Company's long-term debt is
estimated based on the current borrowing rates available to the Company
for financings with similar terms and maturities (see Note 9).
EARNINGS PER SHARE
Earnings per common share and common share equivalent were computed by
subtracting preferred dividends from net income and dividing the resulting
amount by the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. The Mandatorily Redeemable Senior
Participating Preferred Stock Series I and II and Convertible Preferred Stock
Series I and II are considered to be equivalents of common stock. The number of
shares issuable on conversion of the preferred stock was added to the number of
common shares. The number of shares
F-9
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
was also increased by the number of shares issuable on the exercise of vested
stock options when the formula price of the common stock exceeds the exercise
price of the options and by the number of outstanding common stock warrants. The
increase in the number of common shares was reduced by the number of common
shares which are assumed to have been purchased with the proceeds from the
exercise of the options.
The weighted average number of shares of common stock and common share
equivalents outstanding during the years ended December 31, 1994, 1995 and 1996
were 8,934,000, 8,948,000 and 8,929,000, respectively.
RECLASSIFICATIONS
Certain reclassifications of prior years' data have been made to conform
with the current year presentation.
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
Nonfuel merchandise ................................ $ 1,628 $26,090
Petroleum products ................................. 488 2,992
------- -------
Total inventories ............................ $ 2,116 $29,082
======= =======
4. NOTES RECEIVABLE
During 1996, the Company entered into notes receivable agreements with
certain operator and franchisee customers to finance on a long-term basis past
due accounts receivable owed by those customers. Certain of these customers are
related parties (See Note 14). The notes have terms ranging from six months to
six years and principally accrue interest at a variable rate of the prime
lending rate plus 2 percent. Notes receivable consists of the following:
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
Principal amount of notes outstanding ................... $ 4,652
Less: amounts due within one year ....................... 1,501
--------
3,151
Less: allowance for doubtful accounts ................... 1,316
--------
Notes receivable, net ................................... $ 1,835
========
The amount due within one year is included within other current assets on
the balance sheet.
F-10
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
----------------------
1995 1996
-------- --------
(IN THOUSANDS)
Land and land improvements ..................... $ 42,462 $ 52,028
Buildings and improvements ..................... 136,729 213,573
Machinery, equipment and furniture ............. 16,500 52,225
Construction in progress ....................... 7,538 8,647
-------- --------
Total cost ..................................... 203,229 326,473
Less: accumulated depreciation ................. 20,150 57,107
-------- --------
Property and equipment, net .................... $183,079 $269,366
======== ========
During 1995, the Company received from Unocal a refund of $1,500,000 of
the purchase price paid in 1993 in consideration of property improvements
required by the asset purchase agreement but not yet completed by Unocal. This
amount was recorded as a reduction to property and equipment.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31,
---------------------
1995 1996
------- -------
(in Thousands)
Noncompetition agreements ...................... $17,200 $26,200
Leasehold interest ............................. -- 1,724
Trademarks ..................................... -- 2,313
Franchise goodwill ............................. -- 994
------- -------
Total cost ..................................... 17,200 31,231
Less: accumulated amortization ................. 4,658 11,574
------- -------
Intangible assets, net ......................... $12,542 $19,657
======= =======
As part of the National and the TA Acquisitions, the Company entered into
noncompetition agree ments with Unocal and BP pursuant to which Unocal and BP
agreed to refrain from re-entering the truckstop business for periods of 10 and
7 years, respectively, from the acquisition dates. The intangible assets related
to these noncompetition agreements represent the present values of the estimated
cash flows the Company would lose due to competition resulting from re-entry of
Unocal or BP into the travel center market were they not constrained from doing
so. The intangible assets are being amortized over the 10 and 7 year periods.
Leasehold interest represents the value, obtained through the TA
Acquisition, of favorable lease provisions at one TA Network location, the lease
for which extended 11 1/2 years from the TA Acquisition. The leasehold interest
is being amortized over the 11 1/2 year period. Trademarks relates primarily to
the Company's purchase of the "Truckstops of America" and "Country Pride"
trademarks, service marks, trade names and commercial symbols. The trademarks
are being amortized over their estimated economic life of 15 years.
Franchise goodwill results from the acquisitions during 1996 of the
businesses and operating assets related to seven Company-owned travel centers
previously leased to independent operators, and represents the excess of amounts
paid to those operators over the fair values of the tangible assets acquired.
This goodwill is being amortized on a straight-line basis over fifteen years.
F-11
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
December 31,
-------------------
1995 1996
------- -------
(in Thousands)
Taxes payable, other than income taxes ............. $ 6,110 $ 8,305
Accrued wages and benefits ......................... -- 4,872
Interest payable ................................... 2,191 2,525
Other accrued liabilities .......................... 390 13,720
------- -------
Total other accrued liabilities .................... $ 8,691 $29,442
======= =======
8. REVOLVING LOAN
The Company has available revolving loan facilities of $45,000,000 (See
Note 9). The interest rate for borrowings under these revolving loan facilities
are based on the bank's prime lending rate and LIBOR rates, and was 8.3 percent
at December 31, 1996. The average effective interest rate for the year ended
December 31, 1996 was 8.2 percent. There were no outstanding borrowings at
December 31, 1995. The borrowings outstanding under these revolving loan
facilities were $14,000,000 at December 31, 1996.
9. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-------------------
INTEREST
RATE MATURITY 1995 1996
-------- -------- -------- --------
(IN THOUSANDS)
Senior secured term loans (a) ... (b) 1999 $ 50,925 $ 39,800
Senior secured term loans (c) ... (d) 2000 -- 42,000
Senior secured notes (e) ........ 8.76% 2002 65,000 65,000
Senior secured notes (f) ........ 8.63% 2002 -- 25,000
Subordinated notes (g) .......... 12.50% 2003 25,000 25,000
Subordinated notes (h) .......... 12.00% 2003 -- 15,000
-------- --------
Total ................... 140,925 211,800
Less: amounts due within one year 11,125 17,250
Less: unamortized discount ...... 934 1,365
-------- --------
Total ................... $128,866 $193,185
======== ========
- --------
(a) On April 13, 1993, the Company entered into a $100,000,000 Credit Agreement
with a group of banks. This Credit Agreement consists of three components:
term loans of a maximum $70,000,000, swingline loans not to exceed
$3,000,000, and revolving loans (See Note 8) not to exceed $30,000,000
(including any swingline loans outstanding). On November 5, 1993, the
Company
F-12
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
9. LONG-TERM DEBT (CONTINUED)
reduced the revolving portion of the Credit Agreement to $25,000,000. No
borrowings under the swingline loan were outstanding at December 31, 1995
or 1996. Payments of principal, interest and commitment fees related to the
Credit Agreement are due quarterly on March 31, June 30, September 30 and
December 31 in installments of principal ranging from $500,000 to
$5,500,000, with the last payment due on December 31, 1999. In addition,
annual prepayments of principal may be required based on excess cash flows
generated by the Company. At December 31, 1996, no prepayment of principal
was required as a result of 1996 cash flows. Commitment fees are calculated
as 1 1/2 of 1 percent on the average daily unused amount of the revolving
loan commitment.
(b) Interest accrues at variable rates based on either an alternate base rate
(ABR) or an adjusted London Interbank Offered Rate (LIBOR). The rate at
which interest accrues is calculated as either the ABR rate (8.25% at
December 31, 1996) plus 1 3/4 percent or the LIBOR rate (5.625% at December
31, 1996) plus 2 3/4 percent. Management has the option of selecting which
rate is to be applied at the beginning of each loan period, the term of
which varies from one day to six months. The average effective interest
rates for the years ended December 31, 1995 and 1996 were 9.4 percent and
9.5 percent, respectively.
(c) On December 9, 1993, the Company entered into a $73,000,000 Credit
Agreement with a group of banks. This Credit Agreement consists of three
components: term loans of a maximum $53,000,000 swingline loans not to
exceed $3,000,000, and revolving loans (See Note 8) not to exceed
$20,000,000 (including any swingline loans outstanding and letters of
credit issued). There have been no borrowings under the swingline loan or
revolving loan commitments to date. Payments of principal, interest and
commitment fees related to the Credit Agreement are scheduled at each
quarter end in installments of principal ranging from $500,000 to
$4,000,000, with the first payment made on March 31, 1994, and the last
payment due on December 9, 2000; in addition, annual prepayments of
principal may be required based on excess cash flows generated by the
Company. At December 31, 1996, no prepayment of principal was required as a
result of 1996 cash flows. Commitment fees are calculated as 1/2 of 1
percent on the average daily unused amount of the revolving loan
commitment. There were $1,529,000 of outstanding letters of credit under
the Credit Agreement at December 31, 1996 (see Notes 2 and 19).
(d) Interest accrues at variable rates based on either an alternate base rate
(ABR) or an adjusted London Interbank Offered Rate (LIBOR). The rate at
which interest accrues is calculated as either the ABR rate plus 1 3/4
percent or the LIBOR rate plus 2 3/4 percent. Management has the option to
select which rate is to be applied at the beginning of each loan period,
the term of which varies from 1 day to 6 months. Upon meeting certain
conditions, the spread added to the baseline rates can be reduced to 1 1/2
percent and 2 1/2 percent, respectively. The average effective interest
rates for the years ended December 31, 1995 and 1996 were 9.1 percent and
8.9 percent, respectively.
(e) On April 13, 1993, the Company issued $65,000,000 of Senior Secured Notes.
Interest payments on these notes are due semiannually on April 14 and
October 14. Optional prepayments are allowed under the note purchase
agreement, and required payments are due on April 14, 2001 and 2002, in the
amount of $32,500,000 each, such amounts to be reduced by certain other
prepayments. In the event of prepayments, the Company may be subject to the
make-whole provision of the note agreement, which requires payment of a
prepayment premium to the noteholders.
(f) On December 9, 1993, the Company issued $25,000,000 of Senior Secured
Notes. Interest payments on these notes are due semiannually on June 10 and
December 10. Optional
F-13
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
9. LONG-TERM DEBT (CONTINUED)
prepayments are allowed under the note purchase agreement and required
payments are due on December 10, 2001 and 2002 in the amount of $12,500,000
each, such amounts to be reduced by certain other prepayments. In the event
of prepayments, the Company may be subject to the make-whole provision of
the note agreement, which requires payment of a prepayment premium to the
noteholders (see Notes 2 and 19).
(g) On April 13, 1993, the Company issued $25,000,000 of Subordinated Notes.
Interest payments on these notes are due semiannually on April 14 and
October 14. Optional prepayments are allowed under certain circumstances,
under the note purchase agreement, any such payments reducing the required
repayment due April 14, 2003. The holders of the Subordinated Notes also
received warrants to purchase 128,206 shares of the Company's common stock,
resulting in a discount of $1,282,000 to the principal balance of these
Subordinated Notes.
(h) On December 10, 1993, the Company issued $15,000,000 of Subordinated Notes.
Interest pay ments on these notes are due semiannually on June 10 and
December 10. Optional prepayments are allowed, under certain circumstances,
under the note purchase agreement, any such payments reducing the required
payment due December 10, 2003. The holders of the Subordinated Notes also
received 80,520 shares of the Company's common stock, resulting in a
discount of $805,000 to the principal balance of these Subordinated Notes
(see Notes 2 and 19).
The borrowings under the Credit Agreements and Senior Secured Notes are
secured by mortgages on all of the property and equipment acquired by the
Company as a result of the National and TA Acquisitions in the manner described
in the Master Collateral and Intercreditor Agreements negotiated between the
lending banks under the Credit Agreements and the Senior Secured Note
purchasers. In the event of a change in control of the Company, the total amount
outstanding under the debt agreements described above may be declared
immediately due and payable.
Under the terms of the Credit Agreements and the Senior Note Purchase
Agreements, the Company is required to maintain certain financial covenants,
including minimum interest coverage, minimum debt service coverage, minimum
consolidated net worth, minimum current ratio, maximum leverage ratio and
maximum amounts of capital expenditures. On May 24, 1996 and December 31, 1996,
the Credit Agreement of April 13, 1993 was amended to revise certain of these
covenants and the Senior Note Purchase Agreement of April 13, 1997 was similarly
amended. The Company was in compliance with the amended covenants at December
31, 1996, and was also in compliance with the covenants set forth in the Credit
Agreement of December 9, 1993.
Under the terms of the Subordinated Note Purchase Agreements, the Company
is required to maintain financial covenants that provide for minimum net worth
and maximum amounts of capital expenditures. These covenants have been met as of
and for the year ended December 31, 1996.
Scheduled payments of long-term debt in the next five years are $17,250,000
in 1997; $19,625,000 in 1998; $28,925,000 in 1999; $16,000,000 in 2000 and
$45,000,000 in 2001.
Based on the borrowing rates currently available to the Company for bank
loans and other indebtedness with similar terms and average maturities, the fair
values of long-term debt at December 31, 1995 and 1996 approximated the recorded
values.
F-14
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
10. LEASE COMMITMENTS
The Company has entered into lease agreements covering certain of its
travel center locations, warehouse and office space, computer and office
equipment and vehicles. Most long-term leases include renewal options and, in
certain cases, purchase options. Future minimum lease payments required under
operating leases that have remaining noncancelable lease terms in excess of one
year, as of December 31, 1996, were as follows:
YEAR ENDING
DECEMBER 31, (in Thousands)
------------
1997 ................................................... $ 4,087
1998 ................................................... 4,105
1999 ................................................... 4,001
2000 ................................................... 3,748
2001 ................................................... 3,541
Thereafter............................................... 31,790
-------
$51,272
=======
Total rental expenses on all operating leases were approximately $596,000,
$676,000 and $3,456,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
11. MANDATORILY REDEEMABLE SENIOR CONVERTIBLE PARTICIPATING PREFERRED STOCK
December 31,
-----------------
1995 1996
------- -------
(in Thousands)
Series I--3,000,000 shares authorized, $0.01 par value;
2,680,656 shares issued and outstanding, shown at
redemption value ....................................... $34,255 $37,874
Series II--1,000,000 shares authorized, $0.01 par value;
934,344 shares issued and outstanding, shown at
redemption value ........................................ 11,940 13,201
------- -------
Total .............................................. $46,195 $51,075
======= =======
VOTING RIGHTS. Holders of Series I Mandatorily Redeemable Senior
Convertible Preferred Stock are entitled to vote on all matters, other than the
election of directors (see Note 12--Common Stock-Voting Rights below), submitted
to a vote of the Company's shareholders. Series II Mandatorily Redeemable Senior
Convertible Preferred Stock is non-voting.
DIVIDENDS. Dividends accumulate on the original $10.00 per share purchase
price at a rate of 13.5 percent per annum, compounded semi-annually, and are not
paid currently but accumulate and increase the liquidation preference. Such
dividends accrue whether or not declared by the Board of Directors. Accrued
dividends totaled $10,045,000 and $14,925,000 at December 31, 1995 and 1996,
respectively.
F-15
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
11. MANDATORILY REDEEMABLE SENIOR CONVERTIBLE PARTICIPATING PREFERRED STOCK
(CONTINUED)
Holders also participate pro rata, on a share for share basis, with the
outstanding Convertible Preferred Stock and Common Stock, in dividends and
distributions, other than liquidating distributions.
CONVERSION. The conversion rights of the holders are the same as those for
holders of the Series I and Series II Convertible Preferred Stock, respectively,
(see Note 12-Convertible Preferred Stock-Conversion below) except, if the
Company consummates an underwritten public offering of Class B Common Stock
pursuant to which the net offering price per share is equal to or greater than
the Trigger Price (defined as an amount equal to $10.00 plus interest at a rate
of 13.5 percent per annum, compounded semi-annually, from the closing date of
the TA Acquisition to the date of such public offering) and the net proceeds
raised in the offering are at least $50 million, the Company will have the right
to require that each share of Series I Mandatorily Redeemable Senior Convertible
Participating Preferred Stock be converted into one share of Series I
Convertible Preferred Stock and that each share of Series II Mandatorily
Redeemable Senior Convertible Participating Preferred Stock be converted into
one share of Series II Convertible Preferred Stock.
LIQUIDATION PREFERENCE. Upon liquidation, holders are entitled to receive
the Senior Liquidation Preference, defined as $10.00 plus the amount of all
accrued and unpaid dividends to the liquidation date, before any payment is made
to holders of Convertible Preferred Stock or Common Stock. Any remaining amounts
available for distribution to the Company's equity holders will be distributed
in the following order of priority:
(i) holders of Convertible Preferred Stock shall be entitled to
receive $10.00 for each outstanding share,
(ii) holders of Common Stock shall be entitled to receive $10.00 for
each outstanding share of Common Stock,
(iii) holders of Convertible Preferred Stock and Common Stock shall be
entitled to receive an amount such that, including such amounts distributed
in (i) and (ii) above, they have each received an amount equal to the
Senior Liquidation Preference,
(iv) holders of Mandatorily Redeemable Senior Convertible
Participating Preferred Stock, Convertible Preferred Stock and Common Stock
shall be entitled to receive amounts such that the amount distributed in
respect of each outstanding share of Mandatorily Redeemable Senior
Convertible Participating Preferred Stock pursuant to this clause shall
equal 50 percent of the amount distributed in respect of each outstanding
share of Convertible Preferred Stock and Common Stock pursuant to this
clause.
OPTIONAL REDEMPTION. If the Company proposes to declare and pay any
dividends or other distributions in respect of Convertible Preferred Stock or
Common Stock, the Company shall first offer to utilize such proceeds to redeem
shares of the Mandatorily Redeemable Senior Convertible Participating Preferred
Stock at a redemption price per share equal to the Senior Liquidation
Preference. Any portion not used to redeem shares of Mandatorily Redeemable
Senior Convertible Participating Preferred Stock may be utilized by the Company
to pay dividends pari passu to the holders of outstanding shares of Mandatorily
Redeemable Senior Convertible Participating Preferred Stock, Convertible
Preferred Stock and Common Stock.
CALL OPTION. The Company may, at its option and at any time, call for
redemption all (but not less than all) of the outstanding shares at a price per
share equal to the Senior Liquidation Preference. The
F-16
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
11. MANDATORILY REDEEMABLE SENIOR CONVERTIBLE PARTICIPATING PREFERRED STOCK
(CONTINUED)
holders will be provided an opportunity to convert such shares into shares of
Class B Common Stock prior to the redemption.
MANDATORY REDEMPTION. The Company shall redeem all of the then outstanding
shares on December 10, 2008, at a redemption price per share equal to the Senior
Liquidation Preference.
12. OTHER PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Convertible Preferred Stock:
Series I--3,000,000 shares authorized, $0.01 par value;
2,594,876 shares outstanding ............................ $ 26 $ 26
Series II--1,500,000 shares authorized, $0.01 par value;
1,237,374 shares outstanding ............................ 12 12
Common Stock: Class A--5,000,000 shares authorized, $0.01
par value; 1,111,250 and 1,036,250 shares outstanding at
December 31, 1995 and 1996, respectively ............... 11 11
Class B-25,000,000 shares authorized, $0.01 par value;
248,770 and 256,198 shares outstanding at December 31,
1995 and 1996, respectively ............................. 3 3
Additional paid-in capital ................................. 51,610 51,649
Treasury stock--at cost; 13,200 and 88,200 shares at
December 31, 1995 and 1996, respectively ................ (207) (958)
-------- --------
Total .............................................. $ 51,455 $ 50,743
======== ========
</TABLE>
In April 1993, the Company issued 1,111,250 shares of Class A Common Stock,
56,500 shares of Class B Common Stock and 3,832,250 shares of Convertible
Preferred Stock, which consists of 2,594,876 shares of Series I Convertible
Preferred Stock and 1,237,374 shares of Series II Convertible Preferred Stock.
In December 1993, the Company issued 165,520 shares of Class B Common Stock
and 3,615,000 shares of Mandatorily Redeemable Senior Convertible Participating
Preferred Stock, which consists of 2,680,656 shares of Series I Mandatorily
Redeemable Senior Convertible Participating Preferred Stock and 934,344 shares
of Series II Mandatorily Redeemable Senior Convertible Participating Preferred
Stock (see Note 11).
CONVERTIBLE PREFERRED STOCK
VOTING RIGHTS. Each share of Series I Convertible Preferred Stock entitles
the holder to one vote on all matters, other than the election of directors,
submitted to a vote of the Company's shareholders.
Series II Convertible Preferred Stock is non-voting.
DIVIDENDS. See Common Stock--Dividends below.
F-17
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
12. OTHER PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
(CONTINUED)
CONVERSION. Each share of Series I Convertible Preferred Stock is
convertible into a share of Class B Common Stock at any time at the option of
the holder. See Note 21 for a discussion of changes to the Company's Common
Stock that were made subsequent to December 31, 1996.
Each share of Series II Convertible Preferred Stock is convertible at any
time at the option of the holder into such number of shares of Class B Common
Stock that in the aggregate do not exceed the lesser of (i) one share of Class B
Common Stock for each share of Series II Convertible Preferred Stock converted
or (ii) the number that equals 25% of the outstanding shares of Class B Common
Stock immediately following such conversion. Following the conversion of at
least 75% of the outstanding Convertible Preferred Stock into Class B Common
Stock, the Company is entitled to convert each remaining share of Convertible
Preferred Stock into a share of Class B Common Stock.
LIQUIDATION PREFERENCE. See Note 11--Mandatorily Redeemable Senior
Convertible Participating Preferred Stock-Liquidation Preference above.
COMMON STOCK
VOTING RIGHTS. The Class A and Class B Common Stock are identical in all
respects for purposes of voting other than for the election of directors. Each
share of Class A and Class B Common Stock entitles the holder to one vote on all
matters, other than election of directors, submitted to a vote of the Company's
shareholders. See Note 21 for a discussion of changes to the Company's Common
Stock that were made subsequent to December 31, 1996.
The Board of Directors of the Company consists of eleven members, four of
whom are elected by the holders of the Class A Common Stock, voting separately
as a class, six of whom are elected by the holders of the Series I Convertible
Preferred Stock and the Class B Common Stock (the Investor Stockholders), voting
together as a single class, and one of whom is the Chief Executive Officer of
the Company, as elected from time to time by majority vote of the other
directors.
The holders of Class A Common Stock will no longer be entitled to vote
separately as a class if either the number of outstanding shares of Class A
Common Stock owned by the Operator Shareholders falls below 722,313, or the
Voting Trust Agreement is terminated pursuant to a vote of 75% of the shares in
the voting trust or the expiration of its initial ten year term, unless 65% of
the then remaining Operator Shareholders elect to continue the voting trust.
DIVIDENDS. Holders of Common Stock are entitled to receive dividends if,
and when, declared by the Board of Directors of the Company. The Company is
precluded from paying dividends or making distributions to the holders of any of
its equity securities while any shares of Convertible Preferred Stock or
Mandatorily Redeemable Senior Convertible Participating Preferred Stock are
outstanding except for dividends and distributions of capital stock of the
Company; unless (i) in any fiscal year the dividends and distributions do not
exceed 50% of the Company's net income for the prior fiscal year and (ii) if
immediately after payment of such dividends or the making of any such
distributions, the value of the Company's shareholder equity would exceed the
value of the aggregate liquidation preference of the outstanding shares of
Convertible Preferred Stock and Mandatorily Redeemable Senior Convertible
Participating Preferred Stock by at least one dollar.
LIQUIDATION PREFERENCE. See Note 11--Mandatorily Redeemable Senior
Convertible Participating Preferred Stock--Liquidation Preference above.
F-18
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
12. OTHER PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
(CONTINUED)
WARRANTS. The purchasers of the $25,000,000 Subordinated Notes received
warrants with an exercise price of $0.01 per share which are exercisable for
128,206 shares of Class B Common Stock, resulting in a discount of $1,282,000 to
the principal balance of the Subordinated Notes.
REPURCHASE RIGHTS. Certain members of the Company's senior management have
purchased shares of the Company's Class B Common Stock pursuant to individual
management subscription agreements. The Company has the right to repurchase, and
the employees have the right to require the Company to repurchase, at formula
prices, the common stock upon termination of employment. The formula prices are
based on the consolidated operating results and indebtedness of the Company. At
December 31, 1996, the relevant price was $15.69 per share. Compensation expense
recognized with regard to these shares during the year ended December 31, 1996
was $336,000. No compensation expense was recognized with regard to these shares
in 1994 and 1995 as the formula prices in those years did not exceed the
purchase price of the shares.
STOCK AWARD AND OPTION PLAN
The 1993 Stock Incentive Plan (the "Plan") was approved by the Company's
Board of Directors and was effective as of December 10, 1993. The Plan provides
for the granting of stock options and other stock-based awards to employees and
directors of the Company. Stock awards granted under the Plan may be in the form
of (i) stock options, (ii) stock appreciation rights related to an option
("SAR"), and (iii) unrelated SAR's. Stock options granted under the Plan allow
the purchase of Class B Common Stock at prices generally not less than fair
market value as determined by the Compensation Committee of the Company's Board
of Directors. The total number of shares of Common Stock with respect to which
awards may be granted is 572,000. Common stock obtained as a result of the
exercise of the options is subject to call and put rights at formula prices upon
termination of employment. The formula prices are based on the consolidated
operating results and indebtedness of the Company. A portion of the options vest
at the end of each year in the five year period ending December 31, 1997, based
on attainment of certain specified financial objectives at the end of each year,
but no more quickly than ratably from the date of grant through December 31,
1996. Options that fail to vest by December 31, 1997 shall be forfeited. Vested
options must be exercised within 10 years of the date of grant. The purchase
prices at December 31, 1994, 1995 and 1996 used to determine compensation
expense related to these options were $13.59, $11.69 and $15.69, respectively.
Based on these prices and the number of vested options in each year,
compensation expense recognized in relation to these options for the years ended
December 31, 1994 and 1996 were $149,000, and $331,000, respectively. No
compensation expense was recognized for the year ended December 31, 1995.
F-19
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
12. OTHER PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
(CONTINUED)
The following table reflects the status and activity of options under the
Plan:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Options outstanding, beginning of year ...... -- 493,280 520,181
Granted .................................. 523,280 69,900 11,000
Exercised ................................ -- -- --
Canceled ................................. (30,000) (42,999) --
-------- -------- --------
Options outstanding, end of year ............ 493,280 520,181 531,181
======== ======== ========
Options exercisable, end of year ............ 189,820 213,440 330,436
Options available for grant, end of year .... 78,720 51,819 40,819
</TABLE>
The weighted-average exercise price was $19.04 for all years presented. The
following table summarizes information about options outstanding at December 31,
1996:
EXERCISE Options Options
PRICE Outstanding Exercisable
-------- ----------- -----------
$10.00............................................ 167,156 101,821
$17.49............................................ 176,442 107,477
$28.56............................................ 187,583 114,263
------- -------
531,181 323,561
======= =======
The weighted-average remaining contractual life of all options outstanding
at December 31, 1996 was seven years.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its stock-based compensation. Had compensation
cost for the Company's stock award and option plan been determined based on the
method set forth in Financial Accounting Standards Board Statement No. 123 there
would have been no difference in the reported amounts of net income or income
per common share and common share equivalent.
F-20
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
13. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------
1994 1995 1996
------- ------- -------
(in Thousands)
<S> <C> <C> <C>
Current:
Federal ............................................... $ 3,463 $4,106 $2,557
State ................................................. 596 815 398
------- ------- -------
4,059 4,921 2,955
------- ------- -------
Deferred:
Federal ............................................... 2,108 1,297 74
State ................................................. 394 396 320
------- ------- -------
2,502 1,693 394
------- ------- -------
Total ............................................ $ 6,561 $ 6,614 $ 3,349
======= ======= =======
</TABLE>
The difference between taxes calculated at the U. S. federal statutory tax
rate of 35 percent and the Company's total income tax provision is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------
1994 1995 1996
------- ------- -------
(in Thousands)
<S> <C> <C> <C>
U.S. Federal statutory rate applied to income before tax.. $ 5,689 $ 5,789 $ 3,109
State income taxes, net of federal income tax benefit .... 644 787 467
Other--net ............................................... 228 38 (227)
------- ------- -------
Total ............................................ $ 6,561 $ 6,614 $ 3,349
======= ======= =======
</TABLE>
F-21
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
13. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities resulted from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable ................................... $ 1,812 $ 2,252
Inventory ............................................. 317 254
Organization and start-up costs ....................... 284 156
Federal benefit of state deferred tax liabilities ..... 416 515
Intangible assets ..................................... 11,123 10,582
Deferred revenues ..................................... 1,020 710
Minimum tax credit .................................... 1,429 2,647
General business credits (expiring 2009-2011) ......... 538 769
Other accrued liabilities ............................. 725 1,106
------- -------
Total deferred tax assets ........................ 17,664 18,991
------- -------
Deferred tax liabilities:
Property and equipment ................................ 22,845 24,566
------- -------
Total deferred tax liabilities ................... 22,845 24,566
------- -------
Net deferred tax liabilities ..................... $ 5,181 $ 5,575
======= =======
</TABLE>
The tax returns of the Company for 1993 through 1996 are subject to
examination by the Internal Revenue Service and state tax authorities. The
Company believes it has made adequate provision for income taxes and interest
that may become payable for years not yet examined.
F-22
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
14. RELATED PARTY TRANSACTIONS
The Company conducts a significant amount of its business with related
parties. Certain share holders of the Company have an ownership interest in one
or more of the franchisee customers to whom the Company sells fuel and from whom
the Company receives rental income and/or royalty income. The transactions with
affiliates are at prices and terms that are the same as for similar transactions
with unrelated entities.
The following table is a summary of balances and transactions with related
parties at December 31, 1996 and 1995, and for each of the three years December
31, 1996:
DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1995 1996 1994 1995 1996
-------- -------- -------- -------- --------
(in Thousands)
Accounts receivable ..... $ 18,398 $ 15,052
Notes receivable ........ $ -- $ 2,307
Fuel revenue ............ $237,541 $238,343 $269,179
Rent revenue ............ $ 34,233 $ 35,543 $ 32,266
Other revenues .......... $ 9,948 $ 7,264 $ 5,534
Cost of revenues ........ $231,670 $239,651 $268,343
During 1995 and 1996, the Company acquired the travel center businesses and
operating assets of four and five independent operators who are related parties,
respectively. Total consideration of $2,140,285 in 1995 and $3,185,000 in 1996
was paid to these operators.
At December 31, 1995 and 1996, certain of the Company's convertible
preferred shareholders are owed all of the $25,000,000 of debt related to the
Company's issuance of Senior Subordinated Notes and certain mandatorily
redeemable preferred shareholders are owed $20,000,000 of debt relating to the
Company's issuance of Senior Secured Notes. Interest expense incurred related to
debt owed to these shareholders was $4,877,000 in each of 1994, 1995 and 1996.
Certain members of the Company's senior management have purchased common
stock of the Company pursuant to management subscription agreements. (See Note
12--Other Preferred Stock, Common Stock and Other Shareholder's
Equity--Repurchase Rights). As a result of such purchases, the Company has notes
receivable from the management shareholders totaling $421,000 and $909,000 at
December 31, 1995 and 1996, respectively.
15. COMMITMENTS AND CONTINGENCIES
CAPITAL COMMITMENTS
At December 31, 1996, commitments for capital expenditures for property and
equipment totaled approximately $2,461,000.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive federal,
state and local laws, regulations and ordinances relating to environmental
matters that (i) govern activities and operations that may have adverse
environmental effects, such as discharges to air, soil and water, as well as
handling,
F-23
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
storage and disposal practices for petroleum products and solid and hazardous
substances or (ii) impose liability and damages for the cost of remediating
sites affected by, and damage resulting from, past spills and disposal or other
releases of petroleum products and hazardous substances.
The Company owns and uses underground storage tanks (USTs) and above-ground
storage tanks (ASTs) at company-operated and operator locations to store
petroleum products and waste oils. These tanks must comply with statutory and
regulatory requirements regarding tank construction, integrity testing, leak
detection and monitoring, overfilling and spill control, release reporting,
financial assurance and corrective action in case of a release from a UST or AST
into the environment. To meet minimum federal requirements, all existing USTs
owned by the Company must conform to certain construction requirements, have
installed tank leak detection systems, and have installed corrosion protection
and spill-overfill prevention equipment by December 22, 1998. The Company has
established a program of tank replacement and equipment installation to meet the
requirements by that time.
While the costs of compliance for these matters have not had a material
adverse impact on the Company, it is impossible to predict accurately the
ultimate effect these changing laws and regulations may have on the Company in
the future. The Company incurred capital expenditures, maintenance, remediation
and other environmental related costs of approximately $2,224,000, $3,968,000
and $7,172,000 in 1994, 1995 and 1996, respectively.
As part of each of the National and TA Acquisitions, the Company negotiated
environmental agreements with the sellers, pursuant to which Unocal and BP each
indemnified the Company for a period of eleven years from the acquisition dates
for the remediation of any environmental contamination present at any of the
acquired locations as of the acquisition dates and which required Unocal and BP
to directly pay any required remediation costs. The environmental agreements
with Unocal and BP expire on April 14, 2004 and December 11, 2004 respectively.
In connection with the acquisitions, Phase I investigations were conducted
at all of the acquired travel centers. Pursuant to the environmental agreements,
Phase II investigations on all sites are required to be completed by the year
2000. As of December 31, 1996, 31 Phase II investigations were in progress and
84 had been completed. The Company is now evaluating the results of these
investigations to establish what, if any, remedial actions will be required and
are notifying federal, state and local authorities regarding any contamination
that is discovered. The Company expects that the remaining 18 investigations
will be completed by 1998. Unocal and the Company agreed to share the costs of
the Phase II environmental investigations to be conducted at the National
Network locations, with the Company's share of such costs limited to $500,000,
which has been fully paid, for all of such investigations. The environmental
agreements further provide that Unocal and BP are directly responsible for all
such costs and expenses incurred for remediation of environmental contamination
(based on the standards in effect on the date the remedial action is completed),
for bringing the facilities into compliance with environmental laws (based on
requirements in effect as of the respective acquisition dates) and for any other
environmental liabilities that arise out of conditions at, or ownership or
operations of, the Network prior to the respective acquisition dates. In
addition, Unocal and BP are continuing remedial actions regarding conditions
identified at certain travel centers prior to the acquisitions by the Company.
Unocal and BP do not have any responsibility for any environmental liabilities
arising out of the ownership and operations of the Network after April 14, 1993
and December 9, 1993 respectively, unless such liabilities are a result of
conditions existing at the time of the National and TA Acquisitions. There can
be no assurance that, if additional environmental claims or liabilities arise
under the environmental agreements, Unocal or BP would not dispute the Company's
claims for indemnification thereunder.
F-24
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is in the process of resolving alleged violations of wastewater
discharge permits in several states relating to travel center operations and is
conducting investigatory and/or remedial actions with respect to petroleum
product releases that have occurred subsequent to the acquisition at 21 travel
centers. Remediation activities have been completed at other travel centers and
the Company anticipates no further actions to be required by the respective
state agencies in regard to those matters at those locations. Most of the
wastewater discharge notices have been resolved by the Company without penalty.
However, given the status of the proceedings with respect to matters still
pending, ultimate investigative and remediation costs cannot accurately be
predicted. The Company expects that some or all of any fines paid or costs
incurred in connection with the wastewater discharge violations noted above will
be paid by Unocal and BP pursuant to the environmental agreements.
The Company has estimated the current ranges of remediation costs at
currently active sites and what it believes will be its ultimate share for such
costs after required indemnification and remediation is performed by Unocal and
BP under the environmental agreements and has recorded a reserve of $745,000,
for such matters. While it is not possible to quantify with certainty the
environmental exposure, in the opinion of management, the potential liability,
beyond that considered in the reserve, for all environmental proceedings, based
on information known to date, will not have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
PENDING LITIGATION
In connection with the acquisition of the Network, the Company acquired six
travel centers located in California that are currently members of the Network.
In January 1993, the operators of four of these travel centers (the "California
Plaintiffs") commenced litigation against Unocal and the Company in California
state court seeking, among other things, specific performance by Unocal of their
alleged rights, either under the California Business and Professions Code (the
"California Statute") or, in the alternative, pursuant to alleged statements
made by Unocal, to purchase their travel centers at a fair market price and
seeking compensatory and punitive damages against the Company and others for
both tortious interference with the California Plaintiffs' alleged rights and
civil conspiracy. The operator of a fifth California travel center also asserted
a purchase right, but never filed suit. This property, together with the four
properties operated by the California Plaintiffs, are referred to herein as the
"California Properties".
Under the asset purchase agreements pursuant to which the Company acquired
the California Properties from Unocal, and related agreements, (i) the Company
purchased the California Properties for $39 million and (ii) Unocal agreed to
indemnify the Company for, among other things, claims arising under the
California Statute arising out of or resulting from the sale of the California
Properties, including any amounts ("Excess Amounts") by which the original
purchase price paid by the Company for the California Properties exceeds the
price at which the Company might be ordered by a court to resell such
properties. Pursuant to such agreements, Unocal is not required to indemnify the
Company for awards of punitive damages. The Company cannot predict whether it
ultimately will be required to resell any or all of the California Properties to
the California operators. However, in such event, the Company would seek
indemnification from Unocal for any Excess Amounts. The Company believes that
the claims asserted by the operators of the California Properties against the
Company are without merit and has engaged in a vigorous defense.
During 1995, the trial commenced and two of the California Plaintiffs
elected to settle their portion of the litigation with Unocal and the Company.
In resolution, the Company entered into an agreement whereby the Company
acquired the assets and operations of one of the related travel centers and paid
F-25
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
approximately $900,000 for the operations and certain assets used in the
operations. The other operator's issues were resolved at no cost to the Company
and that operator continues to operate the travel center under the existing
lease agreement.
On May 1, 1995, the jury rendered a verdict in favor of the two remaining
California Plaintiffs and against Unocal and the Company. The jury determined
that the two remaining California Plaintiffs were entitled to total compensatory
damages of $4,012,000, all payable by Unocal. On May 3, 1995, the jury rendered
a verdict assessing punitive damages against Unocal and the Company in the
amounts of $7,000,000 and $3,100,000, respectively. Also on May 3, 1995, the
California State Court rendered a tentative decision in favor of Unocal and the
Company on the equitable claims asserted by the California Plaintiffs and
denying Plaintiffs' request for rescission of the asset purchase agreements for
the related California Properties. The Company then filed motions with the trial
court to enter judgement in its favor on plaintiff's damages claims
notwithstanding the verdict, or in the alternative, to order a new trial. On
August 1, 1995, the California Court denied the motion for judgement
notwithstanding the verdict, but granted the Company's motion for a new trial on
all issues. Unocal and the Company have appealed the court's denial of their
motions for judgement notwithstanding the verdict, and the California Plaintiffs
have appealed the court's granting of a new trial and its ruling on the
equitable claims. Decisions on the pending appeals are expected by late 1997.
The Company's ultimate liability in the disposition of this matter is difficult
to estimate. However, it is management's belief that the outcome, while
potentially material to the Company's results of operations, is not likely to
have a material adverse effect on the Company's financial position.
The Company believes all compensatory damages ultimately awarded and legal
fees incurred in this matter are covered under the indemnification agreement
with Unocal. Legal costs incurred by the Company through December 31, 1996 total
$5,189,000, of which Unocal has paid $1,000,000 to the Company to date. Unocal
has stated, however, that it may contest portions of the Company's claims for
such indemnification. However, the Company believes that the effect on the
financial statements of any amounts not ultimately collected from Unocal will
not be material.
In April 1996, a group of 11 operators filed a complaint which was styled
as a class action lawsuit alleging that the Company or its representatives had
engaged in certain inappropriate practices or activities including breach of
contract and fraud in connection with acquiring and operating the Network. No
specific dollar damages are claimed in the complaint, but the plaintiffs
generally seek compensatory and punitive damages. In January 1997, the complaint
was amended to include an additional six operators as plaintiffs and to assert
the additional claims of tortious interference with contractual relations and of
civil conspiracy. In 1997, settlement agreements were reached with three of the
plaintiffs at an immaterial cost to the Company. The Company believes that the
claims made in the complaint are baseless and intends to defend this litigation
vigorously. It is management's belief that the outcome is not likely to have a
material adverse effect on the Company's results of operations, financial
position or liquidity.
In addition to the above matters, the Company is the subject of, or party
to, a number of pending or threatened legal actions, contingencies and
commitments involving a variety of matters, including laws and regulations
relating to the environment. The ultimate resolution of these contingencies
could, individually or in the aggregate, be material to the Company's results of
operations, but is not expected to be material to the Company's financial
position or liquidity.
F-26
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
16. OPERATING LEASE COMMITMENTS
Of the 135 travel centers owned by the Company as of December 31, 1996, 77
locations are leased to independent operators, several of whom are related
parties of the Company, under operating lease arrangements. These cancelable
lease arrangements generally are for terms of three to five years. Rent revenue
from such operating lease arrangements totaled $48,424,000, $47,840,000 and
$41,762,000 for 1994, 1995 and 1996, respectively.
17. OTHER INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating and Selling, general and administrative expenses include the
following:
Repairs and maintenance expenses .................................. $ 2,225 $ 1,264 $ 7,689
Advertising expenses (net of franchisee payments) ................. $ 561 $ 504 $ 3,110
Taxes other than payroll and income taxes ......................... $ 2,974 $ 3,391 $ 2,429
Interest income (expense):
Interest expense .................................................. $(13,918) $(14,190) $(15,965)
Interest income ................................................... 675 846 729
-------- -------- --------
$(13,243) $(13,344) $(15,236)
======== ======== ========
</TABLE>
18. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest .......................................................... $ 13,383 $ 14,055 $ 16,597
Income Taxes ...................................................... $ 5,987 $ 482 $ 1,321
</TABLE>
During 1995 and 1996, the Company received $3,201,000 and $3,207,000,
respectively, of inventory and property and equipment in liquidation of trade
accounts receivable (See Notes 2 and 19).
F-27
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
19. CONDENSED FINANCIAL STATEMENTS OF TAHC
The Company's consolidated financial statements presented TAHC as held for
disposition until September 30, 1996 (see Note 2). The following sets forth the
condensed financial statement schedules of TAHC on a stand-alone basis.
CONDENSED BALANCE SHEET SCHEDULE:
DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)
ASSETS
Cash and short term investments ........................ $ 12,426 $ 13,838
Accounts receivable, net ............................... 19,622 22,532
Inventories ............................................ 24,149 24,619
Other current assets ................................... 2,652 5,673
-------- --------
Total current assets ........................... 58,849 66,662
Property and equipment, net ............................ 84,150 85,015
Other noncurrent assets ................................ 13,926 12,385
-------- --------
Total assets ................................... $156,925 $164,062
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable ....................................... $ 11,313 $ 10,499
Accrued liabilities .................................... 18,528 26,628
-------- --------
Total current liabilities ...................... 29,841 37,127
Long-term debt, net .................................... 81,360 74,441
Other noncurrent liabilities ........................... 387 3,431
-------- --------
Total liabilities .............................. 111,588 114,999
Paid-in capital ........................................ 37,730 37,730
Retained earnings ...................................... 7,607 11,333
Total shareholders' equity ..................... 45,337 49,063
-------- --------
Total liabilities and shareholders' equity ..... $156,925 $164,062
======== ========
F-28
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
19. CONDENSED FINANCIAL STATEMENTS OF TAHC (CONTINUED)
CONDENSED STATEMENT OF INCOME SCHEDULE:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Fuel .................................... $ 206,971 $ 214,250 $ 284,378
Non-fuel ................................ 167,830 172,201 182,488
--------- --------- ---------
Total revenues ..................... 374,801 386,451 466,866
Cost of sales (excluding depreciation) ..... 243,447 255,999 323,636
--------- --------- ---------
Gross profit (excluding depreciation) ...... 131,354 130,452 143,230
Operating expenses ......................... 93,279 92,099 100,085
Selling, general and administrative expenses 13,039 12,313 15,839
Transition and development costs ........... 1,412 1,035 1,303
Depreciation and amortization .............. 9,950 11,232 12,663
Other (income) expense, net ................ (77) 51 21
--------- --------- ---------
Operating income ........................ 13,751 13,722 13,319
Interest expense ........................... (7,294) (7,523) (7,381)
--------- --------- ---------
Income before income taxes .............. 6,457 6,199 5,938
Income tax expense ......................... 2,468 2,445 2,212
--------- --------- ---------
Net income ................................. $ 3,989 $ 3,754 $ 3,726
========= ========= =========
</TABLE>
F-29
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
20. UNAUDITED PRO FORMA PRESENTATION
The following schedules set forth the consolidated financial position and
results of operations of the Company as though TAHC had not been held for
disposition and instead been fully consolidated since January 1, 1994.
UNAUDITED PRO FORMA BALANCE SHEET SCHEDULE:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and short term investments .............................. $ 15,617 $ 23,779
Accounts receivable, net ..................................... 56,858 54,371
Inventories .................................................. 26,265 29,082
Deferred income taxes ........................................ 3,561 3,877
Other current assets ......................................... 8,939 10,530
-------- --------
Total current assets ...................................... 111,240 121,639
Notes receivable ................................................ -- 1,835
Property and equipment, net ..................................... 267,229 273,219
Intangible assets ............................................... 22,265 19,657
Deferred financing costs ........................................ 10,518 8,379
Other assets .................................................... 2,114 5,013
-------- --------
Total assets .............................................. $413,366 $429,742
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving loans .............................................. $ -- $ 14,000
Current maturities of long-term debt: ........................ 16,125 17,250
Accounts payable ............................................. 34,373 37,201
Other accrued liabilities .................................... 22,230 29,422
-------- --------
Total current liabilities ................................. 72,728 97,873
Long-term debt, net ............................................. 210,226 193,185
Deferred income taxes ........................................... 9,872 9,452
Other long-term liabilities ..................................... 3,133 5,914
-------- --------
Total liabilities ......................................... 295,959 306,424
Mandatorily redeemable senior convertible participating preferred
stock ........................................................ 46,195 51,075
Other preferred stock, common stock and other shareholders'
equity ....................................................... 51,455 50,743
Retained earnings ............................................... 19,757 21,500
-------- --------
Total stockholders' equity ................................... 71,212 72,243
-------- --------
Total liabilities and shareholders' equity ................ $413,366 $429,742
======== ========
</TABLE>
F-30
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
20. UNAUDITED PRO FORMA PRESENTATION (CONTINUED)
UNAUDITED PRO FORMA STATEMENT OF INCOME SCHEDULE:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Fuel ........................................ $ 603,719 $ 590,398 $ 752,266
Nonfuel ..................................... 187,712 201,533 239,449
Rent ........................................ 48,424 47,840 41,762
----------- ----------- -----------
Total revenues ........................... 839,855 839,771 1,033,477
Cost of revenues (excluding depreciation) ... 634,595 632,822 801,665
----------- ----------- -----------
Gross profit (excluding depreciation) ....... 205,260 206,949 231,812
Operating expenses .......................... 100,990 101,620 128,773
Selling, general and administrative expenses 35,361 43,198 42,349
Refinancing, transition and development costs 5,529 1,866 2,687
Depreciation and amortization ............... 20,348 22,611 26,970
Other (income) expense, net ................. (215) 247 1,324
----------- ----------- -----------
Income from operations ................... 43,247 37,407 29,709
Interest income (expense), net .............. (20,537) (20,867) (20,827)
----------- ----------- -----------
Income before provision for income taxes . 22,710 16,540 8,882
Provision for income taxes .................. 9,029 6,614 3,349
----------- ----------- -----------
Net income ............................... $ 13,681 $ 9,926 $ 5,533
=========== =========== ===========
</TABLE>
21. SUBSEQUENT EVENTS
On January 21, 1997, the Company's Board of Directors approved a plan to
combine the operations of its National and TA Networks under the existing TA
Network management. This plan provides for the divesting of certain National
Network locations, the transfer of operations of all National Network
company-operated locations to the TA Network and rebranding of certain National
Network locations to TA . Related to this combination plan, the Company is
pursuing a recapitalization. The recapitalization will, if consummated,
refinance the Company's indebtedness of $225,800,000 at December 31, 1996, which
will require the write-off of the remaining unamortized balance of the deferred
financing costs and unamortized debt discount of $8,379,000 and $1,365,000,
respectively, at December 31, 1996. Certain elements of the combination plan are
dependent upon the successful recapitalization of the Company.
As of March 6, 1997, the Company's certificate of incorporation and by-laws
were amended: (i) to eliminate the supermajority voting requirements that were
applicable to certain actions, (ii) to eliminate all designations of classes of
common stock, the convertibility of one class of common stock into another and
all class votes of holders of common stock, (iii) to change the names of the
Class A Common Stock and the Class B Common Stock to Common Stock, (iv) to
provide that all of the outstanding shares of preferred stock of the Company be
convertible into shares of Common Stock on the same basis as they previously had
been convertible into Class B Common Stock, (v) to eliminate class votes for
directors and to provide that directors shall be elected by holders of common
stock and voting preferred stock voting together as a class and (vi) to change
the Company's name to "TravelCenters of America, Inc.". These actions did not
change the numbers of shares of various classes of stock that are authorized or
outstanding, nor did they alter the par value or dividend or other rights of the
various classes of stock.
F-31
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth the consolidated balance sheets of the
Company as of December 31, 1995 and 1996 and the statements of income and
retained earnings and statements of cash flows of the Company for the years
ended December 31, 1994, 1995 and 1996. In the following schedules, "Parent
Company" refers to the unconsolidated balances of TravelCenters of America,
Inc., "Guarantor Subsidiaries" refers to the combined unconsolidated balances of
TA and National, and "Nonguarantor Subsidiary" refers to the balances of TAFSI.
"Eliminations" represent the adjustments necessary to (a) eliminate intercompany
transactions, (b) eliminate the Company's investments in its subsidiaries and
(c) present TAHC as a subsidiary held for disposition until September 30, 1996
(see Note 2).
F-32
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash ..................................... $ -- $ 15,617 $ -- $ (12,426) $ 3,191
Accounts receivable, net ................. -- 56,475 915 (20,424) 36,966
Inventories .............................. -- 26,265 -- (24,149) 2,116
Deferred income taxes .................... -- 3,561 -- (769) 2,792
Other current assets ..................... -- 8,861 5 (1,877) 6,989
------------- ------------- ------------- ------------- -------------
Total current assets ................ -- 110,779 920 (59,645) 52,054
Notes receivable, net ....................... -- -- -- -- --
Property and equipment, net ................. -- 267,229 -- (84,150) 183,079
Intangible assets ........................... -- 22,265 -- (9,723) 12,542
Deferred financing costs .................... -- 10,518 -- (3,614) 6,904
Investment in subsidiary held for
disposition .............................. -- -- -- 41,484 41,484
Other assets ................................ 2,500 2,114 -- (3,446) 1,168
Investment in subsidiaries .................. 82,434 -- -- (82,434) --
------------- ------------- ------------- ------------- -------------
Total assets ........................ $ 84,934 $ 412,905 $ 920 $ (201,528) $ 297,231
============= ============= ============= ============= =============
<CAPTION>
LIABILIITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities:
Revolving loans .......................... $ -- $ -- $ -- $ -- $ --
Current maturities of long-term
debt .................................. -- 16,125 -- (5,000) 11,125
Accounts payable ......................... 350 34,270 -- (12,254) 22,366
Other accrued liabilities ................ -- 22,214 216 (13,739) 8,691
------------- ------------- ------------- ------------- -------------
Total current liabilities ........... 350 72,609 216 (30,993) 42,182
Long-term debt (net of unamortized
discount) ................................ -- 210,226 -- (81,360) 128,866
Deferred income taxes ....................... -- 8,783 -- (377) 8,406
Other liabilities ........................... -- 5,644 -- (2,511) 3,133
------------- ------------- ------------- ------------- -------------
Total liabilities ................... 350 297,262 216 (115,241) 182,587
Mandatorily redeemable senior
convertible participating
preferred stock .......................... 46,195 -- -- -- 46,195
Other preferred stock, common
stock and other shareholders'
equity ................................... 52,709 85,033 -- (86,287) 51,455
Retained earnings ........................... (14,320) 30,610 704 -- 16,994
------------- ------------- ------------- ------------- -------------
Total shareholders' equity .......... 38,389 115,643 704 (86,287) 68,449
------------- ------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity ............. $ 84,934 $ 412,905 $ 920 $ (201,528) $ 297,231
============= ============= ============= ============= =============
</TABLE>
F-33
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash .................................... $ -- $ 23,779 $ -- $ -- $ 23,779
Accounts receivable, net ................ -- 54,294 1,051 (974) 54,371
Inventories ............................. -- 29,082 -- -- 29,082
Deferred income taxes ................... -- 3,877 -- -- 3,877
Other current assets .................... 499 10,236 2 (207) 10,530
------------- ------------- ------------- ------------- -------------
Total current assets ............... 499 121,268 1,053 (1,181) 121,639
Notes receivable, net ...................... -- 1,835 -- -- 1,835
Property and equipment, net ................ -- 273,219 -- (3,853) 269,366
Intangible assets .......................... -- 19,657 -- -- 19,657
Deferred financing costs ................... -- 8,379 -- -- 8,379
Other assets ............................... 2,500 7,348 -- (4,835) 5,013
Investment in subsidiaries ................. 82,434 -- -- (82,434) --
------------- ------------- ------------- ------------- -------------
Total assets ....................... $ 85,433 $ 431,706 $ 1,053 $ (92,303) $ 425,889
============= ============= ============= ============= =============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities:
Revolving loans ......................... $ -- $ 14,000 $ -- $ -- $ 14,000
Current maturities of long-term
debt ................................. -- 17,250 -- -- 17,250
Accounts payable ........................ 1,555 37,945 -- (2,299) 37,201
Other accrued liabilities ............... 450 29,553 105 (686) 29,422
------------- ------------- ------------- ------------- -------------
Total current liabilities .......... 2,005 98,748 105 (2,985) 97,873
Long-term debt (net of unamortized
discount) ............................... -- 193,185 -- -- 193,185
Deferred income taxes ...................... 92 9,891 -- (531) 9,452
Other liabilities .......................... 1 8,413 -- (2,500) 5,914
------------- ------------- ------------- ------------- -------------
Total liabilities .................. 2,098 310,237 105 (6,016) 306,424
Mandatorily redeemable senior
convertible participating
preferred stock ......................... 51,075 -- -- -- 51,075
Other preferred stock, common
stock and other shareholders'
equity .................................. 51,997 85,033 -- (86,287) 50,743
Retained earnings .......................... (19,737) 36,436 948 -- 17,647
------------- ------------- ------------- ------------- -------------
Total shareholders' equity ......... 32,260 121,469 948 (86,287) 68,390
------------- ------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity ............ $ 85,433 $ 431,706 $ 1,053 $ (92,303) $ 425,889
============= ============= ============= ============= =============
</TABLE>
F-34
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND RETAINED EARNINGS SCHEDULES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
Revenues:
Fuel ............................ $ -- $ 603,719 -- $ (206,971) $ 396,748
Nonfuel ......................... -- 186,292 1,420 (167,830) 19,882
Rent ............................ -- 48,424 -- -- 48,424
------------- ------------- ------------- ------------- -------------
Total revenues .................. -- 838,435 1,420 (374,801) 465,054
Cost of revenues (excluding
depreciation) ................... -- 634,595 -- (243,447) 391,148
------------- ------------- ------------- ------------- -------------
Gross profit (excluding
depreciation) ................... -- 203,840 1,420 (131,354) 73,906
Operating expenses ................. -- 100,990 -- (93,279) 7,711
Selling, general and
administrative ................. 526 33,896 939 (13,039) 22,322
Refinancing, transition and
development costs ............... -- 5,529 -- (1,412) 4,117
Depreciation and amortization ...... -- 20,348 -- (9,950) 10,398
Other (income) expense, net ........ -- (215) -- 77 (138)
------------- ------------- ------------- ------------- -------------
Income from operations ............. (526) 43,292 481 (13,751) 29,496
Interest (expense), net ............ -- (20,537) -- 7,294 (13,243)
------------- ------------- ------------- ------------- -------------
Income before provision for income
taxes ........................... (526) 22,755 481 (6,457) 16,253
Provision for income taxes ......... (205) 9,065 169 (2,468) 6,561
------------- ------------- ------------- ------------- -------------
Net income ......................... (321) 13,690 312 (3,989) 9,692
Less: preferred dividends ....... (4,880) -- -- -- (4,880)
Retained earnings (deficit) -
beginning of the year ........... (4,138) 7,281 4 3,989 7,136
------------- ------------- ------------- ------------- -------------
Retained earnings (deficit) - end of
the year ........................ $ (9,339) $ 20,971 $ 316 $ -- $ 11,948
============= ============= ============= ============= =============
</TABLE>
F-35
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(In Thousands of Dollars)
Revenues:
<S> <C> <C> <C> <C> <C>
Fuel ............................. $ -- $ 590,398 -- $ (214,250) $ 376,148
Nonfuel .......................... -- 199,968 1,565 (172,201) 29,332
Rent ............................. -- 47,840 -- -- 47,840
------------- ------------- ------------- ------------- -------------
Total revenues ................... -- 838,206 1,565 (386,451) 453,320
Cost of revenues (excluding
depreciation) .................... -- 632,822 -- (255,999) 376,823
------------- ------------- ------------- ------------- -------------
Gross profit (excluding
depreciation) .................... -- 205,384 1,565 (130,452) 76,497
Operating expenses .................. -- 101,620 -- (92,099) 9,521
Selling, general and
administrative ................... 168 42,080 950 (12,313) 30,885
Refinancing, transition and
development costs ................ -- 1,866 -- (1,035) 831
Depreciation and amortization ....... -- 22,611 -- (11,232) 11,379
Other (income) expense, net ......... -- 247 -- (51) 196
Income of subsidiary held for
disposition ...................... -- -- -- (6,199) (6,199)
------------- ------------- ------------- ------------- -------------
Income from operations .............. (168) 36,960 615 (7,523) 29,884
Interest (expense), net ............. -- (20,867) -- 7,523 (13,344)
------------- ------------- ------------- ------------- -------------
Income before provision for income
taxes ............................ (168) 16,093 615 -- 16,540
Provision for income taxes .......... (67) 6,454 227 -- 6,614
------------- ------------- ------------- ------------- -------------
Net income .......................... (101) 9,639 388 -- 9,926
Less: preferred dividends ........ (4,880) -- -- -- (4,880)
Retained earnings (deficits) -
beginning of the year ............ (9,339) 20,971 316 -- 11,948
------------- ------------- ------------- ------------- -------------
Retained earnings (deficits) - end of
the year ......................... $ (14,320) $ 30,610 $ 704 $ -- $ 16,994
============= ============= ============= ============= =============
</TABLE>
F-36
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel ......................... $ -- $ 752,266 -- $ (202,054) $ 550,212
Nonfuel ...................... -- 238,067 1,382 (138,171) 101,278
Rent ......................... -- 41,762 -- -- 41,762
------------- ------------- ------------- ------------- -------------
Total revenues ............... -- 1,032,095 1,382 (340,225) 693,252
Cost of revenues (excluding
depreciation) ................ -- 801,665 -- (233,439) 568,226
------------- ------------- ------------- ------------- -------------
Gross profit (excluding
depreciation) ................ -- 230,430 1,382 (106,786) 125,026
Operating expenses .............. -- 128,773 -- (74,772) 54,001
Selling, general and
administrative ............... 736 40,613 1,000 (11,546) 30,803
Refinancing, transition and
development costs ............ -- 2,687 -- (490) 2,197
Depreciation and amortization ... -- 26,970 -- (9,132) 17,838
Other (income) expense, net ..... -- 1,324 -- -- 1,324
Income of subsidiary held for
disposition .................. -- -- -- (5,255) (5,255)
------------- ------------- ------------- ------------- -------------
Income from operations .......... (736) 30,063 382 (5,591) 24,118
Interest (expense), net ......... -- (20,827) -- 5,591 (15,236)
------------- ------------- ------------- ------------- -------------
Income before provision for
income taxes ................. (736) 9,236 382 -- 8,882
Provision for income taxes ...... (199) 3,410 138 -- 3,349
------------- ------------- ------------- ------------- -------------
Net income ...................... (537) 5,826 244 -- 5,533
Less: preferred dividends .... (4,880) -- -- -- (4,880)
Retained earnings (deficit) -
beginning of the year ........ (14,320) 30,610 704 -- 16,994
------------- ------------- ------------- ------------- -------------
Retained earnings (deficit) - end
of the year .................. $ (19,737) $ 36,436 $ 948 $ -- $ 17,647
============= ============= ============= ============= =============
</TABLE>
F-37
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS SCHEDULES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (USED IN) PROVIDED
BY OPERATING ACTIVITIES: $ (54) $ 32,376 $ -- $ (5,965) $ 26,357
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sales of property
and equipment .............. -- 1,277 -- (1,277) --
Capital expenditures .......... -- (20,841) -- 9,848 (10,993)
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities ............... -- (19,564) -- 8,571 (10,993)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Revolving loan borrowings ..... -- 1,000 -- -- 1,000
Revolving loan repayments ..... -- (1,000) -- -- (1,000)
Long-term debt repayments ..... -- (5,500) -- 2,000 (3,500)
Other ......................... 54 -- -- -- 54
------------- ------------- ------------- ------------- -------------
Net cash (used in) provided
by financing activities .. 54 (5,500) -- 2,000 (3,446)
------------- ------------- ------------- ------------- -------------
Net increase in cash ..... -- 7,312 -- 4,606 11,918
Cash at the beginning of the year -- 28,527 -- (24,948) 3,579
------------- ------------- ------------- ------------- -------------
Cash at the end of the year ...... $ -- $ 35,839 $ -- $ (20,342) $ 15,497
============= ============= ============= ============= =============
</TABLE>
F-38
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (USED IN) PROVIDED
BY OPERATING ACTIVITIES: $ 66 $ 27,341 $ -- $ (7,971) $ 19,436
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of network assets -- (575) -- -- (575)
Proceeds from sales of property
and equipment .............. -- 1,770 -- (366) 1,404
Capital expenditures .......... -- (32,183) 12,253 -- (19,930)
Refund of purchase price ...... -- 1,500 -- -- 1,500
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities ............... -- (29,488) -- 11,887 (17,601)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Long-term debt repayments ..... -- (18,075) -- 4,000 (14,075)
Other ......................... (66) -- -- -- (66)
------------- ------------- ------------- ------------- -------------
Net cash (used in) provided
by financing activities .. (66) (18,075) -- 4,000 (14,141)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
cash .................. -- (20,222) -- 7,916 (12,306)
Cash at the beginning of the year -- 35,839 -- (20,342) 15,497
------------- ------------- ------------- ------------- -------------
Cash at the end of the year ...... $ -- $ 15,617 $ -- $ (12,426) $ 3,191
============= ============= ============= ============= =============
</TABLE>
F-39
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (USED IN) PROVIDED
BY OPERATING ACTIVITIES: $ 712 $ 38,763 $ -- $ (11,855) $ 27,620
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of network assets ... -- (2,352) -- -- (2,352)
Proceeds from sales of property
and equipment ................. -- 965 -- (322) 643
Capital expenditures ............. -- (27,089) -- 6,544 (20,545)
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities .................. -- (28,476) -- 6,222 (22,254)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Revolving loan borrowings ........ -- 14,000 -- -- 14,000
Long-term debt repayments ........ -- (16,125) -- 3,750 (12,375)
Reconsolidation of subsidiary
previously held for disposition -- -- -- 14,309 14,309
Other ............................ (712) -- -- -- (712)
------------- ------------- ------------- ------------- -------------
Net cash (used in) provided
by financing activities ..... (712) (2,125) -- 18,059 15,222
------------- ------------- ------------- ------------- -------------
Net increase in cash ........ -- 8,162 -- 12,426 20,588
Cash at the beginning of the year ... -- 15,617 -- (12,426) 3,191
------------- ------------- ------------- ------------- -------------
Cash at the end of the year ......... $ -- $ 23,779 $ -- $ -- $ 23,779
============= ============= ============= ============= =============
</TABLE>
F-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of
TA Operating Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of TA Operating
Corporation and its subsidiary at December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 6, 1997
F-41
<PAGE>
TA OPERATING CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS OF DOLLARS)
ASSETS
<S> <C> <C>
Current assets:
Cash and short term investments ......................................... $ 12,426 $ 13,838
Accounts receivable (less allowance for doubtful accounts of
$341 for 1995 and $393 for 1996) ..................................... 19,622 22,532
Inventories ............................................................. 24,149 24,619
Deferred income taxes ................................................... 769 600
Other current assets .................................................... 1,883 5,073
-------- --------
Total current assets ............................................... 58,849 66,662
Property and equipment, net ............................................. 84,150 85,015
Intangible assets ....................................................... 9,723 8,133
Deferred financing costs ................................................ 3,614 3,084
Deferred income taxes ................................................... 41 534
Other assets ............................................................ 548 634
-------- --------
Total assets ....................................................... $156,925 $164,062
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable ........................................................ $ 11,313 $ 10,499
Other accrued liabilities ............................................... 13,388 19,129
Taxes payable to parent ................................................. 140 499
Long-term debt due within one year ...................................... 5,000 7,000
-------- --------
Total current liabilities .......................................... 29,841 37,127
Commitments and contingencies (Note 10)
Long-term debt, less unamortized discount ............................... 81,360 74,441
Other long-term liabilities ............................................. 11 3,122
Deferred income taxes ................................................... 376 309
-------- --------
Total liabilities .................................................. 111,588 114,999
Shareholder's equity
Common stock (1,000 shares authorized, $0.01 par value; 100
shares issued) ..................................................... -- --
Additional paid-in capital ........................................... 37,730 37,730
Retained earnings .................................................... 7,607 11,333
-------- --------
Total shareholder's equity ......................................... 45,337 49,063
-------- --------
Total liabilities and shareholder's equity ......................... $156,925 $164,062
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-42
<PAGE>
TA OPERATING CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues:
Fuel .......................................... $ 206,971 $ 214,250 $ 284,378
Food offerings ................................ 50,007 51,753 55,596
Merchandise ................................... 28,186 27,909 27,663
Service sales ................................. 53,718 53,598 58,280
Other ......................................... 35,919 38,941 40,949
--------- --------- ---------
Total revenues ................................ 374,801 386,451 466,866
Cost of revenues (excluding depreciation) ........ 243,447 255,999 323,636
--------- --------- ---------
Gross profit (excluding depreciation) ............ 131,354 130,452 143,230
Operating expenses ............................... 93,279 92,099 100,085
Selling, general and administrative expenses ..... 13,039 12,313 15,839
Refinancing, transition and development costs .... 1,412 1,035 1,303
Depreciation and amortization .................... 9,950 11,232 12,663
Other (income) expense, net ...................... (77) 51 21
--------- --------- ---------
Income from operations ........................... 13,751 13,722 13,319
Interest (expense), net .......................... (7,294) (7,523) (7,381)
--------- --------- ---------
Income before provision for income taxes ......... 6,457 6,199 5,938
Provision for income taxes ....................... 2,468 2,445 2,212
--------- --------- ---------
Net income ....................................... 3,989 3,754 3,726
--------- --------- ---------
Retained earnings (deficit) at beginning of period (136) 3,853 7,607
--------- --------- ---------
Retained earnings at end of period ............... $ 3,853 $ 7,607 $ 11,333
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-43
<PAGE>
TA OPERATING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ............................................. $ 3,989 $ 3,754 $ 3,726
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ...................... 9,950 11,232 12,663
Deferred income taxes .............................. (38) (107) (391)
(Gain) loss on sales of property and equipment ..... (77) 51 21
Changes in assets and liabilities:
Accounts receivable ........................... (1,954) (221) (2,910)
Inventories ................................... (2,956) (1,085) (470)
Other current assets .......................... (473) 97 (3,190)
Accounts payable and accrued liabilities ...... (2,441) (5,895) 5,287
Other long-term liabilities ................... -- -- 3,111
Other--net .................................... (35) 145 (160)
-------- -------- --------
Net cash provided by operating activities ..... 5,965 7,971 17,687
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment .......... 1,277 366 325
Capital expenditures ................................... (9,848) (12,253) (11,600)
-------- -------- --------
Net cash used in investing activities ......... (8,571) (11,887) (11,275)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt ........................... (2,000) (4,000) (5,000)
-------- -------- --------
Net cash used in financing activities ......... (2,000) (4,000) (5,000)
-------- -------- --------
Net increase (decrease) in cash ............................. (4,606) (7,916) 1,412
Cash at beginning of year ................................... 24,948 20,342 12,426
-------- -------- --------
Cash at end of year ......................................... $ 20,342 $ 12,426 $ 13,838
======== ======== ========
Cash paid during the year for interest ...................... $ 7,971 $ 8,272 $ 8,030
Cash paid during the year for income taxes .................. $ 2,302 $ 2,789 $ 1,961
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-44
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TA Operating Corporation (the Company) is a wholly-owned subsidiary of TA
Holdings Corporation ("TAHC"), itself a wholly-owned subsidiary of TravelCenters
of America, Inc., formerly National Auto/Truckstops Holdings Corporation
(TravelCenters), that was incorporated on December 10, 1993 to acquire ("the
Acquisition") the travel center network assets ("the Network") of BP Exploration
and Oil Company ("BP"). The Company is a nationwide marketer of truck and auto
fuels and related products and services through a network of 48 full-service
travel centers and two stand-alone repair shops operated under the "TA" and
"Truckstops of America" trademarks in 27 states, primarily concentrated in the
Midwest and Southeast. Of the 48 network locations at December 31, 1996, the
Company owns or leases and operates 40 locations. The remaining 8 locations are
owned and operated by independent franchisees of the Company. The Company
participates (50% interest) in a joint venture called TABB, which markets the
Company's products and services, as well as those of the Company's partner, to
trucking fleets as though the two networks were one. TABB provides the fleets
with expanded network coverage through the addition of 19 truckstops in 9 states
and centralized billing services. The Company also operates a centralized
distribution center (the "Packaged Products Services Center" or "PPSC"). The
Company includes in its consolidated statements the accounts of its wholly-owned
subsidiary, TA Franchise Systems Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent and other liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from and related costs of sales of fuel, services and non-fuel
products are recognized at the time of sale to consumers.
Initial franchise fees are recognized as revenue when the Company has
substantially performed its obligations. Continuing franchise and royalty
revenues are recognized as the fees are earned and become receivable from the
franchisee.
The Company, through a strategic alliance, includes in both revenues and
cost of sales amounts resulting from consignment sales of the strategic alliance
partner's diesel fuel. The strategic alliance partner delivers diesel fuel to
the Company and it is re-sold pursuant to joint marketing arrangements with
fleets. The consignment sales accounted for less than 1 percent, 8 percent and
13 percent of fuel revenues for the years ended December 31, 1994, 1995 and
1996, respectively.
INVENTORIES
Inventories are stated at cost, which approximates market value, cost being
determined on the first in, first out basis for petroleum products and
principally as the weighted average costs for non-fuel merchandise.
F-45
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, initially determined in
accordance with purchase accounting principles and based largely on independent
professional appraisals.
Depreciation is computed on a straight-line basis over the following
estimated useful lives of the assets:
Buildings and site improvements................................. 15 years
Pumps and underground storage tanks............................. 5 years
Machinery and equipment......................................... 3-5 years
Furniture and fixtures.......................................... 5-7 years
Repair and maintenance costs are charged to expense as incurred, while
major renewals and betterments are capitalized. The cost and related accumulated
depreciation of property and equipment sold, replaced or otherwise disposed of
are removed from the accounts. Any resulting gains or losses are recognized in
operations.
DEFERRED FINANCING COSTS AND INTANGIBLE ASSETS
Deferred financing costs were recorded in conjunction with the acquisition
and are being amortized on a basis approximating the interest method over the
lives of the related debt instruments, ranging from 7 years to 10 years. The
intangible assets are being amortized on a straight-line basis over the lives of
the contractual agreements giving rise to them (see Note 4).
ADVERTISING COSTS
Costs of advertising are expensed as incurred.
CLASSIFICATION OF COSTS AND EXPENSES
Costs of sales represent the costs of fuels and other products sold,
including freight. Operating expenses consist primarily of labor, maintenance,
supplies, utilities, warehousing, purchasing and occupancy costs. Development
expenses represent nonrecurring costs incurred to primarily acquire and
establish new Network locations. Transition expenses represent the nonrecurring
costs incurred by the Company in establishing itself as an entity separate from
BP, consisting primarily of costs to implement computerized information systems
for functions previously provided by BP.
INCOME TAXES
Deferred income tax assets and liabilities are established to reflect the
future tax consequences of carryforwards and differences between the tax bases
and financial bases of assets and liabilities.
All members of the TravelCenters affiliated group are included in the
consolidated U. S. income tax return filed by TravelCenters. The Company
determines its provision for federal and state income taxes, and its current and
deferred tax assets and liabilities, on a separate return basis with the benefit
of deductions and credits limited to amounts actually utilized by TravelCenters
in the consolidated tax
F-46
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
return filings. As a result, income taxes payable are not necessarily comparable
to those that would have resulted had the Company filed separate tax returns.
Current U.S. tax liabilities, as determined under the tax allocation agreement,
are payable to TravelCenters while state tax liabilities are generally payable
directly to the states.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an initial maturity of 3 months or less to be
cash equivalents.
DERIVATIVE INSTRUMENTS
On a limited basis, the Company engages in commodity risk management
activities within the normal course of its business as an end-user of derivative
instruments. These commodity-based instruments are used to manage exposure to
price fluctuations related to the anticipated purchase of diesel fuel.
Changes in market value of derivative instruments are deferred and are
subsequently recognized in income in the same period as the underlying
transaction. Recorded deferred gains or losses are reflected within other
current assets or other current liabilities.
At December 31, 1995 and 1996 the amount of open derivative contracts and
the related fair market value and deferred gains and losses were immaterial.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and short term investments, accounts receivable and accounts
payable: The fair value of financial instruments classified as current
assets or liabilities approximates carrying value due to the short-term
maturity of the instruments.
Long-term debt: The fair value of the Company's long-term debt is
estimated based on the current borrowing rates available to the Company for
financings with similar terms and maturities.
(See Note 6.)
EARNINGS PER SHARE
Because the Company is a wholly-owned subsidiary of TravelCenters, earnings
per share is meaningless and, accordingly, has not been presented.
F-47
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
2. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
------------------------
1995 1996
-------- --------
(IN THOUSANDS)
Nonfuel merchandise ............................ $ 22,638 $ 22,677
Petroleum products ............................. 1,511 1,942
-------- --------
Total inventories ........................... $ 24,149 $ 24,619
======== ========
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
------------------------
1995 1996
-------- --------
(IN THOUSANDS)
Land and land improvements ..................... $ 11,744 $ 11,449
Buildings and improvements ..................... 56,367 61,489
Machinery, equipment and furniture ............. 25,818 31,218
Construction in progress ....................... 6,561 7,317
-------- --------
Total cost .................................. 100,490 111,473
Less-accumulated depreciation ............... 16,340 26,458
-------- --------
Property and equipment, net .............. $ 84,150 $ 85,015
======== ========
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
------------------------
1995 1996
-------- --------
(IN THOUSANDS)
Noncompetition agreement ....................... $ 9,000 $ 9,000
Leasehold interest ............................. 1,724 1,724
Trademarks ..................................... 2,313 2,313
-------- --------
Total cost ..................................... 13,037 13,037
Less: accumulated amortization ................. 3,314 4,904
-------- --------
Intangible assets, net ......................... $ 9,723 $ 8,133
======== ========
As part of the acquisition, the Company entered into a noncompetition
agreement with BP pursuant to which BP agreed to refrain from re-entering the
truckstop business for a period of seven years from the acquisition date. The
intangible asset related to the noncompetition agreement represents the present
value of the estimated operating cash flows the Company would lose due to
competition
F-48
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
4. INTANGIBLE ASSETS (CONTINUED)
resulting from BP's re-entry into the truckstop market were BP not constrained
from doing so. The noncompetition agreement has a term of seven years. The
intangible asset related to leaseholds represents the value, obtained through
the Acquisition, of favorable lease provisions at one Network location. The
intangible asset related to trademarks relates primarily to the Company's
purchase from BP of the "Truckstops of America" and "Country Pride" trademarks,
service marks, trade names and commercial symbols.
The intangible assets for the noncompetition agreement, leasehold interest
and trademarks are being amortized over seven, 11 1/2 and 15 years,
respectively.
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
DECEMBER 31,
---------------------
1995 1996
------- -------
(IN THOUSANDS)
Taxes payable, other than income taxes ............. $ 2,814 $ 3,244
Accrued wages and benefits ......................... 3,431 4,742
Other accrued liabilities .......................... 7,143 11,143
------- -------
Total other accrued liabilities .................... $13,388 $19,129
======= =======
6. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
------------------
INTEREST
RATE MATURITY 1995 1996
-------- ------- ------- --------
(IN THOUSANDS)
Senior secured term loans (a) ......... variable 2000 $47,000 $42,000
Senior secured notes (b) .............. 8.63 2002 25,000 25,000
Subordinated notes (c) ................ 12.00 2003 15,000 15,000
------- -------
Total .............................. 87,000 82,000
Less--amounts due within one year 5,000 7,000
Less--unamortized discount ...... 640 559
------- -------
Total long-term debt .......... $81,360 $74,441
======= =======
- ----------------------
(a) On December 9, 1993, the Company entered into a $73,000,000 Credit
Agreement with a group of banks. This Credit Agreement consists of three
components: term loans of a maximum $53,000,000, swingline loans not to
exceed $3,000,000, and revolving loans not to exceed $20,000,000 (including
F-49
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
6. LONG-TERM DEBT (CONTINUED)
any swingline loans outstanding and letters of credit issued). There have
been no borrowings under the swingline loan or revolving loan commitments
to date. Payments of principal, interest and commitment fees related to the
Credit Agreement are scheduled at each quarter end in installments of
principal ranging from $500,000 to $4,000,000, with the first payment made
on March 31, 1994, and the last payment due on December 9, 2000; in
addition, annual prepayments of principal may be required based on excess
cash flows generated by the Company. Commitment fees are calculated as 1/2
of 1 percent on the average daily unused amount on the revolving loan
commitment. There were $1,529,000 of outstanding letters of credit under
the Credit Agreement at December 31, 1996.
Under the terms of the Credit Agreement, the Company is required to
maintain certain financial covenants, including minimum interest coverage,
minimum debt service coverage, minimum consolidated net worth, minimum
current ratio, maximum leverage ratio and maximum amounts of annual capital
expenditures.
Interest accrues at variable rates based on either an alternate base rate
(ABR) or an adjusted London Interbank Offered Rate (LIBOR). The rate at
which interest accrues is calculated as either the ABR rate plus 1 3/4
percent or the LIBOR rate plus 2 3/4 percent. Management has the option to
select which rate is to be applied at the beginning of each loan period,
the term of which varies from 1 day to 6 months. Upon meeting certain
conditions, the spread added to the baseline rates can be reduced to 1 1/2
percent and 2 1/2 percent, respectively. The average effective rates for
the years ended December 31, 1995 and 1996 were 9.1 percent and 8.9
percent, respectively.
(b) On December 9, 1993, the Company issued $25,000,000 of Senior Secured
Notes. Interest payments on these notes are due semiannually on June 10 and
December 10. Optional prepayments are allowed under the note purchase
agreement and required payments are due on December 10, 2001 and 2002 in
the amount of $12,500,000 each, such amounts to be reduced by certain other
prepayments. In the event of prepayments, the Company may be subject to the
make-whole provision of the note agreement, which requires payment of a
prepayment premium to the noteholders.
(c) On December 10, 1993, the Company issued $15,000,000 of Subordinated Notes.
Interest payments on these notes are due semiannually on June 10 and
December 10. Optional prepayments are allowed, under certain circumstances,
under the note purchase agreement, any such payments reducing the required
payment due December 10, 2003. The holders of the Subordinated Notes also
received 80,520 shares of TravelCenters' common stock, resulting in a
discount of $805,000 to the principal balance of the Subordinated Notes.
The obligations described above are guaranteed by TAHC and TravelCenters.
The borrowings under the Credit Agreement and Senior Secured Notes are
secured by mortgages on all of the property and equipment acquired by the
Company as a result of the BP acquisition in the manner described in the Master
Collateral and Intercreditor Agreement negotiated between the lending banks
under the Credit Agreement and the Senior Secured Note purchasers. In the event
of a change in control of the Company, the total amount outstanding under the
three debt agreements described above may be declared immediately due and
payable.
F-50
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
6. LONG-TERM DEBT (CONTINUED)
No indebtedness of the Company imposes any financial covenants on the
Company that are more restrictive than those discussed above for the Credit
Agreement. All covenants for all indebtedness have been met as of and for the
period ended December 31, 1996.
Scheduled payments of long-term debt in the next five years are, $7,000,000
in 1997, $8,000,000 in 1998, $11,000,000 in 1999, $16,000,000 in 2000 and
$12,500,000 in 2001.
Based on the borrowing rates currently available to the Company for bank
loans and other indebtedness with similar terms and average maturities, the fair
value of long-term debt at December 31, 1995 and 1996, approximates the recorded
value.
7. LEASE COMMITMENTS
The Company has entered into lease agreements for certain of its travel
center locations, the PPSC and various office space, computer and office
equipment and vehicles. Most long-term leases include renewal options and, in
certain cases, purchase options. Future minimum rental payments required under
all operating leases that have remaining noncancelable lease terms in excess of
one year as of December 31, 1996, were as follows:
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
---------------
1997......................................................... $3,459
1998......................................................... 3,527
1999......................................................... 3,400
2000......................................................... 3,171
2001......................................................... 2,969
Thereafter................................................... 30,842
-------
$47,368
=======
Total rental expenses on all operating leases was $2,725,000 $2,424,000 and
$2,799,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
8. INCOME TAXES
Income tax provision (benefit) consists of the following:
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
Federal ........................... $ 2,231 $ 2,064 $ 2,189
State ............................. 275 488 414
------- ------- -------
$ 2,506 $ 2,552 $ 2,603
------- ------- -------
Deferred:
Federal ........................... $ (251) $ (179) $ (355)
State ............................. 213 72 (36)
------- ------- -------
(38) (107) (391)
------- ------- -------
Income tax expense ............. $ 2,468 $ 2,445 $ 2,212
======= ======= =======
F-51
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
8. INCOME TAXES (CONTINUED)
The difference between taxes calculated at the U.S. federal statutory tax
rate of 35 percent and the Company's total income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. federal statutory rate applied to income before tax.... $ 2,260 $ 2,170 $ 2,079
State income taxes, net of federal income tax effect ....... 317 364 247
General business tax credits ............................... (263) (113) (98)
Other ...................................................... 154 24 (16)
------- ------- -------
$ 2,468 $ 2,445 $ 2,212
======= ======= =======
</TABLE>
Deferred income tax assets and liabilities resulted from the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Receivables ........................................... $ 147 $ 169
Inventory ............................................. 317 254
Intangibles ........................................... 3,480 3,475
Deferred revenue ...................................... 105 0
Minimum tax credit .................................... 1,067 1,046
General business credits (expiring 2009-2011) ......... 538 769
Federal benefit of state deferred tax liabilities ..... 81 69
Other accruals ........................................ 534 694
------ ------
Total tax deferred assets ........................ 6,269 6,476
------ ------
Deferred tax liabilities:
Property and equipment ................................ 5,835 5,651
------ ------
Total deferred tax liabilities ................... 5,835 5,651
------ ------
Net deferred tax assets .......................... $ 434 $ 825
====== ======
</TABLE>
Tax returns of TravelCenters for 1993 through 1996 are subject to
examination by the Internal Revenue Service and state tax authorities. The
Company believes it has made adequate provision for income taxes and interest
which may become payable for years not yet examined. TravelCenters expects to
generate sufficient future taxable income to realize the benefit of the
Company's net deferred tax assets.
F-52
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
9. RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1996 certain affiliates of certain of
TravelCenters' convertible preferred and common shareholders hold all of the
Company's Subordinated Notes. Interest expense related to this debt was
$1,800,000 for 1994, 1995 and 1996.
Certain members of the Company's senior management participate in
TravelCenters' 1993 Stock Incentive Plan. TravelCenters' common stock obtained
as a result of the exercise of the options is subject to call and put rights at
formula prices upon termination of employment. The formula prices are based on
the consolidated operating results and consolidated indebtedness of
TravelCenters. Those members of the Company's senior management have been
granted options for 267,181 TravelCenters' shares at exercise prices ranging
from $10.00 per share to $28.56 per share. A portion of the options vest at the
end of each year in the five year period ending December 31, 1998, based on
attainment of certain specified Company financial objectives, no more quickly
than ratably from the date of grant through December 31, 1997. Based on the
Company's financial performance 126,939 and 197,061 options were vested at
December 31, 1995 and 1996, respectively. Options that fail to vest by December
31, 1998 shall be forfeited and vested options must be exercised within ten
years of the date of grant. The purchase price at December 31, 1996 used to
determine compensation expense related to these options was $15.69 per share.
Compensation expense recognized by the Company in relation to these options for
the years ended December 31, 1994, 1995 and 1996 was $64,000, $35,000 and
$254,000, respectively.
Certain members of the Company's senior management have purchased common
stock of TravelCenters pursuant to management subscription agreements. As a
result of such purchases, the Company has notes receivable from the management
shareholders totaling $425,000 at December 31, 1995 and 1996. TravelCenters has
the right to repurchase, and the employees have the right to require
TravelCenters to repurchase at formula prices, the common stock, upon the
termination of employment. The formula prices are based on the consolidated
operating results and consolidated indebtedness of TravelCenters. The relevant
formula price at December 31, 1996 was $15.69 per Share. Based upon the terms of
the agreements, these management shares are non-compensatory.
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
At December 31, 1996, outstanding commitments for capital expenditures for
property and equipment totaled approximately $1,500,000.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive federal,
state and local laws, regulations and ordinances relating to environmental
matters that (i) govern activities and operations that may have adverse
environmental effects, such as discharges to air, soil and water, as well as
handling, storage and disposal practices for petroleum products and solid and
hazardous substances or (ii) impose liability and damages for the costs of
cleaning up sites affected by, and damage resulting from, past spills and
disposal or other releases of petroleum products and hazardous substances.
F-53
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company owns and uses underground (USTs) and above ground (ASTs)
storage tanks to store petroleum products and waste oils. These tanks must
comply with statutory and regulatory requirements regarding tank construction,
integrity testing, leak detection and monitoring, overfilling and spill control,
release reporting, financial assurance and corrective action in case of a
release from a UST or AST into the environment. To meet minimum federal
requirements, all existing USTs owned by the Company must conform to certain
construction requirements, have installed tank leak detection systems, and have
installed corrosion protection and spill/overfill prevention equipment by
December 22, 1998. The Company has in place a program of tank replacement and
equipment installation to meet these requirements. Capital expenditures of
approximately $2,000,000 through 1998 will be made to comply with the
regulations.
While the costs of compliance for these matters have not had a material
adverse impact on the Company, it is impossible to predict accurately the
ultimate effect these changing laws and regulations may have on the Company in
the future. During the years ended December 31, 1994, 1995, and 1996, the
Company made environmental related expenditures of approximately $390,000,
$556,000 and $435,000, respectively. The Company estimates environmental related
expenditures, including capital items, remediation and compliance costs, will
total approximately $1,400,000 during 1997.
The Company arranges the transportation of petroleum fuels from supplier
terminals to all of its locations except two at which the Company provides its
own transportation. For all Company-arranged fuel deliveries, licensed common
carriers are contracted for that transportation.
As part of the Acquisition, the Company and BP negotiated an environmental
agreement, pursuant to which BP will provide remediation services to the Company
for a period of 11 years for any environmental contamination present at any of
the acquired locations as of the acquisition date. In connection with the
Acquisition, Phase I and Phase II investigations of 41 Company-owned locations,
including 3 locations not operating at the time of the Acquisition, were
conducted. The environmental agreement provides that BP is directly responsible
for all costs and expenses incurred for remediation of environmental
contamination (based on the standards in effect on the date the remedial action
is completed), for bringing the facilities into compliance with environmental
laws (based on requirements in effect as of December 11, 1993) and for any other
environmental liabilities that arise out of conditions at, or ownership or
operations of, the Network prior to December 11, 1993. In addition, BP is
continuing remedial actions regarding conditions it had identified at certain
locations prior to the Acquisition. BP does not have any responsibility for any
environmental liabilities arising out of the ownership and operations of the
Network after December 11, 1993, and the environmental agreement expires on
December 11, 2004. There can be no assurance that, if additional environmental
claims or liabilities arise under the environmental agreement, BP would not
dispute the Company's claims for indemnification thereunder.
The Company is conducting investigatory and/or remedial actions with
respect to fuel oil product releases and/or spills and wastewater discharges
that have occurred subsequent to the Acquisition at several locations. The
Company expects that some or all of any fines paid or costs incurred in
connection with the matters noted above will be paid by BP pursuant to the
environmental agreement.
The Company has estimated the current ranges of remediation costs at
currently active sites and what it believes will be its ultimate share of such
costs after required indemnification and remediation is performed by BP under
the environmental agreement and a provision for environmental related costs has
been recorded. At December 31, 1996, the amount accrued for future environmental
related costs was $68,000.
F-54
<PAGE>
TA OPERATING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
11. OTHER INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating and Selling, general and administration expense
include the following:
Repairs and maintenance expenses ......................... $ 6,313 $ 5,987 $ 6,439
Advertising expenses ..................................... $ 2,779 $ 2,983 $ 2,870
Interest income (expense)--net is comprised of the following:
Interest expense ......................................... $(8,123) $(8,484) $(8,097)
Interest income .......................................... 829 961 716
------- ------- -------
$(7,294) $(7,523) $(7,381)
======= ======= =======
</TABLE>
12. SUBSEQUENT EVENT
On January 21, 1997 the Board of Directors of TravelCenters approved a plan
to combine the operations of the Company with those of National Auto/Truckstops,
Inc., TravelCenters other wholly-owned subsidiary. As part of the combination
plan, the Company's subsidiary will become a direct subsidiary of TravelCenters.
Related to the combination plan, TravelCenters is pursuing a recapitalization
that will, if consummated, extinguish the Company's indebtedness of $82,000,000
at December 31, 1996, which will result in the write-off of the unamortized
balance of deferred financing costs and unamortized debt discount of $3,084,000
and $559,000, respectively.
F-55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of
NATIONAL Auto/Truckstops, Inc.
In our opinion, the accompanying balance sheet and the related statements
of income and retained earnings and of cash flows present fairly, in all
material respects, the financial position of NATIONAL Auto/Truckstops, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 6, 1997
F-56
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS OF
DOLLARS)
ASSETS
<S> <C> <C>
Current assets:
Cash ....................................................................... $ 3,191 $ 9,941
Accounts receivable (less allowance for doubtful accounts of
$2,920 for 1995 and $3,109 for 1996) ................................. 36,966 31,839
Inventories ............................................................. 2,116 4,463
Deferred income taxes ................................................... 2,792 3,277
Other current assets .................................................... 6,983 5,165
-------- --------
Total current assets ............................................... 52,048 54,685
Notes receivable, net ...................................................... -- 1,835
Property and equipment, net ................................................ 183,079 188,204
Intangible assets .......................................................... 12,542 11,524
Deferred financing costs ................................................... 6,904 5,295
Other assets ............................................................... 1,525 6,180
-------- --------
Total assets ....................................................... $256,098 $267,723
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Revolving loan .......................................................... $ -- $ 14,000
Current maturities of long-term debt .................................... 11,125 10,250
Accounts payable ........................................................ 22,366 26,577
Other accrued liabilities ............................................... 8,691 9,925
-------- --------
Total current liabilities .......................................... 42,182 60,752
Commitments and Contingencies (Note 12)
Note payable to parent ..................................................... 2,500 2,500
Long-term debt (net of unamortized discount) ............................... 128,866 118,744
Deferred income taxes ...................................................... 8,407 9,582
Other long-term liabilities ................................................ 3,133 2,791
-------- --------
Total liabilities .................................................. 185,088 194,369
-------- --------
Shareholder's equity:
Common stock, $0.01 par value, 1,000 shares authorized, 10 shares
issued and outstanding ............................................... -- --
Additional paid-in capital .............................................. 47,303 47,303
Retained earnings ....................................................... 23,707 26,051
-------- --------
Total shareholder's equity ......................................... 71,010 73,354
-------- --------
Total liabilities and shareholder's equity ......................... $256,098 $267,723
======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-57
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues:
Fuel .................................... $ 396,748 $ 376,148 $ 467,888
Nonfuel ................................. 19,882 29,332 56,961
Rent .................................... 48,424 47,840 41,762
--------- --------- ---------
Total revenues ............................. 465,054 453,320 566,611
Cost of revenues (excluding depreciation) .. 391,148 376,823 478,029
--------- --------- ---------
Gross profit (excluding depreciation) ...... 73,906 76,497 88,582
Operating expenses ......................... 7,711 9,521 28,688
Selling, general and administrative expenses 21,796 30,717 25,774
Refinancing costs .......................... 4,117 831 1,384
Depreciation and amortization .............. 10,398 11,379 14,307
Other (income) expense ..................... (138) 196 1,303
--------- --------- ---------
Income from operations ..................... 30,022 23,853 17,126
Interest (expense), net .................... (13,243) (13,344) (13,446)
--------- --------- ---------
Income before provision for income taxes ... 16,779 10,509 3,680
Provision for income taxes ................. 6,766 4,236 1,336
--------- --------- ---------
Net income ................................. 10,013 6,273 2,344
Retained earnings-beginning of the year .... 7,421 17,434 23,707
--------- --------- ---------
Retained earnings-end of the year .......... $ 17,434 $ 23,707 $ 26,051
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-58
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................... $ 10,013 $ 6,273 $ 2,344
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .......................................... 10,398 11,379 14,307
Deferred income taxes .................................................. 2,502 1,800 690
Provision for doubtful accounts ........................................ 1,169 2,589 2,255
Loss on sale of property and equipment ................................. -- 351 1,438
Changes in assets and liabilities, adjusted for the effects of
acquisitions of network assets and the reconsolidation of a subsidiary
previously held for disposition:
Accounts receivable .................................................. 2,354 (3,756) (2,936)
Inventories .......................................................... (332) 284 (132)
Other assets ......................................................... 1,250 (4,848) 325
Accounts payable ..................................................... 6,608 5,043 4,211
Other liabilities .................................................... (7,551) 255 (1,426)
-------- -------- --------
Net cash provided by operating activities .............................. 26,411 19,370 21,076
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of network assets ............................................ -- (575) (2,352)
Proceeds from sales of property and equipment ............................. -- 1,404 640
Capital expenditures ...................................................... (10,993) (19,930) (15,489)
Refund of purchase price .................................................. -- 1,500 --
-------- -------- --------
Net cash used in investing activities .................................. (10,993) (17,601) (17,201)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings ................................................. 1,000 -- 14,000
Revolving loan payments ................................................... (1,000) -- --
Long-term debt repayments ................................................. (3,500) (14,075) (11,125)
-------- -------- --------
Net cash (used in) provided by financing activities .................... (3,500) (14,075) 2,875
-------- -------- --------
Net increase (decrease) in cash ........................................ 11,918 (12,306) 6,750
Cash at the beginning of the period .......................................... 3,579 15,497 3,191
-------- -------- --------
Cash at the end of the period ................................................ $ 15,497 $ 3,191 $ 9,941
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-59
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATIONAL Auto/Truckstops, Inc. (the Company), is a wholly-owned subsidiary
of TravelCenters of America Inc., formerly NATIONAL Auto/Truckstops Holdings
Corporation (TravelCenters), and was incorporated on October 29, 1992, to
acquire the travel center network assets (the Acquisition) of Union Oil Company
of California (Unocal). The Company is a nationwide marketer of truck and auto
fuels and related products and services through a network (the Network) of 122
full-service travel centers operated under the "Unocal 76" trademark in 36
states. Of the 122 network locations at December 31, 1996, the Company owns 95
locations, 77 of which are leased to independent operators. During 1996, the
Company took over the operation of 10 locations from independent operators. At
December 31, 1996 the Company operates 18 of the locations. The remaining 27
locations are owned by others and operated by independent franchisees with whom
the Company has contractual arrangements to supply motor fuels and related
products and services. The Company purchases and resells diesel fuel, gasoline
to consumers, commercial fleets, operators and independent franchisees; provides
fleet credit card and customer information services through its proprietary
ACCESS 76 system, conducts centralized purchasing programs; creates promotional
programs and otherwise assists the operators and franchisees in providing
service to commercial fleets and the motoring public.
The Company grants credit to its customers and may require letters of
credit or other collateral.
As of December 31, 1996, 71 of the operators and 20 of the franchisees had
entered into franchise agreements with the Company. The remaining operators and
franchisees continue to operate under fuel supply and lease agreements
transferred and assigned to the Company by Unocal as part of the Acquisition.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Fuel sales and related costs are recognized at the time of delivery of
motor fuel and other products to customers at either the terminal or the leased
and reseller locations and at the time of final sale to consumers at the owned
and operated locations and at those locations that operate under fuel
consignment agreements.
Franchise and royalty revenues are recognized at the point such revenues
are earned, typically when collectible and when the Company has fulfilled
substantially all of its obligations under the related agreements.
INVENTORIES
Inventories are stated at cost, which approximates market value, cost being
determined on the first in, first out basis for petroleum products and
principally as the weighted average costs for non-fuel merchandise.
F-60
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, initially determined in
accordance with purchase accounting principles and based largely on independent
professional appraisals. Depreciation is computed on a straight-line basis over
the following estimated useful lives of the assets:
Buildings and site improvements............................... 25 years
Pumps and underground storage tanks........................... 10 years
Machinery and equipment....................................... 5-10 years
Furniture and fixtures........................................ 10 years
Repair and maintenance costs are charged to expense as incurred, while
major renewals and betterments are capitalized. The cost and related accumulated
depreciation of property and equipment sold, replaced or otherwise disposed are
removed from the accounts. Any resulting gains or losses are recognized in
operations.
DEFERRED FINANCING COSTS AND INTANGIBLE ASSETS
Deferred financing costs were recorded in conjunction with the Network
acquisition and are being amortized on a basis approximating the interest method
over the lives of the related debt instruments, ranging from five to ten years.
The intangible assets are being amortized on a straight-line basis over their
estimated useful lives, principally the terms of the related contractual
agreements giving rise to them (See Note 5).
ADVERTISING COSTS
Costs of advertising are expensed as incurred.
CLASSIFICATION OF COSTS AND EXPENSES
Cost of revenues represents the costs of fuels and other products sold,
including freight. Operating expenses consist primarily of labor, maintenance,
supplies, utilities, purchasing and occupancy costs. Refinancing expenses
represent nonrecurring costs incurred in attempts to refinance the Company's
indebtedness.
ENVIRONMENTAL REMEDIATION
The Company provides for remediation costs and penalties when the
responsibility to remediate is probable and the amount of associated costs is
reasonably determinable. Generally, the timing of remediation accruals coincides
with completion of a feasibility study or the commitment to a formal plan of
action. If recoveries of remediation costs from third parties are probable, a
receivable is recorded. Accruals are not recorded for the costs of remediation
activities undertaken on behalf of the Company by Unocal, and at Unocal's sole
expense (See Note 12).
F-61
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
Deferred income tax assets and liabilities are established to reflect the
future tax consequences of differences between the tax bases and financial
statement bases of assets and liabilities.
All members of the TravelCenters affiliated group are included in the
consolidated U. S. income tax return filed by TravelCenters. The Company
determines its provision for federal and state income taxes and its current and
deferred tax assets and liabilities on a separate return basis with the benefit
of deductions and credits limited to amounts actually utilized by TravelCenters
in the consolidated tax return filings. As a result, taxes payable are not
necessarily comparable to those that would have resulted had the Company filed
separate returns. Current U.S. tax liabilities, as determined under the Tax
Allocation Agreement, are payable to TravelCenters while state tax liabilities
are generally payable directly to the states.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which estimation is practicable:
CASH AND SHORT-TERM INVESTMENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS
PAYABLE: The fair values of financial instruments classified as current
assets or liabilities approximate the carrying values due to the short-term
maturity of the instruments.
LONG-TERM DEBT: The fair value of the Company's long-term debt is
estimated based on the current borrowing rates available to the Company for
financings with similar terms and maturities (see Note 8).
EARNINGS PER SHARE
Because the Company is a wholly-owned subsidiary of TravelCenters, earnings
per share data is not meaningful and, accordingly, has not been presented.
RECLASSIFICATIONS
Certain reclassifications of prior years' data have been made in order to
conform with the current year presentation.
F-62
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
2. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
------------------------
1995 1996
------ ------
(IN THOUSANDS)
Non-fuel merchandise ....................... $1,628 $3,413
Petroleum products ......................... 488 1,050
------ ------
Total inventories .......................... $2,116 $4,463
====== ======
3. NOTES RECEIVABLE
During 1996, the Company entered into notes receivable agreements with
certain operator and franchisee customers to finance on a long-term basis past
due accounts receivable owed by those customers. Certain of these customers are
related parties (See Note 11). The notes have terms ranging from six months to
six years and principally accrue interest at a variable rate of the prime
lending rate plus 2 percent. Notes receivable consists of the following:
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
Principal amount of notes outstanding ......................... $4,652
Less: amount due within one year .............................. 1,501
------
3,151
Less: allowance for doubtful accounts ......................... 1,316
Notes receivable, net ......................................... $1,835
======
The amount due within one year is included within other current assets on
the balance sheet.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
----------------------
1995 1996
-------- --------
(IN THOUSANDS)
Land and land improvements ..................... $ 42,462 $ 41,003
Buildings and improvements ..................... 136,729 154,359
Machinery, equipment and furniture ............. 16,500 22,161
Construction in progress ....................... 7,538 1,330
-------- --------
Total cost ..................................... 203,229 218,853
Less: accumulated depreciation ................. 20,150 30,649
-------- --------
Property and equipment, net .................... $183,079 $188,204
======== ========
F-63
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
4. PROPERTY AND EQUIPMENT (CONTINUED)
During 1995, the Company received from Unocal a refund of $1,500,000 of the
purchase price paid in 1993 in consideration of property improvements required
by the asset purchase agreement but not yet completed by Unocal. This amount was
recorded as a reduction to property and equipment.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
---------------------
1995 1996
------- -------
(IN THOUSANDS)
Noncompetition agreement ....................... $17,200 $17,200
Franchise goodwill ............................. -- 994
------- -------
Total cost ..................................... 17,200 18,194
Less: accumulated amortization ................. 4,658 6,670
------- -------
Intangible assets, net ......................... $12,542 $11,524
======= =======
As part of the Acquisition, the Company entered into a noncompetition
agreement with Unocal pursuant to which Unocal agreed to refrain from
re-entering the truckstop business for a period of 10 years from the Acquisition
date. The intangible asset related to the noncompetition agreement represents
the present value of the estimated operating cash flows the Company would lose
due to competition resulting from Unocal's re-entry into the truckstop market
were Unocal not constrained from doing so. This intangible asset is being
amortized over 10 years.
Franchise goodwill results from the acquisitions during 1996 of the
businesses and operating assets related to seven travel centers previously
leased to independent operators, and represents the excess amounts paid to those
operators over the fair values of the tangible assets acquired. This goodwill is
being amortized on a straight-line basis over fifteen years.
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
DECEMBER 31,
------------------
1995 1996
------ ------
(IN THOUSANDS)
Taxes payable, other than income taxes ............. $6,110 $5,061
Interest payable ................................... 2,191 2,169
Other accrued liabilities .......................... 390 2,695
------ ------
Total other accrued liabilities .................... $8,691 $9,925
====== ======
F-64
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
7. REVOLVING LOAN
The Company has available a revolving loan facility of $25,000,000 (See
Note 8 ). The interest rate for borrowings under this line of credit is based on
the bank's prime lending rate and LIBOR rates, and was 8.4 percent at December
31, 1996. The average effective interest rate for the year ended December 31,
1996 was 8.2 percent. There were no outstanding borrowings at December 31, 1995.
The borrowings outstanding under this line were $14,000,000 at December 31,
1996.
8. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-------------------
INTEREST
RATE MATURITY 1995 1996
--------- ---------- -------- --------
(IN THOUSANDS)
Senior secured term loans (a) ..... (b) 1999 $ 50,925 $ 39,800
Senior secured notes (c) .......... 8.76% 2002 65,000 65,000
Subordinated notes (d) ............ 12.5% 2003 25,000 25,000
-------- --------
Total ............................. 140,925 129,800
Less: amounts due within one year.. 11,125 10,250
Less: unamortized discount ........ 934 806
-------- --------
Total long-term debt .............. $128,866 $118,744
- ---------------------------
(a) On April 13, 1993, the Company entered into a $100,000,000 Credit Agreement
with a group of banks. This Credit Agreement consists of three components:
term loans of a maximum $70,000,000, swingline loans not to exceed
$3,000,000, and revolving loans (See Note 7) not to exceed $30,000,000
(including any swingline loans outstanding). On November 5, 1993, the
Company reduced the revolving portion of the Credit Agreement to
$25,000,000. No borrowings under the swingline loan were outstanding at
December 31, 1995 or 1996. Payments of principal, interest and commitment
fees related to the Credit Agreement are due quarterly on March 31, June
30, September 30 and December 31 in installments of principal ranging from
$500,000 to $5,500,000, with the last payment due on December 31, 1999. In
addition, annual prepayments of principal may be required based on excess
cash flows generated by the Company. At December 31, 1996, no prepayment of
principal was required as a result of 1996 cash flows. Commitment fees are
calculated as 1/2 of 1 percent on the average daily unused amount of the
revolving loan commitment.
(b) Interest accrues at variable rates based on either an alternate base rate
(ABR) or an adjusted London Interbank Offered Rate (LIBOR). The rate at
which interest accrues is calculated as either the ABR rate (8.25% at
December 31, 1996) plus 1 3/4 percent or the LIBOR rate (5.625% at December
31, 1996) plus 2 3/4 percent. Management has the option of selecting which
rate is to be applied at the beginning of each loan period, the term of
which varies from one day to six months. The average effective interest
rates for the years ended December 31, 1995 and 1996 were 9.4 and 9.5
percent, respectively.
F-65
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
8. LONG-TERM DEBT (CONTINUED)
(c) On April 13, 1993, the Company issued $65,000,000 of Senior Secured Notes.
Interest payments on these notes are due semiannually on April 14 and
October 14. Optional prepayments are allowed under the note purchase
agreement, and required payments are due on April 14, 2001 and 2002, in the
amount of $32,500,000 each, such amounts to be reduced by certain other
prepayments. In the event of prepayments, the Company may be subject to the
make-whole provision of the note agreement (see Note 11), which requires
payment of a prepayment premium to the noteholders.
(d) On April 13, 1993, the Company issued $25,000,000 of Subordinated Notes.
Interest payments on these notes are due semiannually on April 14 and
October 14. Optional prepayments are allowed under the note purchase
agreement, any such payments reducing the required repayment due April 14,
2003. The holders of the Subordinated Notes also received warrants to
purchase 128,206 shares of TravelCenters common stock.
The obligations described above are guaranteed by TravelCenters.
The borrowings under the Credit Agreement and Senior Secured Notes are
secured by mortgages on all of the property and equipment acquired by the
Company as a result of the Acquisition in the manner described in the Master
Collateral and Intercreditor Agreement negotiated between the lending banks
under the Credit Agreement and the Senior Secured Note purchasers. In the event
of a change in control of the Company, the total amount outstanding under the
three debt agreements described above may be declared immediately due and
payable.
Under the terms of the Credit Agreement and the Senior Note Purchase
Agreement, the Company is required to maintain certain financial covenants,
including minimum interest coverage, minimum debt service coverage, minimum net
worth, minimum current ratio, maximum leverage ratio and maximum amounts of
capital expenditures. On May 24, 1996, and December 31, 1996, the Credit
Agreement was amended to revise certain of these covenants and the Senior Note
Purchase Agreement was similarly amended. The Company was in compliance with the
amended covenants at December 31, 1996.
Under the terms of the Subordinated Note Purchase Agreement, the Company is
required to maintain financial covenants that provide for minimum net worth and
maximum amounts of capital expenditures. These covenants have been met as of and
for the year ended December 31, 1996.
Scheduled payments of long-term debt in the next five years are $10,250,000
in 1997; $11,625,000 in 1998; $17,925,000 in 1999; $0 in 2000 and $32,500,000 in
2001.
Based on the borrowing rates currently available to the Company for bank
loans and other indebtedness with similar terms and average maturities, the fair
values of long-term debt at December 31, 1995 and 1996 approximated the recorded
values.
F-66
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
9. LEASE COMMITMENTS
The Company has entered into lease agreements principally covering office
space, computer and office equipment and vehicles. Most long-term leases include
renewal options and, in certain cases, purchase options. Future minimum lease
payments required under operating leases that have remaining noncancelable lease
terms in excess of one year, as of December 31, 1996, were as follows:
YEAR ENDING (IN
DECEMBER 31, THOUSANDS)
------------ ----------
1997............................................................. $628
1998............................................................. 578
1999............................................................. 601
2000............................................................. 577
2001............................................................. 572
Thereafter....................................................... 948
------
$3,904
======
Total rental expenses on all operating leases were approximately $596,000,
$676,000 and $657,000 for 1994, 1995 and 1996, respectively.
10. INCOME TAXES
The provision for income taxes is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
Current:
Federal ....................... $ 3,635 $ 2,097 $ 662
State ......................... 629 339 (16)
------- ------- -------
4,264 2,436 646
------- ------- -------
Deferred:
Federal ....................... $ 2,108 $ 1,476 $ 335
State ......................... 394 324 355
------- ------- -------
2,502 1,800 690
------- ------- -------
Total .................... $ 6,766 $ 4,236 $ 1,336
======= ======= =======
F-67
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
10. INCOME TAXES (CONTINUED)
The difference between taxes calculated at the U. S. federal statutory tax
rate of 35 percent and the Company's total income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U. S. Federal statutory rate applied to income before tax.. $ 5,873 $ 3,678 $ 1,288
State income taxes, net of federal income tax benefit ..... 665 431 220
Adjustment of prior years' taxes .......................... -- -- (154)
Other-net ................................................. 228 127 (18)
------- ------- -------
Total ..................................................... $ 6,766 $ 4,236 $ 1,336
======= ======= =======
</TABLE>
Deferred income tax assets and liabilities resulted from the following:
DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)
Deferred tax assets:
Accounts receivable ................................... $ 1,665 $ 2,083
Organization and start-up costs ....................... 284 156
Federal benefit of state deferred tax liabilities ..... 335 447
Intangible assets ..................................... 7,643 7,107
Deferred revenues ..................................... 915 710
Minimum tax credit .................................... 362 1,694
Other accrued liabilities ............................. 191 413
------- -------
Total deferred tax assets ........................ 11,395 12,610
------- -------
Deferred tax liabilities:
Property and equipment ................................ 17,010 18,915
------- -------
Net deferred tax liabilities ..................... $ 5,615 $ 6,305
======= =======
The tax returns of TravelCenters for 1993 through 1996 are subject to
examination by the Internal Revenue Service and state tax authorities. The
Company believes it has made adequate provision for income taxes and interest
that may become payable for years not yet examined.
11. RELATED PARTY TRANSACTIONS
The Company conducts a significant amount of its business with related
parties. Certain shareholders of TravelCenters have an ownership interest in one
or more of the franchisee customers to whom the Company sells fuel and other
products and from whom the Company receives rental and/or royalty income. The
transactions with affiliates are at prices and terms that are the same as for
similar transactions with unrelated entities.
F-68
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
11. RELATED PARTY TRANSACTIONS (CONTINUED)
The following table summarizes balances and transactions with related
parties at December 31, 1995 and 1996 and for each of the three years in the
period ended December 31, 1996:
DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1995 1996 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
Accounts receivable .......... $ 18,398 $ 15,052
Notes receivable ............. $ -- $ 2,307
Fuel revenue ................. $237,541 $238,343 $269,179
Rent revenue ................. $ 24,233 $ 35,543 $ 32,266
Other revenues ............... $ 9,948 $ 7,264 $ 5,534
Cost of revenues ............. $231,670 $239,651 $268,343
The Company has outstanding a $2,500,000 note payable to TravelCenters
which is due on April 14, 2013. This note may not be prepaid prior to maturity.
TravelCenters has not charged the Company interest in regard to this note, but
any amounts so charged would be at a rate to be determined by TravelCenters and
would not exceed the prime lending rate.
During 1995 and 1996, the Company acquired the travel center businesses and
operating assets of four and five independent operators, who are related
parties, respectively. Total consideration of $1,890,000 in 1995 and $3,185,000
in 1996 was paid to these operators.
The Company was owed $357,000 and $1,804,000 from TravelCenters at December
31, 1995 and 1996, respectively. These amounts result from cash disbursements
made by the Company on behalf of TravelCenters.
At December 31, 1995 and 1996, certain TravelCenters' convertible preferred
shareholders were owed all of the $25,000,000 of debt related to the Company's
issuance of Senior Subordinated Notes and certain TravelCenters mandatorily
redeemable preferred shareholders are owed $20,000,000 of debt relating to the
Company's issuance of Senior Secured Notes. Interest expense incurred related to
debt owed to these TravelCenters preferred shareholders was $4,877,000 in each
of 1994, 1995 and 1996.
Certain members of the Company's senior management participate in
TravelCenters 1993 Stock Incentive Plan (the Plan). TravelCenters, common stock
obtained as a result of the exercise of the options is subject to call and put
rights at formula prices upon termination of employment. The formula prices are
based on the consolidated operating results and indebtedness of TravelCenters.
Those members of the Company's senior management have been granted options for
253,000 TravelCenters shares at exercise prices ranging from $10.00 to $28.56
per share. A portion of the options vest at the end of each year in the five
year period ending December 31, 1997, based on the Company's attainment of
certain specified financial objectives at the end of each year, but no more
quickly than ratably from the date of grant through December 31, 1996. Options
that fail to vest by December 31, 1997 shall be forfeited and vested options
must be exercised within ten years of the date of grant. Based on the Company's
financial performance, 126,500 options were vested at December 31, 1995 and
1996. The purchase price at December 31, 1996 used to determine compensation
expense related to these options was $15.69 per share. Compensation expense
recognized by the company in relation to these options for the years ended
December 31, 1994 and 1996 was $149,000 and $78,000. No compensation expense was
recognized in 1995.
F-69
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
11. RELATED PARTY TRANSACTIONS (CONTINUED)
Certain members of the Company's senior management have purchased common
stock of TravelCenters pursuant to management subscription agreements. As a
result of such purchases, the Company has notes receivable from the management
shareholders totaling $421,000 at December 31, 1995 and 1996. TravelCenters has
the right to repurchase, and the employees have the right to require Holdings to
repurchase, at formula prices, the common stock upon termination of employment.
The formula prices are based on the consolidated operating results and
consolidated indebtedness of TravelCenters. The price used to determine
compensation expense related to certain of these shares that are considered to
be compensatory was $15.69 at December 31, 1996. Accordingly, the Company
recognized compensation expense related to these shares of $336,000 in 1996. The
Company did not recognize compensation expense for these agreements in 1994 or
1995 as the formula price did not exceed the purchase price of the common stock.
12. COMMITMENTS AND CONTINGENCIES
CAPITAL COMMITMENTS
At December 31, 1996, outstanding commitments for capital expenditures for
property and equipment totaled approximately $961,000.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive federal,
state and local laws, regulations and ordinances relating to environmental
matters that (i) govern activities and operations that may have adverse
environmental effects, such as discharges to air, soil and water, as well as
handling, storage and disposal practices for petroleum products and solid and
hazardous substances or (ii) impose liability and damages for the cost of
remediating sites affected by, and damage resulting from, past spills and
disposal or other releases of petroleum products and hazardous substances.
The Company owns and uses underground storage tanks (USTs) and above-ground
storage tanks (ASTs) at Company-operated and operator locations to store
petroleum products and waste oils. These tanks must comply with statutory and
regulatory requirements regarding tank construction, integrity testing, leak
detection and monitoring, overfilling and spill control, release reporting,
financial assurance and corrective action in case of a release from a UST or AST
into the environment. To meet minimum federal requirements, all existing USTs
owned by the Company must conform to certain construction requirements, have
installed tank leak detection systems, and have installed corrosion protection
and spill-overfill prevention equipment by December 22, 1998. The Company has
established a program of tank replacement and equipment installation to meet the
requirements by that time.
While the costs of compliance for these matters have not had a material
adverse impact on the Company, it is impossible to predict accurately the
ultimate effect changing laws and regulations may have on the Company in the
future. The Company incurred capital expenditures, maintenance, remediation and
other environmental related costs of approximately $2,224,000, $3,968,000 and
$6,737,000 in 1994, 1995 and 1996, respectively.
As part of the Acquisition, the Company and Unocal negotiated an
environmental agreement, pursuant to which Unocal indemnified the Company for a
period of eleven years for the remediation of any environmental contamination
present at any of the acquired locations as of the acquisition date and which
require Unocal to directly pay any required remediation cost. The environmental
agreement expires on April 14, 2004.
F-70
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In connection with the Acquisition, Phase I investigations of the 97
acquired travel centers were conducted. Pursuant to the environmental agreement,
Phase II investigations on all sites are required to be completed by the year
2000. As of December 31, 1996, 31 Phase II investigations were in progress and
46 had been completed. Unocal and the Company are now evaluating the results of
these investigations to establish what, if any, remedial actions will be
required and are notifying federal, state and local authorities regarding any
contamination that is discovered. The Company expects that the remaining 18
investigations will be completed by 1998. Unocal and the Company agreed to share
the costs of the Phase II environmental investigations, with the Company's share
of such costs limited to $500,000, which has been fully paid, for all of such
investigations. The environmental agreement further provides that Unocal is
directly responsible, for all such costs and expenses incurred for remediation
of environmental contamination (based on the standards in effect on the date the
remedial action is completed), for bringing the facilities into compliance with
environmental laws (based on requirements in effect as of April 14, 1993) and
for any other environmental liabilities that arise out of conditions at, or
ownership or operations of, the Network prior to April 14, 1993. In addition,
Unocal is continuing remedial actions regarding conditions it had identified at
certain travel centers prior to the acquisition of the Network by the Company.
Unocal does not have any responsibility for any environmental liabilities
arising out of the ownership and operations of the Network after April 14, 1993,
unless such liabilities are a result of conditions existing at the time of the
Acquisition. There can be no assurance that, if additional environmental claims
or liabilities arise under the environmental agreement, Unocal would not dispute
the Company's claims for indemnification thereunder.
The Company is in the process of resolving alleged violations of wastewater
discharge permits in Florida, Indiana, Michigan, New Jersey, Ohio, and West
Virginia relating to travel center operations, and is conducting investigatory
and/or remedial actions with respect to petroleum product releases that have
occurred subsequent to the acquisition at eleven travel centers. Remediation
activities have been completed at twenty other travel centers and the Company
anticipates no further action to be required by the respective state agencies in
regard to those matters at those locations. Most of the wastewater discharge
notices have been resolved by the Company without penalty. However, given the
status of the proceedings with respect to matters still pending, ultimate
investigative and remediation costs cannot accurately be predicted. The Company
expects that some or all of any fines paid or costs incurred in connection with
the wastewater discharge violations noted above will be paid by Unocal pursuant
to the environmental agreement.
The Company has estimated the current ranges of remediation costs at
currently active sites and what it believes will be its ultimate share of such
costs after required indemnification and remediation is performed by Unocal
under the environmental agreement and has recorded a reserve of $677,000 for
such matters. While it is not possible to quantify with certainty the
environmental exposure, in the opinion of management, the potential liability,
beyond that considered in the reserve, for all environmental proceedings, based
on information known to date, will not have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
PENDING LITIGATION
In connection with the acquisition of the Network, the Company acquired six
travel centers located in California that are currently members of the Network.
In January 1993, the operators of four of these travel centers (the "California
Plaintiffs") commenced litigation against Unocal and the Company in California
state court seeking, among other things, specific performance by Unocal of their
alleged rights, either under the California Business and Professions Code (the
"California Statute") or, in the alternative, pursuant to alleged statements
made by Unocal, to purchase their travel centers at a fair
F-71
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
market price and seeking compensatory and punitive damages against the Company
and others for both tortious interference with the California Plaintiffs'
alleged rights and civil conspiracy. The operator of a fifth California travel
center also asserted a purchase right, but never filed suit. This property,
together with the four properties operated by the California Plaintiffs, are
referred to herein as the "California Properties".
Under the asset purchase agreements pursuant to which the Company acquired
the California Properties from Unocal, and related agreements, (i) the Company
purchased the California Properties for $39 million and (ii) Unocal agreed to
indemnify the Company for, among other things, claims arising under the
California Statute arising out of or resulting from the sale of the California
Properties, including any amounts ("Excess Amounts") by which the original
purchase price paid by the Company for the California Properties exceeds the
price at which the Company might be ordered by a court to resell such
properties. Pursuant to such agreements, Unocal is not required to indemnify the
Company for awards of punitive damages. The Company cannot predict whether it
ultimately will be required to resell any or all of the California Properties to
the California operators. However, in such event, the Company would seek
indemnification from Unocal for any Excess Amounts. The Company believes that
the claims asserted by the operators of the California Properties against the
Company are without merit and has engaged in a vigorous defense.
During 1995, the trial commenced and two of the California Plaintiffs
elected to settle their portion of the litigation with Unocal and the Company.
In resolution, the Company entered into an agreement whereby the Company
acquired the assets and operations of one of the related travel centers and paid
approximately $900,000 for the operations and certain assets used in the
operations. The other operator's issues were resolved at no cost to the Company
and that operator continues to operate the travel center under the existing
lease agreement.
On May 1, 1995, the jury rendered a verdict in favor of the two remaining
California Plaintiffs and against Unocal and the Company. The jury determined
that the two remaining California Plaintiffs were entitled to total compensatory
damages of $4,012,000, all payable by Unocal. On May 3, 1995, the jury rendered
a verdict assessing punitive damages against Unocal and the Company in the
amounts of $7,000,000 and $3,100,000, respectively. Also on May 3, 1995, the
California State Court rendered a tentative decision in favor of Unocal and the
Company on the equitable claims asserted by the California Plaintiffs and
denying Plaintiffs' request for rescission of the asset purchase agreements for
the related California Properties. The Company then filed motions with the trial
court to enter judgment in its favor on plaintiffs' damages claims
notwithstanding the verdict, or in the alternative, to order a new trial. On
August 1, 1995, the California Court denied the motion for judgment
notwithstanding the verdict, but granted the Company's motion for a new trial on
all issues. Unocal and the Company have appealed the court's denial of their
motions for judgement notwithstanding the verdict and the California Plaintiffs
have appealed the court's granting of a new trial and its ruling on the
equitable claims. Decisions on the pending appeals are expected by late 1997.
The Company's ultimate liability in the disposition of this matter is difficult
to estimate. However, it is management's belief that the outcome, while
potentially material to the Company's results of operations, is not likely to
have a material adverse effect on the Company's financial position.
F-72
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company believes all compensatory damages ultimately awarded and legal
fees incurred in this matter are covered under the indemnification agreement
with Unocal. Legal costs incurred by the Company through December 31, 1996 total
$5,189,000, of which Unocal has paid $1,000,000 to the Company to date. Unocal
has stated, however, that it may contest portions of the Company's claims for
such indemnification. However, the Company believes that the effect on the
financial statements of any amounts not ultimately collected from Unocal will
not be material.
In April 1996, a group of 11 operators filed a complaint which was styled
as a class action lawsuit alleging that the Company or its representatives had
engaged in certain inappropriate practices or activities including breach of
contract and fraud in connection with acquiring and operating the Network. No
specific dollar damages are claimed in the complaint, but the plaintiffs
generally seek compensatory and punitive damages. In January 1997, the complaint
was amended to include an additional six operators as plaintiffs and to assert
the additional claims of tortious interference with contractual relations and of
civil conspiracy. In 1997, settlement agreements were reached with three of the
plaintiffs at an immaterial cost to the Company. The Company believes that the
claims made in the complaint are baseless and intends to defend this litigation
vigorously. It is management's belief that the outcome is not likely to have a
material adverse effect on the Company's results of operations, financial
position or liquidity.
In addition to the above matters, the Company is the subject of, or party
to, a number of pending or threatened legal actions, contingencies and
commitments involving a variety of matters, including laws and regulations
relating to the environment. The ultimate resolution of these contingencies
could, individually or in the aggregate, be material to the Company's results of
operations, but is not expected to be material to the Company's financial
position or liquidity.
13. OPERATING LEASE COMMITMENTS
Of the 95 travel centers owned by the Company as of December 31, 1996, 77
locations are leased to independent operators, several of whom are related
parties of the Company, under operating lease arrangements. These cancelable
lease arrangements generally are for terms of three to five years. Rent revenue
from such operating lease arrangements totaled $48,424,000, $47,840,000 and
$41,762,000 for 1994, 1995 and 1996, respectively.
14. OTHER INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating and Selling, general and
administrative expenses include the following:
Repairs and Maintenance Expenses ............. $ 2,225 $ 1,264 $ 1,250
Advertising expenses (net of franchisee
payments) ................................. $ 561 $ 504 $ 240
Taxes other than payroll and income taxes .... $ 2,484 $ 3,271 $ 2,429
Interest expense is comprised of the following:
Interest expense ............................. $(13,918) $(14,190) $(13,975)
Interest income .............................. 675 846 529
-------- -------- --------
$(13,243) $(13,344) $(13,446)
======== ======== ========
</TABLE>
F-73
<PAGE>
NATIONAL AUTO/TRUCKSTOPS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
15. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
Cash paid during the year for:
Interest ................................ $13,383 $14,055 $13,644
Income taxes ............................ $ 5,987 $ 482 $ 832
During 1995 and 1996, the Company received $3,201,000 and $3,207,000,
respectively, of inventory and property and equipment in liquidation of trade
accounts receivable.
16. SUBSEQUENT EVENT
On January 21, 1997, the Board of Directors of TravelCenters approved a
plan to combine the operations of the Company with those of TravelCenters other
wholly-owned subsidiary, TA Holdings Corporation (TAHC) under the existing TAHC
management. This plan provides for the divesting of certain Company locations,
the transfer of operations of all Company-operated locations to TAHC and
rebranding of certain continuing Network locations to the "Truckstops of
America" trademarks owned by TAHC. Related to the combination plan,
TravelCenters is pursuing a recapitalization. The recapitalization will, if
consummated, refinance the Company's indebtedness of $143,800,000 at December
31, 1996, which will require the write-off of the remaining unamortized balance
of the deferred financing costs and unamortized debt discount of $5,295,000 and
$806,000 at December 31, 1996, respectively. Certain elements of the combination
plan are dependent upon the successful recapitalization of the Company.
F-74
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1997
1996 (UNAUDITED)
-------- --------
(IN THOUSANDS OF DOLLARS)
ASSETS
<S> <C> <C>
Current assets:
Cash ............................................................. $ 23,779 $ 74,910
Accounts receivable (less allowance for doubtful accounts of
$3,502 for 1996 and $3,851 for 1997) ......................... 54,371 56,291
Inventories ...................................................... 29,082 29,821
Deferred income taxes ............................................ 3,877 3,877
Other current assets ............................................. 10,530 10,895
-------- --------
Total current assets .................................... 121,639 175,794
Notes receivable, net ................................................. 1,835 1,920
Property and equipment, net ........................................... 269,366 267,618
Intangible assets ..................................................... 19,657 19,449
Deferred financing costs .............................................. 8,379 11,624
Other assets .......................................................... 5,013 3,426
-------- --------
Total assets ............................................ $425,889 $479,831
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving loans .................................................. $ 14,000 $ --
Current maturities of long-term debt ............................. 17,250 500
Accounts payable ................................................. 37,201 35,564
Other accrued liabilities ........................................ 29,422 26,416
-------- --------
Total current liabilities ............................... 97,873 62,480
Commitments and contingencies (Note 8)
Long-term debt (net of unamortized discount) .......................... 193,185 290,000
Deferred income taxes ................................................. 9,452 9,452
Other long-term liabilities ........................................... 5,914 5,338
-------- --------
Total liabilities ....................................... 306,424 367,270
Mandatorily redeemable senior convertible participating preferred stock 51,075 52,295
Other preferred stock, common stock and other shareholders' equity .... 50,743 49,499
Retained earnings ..................................................... 17,647 10,767
-------- --------
Total shareholders' equity .............................. 68,390 60,266
-------- --------
Total liabilities and shareholders' equity .............. $425,889 $479,831
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-75
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------
1996 1997
--------- ---------
(In Thousands of Dollars except
per share amounts)
<S> <C> <C>
Revenues:
Fuel .............................................................................. $ 108,907 $ 194,151
Rent .............................................................................. 10,950 9,720
Nonfuel revenues .................................................................. 11,552 61,242
--------- ---------
Total revenues .................................................................... 131,409 265,113
Cost of revenues (excluding depreciation) .............................................. 110,896 205,878
--------- ---------
Gross profit (excluding depreciation) .................................................. 20,513 59,235
Operating expenses ..................................................................... 3,683 34,083
Selling, general and administrative expenses ........................................... 9,055 11,733
Refinancing, transition and development costs .......................................... 25 1,618
Depreciation and amortization .......................................................... 3,214 6,944
Other (income) expense, net ............................................................ (27) (74)
Income of subsidiary held for disposition .............................................. (143) --
--------- ---------
Income from operations ................................................................. 4,706 4,931
Interest (expense), net................................................................. (3,208) (5,105)
--------- ---------
(Loss) income before income taxes
and extraordinary loss ........................................................ 1,498 (174)
(Benefit) provision for income taxes ................................................... 582 (68)
--------- ---------
(Loss) income before extraordinary loss ........................................... 916 (106)
Extraordinary loss
(less applicable income tax benefit of $3,608) .................................... -- (5,554)
--------- ---------
Net (loss) income ................................................................. 916 (5,660)
Less: preferred dividends ......................................................... (1,220) (1,220)
Retained earnings-beginning of the period .............................................. 16,994 17,647
--------- ---------
Retained earnings-end of the period .................................................... $ 16,690 $ 10,767
========= =========
Loss before extraordinary loss per common share
and common share equivalent ....................................................... $ (0.03) $ (0.15)
Extraordinary loss ..................................................................... -- (0.63)
--------- ---------
Net income per common share and common share equivalent
(Note 2) .......................................................................... $ (0.03) $ (0.78)
========= =========
Weighted average number of shares and common share equivalents
(in thousands) .................................................................... 8,947 8,873
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-76
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------
1996 1997
--------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ................................................ $ 916 $ (5,660)
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Net income of subsidiary held for disposition ................. 86 --
Extraordinary item ............................................ -- 5,554
Depreciation and amortization ................................. 3,214 6,944
Provision for doubtful accounts ............................... 467 376
Gain on sale of property and equipment ........................ -- (40)
Changes in assets and liabilities, adjusted for the effects of
acquisitions of network assets
Accounts receivable ......................................... (6,139) (3,185)
Inventories ................................................. (124) 1,361
Other current assets ........................................ 852 1,248
Accounts payable ............................................ 8,745 (1,782)
Other current liabilities ................................... 3,286 (264)
Other, net .................................................... -- 312
--------- ---------
Net cash provided by operating activities ..................... 11,303 4,864
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of network assets ................................... (3,063) (4,254)
Proceeds from sales of property and equipment .................... -- 77
Capital expenditures ............................................. (3,433) (1,388)
--------- ---------
Net cash used in investing activities ......................... (6,496) (5,565)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings ........................................ 10,000 3,750
Revolving loan repayments ........................................ -- (17,750)
Long-term debt borrowings ........................................ -- 290,500
Long-term debt repayments ........................................ (2,000) (211,800)
Repurchase of common stock ....................................... -- (1,244)
Debt issuance costs .............................................. -- (11,624)
--------- ---------
Net cash provided by financing activities ..................... 8,000 51,832
--------- ---------
Net increase in cash ........................................ 12,807 51,131
Cash at the beginning of the period ................................. 3,191 23,779
--------- ---------
Cash at the end of the period ....................................... $ 15,998 $ 74,910
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-77
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
TravelCenters of America, Inc., formerly National Auto/Truckstops Holdings
Corporation (collectively with its subsidiaries, as the context may require, the
"Company"), was incorporated on December 2, 1992, to raise equity and to
function as the holding company of its wholly-owned operating subsidiary,
National Auto/Truckstops, Inc. ("National"). National was incorporated to
acquire the travel center network ("the National Network") of Unocal Corporation
("Unocal") ("the National Acquisition"). On December 10, 1993, the Company
capitalized a second wholly-owned subsidiary, TA Holdings Corporation ("TAHC"),
which in turn capitalized a wholly-owned subsidiary, TA Operating Corporation
("TA"). TA was incorporated to acquire the travel center network ("the TA
Network") of BP Exploration and Oil Company ("BP") (the "TA Acquisition"), and
had a wholly-owned subsidiary, TA Franchise Systems Inc. ("TAFSI"), which holds
all of the TA franchise agreements. The National Acquisition was consummated on
April 13, 1993 and the TA Acquisition was consummated on December 10, 1993.
The TA Acquisition required the consent of the operators and independent
franchisees who were holders of the Company's former Class A Common Stock (the
"Operator Shareholders"). The Operator Shareholders consented to the TA
Acquisition and, in connection therewith, the Company was granted an option to
repurchase, for cash and its stock in TAHC, all of its equity securities,
including its mandatorily redeemable preferred stock, and warrants not held by
the Operator Shareholders and senior management of National. Accordingly, the
financial statements presented the net assets of TAHC as held for disposition.
The results of operations of TAHC were reported as a single amount through
September 30, 1996. Effective September 30, 1996, a decision was made to retain
TAHC and, subsequently, the Company chose to pursue the combination of the
operations of the TA and National Networks. Accordingly, at that date, the
carrying value of the Company's investment in TAHC of $44,637,000 was allocated
to the identifiable assets and liabilities based on the current fair values as
of that date. In addition, the results of operations and cash flows of TAHC are
included in the consolidated results of operations and cash flows of the Company
from October 1, 1996. TAHC had net income of $86,000 for the three months ended
March 31, 1996.
On January 21, 1997, the Company's Board of Directors approved a plan to
combine the operations of its National and TA Networks under the existing TA
Network management. This plan provides for the divesting of certain National
Network locations, terminating of certain franchise relationships, transfer of
operations of all National Network company-operated locations to the TA Network
and rebranding of certain National Network locations to TA.
As of March 6, 1997, the Company's certificate of incorporation and by-laws
were amended: (i) to eliminate the supermajority voting requirements that were
applicable to certain actions, (ii) to eliminate all designations of classes of
common stock, the convertibility of one class of common stock into another and
all class votes of holders of common stock, (iii) to change the names of the
Class A Common Stock and the Class B Common Stock to Common Stock, (iv) to
provide that all of the outstanding shares of preferred stock of the Company be
convertible into shares of common stock on the same basis as they previously had
been convertible into Class B Common Stock, (v) to eliminate class votes for
directors and to provide that directors shall be elected by holders of common
stock and voting preferred stock voting together as a class and (vi) to change
the Company's name to "TravelCenters of America, Inc." These actions did not
change the numbers of shares of various classes of stock that are authorized or
outstanding, nor did they alter the par value or dividend or other rights of the
various classes of stock.
On March 27, 1997, the Company was recapitalized and restructured pursuant
to a series of transactions in which (i) the Company's indebtedness under the
old National and TA Credit Facilities and
F-78
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE (CONTINUED)
Subordinated Notes were refinanced (see Note 6), (ii) TA and National guaranteed
the Company's obligations under the new Credit Facilities, the Senior Notes and
the Subordinated Notes and (iii) the Company's subsidiaries were restructured
such that the Company directly owns its three subsidiaries, National, TA and
TAFSI (the Company's former subsidiary, TAHC, was liquidated as of such date).
The Company, through its operating subsidiaries, is a nationwide marketer
of truck and auto fuel and related products and services through a network of
169 full-service travel centers (121 operated under the "Unocal 76" trademark
and 48 operated under the "TA" and "Truckstops of America" trademark as of March
31, 1997) in 36 states. Of the 169 network locations at March 31, 1997, the
Company owns or leases 135 locations, 68 of which are leased to independent
operators, and 67 of which are operated by the Company. During 1997, the Company
took over the operations of 9 locations from independent operators. The
remaining 34 locations are owned and operated by independent franchisees with
whom the Company has contractual arrangements to supply motor fuels to a
majority of the franchisees, as well as related products and services. The
Company purchases and resells diesel fuel, gasoline and other truckstop products
and services to consumers, commercial fleets, operators and independent
franchisees; provides fleet credit card and customer information services
through its proprietary ACCESS 76 system and STAR Billing system; conducts
centralized purchasing programs; creates promotional programs; and, as a
franchisor, assists the operators and independent franchisees in providing
service to commercial fleets and the motoring public.
The accompanying unaudited, consolidated financial statements as of and for
the quarters ended March 31, 1997 and 1996 have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, these statements should be read in conjunction with the audited
financial statements as of and for the year ended December 31, 1996. In the
opinion of management, the accompanying unaudited, consolidated financial
statements contain all adjustments, all of which were of a normal recurring
nature, necessary to present fairly, in all material respects, the consolidated
results of operations and of cash flows for the three-month period ended March
31, 1997 and 1996, and are not necessarily indicative of the results to be
expected for the full year.
2. EARNINGS PER SHARE
Earnings per common share and common share equivalent were computed by
subtracting preferred dividends from net income and dividing the resulting
amount by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. The Mandatorily Redeemable Senior
Participating Preferred Stock Series I and II and Convertible Preferred Stock
Series I and II are considered to be equivalents of common stock. The number of
shares issuable on conversion of the preferred stock was added to the number of
common shares. The number of shares was also increased by the number of shares
issuable on the exercise of vested stock options when the formula price of the
common stock exceeds the exercise price of the options and by the number of
outstanding common stock warrants. The increase in the number of common shares
was reduced by the number of common shares which are assumed to have been
purchased with the proceeds from the exercise of the options.
The weighted average number of shares of common stock and common share
equivalents outstanding during the periods ended March 31, 1997 and 1996 were
8,873,449 and 8,947,006, respectively.
F-79
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31, MARCH 31,
1996 1997
------- -------
(IN THOUSANDS)
Nonfuel merchandise .......................... $26,090 $23,186
Petroleum products ........................... 2,992 6,635
------- -------
Total inventories ...................... $29,082 $29,821
======= =======
4. DEFERRED FINANCING COSTS AND INTANGIBLE ASSETS
Deferred financing costs were recorded in conjunction with the National and
TA Acquisitions and were amortized on a basis approximating the interest method
over the lives of the related debt instruments, ranging from five to ten years.
As a result of the recapitalization of the Company on March 27, 1997, the
deferred financing costs associated with the prior credit facilitates were
written off as an extraordinary item (see Note 7). The financing costs incurred
in conjunction with the recapitalization of the Company have been deferred and
will be amortized on a basis approximating the interest method over the lives of
the related new debt instruments. The intangible assets are being amortized on a
straight-line basis over their estimated lives, principally the terms of the
related contractual agreements giving rise to them.
5. REVOLVING LOAN
As a result of the recapitalization, the Company has available a revolving
loan facility of $40,000,000, which includes $20.0 and $5.0 million available
for letters of credit and swingline loans, respectively (see Note 6). The
interest rate for borrowings under this revolving loan facility is based on
either an alternate base rate (ABR) plus 1.50 percent or an adjusted London
Interbank Offered Rate (LIBOR) plus 2.50 percent. After March 27, 1998, if
certain conditions are satisfied, the interest rate spread added to the baseline
rates will be reduced by 0.25 percent. There were no borrowings under the new
revolving loan facility at March 31, 1997 (although $1,529,000 of such facility
was utilized for letters of credit). There were $14,000,000 of outstanding
borrowings at December 31, 1996 under the prior revolving loan facilities. The
interest rate for borrowings under the prior revolving loan facilities were
based on the lender's prime lending rate and LIBOR rates.
F-80
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
INTEREST DECEMBER 31, MARCH 31,
RATE MATURITY 1996 1997
------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Senior secured term loans (a) ............ (b) 1999 $ 39,800 $ --
Senior secured term loans (c) ............ (d) 2000 42,000 --
Senior secured term loans (e) ............ (f) 2005 -- 80,000
Senior secured notes (g) ................. 8.76% 2002 65,000 --
Senior secured notes (h) ................. 8.63% 2002 25,000 --
Senior secured notes-Series I (i) ........ 8.94% 2002 -- 35,500
Senior secured notes-Series II (j) ....... (k) 2005 -- 50,000
Subordinated notes (l) ................... 12.50% 2003 25,000 --
Subordinated notes (m) ................... 12.00% 2003 15,000 --
Subordinated notes (n) ................... 10.25% 2007 -- 125,000
-------- --------
Total ............................ 211,800 290,500
Less: amounts due within one year ........ 17,250 500
Less: unamortized discount ............... 1,365 --
-------- --------
Total ............................ $193,185 $290,000
======== ========
</TABLE>
- -------------------------------
(a) On April 13, 1993, the Company entered into a $100,000,000 Credit Agreement
with a group of banks. This Credit Agreement consisted of three components:
term loans of a maximum $70,000,000, swingline loans not to exceed
$3,000,000, and revolving loans not to exceed $30,000,000 (including any
swingline loans outstanding). On November 5, 1993, the Company reduced the
revolving portion of the Credit Agreement to $25,000,000. No borrowings
under the swingline loan were outstanding at December 31, 1996. This
borrowing was retired as a result of the recapitalization.
(b) Interest accrued at variable rates based on either an alternate base rate
(ABR) or an adjusted London Interbank Offered Rate (LIBOR). The rate at
which interest accrued was calculated as either the ABR rate (8.25% at
December 31, 1996) plus 1 3/4 percent or the LIBOR rate (5.625% at December
31, 1996) plus 2 3/4 percent. The average effective interest rates for the
year ended December 1996 was 9.5 percent.
(c) On December 9, 1993, the Company entered into a $73,000,000 Credit
Agreement with a group of banks. This Credit Agreement consisted of three
components: term loans of a maximum $53,000,000, swingline loans not to
exceed $3,000,000, and revolving loans not to exceed $20,000,000 (including
any swingline loans outstanding and letters of credit issued). No
borrowings under the swingline loan were outstanding at December 31, 1996.
There were $1,529,000 of outstanding letters of credit under the Credit
Agreement at December 31, 1996. This borrowing was retired as a result of
the recapitalization.
(d) Interest accrued at variable rates based on either an alternate base rate
(ABR) or an adjusted London Interbank Offered Rate (LIBOR). The rate at
which interest accrued was calculated as either the ABR rate plus 1 3/4
percent or the LIBOR rate plus 2 3/4 percent. The average effective
interest rate for the year ended December 31, 1996 was 8.9 percent.
F-81
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
6. LONG-TERM DEBT (CONTINUED)
(e) On March 21, 1997, in connection with the recapitalization, the Company
entered into a $120,000,000 Credit Agreement with a group of banks. This
Credit Agreement consists of three components: term loans of a maximum
$80,000,000, swingline loans not to exceed $5,000,000, and revolving loans
(see Note 5) not to exceed $40,000,000 (including any swingline loans
outstanding and letters of credit issued). There have been no borrowings
under the swingline loan or revolving loan commitments to date. Payments of
principal, interest and commitment fees related to the Credit Agreement are
scheduled at each quarter end in installments of principal ranging from
$125,000 to $11,750,000, with the first payment due on June 30, 1997, and
the last quarterly payment due on March 27, 2005. Optional prepayments are
allowed without premium or penalty under the Credit Agreement and, in
addition, annual prepayments of principal may be required based, among
other things, on excess cash flows generated by the Company and certain
asset dispositions made by the Company or any of its subsidiaries.
Commitment fees are calculated as 1/2 of 1 percent on the average daily
unused amount of the revolving loan commitment. There was $1,529,000
outstanding in respect of letters of credit under the Credit Agreement at
March 31, 1997.
(f) Interest accrues at variable rates based on either an alternate base rate
(ABR) or an adjusted London Interbank Offered Rate (LIBOR). The rate at
which interest accrues is calculated as either the ABR rate plus 2.0
percent or the LIBOR rate plus 3.0 percent. The Company has the option to
select which rate is to be applied at the beginning of each loan period,
the term of which varies from 1 month to 6 months. The Company has met
certain conditions, and accordingly the interest rate spread added to the
ABR and LIBOR rates has been reduced to 1 3/4 percent and 2 3/4 percent,
respectively. The interest rate was set on March 27, 1997 at 8.75 percent
for 3 months.
(g) On April 13, 1993, the Company issued $65,000,000 of Senior Secured Notes.
This borrowing was retired as a result of the recapitalization.
(h) On December 9, 1993, the Company issued $25,000,000 of Senior Secured
Notes. This borrowing was retired as a result of the recapitalization.
(i) On March 21, 1997, in connection with the recapitalization, the Company
issued $35,500,000 of Series I Senior Secured Notes. Interest payments on
these notes are due semiannually on June 30 and December 31. Optional
prepayments are allowed under the note purchase agreements governing such
notes and required payments are due on each of June 30, 2001, December 31,
2001, June 30, 2002 and December 31, 2002 in the amount of $8,875,000, such
amounts to be reduced by certain other prepayments. In the event of certain
prepayments, the Company may be subject to the make-whole provision of the
note agreements, which requires payment of a prepayment premium to the
holders of the Series I Senior Secured Notes. In addition, annual
prepayments of principal may be required based, among other things, on
excess cash flows generated by the Company and certain asset dispositions
made by the Company or any of its subsidiaries.
(j) On March 21, 1997, in connection with the recapitalization, the Company
issued $50,000,000 of Series II Senior Secured Notes. Interest payments on
these notes are due semiannually on March 31 and September 30. Optional
prepayments are allowed under the note purchase agreements governing such
notes and required principal payments are scheduled at each quarter end in
installments of principal ranging from $5,000,000 to $7,500,000, with the
first payment made on June 30, 2003 and the last quarterly payment due on
March 31, 2005, such amounts to be reduced by certain other prepayments. In
the event of prepayments, the Company may be subject to the break funding
cost provision of the note agreements. In addition, annual prepayments of
principal may be required based, among other things, on excess cash flows
generated by the Company and certain asset dispositions made by the Company
or any of its subsidiaries.
F-82
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
6. LONG-TERM DEBT (CONTINUED)
(k) Interest accrues at a rate based on an adjusted London Interbank Offered
Rate (LIBOR). The rate at which interest accrues is calculated as the LIBOR
rate plus 3.0 percent, which rate can be reduced after March 27, 1998 by
0.25 percent, if certain conditions are met. The interest rate is reset at
the beginning of each loan period, the term of which is 6 months. The
interest rate was set on March 27, 1997 at 8.875 percent for 6 months.
(l) On April 13, 1993, the Company issued $25,000,000 of Subordinated Notes.
The holders of the Subordinated Notes also received warrants to purchase
128,206 shares of the Company's common stock, resulting in a discount of
$1,282,000 to the principal balance of these Subordinated Notes. The
warrants remain outstanding while this borrowing was retired as a result of
the recapitalization.
(m) On December 10, 1993, the Company issued $15,000,000 of Subordinated Notes.
The holders of the Subordinated Notes also received 80,520 shares of the
Company's common stock, resulting in a discount of $805,000 to the
principal balance of these Subordinated Notes. This borrowing was retired
as a result of the recapitalization.
(n) On March 27, 1997, in connection with the recapitalization, the Company
issued $125,000,000 of Subordinated Notes. Interest payments on these notes
are due semiannually on April 1 and October 1. Optional prepayments are
allowed under certain circumstances under the note purchase agreement, any
such payments reducing the required payment of $125,000,000 due April 1,
2007.
The obligations of the Company under the Credit Agreement and the Note
Purchase Agreements are jointly and severally unconditionally guaranteed by TA
and National, which guarantees are secured. The obligations of the Company under
the Indenture relating to the Subordinated Notes are also jointly and severally
unconditionally guaranteed by TA and National, which guarantees are unsecured.
(See Note 9 for Condensed Consolidating Financial Statement schedules.)
The borrowings under the Credit Agreements and Senior Secured Notes are
secured by mortgages on all of the property and equipment acquired by the
Company as a result of the National and TA Acquisitions in the manner described
in the various collateral agreements entered into among the Company, TA,
National, TAFSI, the lending banks under the Credit Agreements and the Senior
Secured Note Purchasers. In the event of a change in control of the Company, the
total amount outstanding under the agreements relating to the indebtedness
described above may be declared immediately due and payable.
Under the terms of the Credit Agreement and the Senior Note Purchase
Agreements, the Company is required to maintain certain financial covenants,
including minimum interest coverage, minimum consolidated net worth, minimum
current ratio, maximum leverage ratio and maximum amounts of capital
expenditures. The Company was in compliance with all covenants under such
agreements at March 31, 1997.
Under the terms of the Indenture relating to the Subordinated Notes, the
Company is required to maintain, among others, financial covenants that provide
for minimum net worth and maximum amounts of capital expenditures. The Company
was in compliance with all covenants under the Indenture at March 31, 1997.
F-83
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
7. EXTRAORDINARY ITEM
The refinancing of the Company on March 27, 1997, resulted in the early
extinguishment of the Company's prior credit facilities. The remaining
unamortized balance, at the time of the refinancing, of the deferred financing
costs and unamortized debt discount of $7,847,000 and $1,315,000, respectively,
were written off.
8. COMMITMENTS AND CONTINGENCIES
CAPITAL COMMITMENTS
At March 31, 1997, commitments for capital expenditures for property and
equipment totaled approximately $2,636,000.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive federal,
state and local laws, regulations and ordinances relating to environmental
matters that (i) govern activities and operations that may have adverse
environmental effects, such as discharges to air, soil and water, as well as
handling, storage and disposal practices for petroleum products and solid and
hazardous substances or (ii) impose liability and damages for the cost of
remediating sites affected by, and damage resulting from, past spills and
disposal or other releases of petroleum products and hazardous substances.
The Company owns and uses underground storage tanks (USTs) and above-ground
storage tanks (ASTs) at company-operated and operator locations to store
petroleum products and waste oils. These tanks must comply with statutory and
regulatory requirements regarding tank construction, integrity testing, leak
detection and monitoring, overfilling and spill control, release reporting,
financial assurance and corrective action in case of a release from a UST or AST
into the environment. To meet minimum federal requirements, all existing USTs
owned by the Company must conform to certain construction requirements, have
installed tank leak detection systems, and have installed corrosion protection
and spill-overfill prevention equipment by December 22, 1998. The Company has
established a program of tank replacement and equipment installation to meet the
requirements by that time.
While the costs of compliance for these matters have not had a material
adverse impact on the Company, it is impossible to predict accurately the
ultimate effect these changing laws and regulations may have on the Company in
the future. The Company estimates environmental related expenditures, including
capital items, remediation and compliance costs, will total approximately $15
million to $20 million during 1997 and 1998.
As part of each of the National and TA Acquisitions, the Company negotiated
environmental agreements with the sellers, pursuant to which Unocal and BP each
indemnified the Company for a period of eleven years from the acquisition dates
for all costs and expenses incurred in connection with the remediation of any
environmental contamination (based on the standards in effect on the date the
remedial action is completed) present at any of the acquired locations as of the
acquisition dates. The environmental agreements with Unocal and BP expire on
April 14, 2004 and December 11, 2004, respectively.
In connection with the acquisitions, Phase I investigations were conducted
at all of the acquired travel centers. Pursuant to the BP environmental
agreement, Phase II investigations were conducted at all of the acquired travel
centers prior to the acquisition. Pursuant to the Unocal environmental
agreements, Phase II investigations on all sites are required to be completed by
the year 2000. As of
F-84
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
March 31, 1997, 31 Phase II investigations of the National Network locations
were in progress and 84 had been completed. With respect to the National Network
locations, the Company is now evaluating the results of these investigations to
establish what, if any, remedial actions will be required and are notifying
federal, state and local authorities regarding any contamination that is
discovered. The Company expects that the remaining 18 investigations will be
completed by 1998. Unocal and the Company agreed to share the costs of the Phase
II environmental investigations to be conducted at the National Network
locations, with the Company's share of such costs limited to $500,000, which has
been fully paid, for all of such investigations. The environmental agreements
further provide that Unocal and BP are directly responsible for bringing the
facilities into compliance with environmental laws (based on requirements in
effect as of the respective acquisition dates, and, with respect to the TA
Network locations, which were the subject of a claim for indemnification on or
before December 9, 1996) and for any other environmental liabilities that arise
out of conditions at, or ownership or operations of, the Network prior to the
respective acquisition dates. In addition, Unocal and BP are continuing remedial
actions regarding conditions identified at certain travel centers prior to the
acquisitions by the Company. Unocal and BP do not have any responsibility for
any environmental liabilities arising out of the ownership and operations of the
Network after April 14, 1993 and December 9, 1993 respectively, unless such
liabilities are a result of conditions existing at the time of the National and
TA Acquisitions. There can be no assurance that, if additional environmental
claims or liabilities arise under the environmental agreements, Unocal or BP
would not dispute the Company's claims for indemnification thereunder.
The Company is in the process of resolving alleged violations of wastewater
discharge permits in several states relating to travel center operations and is
conducting investigatory and/or remedial actions with respect to petroleum
product releases that have occurred subsequent to the acquisition at 21 travel
centers. Remediation activities have been completed at other travel centers and
the Company anticipates no further actions to be required by the respective
state agencies in regard to those matters at those locations. Most of the
wastewater discharge notices have been resolved by the Company without penalty.
However, given the status of the proceedings with respect to matters still
pending, ultimate investigative and remediation costs cannot accurately be
predicted. The Company expects that some or all of any fines paid or costs
incurred in connection with the wastewater discharge violations noted above will
be paid by Unocal and BP pursuant to the environmental agreements.
The Company has estimated the current ranges of remediation costs at
currently active sites and what it believes will be its ultimate share for such
costs after required indemnification and remediation is performed by Unocal and
BP under the environmental agreements and has a reserve at March 31, 1997, of
$798,000 for such matters. While it is not possible to quantify with certainty
the environmental exposure, in the opinion of management, the potential
liability, beyond that considered in the reserve, for all environmental
proceedings, based on information known to date, will not have a material
adverse effect on the financial condition, results of operations or liquidity of
the Company.
PENDING LITIGATION
In connection with the acquisition of the Network, the Company acquired six
travel centers located in California that are currently members of the Network.
In January 1993, the operators of four of these travel centers (the "California
Plaintiffs") commenced litigation against Unocal, the Clipper Group, L.P.
("Clipper") and the Company in California state court seeking, among other
things, specific performance by Unocal of their alleged rights, either under the
California Business and Professions Code (the "California Statute") or, in the
alternative, pursuant to alleged statements made by Unocal, to purchase their
travel centers at a fair market price and seeking compensatory and punitive
damages against the Company and others for both tortious interference with the
California Plaintiffs' alleged rights and civil
F-85
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
conspiracy. The operator of a fifth California travel center also asserted a
purchase right, but never filed suit. This property, together with the four
properties operated by the California Plaintiffs, are referred to herein as the
"California Properties".
Under the asset purchase agreements pursuant to which the Company acquired
the California Properties from Unocal, and related agreements, (i) the Company
purchased the California Properties for $39 million and (ii) Unocal agreed to
indemnify the Company for, among other things, claims arising under the
California Statute arising out of or resulting from the sale of the California
Properties, including any amounts ("Excess Amounts") by which the original
purchase price paid by the Company for the California Properties exceeds the
price at which the Company might be ordered by a court to resell such
properties. Pursuant to such agreements, Unocal is not required to indemnify the
Company for awards of punitive damages. The Company cannot predict whether it
ultimately will be required to resell any or all of the California Properties to
the California operators. However, in such event, the Company would seek
indemnification from Unocal for any Excess Amounts. The Company believes that
the claims asserted by the operators of the California Properties against the
Company are without merit and has engaged in a vigorous defense.
During 1995, the trial commenced and two of the California Plaintiffs
elected to settle their portion of the litigation with Unocal and the Company.
In resolution, the Company entered into an agreement whereby the Company
acquired the assets and operations of one of the related travel centers and paid
approximately $900,000 for the operations and certain assets used in the
operations. The other operator's issues were resolved at no cost to the Company
and that operator continues to operate the travel center under the existing
lease agreement.
On May 1, 1995, the jury rendered a verdict in favor of the two remaining
California Plaintiffs and against Unocal and the Company. The jury determined
that the two remaining California Plaintiffs were entitled to total compensatory
damages of $4,012,000. On May 3, 1995, the jury rendered a verdict assessing
punitive damages against Unocal, Clipper and the Company in the amounts of
$7,000,000, $1,600,000 and $1,500,000, respectively. On May 30, 1995, the
California State Court rendered a decision in favor of Unocal and the Company on
the equitable claims asserted by the California Plaintiffs and denying
Plaintiffs' request for rescission of the asset purchase agreements for the
related California Properties. The Company filed motions with the trial court to
enter judgement in its favor on plaintiff's damages claims notwithstanding the
verdict, or in the alternative, to order a new trial. On August 1, 1995, the
California court denied the motion for judgement notwithstanding the verdict,
but granted the Company's motion for a new trial on all issues. Unocal and the
Company have appealed the court's denial of their motions for judgement
notwithstanding the verdict, and the California Plaintiffs have appealed the
court's granting of a new trial and its ruling on the equitable claims.
Decisions on the pending appeals are expected by late 1997. The Company's
ultimate liability in the disposition of this matter is difficult to estimate.
However, it is management's belief that the outcome, while potentially material
to the Company's results of operations, is not likely to have a material adverse
effect on the Company's financial position.
The Company believes all compensatory damages ultimately awarded and legal
fees incurred on this matter are covered under the indemnification agreement
with Unocal. Legal costs incurred by the Company through December 31, 1996 total
$5,189,000, of which Unocal has paid $1,000,000 to the Company to date. Unocal
has stated, however, that it may contest portions of the Company's claims for
such indemnification. However, the Company believes that the effect on the
financial statements of any amounts not ultimately collected from Unocal will
not be material.
F-86
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In April 1996, a group of 11 operators filed a complaint which was styled
as a class action lawsuit alleging that the Company or its representatives had
engaged in certain inappropriate practices or activities including breach of
contract and fraud in connection with acquiring and operating the Network. No
specific dollar damages are claimed in the complaint, but the plaintiffs
generally seek compensatory and punitive damages. In January 1997, plaintiffs
moved for leave to amend the complaint to include an additional six operators as
plaintiffs and to assert the additional claims of tortious interference with
contractual relations and of civil conspiracy, and to withdraw the plaintiffs'
claims to represent a class. In 1997, settlement agreements were reached with
three of the plaintiffs at an immaterial cost to the Company. The Company
believes that the claims made in the complaint and the proposed amended
complaint are baseless and intends to defend this litigation vigorously. It is
management's belief that the outcome is not likely to have a material adverse
effect on the Company's results of operations, financial position or liquidity.
In addition to the above matters, the Company is the subject of, or party
to, a number of pending or threatened legal actions, contingencies and
commitments involving a variety of matters, including laws and regulations
relating to the environment. The ultimate resolution of these contingencies
could, individually or in the aggregate, be material to the Company's results of
operations, but is not expected to be material to the Company's financial
position or liquidity.
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth the consolidating balance sheets of the
Company as of March 31, 1997 and December 31, 1996 and the consolidating
statements of income and retained earnings and of cash flows of the Company for
the three months ended March 31, 1997 and 1996. In the following schedules,
"Parent Company" refers to the unconsolidated balances of TravelCenters of
America, Inc., "Guarantor Subsidiaries" refers to the combined unconsolidated
balances of TA and National, and "Nonguarantor Subsidiary" refers to the
balances of TAFSI. "Eliminations" represent the adjustments necessary to (a)
eliminate intercompany transactions, (b) eliminate the Company's investments in
its subsidiaries and (c) present TAHC as a subsidiary held for disposition until
September 30, 1996 (see Note 1). The Guarantor Subsidiaries, TA and National,
are wholly-owned subsidiaries of the Company and have fully and unconditionally
guaranteed the exchange notes. In the 10-Q filing, the Company has not presented
separate financial statements and other disclosures concerning the Guarantor
Subsidiaries because management has determined such information is not material
to investors.
F-87
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash .................................... $ -- $ 23,779 $ -- $ -- $ 23,779
Accounts receivable, net ................ -- 54,294 1,051 (974) 54,371
Inventories ............................. -- 29,082 -- -- 29,082
Deferred income taxes ................... -- 3,877 -- -- 3,877
Other current assets .................... 499 10,236 2 (207) 10,530
------------- ------------- ------------- ------------- -------------
Total current assets ............... 499 121,268 1,053 (1,181) 121,639
Notes receivable, net ...................... -- 1,835 -- -- 1,835
Property and equipment, net ................ -- 273,219 -- (3,853) 269,366
Intangible assets .......................... -- 19,657 -- -- 19,657
Deferred financing costs ................... -- 8,379 -- -- 8,379
Other assets ............................... 2,500 7,348 -- (4,835) 5,013
Investment in subsidiaries ................. 82,434 -- -- (82,434) --
------------- ------------- ------------- ------------- -------------
Total assets ....................... $ 85,433 $ 431,706 $ 1,053 $ (92,303) $ 425,889
============= ============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving loans ......................... $ -- $ 14,000 $ -- $ -- $ 14,000
Current maturities of long-term
debt ................................. -- 17,250 -- -- 17,250
Accounts payable ........................ 1,555 37,945 -- (2,299) 37,201
Other accrued liabilities ............... 450 29,553 105 (686) 29,422
------------- ------------- ------------- ------------- -------------
Total current liabilities .......... 2,005 98,748 105 (2,985) 97,873
Long-term debt (net of unamortized
discount) ............................... -- 193,185 -- -- 193,185
Deferred income taxes ...................... 92 9,891 -- (531) 9,452
Other liabilities .......................... 1 8,413 -- (2,500) 5,914
------------- ------------- ------------- ------------- -------------
Total liabilities .................. 2,098 310,237 105 (6,016) 306,424
Mandatorily redeemable senior
convertible participating
preferred stock ......................... 51,075 -- -- -- 51,075
Other preferred stock, common
stock and other shareholders'
equity .................................. 51,997 85,033 -- (86,287) 50,743
Retained earnings .......................... (19,737) 36,436 948 -- 17,647
------------- ------------- ------------- ------------- -------------
Total shareholders' equity ......... 32,260 121,469 948 (86,287) 68,390
------------- ------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity ............ $ 85,433 $ 431,706 $ 1,053 $ (92,303) $ 425,889
============= ============= ============= ============= =============
</TABLE>
F-88
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash .................................... $ 56,227 $ 18,683 -- -- $ 74,910
Accounts receivable, net ................ -- 55,238 1,053 -- 56,291
Inventories ............................. -- 29,821 -- -- 29,821
Deferred income taxes ................... -- 3,877 -- -- 3,877
Other current assets .................... -- 10,981 2 (88) 10,895
------------- ------------- ------------- ------------- -------------
Total current assets ............... 56,227 118,600 1,055 (88) 175,794
Notes receivable, net ...................... -- 1,920 -- -- 1,920
Property and equipment, net ................ -- 271,471 -- (3,853) 267,618
Intangible assets .......................... -- 19,449 -- -- 19,449
Deferred financing costs ................... 11,624 -- -- -- 11,624
Other assets ............................... -- 6,787 -- (3,361) 3,426
Advances to subsidiaries ................... 225,904 -- -- (225,904) --
Investment in subsidiaries ................. 82,434 -- -- (82,434) --
------------- ------------- ------------- ------------- -------------
Total assets ....................... $ 376,189 $ 418,227 $ 1,055 $ (315,640) $ 479,831
============= ============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt ................................. $ 500 $ -- $ -- $ -- $ 500
Accounts payable ........................ 1,624 35,564 (1,624) 35,564
Other accrued liabilities ............... 2,261 26,931 52 (2,828) 26,416
------------- ------------- ------------- ------------- -------------
Total current liabilities .......... 4,385 62,495 52 (4,452) 62,480
Long-term debt (net of
unamortized discount) ................... 290,000 -- -- -- 290,000
Deferred income taxes ...................... -- 9,452 -- -- 9,452
Advance from parent ........................ -- 225,904 -- (225,904) --
Other liabilities .......................... -- 5,338 -- -- 5,338
------------- ------------- ------------- ------------- -------------
Total liabilities .................. 294,385 303,189 52 (230,356) 367,270
Mandatorily redeemable senior
convertible participating
preferred stock ......................... 52,295 -- -- -- 52,295
Other preferred stock, common
stock and other shareholders'
equity .................................. 50,753 84,030 -- (85,284) 49,499
Retained earnings .......................... (21,244) 31,008 1,003 -- 10,767
------------- ------------- ------------- ------------- -------------
Total shareholders' equity ......... 29,509 115,038 1,003 (85,284) 60,266
------------- ------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity ............ $ 376,189 $ 418,227 $ 1,055 $ (315,640) $ 479,831
============= ============= ============= ============= =============
</TABLE>
F-89
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND RETAINED
EARNINGS SCHEDULES (YTD)
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel .................................... $ -- $ 167,850 -- $ (58,943) $ 108,907
Rent .................................... -- 10,950 -- -- 10,950
Nonfuel revenues ........................ -- 53,386 398 (42,232) 11,552
------------- ------------- ------------- ------------- -------------
Total revenues ....................... -- 232,186 398 (101,175) 131,409
Cost of revenues (excluding
depreciation) ........................... -- 179,215 -- (68,319) 110,896
------------- ------------- ------------- ------------- -------------
Gross profit (excluding
depreciation) ........................ -- 52,971 398 (32,856) 20,513
Operating expenses ......................... -- 27,598 -- (23,915) 3,683
Selling, general and
administrative expenses ................. 30 12,612 247 (3,834) 9,055
Refinancing, transition and
development costs ....................... -- 155 -- (130) 25
Depreciation and amortization .............. -- 6,161 -- (2,947) 3,214
Other (income) expense, net ................ -- (27) -- -- (27)
Income of subsidiary held for
disposition ............................. -- -- -- (143) (143)
------------- ------------- ------------- ------------- -------------
Income from operations ............... (30) 6,472 151 (1,887) 4,706
Interest (expense), net .................... -- (5,095) -- 1,887 (3,208)
------------- ------------- ------------- ------------- -------------
(Loss) income before income
taxes .............................. (30) 1,377 151 -- 1,498
(Benefit) provision for income taxes ....... (12) 541 53 -- 582
------------- ------------- ------------- ------------- -------------
Net (loss) income .......................... (18) 836 98 -- 916
Less: preferred dividends ............... (1,220) -- -- -- (1,220)
Retained earnings - beginning of the
period .................................. (14,320) 30,610 704 -- 16,994
------------- ------------- ------------- ------------- -------------
Retained earnings - end of the period ..... $ (15,558) $ 31,446 $ 802 $ -- $ 16,690
============= ============= ============= ============= =============
</TABLE>
F-90
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel .................................... $ -- $ 194,151 -- $ -- $ 194,151
Rent .................................... -- 9,720 -- -- 9,720
Nonfuel revenues ........................ -- 60,895 347 -- 61,242
------------- ------------- ------------- ------------- -------------
Total revenues ....................... -- 264,766 347 -- 265,113
Cost of revenues (excluding
depreciation) ........................... -- 205,878 -- -- 205,878
------------- ------------- ------------- ------------- -------------
Gross profit (excluding
depreciation) ........................ -- 58,888 347 -- 59,235
Operating expenses ......................... -- 34,083 -- -- 34,083
Selling, general and administrative
expenses ................................ 194 11,267 272 -- 11,733
Refinancing, transition and
development costs ....................... -- 1,618 -- -- 1,618
Depreciation and amortization .............. -- 6,944 -- -- 6,944
Other (income) expense ..................... -- (74) -- -- (74)
------------- ------------- ------------- ------------- -------------
Income from operations .................. (194) 5,050 75 -- 4,931
Interest (expense), net .................... (278) (4,827) -- -- (5,105)
------------- ------------- ------------- ------------- -------------
(Loss) income before income taxes
and extraordinary item ............... (472) 223 75 -- (174)
(Benefit) provision for income taxes ....... (184) 97 19 -- (68)
------------- ------------- ------------- ------------- -------------
(Loss) income before extraordinary
item ................................. (288) 126 56 -- (106)
Extraordinary items (less applicable
income taxes of $3,608) ................. -- 5,554 -- -- 5,554
------------- ------------- ------------- ------------- -------------
Net (loss) income .......................... (288) (5,428) 56 -- (5,660)
Less: preferred dividends ............... (1,220) -- -- -- (1,220)
Retained earnings - beginning of
period .................................. (19,737) 36,436 948 -- 17,647
------------- ------------- ------------- ------------- -------------
Retained earnings - end of the period ...... $ (21,245) $ 31,008 $ 1,004 $ -- $ 10,767
============= ============= ============= ============= =============
</TABLE>
F-91
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS SCHEDULES
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES: $ 11 $ 16,195 $ -- $ (4,903) $ 11,303
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of network assets .......... -- (3,063) -- -- (3,063)
Capital expenditures .................... -- (5,148) -- 1,715 (3,433)
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities ......................... -- (8,211) -- 1,715 (6,496)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Long-term debt borrowings ............... -- 10,000 -- -- 10,000
Long-term debt repayments ............... -- (3,250) -- 1,250 (2,000)
------------- ------------- ------------- ------------- -------------
Net cash (used in) provided by
financing activities ............... -- 6,750 -- 1,250 8,000
------------- ------------- ------------- ------------- -------------
Net increase in cash ................. 11 14,734 -- (1,938) 12,807
Cash at the beginning of the period ........ -- 15,617 -- (12,426) 3,191
------------- ------------- ------------- ------------- -------------
Cash at the end of the period .............. $ 11 $ 30,351 $ -- $ (14,364) $ 15,998
============= ============= ============= ============= =============
</TABLE>
F-92
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES: $ 1,999 $ 2,865 $ -- $ -- $ 4,864
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of network assets .......... -- (4,254) -- -- (4,254)
Proceeds from sales of property
and equipment ........................ -- 77 -- -- 77
Capital expenditures .................... -- (1,388) -- -- (1,388)
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities ......................... -- (5,565) -- -- (5,565)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Revolving loan borrowings ............... -- 3,750 -- -- 3,750
Revolving loan repayments ............... -- (17,750) -- -- (17,750)
Long-term debt borrowings ............... 290,500 -- -- -- 290,500
Long-term debt repayments ............... -- (211,800) -- -- (211,800)
Advance from parent ..................... (223,404) 223,404 -- -- --
Debt issuance costs ..................... (11,624) -- -- -- (11,624)
Repurchase of common stock .............. (1,244) -- -- -- (1,244)
------------- ------------- ------------- ------------- -------------
Net cash (used in) provided by
financing activities ............... 54,228 (2,396) -- -- 51,832
------------- ------------- ------------- ------------- -------------
Net increase in cash ............... 56,227 (5,096) -- -- 51,131
Cash at the beginning of the period ........ -- 23,779 -- -- 23,779
------------- ------------- ------------- ------------- -------------
Cash at the end of the period .............. $ 56,227 $ 18,683 $ -- $ -- $ 74,910
============= ============= ============= ============= =============
</TABLE>
F-93
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA TION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Available Information...........................................iii
Summary...........................................................1
Risk Factors.....................................................13
Special Note Regarding Forward-Looking
Statements....................................................19
The Refinancing, the Combination Plan and
the Capital Program...........................................20
Use of Proceeds..................................................22
Capitalization...................................................23
Unaudited Pro Forma Financial Information........................24
Selected Consolidated Financial Data.............................28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................34
The Exchange Offer...............................................45
Business.........................................................53
Management.......................................................85
Certain Transactions.............................................92
Security Ownership...............................................96
Description of Capital Stock....................................101
Description of Senior Indebtedness..............................105
Description of New Notes........................................110
Book Entry; Delivery and Form...................................139
Description of Existing Notes.................................. 141
Certain United States Tax Considerations........................142
ERISA Considerations............................................144
Plan of Distribution............................................145
Legal Matters...................................................145
Experts.........................................................145
Index to Financial Statements...................................F-1
- ---------------------------------------------------------------
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS
$125,000,000
TRAVELCENTERS OF
AMERICA, INC.
OFFER TO EXCHANGE $125,000,000 OF ITS
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT FOR $125,000,000 OF ITS
OUTSTANDING 10 1/4% SENIOR SUBORDINATED
NOTES DUE 2007.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Subsection (b)(7) of Section 102
of the Delaware General Corporation Law (the "DGCL"), enables a corporation in
its original certificate of incorporation or an amendment thereto to eliminate
or limit the personal liability of a director to the corporation or its
stockholders for monetary damages for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit. Article Seventh of the Company's Certificate of Incorporation has
eliminated the personal liability of directors to the fullest extent permitted
by Subsection (b)(7) of Section 102 of the DGCL.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such director or officer acted in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
further that such director or officer had no reasonable cause to believe his
conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit provided that such director or officer
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such director or officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such director or officer is fairly and reasonably
entitled to indemnification for such expenses which the Court of Chancery or
such other court shall deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) of Section 145 or in the
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonable incurred by
such person in connection therewith; that indemnification and advancement of
expenses provided for, by, or granted pursuant to, Section 145 shall not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; and empowers the corporation to purchase and maintain insurance on
behalf of any person who
II-1
<PAGE>
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The Company maintains insurance covering its officers and directors
with respect to certain liabilities and expenses incurred by them in certain
proceedings and under certain conditions.
Section 8 of the Company's Certificate of Incorporation provides, in
relevant part, as follows:
To the extent not prohibited by law, the Corporation shall indemnify
any person who is or was made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding (a "Proceeding"),
whether civil, criminal, administrative or investigative, including, without
limitation, an action by or in the right of the Corporation to procure a
judgment in its favor, by reason of the fact that such person, or a person of
whom such person is the legal representative, is or was a director or officer of
the Corporation, or at the request of the Corporation, is or was serving as a
director or officer of any other corporation or in a capacity with comparable
authority or responsibilities for any partnership, joint venture, trust,
employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Section 8.
The Corporation shall, from time to time, reimburse or advance to any
Director or officer or other Eligible Person, the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in connection
with any Proceeding, in advance of the final disposition of such Proceeding;
provided, however, that, if required by the DGCL, such expenses incurred by or
on behalf of any Director or officer or other person may be paid in advance of
the final disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such Director or officer (or other Eligible
Person), to repay any such amount so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right of
appeal that such Director, officer or other person is not entitled to be
indemnified for such expenses.
The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 8 shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
reimbursement or advancement of expenses may have or hereafter be entitled under
any statute, this Certificate of Incorporation, the Amended and Restated By-laws
of the Corporation, any agreement, any vote of stockholders or disinterested
Directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office.
The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 8 shall continue as
to a person who has ceased to be a Director or officer (or other person
indemnified hereunder) and shall inure to the benefit of the executors,
administrators, legatees and distributees of such person.
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of an Other Entity, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against
II-2
<PAGE>
such liability under the provisions of this Section 8, the By-laws or under
Section 145 of the DGCL or any other provision of law.
The provisions of this Section 8 shall be a contract between the
Corporation, on the one hand, and each Director and officer who serves in such
capacity at any time while this Section 8 is in effect and any other person
indemnified hereunder, on the other hand, pursuant to which the Corporation and
each such Director, officer or other person intend to be legally bound. No
repeal or modification of this Section 8 shall affect any rights or obligations
with respect to any state of facts then or theretofore existing or thereafter
arising or any proceeding theretofore or thereafter brought or threatened based
in whole or in part upon any such state of facts.
The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 8 shall be
enforceable by any person entitled to such indemnification or reimbursement or
advancement of expenses in an action before any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel and its stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that such person is not entitled
to such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such person is
not so entitled. Such a person shall also be indemnified for any expenses
incurred in connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
Any Director or officer of the Corporation serving in any capacity for
(a) another corporation of which a majority of the shares entitled to vote in
the election of its Directors is held, directly or indirectly, by the
Corporation or (b) any employee benefit plan of the Corporation or any
corporation referred to in clause (a) shall be deemed to be doing so at the
request of the Corporation.
Any person entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to this Section 8 may
elect to have the right to indemnification or reimbursement or advancement of
expenses interpreted on the basis of the applicable law in effect at the time of
the occurrence of the event or events giving rise to the applicable Proceeding,
to the extent permitted by law, or on the basis of the applicable law in effect
at the time such indemnification or reimbursement or advancement of expenses is
sought. Such election shall be made, by a notice in writing to the Corporation,
at the time indemnification or reimbursement or advancement of expenses is
sought; provided, however, that if no such notice is given, the right to
indemnification or reimbursement or advancement of expenses shall be determined
by the law in effect at the time indemnification or reimbursement or advancement
of expenses is sought.
ITEM 21. EXHIBITS
Exhibit
Number Exhibit
- ------- ------------------------------------------------------------------
** 3.1 Restated Certificate of Incorporation of the Company
** 3.2 Certificate of Incorporation of National Auto/Truckstops, Inc.
** 3.3 Restated Certificate of Incorporation of TA Operating Corporation
** 3.4 Amended and Restated By-laws of the Company
** 3.5 By-laws of National Auto/Truckstops, Inc.
** 3.6 By-laws of TA Operating Corporation
II-3
<PAGE>
<TABLE>
<S> <C>
** 4.1 Indenture, dated March 27, 1997, among the Company, the TA
Subsidiary, the National Subsidiary and State Street Bank and Trust
Company (successor trustee to Fleet National Bank) as Trustee
** 4.2 Exchange and Registration Rights Agreement, dated March 27,
1997, among the Company, the TA Subsidiary, the National Subsidiary
and Chase Securities, Inc.
** 4.3 Form of Face of Initial Security (included in Exhibit 4.1 as Exhibit A)
** 4.4 Form of Face of Exchange Security (included in Exhibit 4.1 as
Exhibit B)
** 5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the
legality of the Notes being registered
* 8 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding certain
federal income tax matters
** 9.1 Voting Trust Agreement, dated April 14, 1993, among the Company,
the Voting Trustee and the Operator Stockholders named therein
** 9.2 Amendment No. 1 to Voting Trust Agreement, dated November 29,
1993, among the Company, the Voting Trustee and the Operator
Stockholders
** 9.3 Amendment No. 2 to Voting Trust Agreement, dated March 6, 1997,
among the Company, the Voting Trustee and the Operator
Stockholders
** 10.1 Asset Purchase Agreement, dated November 23, 1992, between the
National Subsidiary and Unocal
** 10.2 Amendment No. 1 to Asset Purchase Agreement, dated April 13,
1993, between the National Subsidiary and Unocal
** 10.3 California Purchase Agreement, dated November 23, 1992, between
the National Subsidiary and Unocal, with respect to the TravelCenter
located at Blyth, California
** 10.4 Amendment No. 1 to California Purchase Agreement, dated April 13,
1993, between the National Subsidiary and Unocal
** 10.5 Schedule of California Purchase Agreements omitted pursuant to
Instruction 2 to Item 601 of Regulation S-K
** 10.6 Asset Purchase Agreement, dated July 22, 1993, among the TA
Subsidiary, BP and Truckstops Corporation of America Inc.
** 10.7 Amendment No. 1 to Asset Purchase Agreement, dated December 10,
1993, among the TA Subsidiary, BP and Truckstops Corporation of
America Inc.
** 10.8 Environmental Agreement, dated November 23, 1992, between the
National Subsidiary and Unocal
** 10.9 Environmental Agreement, dated July 22, 1993, among the TA
Subsidiary, BP and Truckstops Corporation of America Inc.
** 10.10 Amendment No. 1 to Environmental Agreement, dated December 10,
1993, among the TA Subsidiary, BP and Truckstops Corporation of
America Inc.
** 10.11 Noncompetition Agreement, dated April 13, 1993, between the
National Subsidiary and Unocal
** 10.12 Noncompetition Agreement, dated December 10, 1993, between the
TA Subsidiary and BP
** 10.13 Software License Agreement, dated April 14, 1994, between the
National Subsidiary and Unocal
** 10.14 Trademark License Agreement, dated April 14, 1993, between the
National Subsidiary and Unocal
** 10.15 Financial Advisory Agreement, dated April 12, 1993, among the
Company, the National Subsidiary and the Clipper Entities
** 10.16 Amendment to Financial Advisory Agreement and Amended and
Restated Indemnification Agreement, dated December 10, 1993,
among the Company, the National Subsidiary and the Clipper Entities
</TABLE>
II-4
<PAGE>
** 10.17 Financial Advisory Agreement and Indemnification Agreement,
dated December 10, 1993, among TA Holdings, the TA Subsidiary and
the Clipper Entities
** 10.18 Amended and Restated Registration Agreement among the Company,
National I, National II, National III, Clipper Truckstops, L.P.,
Clipper/Merchant, Olympus, Barclays Bank, Barclays Mellon Bank, N.A.
as Trustee for First Plaza, UBS, Phoenix Insurance Company and
Travelers dated as of December 10, 1993
** 10.19 1993 Stock Incentive Plan of the Company
** 10.20 Form of the Company's 1993 Stock Incentive Plan--Nonqualified Stock
Option Agreement--National Awards
** 10.21 Form of the Company's 1993 Stock Incentive Plan--Nonqualified Stock
Option Agreement--TA Awards
** 10.22 Termination, Consulting and Release Agreement, dated as of January
17, 1997, among the Company, the National Subsidiary and C.
William Osborne
** 10.23 Schedule of Termination, Consulting and Release Agreements
omitted pursuant to Instruction 2 to Item 601 of Regulation S-K
** 10.24 Purchase Agreement, dated March 24, 1997, among the Company,
the TA Subsidiary, the National Subsidiary and Chase Securities,
Inc.
** 10.25 Credit Agreement, dated as of March 21, 1997, among the
Company, the Chase Manhattan Bank as agent, fronting bank and
swingline lender and the Lenders party thereto.
** 10.26 Senior Note Exchange Agreement as of March 21, 1997, among the
Company, the TA Subsidiary, the National Subsidiary and Noteholders
listed on Schedule 1 thereto
** 10.27 Limited Liability Company Agreement of TABB, adopted as of
November 15, 1995, between the TA Subsidiary and Burns Bros., Inc.
** 10.28 Stockholders' Agreement, dated as of March 6, 1996, among the
Company, the voting trust certificate holders named therein, the
Voting Trustee, the management stockholders of the Company named
therein, the additional stockholders named therein, Clipper,
National I, National II, National III and Clipper/Merchant
** 10.29 Form of Network Franchise Agreement
** 10.30 Form of Network Lease Agreement
** 10.31 Form of TA Franchise Agreement
** 10.32 Form of National Franchise Agreement
** 10.33 Form of National Lease Agreement
* 12 Statements regarding computation of ratios
** 21 List of Subsidiaries of the Company
* 23.1 Consent of Price Waterhouse LLP
** 23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison regarding
Exhibit 5 (included in Exhibit 5)
* 23.3 Consent of Paul, Weiss, Rifkind, Wharton & Garrison regarding
Exhibit 8 (included in Exhibit 8)
** 24 Powers of attorney (included on signature pages)
** 25 Statement of Eligibility of Trustee
** 27 Financial Data Schedule
- ------------------
* Filed herewith.
** Previously filed.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 20, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer nor controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Westlake, State of Ohio,
on June 26, 1997.
TRAVELCENTERS OF AMERICA, INC.
By: /s/ James W. George
------------------------
Name: James W. George
Title: Senior Vice President,
Chief Financial Officer
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dated indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer and June 26, 1997
- --------------------------------------- Director (Principal Executive Officer)
Edwin P. Kuhn
/s/ James W. George Senior Vice President, Chief Financial June 26, 1997
- --------------------------------------- Officer and Secretary (Principal
James W. George Financial Officer and Principal
Accounting Officer)
* Director June 26, 1997
- ---------------------------------------
Walter E. Smith, Jr.
* Director June 26, 1997
- ---------------------------------------
Margaret M. Eisen
* Chairman of the Board of Directors and June 26, 1997
- --------------------------------------- Director
Robert B. Calhoun, Jr.
* Director June 26, 1997
- ---------------------------------------
Eugene P. Lynch
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director June 26, 1997
- ---------------------------------------
Louis J. Mischianti
* Director June 26, 1997
- ---------------------------------------
Rolf H. Towe
</TABLE>
*By: /s/ James W. George
------------------------------
James W. George
ATTORNEY-IN-FACT
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Westlake, State of Ohio,
on June 26, 1997.
TA OPERATING CORPORATION
By: /s/ James W. George
------------------------
Name: James W. George
Title: Senior Vice President,
Chief Financial Officer
and Secretary
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer and June 26, 1997
- --------------------------------------- Director (Principal Executive Officer)
Edwin P. Kuhn
/s/ James W. George Senior Vice President, Chief Financial June 26, 1997
- --------------------------------------- Officer and Secretary (Principal
James W. George Financial Officer and Principal
Accounting Officer)
* Director June 26, 1997
- ---------------------------------------
Walter E. Smith, Jr.
* Director June 26, 1997
- ---------------------------------------
Margaret M. Eisen
* Chairman of the Board of Directors and June 26, 1997
- --------------------------------------- Director
Robert B. Calhoun, Jr.
* Director June 26, 1997
- ---------------------------------------
Eugene P. Lynch
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director June 26, 1997
- ---------------------------------------
Louis J. Mischianti
* Director June 26, 1997
- ---------------------------------------
Rolf H. Towe
</TABLE>
*By: /s/ James W. George
------------------------------
James W. George
ATTORNEY-IN-FACT
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Westlake, State of Ohio,
on June 26, 1997.
NATIONAL AUTO/TRUCKSTOPS, INC.
By: /s/ James W. George
------------------------
Name: James W. George
Title: Senior Vice President,
Chief Financial Officer
and Secretary
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer and June 26, 1997
- --------------------------------------- Director (Principal Executive Officer)
Edwin P. Kuhn
/s/ James W. George Senior Vice President, Chief Financial June 26, 1997
- --------------------------------------- Officer and Secretary (Principal
James W. George Financial Officer and Principal
Accounting Officer)
* Director June 26, 1997
- ---------------------------------------
Walter E. Smith, Jr.
* Director June 26, 1997
- ---------------------------------------
Margaret M. Eisen
* Chairman of the Board of Directors and June 26, 1997
- --------------------------------------- Director
Robert B. Calhoun, Jr.
* Director June 26, 1997
- ---------------------------------------
Eugene P. Lynch
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director June 26, 1997
- ---------------------------------------
Louis J. Mischianti
* Director June 26, 1997
- ---------------------------------------
Rolf H. Towe
</TABLE>
*By: /s/ James W. George
------------------------------
James W. George
ATTORNEY-IN-FACT
II-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
- ------ ------- ------
<S> <C> <C>
** 3.1 Restated Certificate of Incorporation of the Company
** 3.2 Certificate of Incorporation of National Auto/Truckstops, Inc.
** 3.3 Restated Certificate of Incorporation of TA Operating Corporation
** 3.4 Amended and Restated By-laws of the Company
** 3.5 By-laws of National Auto/Truckstops, Inc.
** 3.6 By-laws of TA Operating Corporation
** 4.1 Indenture, dated March 27, 1997, among the Company, the TA
Subsidiary, the National Subsidiary and State Street Bank and Trust
Company (successor trustee to Fleet National Bank) as Trustee
** 4.2 Exchange and Registration Rights Agreement, dated March 27,
1997, among the Company, the TA Subsidiary, the National Subsidiary
and Chase Securities, Inc.
** 4.3 Form of Face of Initial Security (included in Exhibit 4.1 as Exhibit A)
** 4.4 Form of Face of Exchange Security (included in Exhibit 4.1 as
Exhibit B)
** 5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the
legality of the Notes being registered
* 8 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding certain
federal income tax matters
** 9.1 Voting Trust Agreement, dated April 14, 1993, among the Company,
the Voting Trustee and the Operator Stockholders named therein
** 9.2 Amendment No. 1 to Voting Trust Agreement, dated November 29,
1993, among the Company, the Voting Trustee and the Operator
Stockholders
** 9.3 Amendment No. 2 to Voting Trust Agreement, dated March 6, 1997,
among the Company, the Voting Trustee and the Operator
Stockholders
** 10.1 Asset Purchase Agreement, dated November 23, 1992, between the
National Subsidiary and Unocal
** 10.2 Amendment No. 1 to Asset Purchase Agreement, dated April 13,
1993, between the National Subsidiary and Unocal
** 10.3 California Purchase Agreement, dated November 23, 1992, between
the National Subsidiary and Unocal, with respect to the TravelCenter
located at Blyth, California
** 10.4 Amendment No. 1 to California Purchase Agreement, dated April 13,
1993, between the National Subsidiary and Unocal
** 10.5 Schedule of California Purchase Agreements omitted pursuant to
Instruction 2 to Item 601 of Regulation S-K
** 10.6 Asset Purchase Agreement, dated July 22, 1993, among the TA
Subsidiary, BP and Truckstops Corporation of America Inc.
** 10.7 Amendment No. 1 to Asset Purchase Agreement, dated December 10,
1993, among the TA Subsidiary, BP and Truckstops Corporation of
America Inc.
** 10.8 Environmental Agreement, dated November 23, 1992, between the
National Subsidiary and Unocal
** 10.9 Environmental Agreement, dated July 22, 1993, among the TA
Subsidiary, BP and Truckstops Corporation of America Inc.
** 10.10 Amendment No. 1 to Environmental Agreement, dated December 10,
1993, among the TA Subsidiary, BP and Truckstops Corporation of
America Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
- ------ ------- ------
<S> <C> <C>
** 10.11 Noncompetition Agreement, dated April 13, 1993, between the
National Subsidiary and Unocal
** 10.12 Noncompetition Agreement, dated December 10, 1993, between the
TA Subsidiary and BP
** 10.13 Software License Agreement, dated April 14, 1994, between the
National Subsidiary and Unocal
** 10.14 Trademark License Agreement, dated April 14, 1993, between the
National Subsidiary and Unocal
** 10.15 Financial Advisory Agreement, dated April 12, 1993, among the
Company, the National Subsidiary and the Clipper Entities
** 10.16 Amendment to Financial Advisory Agreement and Amended and
Restated Indemnification Agreement, dated December 10, 1993,
among the Company, the National Subsidiary and the Clipper Entities
** 10.17 Financial Advisory Agreement and Indemnification Agreement,
dated December 10, 1993, among TA Holdings, the TA Subsidiary and
the Clipper Entities
** 10.18 Amended and Restated Registration Agreement among the Company,
National I, National II, National III, Clipper Truckstops, L.P.,
Clipper/Merchant, Olympus, Barclays Bank, Barclays Mellon Bank, N.A.
as Trustee for First Plaza, UBS, Phoenix Insurance Company and
Travelers dated as of December 10, 1993
** 10.19 1993 Stock Incentive Plan of the Company
** 10.20 Form of the Company's 1993 Stock Incentive Plan--Nonqualified Stock
Option Agreement--National Awards
** 10.21 Form of the Company's 1993 Stock Incentive Plan--Nonqualified Stock
Option Agreement--TA Awards
** 10.22 Termination, Consulting and Release Agreement, dated as of January
17, 1997, among the Company, the National Subsidiary and C.
William Osborne
** 10.23 Schedule of Termination, Consulting and Release Agreements
omitted pursuant to Instruction 2 to Item 601 of Regulation S-K
** 10.24 Purchase Agreement, dated March 24, 1997, among the Company,
the TA Subsidiary, the National Subsidiary and Chase Securities,
Inc.
** 10.25 Credit Agreement, dated as of March 21, 1997, among the
Company, the Chase Manhattan Bank as agent, fronting bank and
swingline lender and the Lenders party thereto.
** 10.26 Senior Note Exchange Agreement as of March 21, 1997, among the
Company, the TA Subsidiary, the National Subsidiary and Noteholders
listed on Schedule 1 thereto
** 10.27 Limited Liability Company Agreement of TABB, adopted as of
November 15, 1995, between the TA Subsidiary and Burns Bros., Inc.
** 10.28 Stockholders' Agreement, dated as of March 6, 1996, among the
Company, the voting trust certificate holders named therein, the
Voting Trustee, the management stockholders of the Company named
therein, the additional stockholders named therein, Clipper,
National I, National II, National III and Clipper/Merchant
** 10.29 Form of Network Franchise Agreement
** 10.30 Form of Network Lease Agreement
** 10.31 Form of TA Franchise Agreement
** 10.32 Form of National Franchise Agreement
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
- ------ ------- ------
<S> <C> <C>
** 10.33 Form of National Lease Agreement
* 12 Statements regarding computation of ratios
** 21 List of Subsidiaries of the Company
* 23.1 Consent of Price Waterhouse LLP
** 23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison regarding
Exhibit 5 (included in Exhibit 5)
* 23.3 Consent of Paul, Weiss, Rifkind, Wharton & Garrison regarding
Exhibit 8 (included in Exhibit 8)
** 24 Powers of attorney (included on signature pages)
** 25 Statement of Eligibility of Trustee
** 27 Financial Data Schedule
</TABLE>
- ------------------
* Filed herewith.
** Previously filed.
EXHIBIT 8
[LETTERHEAD OF PAUL, WEISS, RIFKIND, WHARTON & GARRISON]
June 26, 1997
TravelCenters of America, Inc.
24601 Center Ridge Road, Suite 300
Westlake, Ohio 44145-5634
TA Operating Corporation
24601 Center Ridge Road, Suite 300
Westlake, OH 44145
National Auto/Truckstops, Inc.
3100 West End Avenue, Suite 300
Nashville, TN 37203
Registration Statement on Form S-4
Registration No. 333-26497
----------------------------------
Dear Ladies and Gentlemen:
In connection with the above captioned Registration Statement on
Form S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations thereunder (the "Rules") by TravelCenters of America,
Inc., a Delaware corporation (the "Company"), TA Operating Corporation, a
Delaware corporation, and National Auto/Truckstops, Inc., a Delaware
corporation, we have been requested to render our opinion as to the matters
hereinafter set forth.
<PAGE>
TravelCenters of America, Inc. 2
TA Operating Corporation
National Auto/Truckstops, Inc.
Capitalized terms used and not otherwise defined herein shall have the meanings
attributed thereto in the Registration Statement.
In this regard, we have reviewed copies of the Registration
Statement (including the exhibits and amendments thereto) with respect to the
Company's offer to exchange up to $125,000,000 aggregate principal amount of its
10-1/4% Senior Subordinated Notes due 2007 for a like principal amount of its
10-1/4% Senior Subordinated Notes due 2007 outstanding on the date hereof. We
have also made such other investigations of fact and law and have examined the
originals, or copies authenticated to our satisfaction, of such other documents,
record, certificates or other instruments as in our judgment are necessary or
appropriate to render the opinion expressed below.
The opinion set forth below is limited to the Internal Revenue
Code of 1986, as amended (the "Code"), administrative rulings, judicial
decisions, treasury regulations and other applicable authorities, all as in
effect on the date hereof. The statutory provisions, regulations, and
interpretations upon which our opinion is based are subject to change, and such
changes could apply retroactively. Any such change could affect the continuing
validity of the opinion set forth below. We assume no responsibility to advise
you of any subsequent changes in existing law or facts, nor do we assume any
responsibility to update this opinion with respect to any matters expressly set
forth herein, and no opinions are to be implied or may be inferred beyond the
matters expressly so stated.
Based upon and subject to the foregoing, and subject to the
qualifications set forth therein, we confirm our opinion set forth in the
Registration Statement under the heading "Certain United States Tax
Considerations."
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement, or any amendment pursuant to Rule 462 under the Act,
and to the reference to us under the heading "Legal Matters" in the Prospectus
included in the Registration Statement, or any amendment pursuant to Rule 462
under the Act. In giving this consent, we do not hereby agree that we come
within in the category of persons whose consent is required by the Act or the
Rules.
Very truly yours,
/s/ PAUL, WEISS, RIFKIND, WHARTON & GARRISON
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
EXHIBIT 12
TRAVELCENTERS OF AMERICA, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE
OPERATING MONTHS
PERIOD ENDED YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ------------------------------------ MARCH 31,
1993 1994 1995 1996 1996
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
HISTORICAL DATA:
<S> <C> <C> <C> <C> <C>
Income before income taxes ........... $ 12,664 $ 16,253 $ 16,540 $ 8,882 $ 1,498
Fixed charges:
Interest expense ................... 9,395 13,918 14,190 15,965 3,331
Portion of rentals representative of
interest factor (1) .............. 99 199 225 1,152 103
Amortization of debt discount ...... 91 128 128 148 32
---------- ---------- ---------- ---------- ----------
Total fixed charges .............. 9,585 14,245 14,543 17,265 3,466
---------- ---------- ---------- ---------- ----------
Earnings before income taxes and
fixed charges ...................... $ 22,249 $ 30,498 $ 31,083 $ 26,147 $ 4,964
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges ... 2.3x 2.1x 2.1x 1.5x 1.4x
========== ========== ========== ========== ==========
SUPPLEMENTAL HISTORICAL DATA: (2)
Income before income taxes ........... $ 12,432 $ 22,710 $ 16,540 $ 8,882 $ 1,498
Fixed charges:
Interest expense ................... 9,836 22,041 22,674 22,072 5,377
Portion of rentals representative of
interest factor (1) .............. 99 1,107 1,033 1,152 285
Amortization of debt discount ...... 91 209 209 209 52
---------- ---------- ---------- ---------- ----------
Total fixed charges .............. 10,026 23,357 23,916 23,433 5,714
---------- ---------- ---------- ---------- ----------
Earnings before income taxes and
fixed charges ...................... $ 22,458 $ 46,067 $ 40,456 $ 32,315 $ 7,212
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges ... 2.2x 2.0x 1.7x 1.4x 1.3x
========== ========== ========== ========== ==========
PRO FORMA DATA: (3)
Income before income taxes ........... $ 6,287
Fixed charges:
Interest expense ................... 27,161
Portion of rentals representative of
interest factor (1) .............. 1,152
Amortization of debt discount ...... --
----------
Total fixed charges .............. 28,313
----------
Earnings before income taxes and
fixed charges ...................... $ 34,600
==========
Ratio of earnings to fixed charges ... 1.2x
==========
</TABLE>
- ------------------
(1) One-third of rental expense represents an appropriate interest factor.
(2) The Company's investment in TA was presented as net assets of subsidiary
held for disposition for the period from December 10, 1993 through September
30, 1996. Furthermore, TA's results of operations were excluded from the
Company's consolidated results of operations until December 31, 1994, and
subsequently included therein as a single amount in the Company's
consolidated income statement. Effective September 30, 1996, the decision
was made to retain TA. As a result,
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (CONTINUED)
beginning October 1, 1996, TA's results were reconsolidated into the
Company's financial state ments. The supplemental historical data
presentation sets forth consolidated amounts for the Company as though TA
had not been held for disposition and had instead been fully consolidated.
(3) The pro forma data assumes that the following transactions occurred as of
January 1, 1996:
(a) consummation of the Refinancing; and
(b) consummation of certain aspects of the Combination Plan, which
collectively decrease expenses by $2.7 million for the year ended
December 31, 1996.
2
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of TravelCenters of America, Inc., National
Auto/Truckstops, Inc. and TA Operating Corporation (the "Registrants") of our
reports dated March 6, 1997 relating to the financial statements of the
Registrants which appear in such Prospectus. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Cleveland, Ohio
June 26, 1997
